U. S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



_________________________



FORM 20-F

_________________________



[   ]

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934.



[X]

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended

August 31, 2006



[   ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934.



[   ]

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 16(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report



For the transition period from ______________ to ___________________.



Commission File Number 000-50634



TANZANIAN ROYALTY EXPLORATION CORPORATION

(Exact name of Company as specified in its charter)



ALBERTA, CANADA

(Jurisdiction of Incorporation or Organization)



93 Benton Hill Road

Sharon, Connecticut

06069  U.S.A.

(Address of principal executive offices)



Securities registered or to be registered pursuant to Section 12(b) of the Act:



Common Shares, without Par Value

(Title of Class)



Securities registered or to be registered pursuant to Section 12(g) of the Act: NONE



Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:  NONE



The number of outstanding Common Shares as of August 31, 2006 was

86,241,075.



Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  [   ] Yes  [ X  ] No



If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.  [   ] Yes   [X ] No









---

Indicate by check mark whether the Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

[X ]Yes  [   ]No



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of accelerated filer in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer  [  ]

Accelerated filer  [ X  ]

Non-accelerated filer  [   ]



Indicate by check mark which financial statement item the Company has elected to follow.

Item 17  [X]

Item 18  [   ]



If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  [   ] Yes  [ X ] No



(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)



Indicate by check mark whether the Company has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

NOT APPLICABLE









---

TABLE OF CONTENTS





Cautionary Note to U.S. Investors Concerning Estimates of Measured and Indicated Mineral Resources

1

Currency

1

Foreign Private Issuer Filings

1

Glossary of Technical Terms

2

Part I

6

Item 1.

Identity of Directors, Senior Management and Advisors

6

Item 2.

Offer Statistics and Expected Timetable

6

Item 3.

Key Information

6

A.

Selected Financial Data

6

B.

Capitalization and Indebtedness

8

C.

Reasons for the Offer and Use of Proceeds

8

D.

Risk Factors

8

Item 4.

Information on the Company

11

A.

History and Development of the Company

11

B.

Business Overview

14

Plan of Operations

14

Governmental Regulations

16

C.

Organization Structure

17

D.

Property, Plant and Equipment

17

Itetemia Property

17

Luhala Property

25

Lunguya Project Area

29

Tulawaka Project Area

32

Lake Victoria Goldfield Properties

33

Item 5.

Operating and Financial Review and Prospects

44

A.

Operating Results

44

B.

Liquidity and Capital Resources

46

C.

Research and Development, Patents and License, etc.

47

D.

Trend Information

47

E.

Off Balance Sheet Arrangements

47

F.

Tabular Disclosure of Contractual Obligations

48

Item 6.

Directors, Senior Management and Employees

48

A.

Directors and Senior Management

48

B.

Compensation

53

C.

Board Practices

56

D.

Employees

60

E.

Share Ownership

61

Item 7.

Major Shareholders and Related Party Transactions

62

A.

Major Shareholders

62

B.

Related Party Transactions

62







---

- ii -





C.

Interest of Experts and Counsel

64

Item 8.

Financial Statements

64

A.

Consolidated Statements and Other Financial Information

64

B.

Significant Changes

64

Item 9.

The Offering and Listing

64

A.

Offering and Listing Details

64

B.

Plan of Distribution

65

C.

Markets

66

D.

Selling Shareholders

66

E.

Dilution

66

F.

Expenses of the Issue

66

Item 10.

Additional Information

66

A.

Share Capital

66

B.

Articles of Association and Bylaws

67

C.

Material Contracts

69

D.

Exchange Controls

70

E.

Taxation

71

F.

Dividends and Paying Agents

78

G.

Statement by Experts

78

H.

Documents on Display

78

I.

Subsidiary Information

79

Item 11.

Quantitative and Qualitative Disclosures About Market Risk

79

Item 12.

Description of Securities Other than Equity Securities

80

Part II

80

Item 13.

Defaults, Dividend Arrearages and Delinquencies

80

Item 14.

Material Modifications to the Rights of Security Holders and Use of Proceeds

80

Item 15.

Controls and Procedures

81

Item 16.

[Reserved]

81

Item 16 A.

Audit Committee Financial Expert

81

Item 16 B.

Code of Ethics

82

Item 16 C.

Principal Accountant Fees and Services

82

Item 16 D.

Exemptions from the Listing Standards for Audit Committees

82

Item 16 E.

Purchase of Equity Securities by the Issuer and Affiliated Purchasers

82

Part III

82

Item 17.

Financial Statements

82

Item 18.

Financial Statements

82

Item 19.

Exhibits

82











---





Cautionary Note to U.S. Investors Concerning Estimates of Measured
and Indicated Mineral Resources



The Company advises U.S. Investors that while the terms measured mineral resources and indicated mineral resources (see: Glossary of Technical Terms  Canadian Terminology herein) are recognized and required by Canadian securities regulations, the U.S. Securities and Exchange Commission does not recognize them.  U.S. investors are cautioned not to assume that any part or all of mineral resources in these categories will ever be converted into mineral reserves.



Currency



All references to dollar amounts are expressed in the lawful currency of Canada, unless otherwise specifically stated.



Foreign Private Issuer Filings



As a foreign private issuer registered under section 12(b) of the Securities Exchange Act of 1934 (the Exchange Act), the Company is subject to section 13 of the Exchange Act, and is required to file Annual Reports on Form 20-F and Reports of Foreign Private Issuer on Form 6-K with the Commission.  However, the Company is exempt from the proxy rules under section 14 of the Exchange Act, and the short-swing profit rules under section 16 of the Exchange Act.









1



---





Glossary of Technical Terms



|             |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Ag           | The elemental symbol for silver.                                                                                                                                                                                                                                                                                                                                                                                                    
|alteration   | Usually referring to chemical reactions in a rock mass resulting from the passage of hydrothermal fluids.                                                                                                                                                                                                                                                                                                                           
|andesite     | Volcanic rock, low in quartz content, generally fine grained and moderately dark coloured.                                                                                                                                                                                                                                                                                                                                          
|anomalous    | A value, or values, in which the amplitude is statistically between that of a low contrast anomaly and a high contrast anomaly in a given data set.                                                                                                                                                                                                                                                                                 
|anomaly      | Any concentration of metal noticeably above or below the average background concentration.                                                                                                                                                                                                                                                                                                                                          
|assay        | An analysis to determine the presence, absence or quantity of one or more components.                                                                                                                                                                                                                                                                                                                                               
|Au           | The elemental symbol for gold.                                                                                                                                                                                                                                                                                                                                                                                                      
|background   | Traces of elements found in sediments, soils, and plant material that are unrelated to any mineralization and which come from the weathering of the natural constituents of the rocks.                                                                                                                                                                                                                                              
|BLEG         | Acronym for bulk leach extractable gold sampling.                                                                                                                                                                                                                                                                                                                                                                                 
|chalcedony   | Very fine crystalline quartz which may be massive or banded (agate).                                                                                                                                                                                                                                                                                                                                                                
|chalcopyrite | Copper sulfide mineral.                                                                                                                                                                                                                                                                                                                                                                                                             
|Cretaceous   | The geologic period extending from 135 million to 63 million years ago.                                                                                                                                                                                                                                                                                                                                                             
|Cu           | The elemental symbol for copper.                                                                                                                                                                                                                                                                                                                                                                                                    
|dyke         | A tabular body of igneous rock that has been injected while molten into a fissure.                                                                                                                                                                                                                                                                                                                                                  
|epidote      | Calcium, aluminum, iron silicate mineral commonly occurring in hydrothermally altered carbonate-bearing rocks.                                                                                                                                                                                                                                                                                                                      
|fault        | A fracture in a rock where there has been displacement of the two sides.                                                                                                                                                                                                                                                                                                                                                            
|Fe           | The elemental symbol for iron.                                                                                                                                                                                                                                                                                                                                                                                                      
|fracture     | Breaks in a rock, usually due to intensive folding or faulting.                                                                                                                                                                                                                                                                                                                                                                     
|gossan       | Decomposed rock or vein material of reddish or rusty colour resulting from oxidized pyrites.                                                                                                                                                                                                                                                                                                                                        
|grab sample  | A sample of selected rock chips collected at random from within a restricted area of interest.                                                                                                                                                                                                                                                                                                                                      
|grade        | The concentration of each ore metal in a rock sample, usually given as weight percent.  Where extremely low concentrations are involved, the concentration may be given in grams per tonne (g/t or gpt) or ounces per ton (oz/t).  The grade of an ore deposit is calculated, often using sophisticated statistical procedures, as an average of the grades of a very large number of samples collected from throughout the deposit.





2



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|                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------------------------------------------------------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|HLEM                                                   | Horizontal loop electromagnetic survey, a form of geophysical survey used in the exploration for minerals.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|hectare or ha                                          | An area totalling 10,000 square metres.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|highly anomalous                                       | An anomaly which is 50 to 100 times average background, i.e. it is statistically much greater in amplitude.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|hydrothermal                                           | Hot fluids, usually mainly water, in the earth's crust which may carry metals and other compounds in solution to the site of ore deposition or wall rock alteration.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|IP                                                     | Induced polarization survey, a form of geophysical survey used in the exploration for minerals.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|intrusive                                              | A rock mass formed below earth's surface from magma which has intruded into a pre-existing rock mass.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|kilometres or km                                       | Metric measurement of distance equal to 1,000 metres (or 0.6214 miles).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|mill                                                   | A facility for processing ore to concentrate and recover valuable minerals.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|mineral reserve                                        | That part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|mineralization                                         | Usually implies minerals of value occurring in rocks.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|net smelter or NSR royalty                             | Payment of a percentage of net mining profits after deducting applicable smelter charges.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|ore                                                    | A natural aggregated of one or more minerals which may be mined and sold at a profit, or from which some part may be profitably separated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|outcrop                                                | An exposure of rock at the earth's surface.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|overburden                                             | A general term for any material covering or obscuring rocks from view.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Pb                                                     | The elemental symbol for lead.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|porphyry                                               | Rock type with mixed crystal sizes, i.e. containing larger crystals of one or more minerals.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|ppm or parts per million                               | A unit of measurement which is 1000 times larger than parts per billion (i.e. ppb); 1 ppm is equivalent to 1000 ppb, and is also equivalent to 1 gram/tonne.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|prefeasibility study and preliminary feasibility study | Each mean a comprehensive study of the viability of a mineral project that has advanced to a stage where mining method, in the case of underground mining, or the pit configuration, in the case of open pit mining, as been established, and which, if an effective method of mineral processing has been determined, includes a financial analysis based on reasonable assumptions of technical, engineering, operating, economic factors, and the evaluation of other relevant factors which are sufficient for a qualified person, acting reasonably, to determine if all or part of the mineral resource may be classified as a mineral reserve.
|propylitic                                             | A rock alteration assemblage comprising calcite, epidote, chlorite, pyrite and other minerals, found typically in the periphery of a hydrothermal system.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|pyrrhotite                                             | A bronze coloured mineral of metallic lustre that consists of ferrous sulfide and is attracted by a magnet.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|pyrite                                                 | Iron sulfide mineral.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|quartz                                                 | Silica or SiO2, a common constituent of veins, especially those containing gold and silver mineralization.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           





3



---







|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|RAB                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | Rotary air blast drilling.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|RC                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Reverse circulation drilling.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|reef                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | A geological formation or mineral within defined boundaries separating it from the adjoining rocks.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Sb                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | The elemental symbol for antimony (stibnite).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|silicification                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Replacement of the constituent of a rock by quartz.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|test pits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | Shallow holes dug at spots along the strike of any mineralization or, if it is disseminated, anywhere in the area where the shallow holes might reach mineralized bedrock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|ton                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | Imperial measurement of weight equivalent to 2,000 pounds (sometimes called a short ton).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|tonne                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | Metric measurement of weight equivalent to 1,000 kilograms (or 2,204.6 pounds).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|tuff                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | A rock comprised of fine fragments and ash particles ejected from a volcanic vent.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|veins                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | The mineral deposits that are found filling openings in rocks created by faults or replacing rocks on either side of faults.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Zn                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | The elemental symbol for zinc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Canadian Terminology
The following terms are used in the Companys technical reports to describe its mineral properties and have been used in this Annual Report (see: Cautionary Note to U.S. Investors Concerning Estimates of Measured and Indicated Mineral Resources at page 1 hereof).  These definitions have been published by the Canadian Institute of Mining, Metallurgy and Petroleum (the CIM) as the CIM Standards on Mineral Resources and Reserves Definitions and Guidelines adopted by the CIM Counsel on August 20, 2000, and have been approved for use by Canadian reporting issuers by the Canadian Securities Administrators under National Instrument 43-101, Standards of Disclosure for Mineral Projects:
|indicated mineral resource                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | That part of a mineral resource for which quantity, grade or quality, densities, shape and physical characteristics, can be estimated with a level of confidence sufficient to allow the appropriate application of technical and economic parameters to support mine planning and evaluation of the economic viability of the deposit.  The estimate is based on detailed planning and reliable exploration and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough for geological and grade continuity to be reasonably assumed.
|inferred mineral resource                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | That part of a mineral resource for which the quantity and grade or quality can be estimated on the basis of geological evidence and limited sampling and reasonably assumed, but not verified, geological and grade continuity.  The estimate is based upon limited information and sampling gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes.  Confidence in the estimate is insufficient to allow the meaningful application of technical and economic parameters or to enable an evaluation of economic viability worthy of public disclosure.                                





4



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|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|measured mineral resource | That part of a mineral resource for which quantity, grade or quality, densities, shape, and physical characteristics are so well established that they can be estimated with confidence sufficient to allow the appropriate application of technical and economic parameters, to support production planning and evaluation of the economic viability of the deposit.  The estimates is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough to confirm both geological grade and continuity.                                                                                                                                                                                                                                                                                                
|mineral reserve           | A mineral reserve is the economically mineable part of a Measured or Indicated mineral resource demonstrated by at least a preliminary feasibility study.  This study must include adequate information on mining, processing, metallurgical, economic, and other relevant factors that demonstrate, at the time of the reporting, that economic extraction can be justified.  A mineral reserve includes diluting materials and allowances for losses that may occur when the material is mined.  Mineral resources are sub-divided in order of increasing confidence into probable and proven mineral reserves.  A probable mineral reserve has a lower level of confidence than a proven mineral reserve.  The term mineral reserve does not necessarily signify that extraction facilities are in place or operative or that all governmental approvals have been received.  It does signify that there are reasonable expectations of such approvals.      
|mineral resource          | The estimated quantity and grade of mineralization that is of potential economic merit.  A resource estimate does not require specific mining, metallurgical, environmental, price and cost data, but the nature and continuity or mineralization must be understood.  Mineral resources are sub-divided in order of increasing geological confidence into inferred, indicated, and measured categories.  An inferred mineral resource has a lower level of confidence than that applied to an indicated mineral resource.  An indicated mineral resource has a higher level of confidence than an inferred mineral resource, but has a lower level of confidence than a measured mineral resource.  A mineral resource is a concentration or occurrence of natural, solid, inorganic or fossilized organic material in or on the Earth's crust in such form and quantity and of such grade or quality that it has reasonable prospects for economic extraction.







5



---





Part I



Item 1.

Identity of Directors, Senior Management and Advisors



A.

Directors and Senior Management:



Not Applicable.



B.

Advisers



Not Applicable.



Item 2.

Offer Statistics and Expected Timetable



Not Applicable.



Item 3.

Key Information



A.

Selected Financial Data



The following tables set forth and summarize selected consolidated financial data for the Company prepared in accordance with Canadian generally accepted accounting principles (Canadian GAAP). For each of the last five fiscal years, the tables also summarize certain corresponding information prepared in accordance with United States generally accepted accounting principles (U.S. GAAP).  Canadian GAAP, as applied to the Company, materially differs from U.S. GAAP, as set forth in Note 11 to the consolidated financial statements of the Company.  Unless stated otherwise, reference to dollar amounts shall mean Canadian dollars.



For each of the years in the five year period ended August 31, 2006, the information in the tables was extracted from the more detailed audited financial statements of the Company.



The selected financial data should be read in conjunction with Item 5, Operating and Financial Review and Prospects and in conjunction with the consolidated financial statements of the Company and the notes thereto contained elsewhere in this Annual Report.  The Companys fiscal period ends on August 31 of each year.



The following is a summary of certain selected financial information for the Companys five most recently completed fiscal years (in Canadian dollars, except number of shares):



|                                     |                     |                   |                     |                    |                    
|------------------------------------ | ------------------- | ----------------- | ------------------- | ------------------ | -------------------
|Canadian GAAP                       
|For the Fiscal Year ended August 31,
|                                     | 2006                | 2005              | 2004                | 2003               | 2002               
|Operations:                          |                     |                   |                     |                    |                    
|                                     |                     |                   |                     |                    |                    
|Revenues                             | $                -- | $              -- | $                -- | $               -- | $                --
|                                     |                     |                   |                     |                    |                    
|Net loss                             | (4,326,722)         | (2,931,063)       | (1,616,364)         | (3,014,778)        | (1,343,958)        
|                                     |                     |                   |                     |                    |                    
|Basic and diluted 
loss per share    | (0.05)              | (0.04)            | (0.02)              | (0.04)             | (0.02)             
|                                     |                     |                   |                     |                    |                    



6



---







|                 |              |              |              |              |             
|---------------- | ------------ | ------------ | ------------ | ------------ | ------------
|Balance sheet:   |              |              |              |              |             
|                 |              |              |              |              |             
|Working Capital  | 2,838,273    | 1,388,906    | 1,918,901    | 2,092,912    | 1,921,418   
|                 |              |              |              |              |             
|Total Assets     | 24,891,967   | 22,257,683   | 22,092,373   | 21,424,565   | 20,912,060  
|                 |              |              |              |              |             
|Net Assets       | 24,176,291   | 21,875,226   | 21,298,136   | 20,318,000   | 19,605,513  
|                 |              |              |              |              |             
|Share Capital    | 51,397,278   | 44,839,796   | 42,145,471   | 39,423,971   | 35,821,706  
|                 |              |              |              |              |             
|Number of Shares | 86,241,075   | 84,776,054   | 82,464,037   | 80,191,542   | 74,714,203  
|                 |              |              |              |              |             
|Deficit          | (28,105,120) | (23,778,398) | (20,847,335) | (19,230,971) | (16,216,193)







|                                 |                    |                    |                     |                     |                     
|-------------------------------- | ------------------ | ------------------ | ------------------- | ------------------- | --------------------
|U.S. GAAP                       
|                                 | 2006               | 2005               | 2004                | 2003
(restated)     | 2002
(restated)     
|Operations:                      |                    |                    |                     |                     |                     
|                                 |                    |                    |                     |                     |                     
|Revenues                         | $               -- | $               -- | $                -- | $                -- | $                 --
|                                 |                    |                    |                     |                     |                     
|Net loss                         | (5,683,081)        | (3,610,911)        | (2,779,514)         | (5,457,815)         | (2,698,204)         
|                                 |                    |                    |                     |                     |                     
|Basic and diluted loss per share | (0.07)             | (0.04)             | (0.03)              | (0.07)              | (0.05)              
|                                 |                    |                    |                     |                     |                     
|Balance sheet:                   |                    |                    |                     |                     |                     
|                                 |                    |                    |                     |                     |                     
|Working Capital                  | 2,838,273          | 1,388,906          | 1,918,901           | 2,092,912           | 1,921,418           
|                                 |                    |                    |                     |                     |                     
|Total Assets                     | 11,161,716         | 9,883,791          | 10,248,223          | 10,761,265          | 10,510,379          
|                                 |                    |                    |                     |                     |                     
|Net Assets                       | 10,446,040         | 9,501,334          | 9,604,092           | 9,787,106           | 9,217,656           
|                                 |                    |                    |                     |                     |                     
|Share Capital                    | 54,902,206         | 48,408,552         | 44,900,399          | 42,178,899          | 36,276,634          
|                                 |                    |                    |                     |                     |                     
|Number of Shares                 | 86,241,075         | 84,776,054         | 82,464,037          | 80,191,542          | 74,714,203          
|                                 |                    |                    |                     |                     |                     
|Deficit                          | (44,590,299)       | (38,907,218)       | (35,296,307)        | (32,516,793)        | (27,058,978)        





Exchange Rates

The Companys accounts are maintained in Canadian dollars.  In this Annual Report, all dollar amounts are expressed in Canadian dollars, except where otherwise indicated.  The following table sets forth information as to the period end, average, the high and the low exchange rate for Canadian Dollars (CDN) and U.S. Dollars for the periods indicated based on the noon buying rate in New York City for cable transfers in Canadian Dollars as certified for customs purposes by the Federal Reserve Bank of New York (Canadian dollar = US$1):



7



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|                      |         |            |        |       
|--------------------- | ------- | ---------- | ------ | ------
|Year Ended:
August 31 | Average | Period End | High   | Low   
|2002                  | 1.5724  | 1.5591     | 1.6190 | 1.5024
|2003                  | 1.4819  | 1.3865     | 1.5991 | 1.3305
|2004                  | 1.3015  | 1.2034     | 1.4003 | 1.1714
|2005                  | 1.2321  | 1.1893     | 1.3071 | 1.1775
|2006                  | 1.147   | 1.1066     | 1.196  | 1.0989



The following table sets forth the high and low exchange rate for the past six months.  As of August 31, 2006, the exchange rate was CDN $1.1066 for each US$1.



|               |        |       
|-------------- | ------ | ------
|Month          | High   | Low   
|October 2006   | 1.1384 | 1.1154
|September 2006 | 1.1272 | 1.1052
|August 2006    | 1.1312 | 1.1066
|July 2006      | 1.1415 | 1.1112
|June 2006      | 1.1241 | 1.0991
|May 2006       | 1.1228 | 1.0989
|April 2006     | 1.1718 | 1.1203
|March 2006     | 1.1722 | 1.1320
|February 2006  | 1.1577 | 1.1379
|January 2006   | 1.1726 | 1.1436



B.

Capitalization and Indebtedness



Not Applicable.



C.

Reasons for the Offer and Use of Proceeds



Not Applicable.



D.

Risk Factors



In addition to other information presented in this Annual Report, the following should be considered carefully in evaluating the Company and its business.  This Annual Report contains forward-looking statements that involve risk and uncertainties.  The Companys actual results may differ materially from the results discussed in the forward-looking statements.  Factors that might cause such a difference include, but are not limited to, those discussed below and elsewhere in this Annual Report.  The management of the Company have identified the following risk factors, listed in the view of management in order from most significant to least significant:



We have incurred net losses since our inception and expect losses to continue.  We have not been profitable since our inception.  For the fiscal year ended August 31, 2006, we had a net loss of $4,326,722 and an accumulated deficit on August 31, 2006 of $28,105,120.  The Company has not generated revenues from operations during fiscal year 2006 and does not expect to generate revenues from operations until one or more of its properties are placed in production. There is a risk that none of the Companys properties will be placed in production, and that the Companys operations will not be profitable in the future.



Our exploration activities are highly speculative and involve substantial risks.  All of the Companys properties are in the exploration stage and no proven mineral reserves have been established.  The Companys exploration work may not result in the discovery of mineable deposits of ore in a commercially economical manner.  There may be limited availability of water, which is essential to milling operations, and interruptions



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may be caused by adverse weather conditions.  The Companys operations are subject to a variety of existing laws and regulations relating to exploration and development, permitting procedures, safety precautions, property reclamation, employee health and safety, air quality standards, pollution and other environmental protection controls.  The Companys exploration activities are subject to substantial hazards, some of which are not insurable or may not be insured for economic reasons.



We cannot accurately predict whether commercial quantities of ores will be established.Whether an ore body will be commercially viable depends on a number of factors beyond the control of the Company, including the particular attributes of the deposit such as size, grade and proximity to infrastructure, as well as mineral prices and government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection.  We cannot accurately predict the exact effect of these factors, but the combination of these factors may result in a mineral deposit being unprofitable.  The Company has no mineral producing properties at this time.  The Company has not defined or delineated any proven or probable reserves or resources on any of its properties.  Although the mineralized material estimates included herein have been carefully prepared by the Company, or, in some instances have been prepared, reviewed or verified by independent mining experts, these amounts are estimates only and there is a risk that a particular level of recovery of gold or other minerals from mineralized material will not in fact be realized or that an identified mineralized deposit, if any, will not ever qualify as a commercially mineable or viable reserve.



We may not be able to establish the presence of minerals on a commercially viable basis.  Our ability to generate revenues and profits is expected to occur through exploration of our existing properties as well as through acquisitions of interests in new properties.  We will need to incur substantial expenditures in an attempt to establish the economic feasibility of mining operations by identifying mineral deposits and establishing ore reserves through drilling and other techniques, developing metallurgical processes to extract metals from ore, designing facilities and planning mining operations.  The economic feasibility of a project depends on numerous factors beyond our control, including the cost of mining and production facilities required to extract the desired minerals, the total mineral deposits that can be mined using a given facility, the proximity of the mineral deposits to a user of the minerals, and the market price of the minerals at the time of sale.  Our existing or future exploration programs or acquisitions may not result in the identification of deposits that can be mined profitably.



Our competition is intense in all phases of our business.  The Company competes with many companies possessing greater financial resources and technical facilities than itself for the acquisition of mineral interests, as well as for the recruitment and retention of qualified employees.



Our exploration activities are subject to various federal, state and local laws and regulations. Laws and regulation govern the development, mining, production, importing and exporting of minerals; taxes; labor standards; occupational health; waste disposal; protection of the environment; mine safety; toxic substances; and other matters.  We require licenses and permits to conduct exploration and mining operations.  Amendments to current laws and regulations governing operations and activities of mining companies or more stringent implementation thereof could have a substantial adverse impact on the Company.  Applicable laws and regulations will require the Company to make certain capital and operating expenditures to initiate new operations.  Under certain circumstances, the Company may be required to close an operation once it is started until a particular problem is remedied or to undertake other remedial actions.



We have uninsurable risks.  We may be subject to unforeseen hazards such as unusual or unexpected formations and other conditions.  The Company may become subject to liability for pollution, cave-ins or hazards against which it cannot insure or against which it may elect not to insure.  The payment of such liabilities may have a material, adverse effect on the Companys financial position.



We depend on key management personnel.  The success of the operations and activities of the Company is dependent to a significant extent on the efforts and abilities of its management including James E. Sinclair, Chairman and Chief Executive Officer, Regina Kuo-Lee, Chief Financial Officer and Jonathan Deane, President.  Investors must be willing to rely to a significant extent on their discretion and judgment.  We do not have



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employment contracts with the Chairman and Chief Executive Officer or the Chief Financial Officer.  We maintain key-man life insurance on the Chairman and Chief Executive Officer but not on the Chief Financial Officer or President of the Company.



We depend on consultants and engineers for our exploration programs.The Company has relied on and may continue to rely upon consultants for explorationdevelopment, construction and operating expertise.  Substantial expenditures are required to construct mines, to establish ore reserves through drilling, to carry out environmental and social impact assessments, to develop metallurgical processes to extract the metal from the ore and, in the case of new properties, to develop the exploration infrastructure at any suite chosen for exploration.  We may not be able to discover minerals in sufficient quantities to justify commercial operation, and we may not be able to obtain funds required for exploration on a timely basis.



We are subject to the volatility of metal and mineral prices.  The economics of developing metal and mineral properties are affected by many factors beyond our control including, without limitation, the cost of operations, variations in the grade ore or resource mined, and the price of such resources.  The market prices of the metals for which we are exploring are highly speculative and volatile.  Depending on the price of gold or other resources, the Company may determine that it is impractical to commence or continue commercial production.  The price of gold has fluctuated widely in recent years.  The price of gold and other metals and minerals may not remain stable, and such prices may not be at levels that will make it feasible to continue the Companys exploration activities, or commence or continue commercial production.



Our business activities are conducted in Tanzania. Our mineral exploration activities in Tanzania may be affected in varying degrees by political stability and government regulations relating to the mining industry and foreign investment in that country.  The government of Tanzania may institute regulatory policies that adversely affect the exploration and development (if any) of the Companys properties.  Any changes in regulations or shifts in political conditions in this country are beyond the control of the Company and may adversely affect its business.  Investors should assess the political and regulatory risks related to the Companys foreign country investments.  Our operations may be affected in varying degrees by government regulations with respect to restrictions on production, price controls, export controls, foreign exchange controls, income taxes, expropriation of property, environmental legislation and mine safety.



We may not have clear title to our properties.  Acquisition of title to mineral properties is a very detailed and time-consuming process, and the Companys title to its properties may be affected by prior unregistered agreements or transfers, or undetected defects.  Several of the Companys prospecting licenses are currently subject to renewal by the Ministry of Energy and Minerals of Tanzania.  In result, there is a risk that we may not have clear title to all our mineral property interests, or they may be subject to challenge or impugned in the future.



We have requirements for and there is an uncertainty of access to additional capital.  At August 31, 2006, the Company had cash of  $3,174,549 and working capital of $2,838,273.   The Company will continue to incur exploration costs to fund its plan of operations and intends to fund its plan of operations from working capital and equity subscriptions from the Companys Chairman and C.E.O.  Ultimately, the Companys ability to continue its exploration activities depends in part on the Companys ability to commence operations and generate revenues or to obtain financing through joint ventures, debt financing, equity financing, production sharing agreements or some combination of these or other means.



We have no cash flow from operations and depend on equity financing for our operations.The Companys current operations do not generate any cash flow.  Any work on the Companys properties may require additional equity financing.  If the Company seeks funding from existing or new joint venture partners, its project interests will be diluted.  If the Company seeks additional equity financing, the issuance of additional shares will dilute the current interests of the Companys current shareholders.  We may not be able to obtain additional funding to allow the Company to fulfill its obligations on existing exploration properties.  Our failure to obtain such additional financing could result in delay or indefinite postponement of further exploration and the



10



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possible partial or total loss of the Companys potential interest in certain properties or dilution of the Companys interest in certain properties.



Conflicts of interest may arise among our board of directors.  Marek J. Kreczmer, Ulrich E. Rath,   Anton Esterhuizen and Norman Betts, directors of the Company, are also directors, officers, or shareholders of other companies that are similarly engaged in the business of acquiring, developing, and exploiting natural resource properties.  Mr. Kreczmer is President and CEO of Northwestern Mineral Ventures Inc. a Canadian company exploring for uranium in Canada and Niger and precious metals in Mexico.    He is a director of Golden Patriot Mining Inc., a Canadian company exploring for minerals in Mexico. Mr. Kreczmer is also a Director of Soho Resources Corp., a Canadian company developing a gold deposit in Mexico.  Mr. Rath is the President and CEO and a director of Chariot Resources Ltd., a Canadian company exploring for minerals in Peru.  Mr. Esterhuizen is the Managing Director of Pangea Exploration (Pty.) Ltd., a South African company exploring for minerals in Africa and South America.  He is also a Director of Northwestern Mineral Ventures Inc.  Dr. Betts is a director of Slam Exploration Inc., a Canadian company exploring for minerals in the Provinces of Ontario and New Brunswick in Canada. Such associations may give rise to conflicts of interest from time to time if the Company were to enter into negotiations to acquire an interest in a mineral project in which their other companies hold an interest, or the Company were to enter into negotiations to sell or joint venture an interest in its mineral properties to any of these companies.  The directors of the Company are required to act honestly and in good faith with a view to the best interests of the Company and disclose any interest which they may have in any project or opportunity of the Company.  If a conflict of interest arises at a meeting of the board of directors, any director in a conflict will disclose his interest and abstain from voting on such matter.



Penny stock rules may make it more difficult to trade the Companys common shares.The Securities and Exchange Commission has adopted regulations which generally define a penny stock to be any equity security that has a market price, as defined, less than US$5.00 per share or an exercise price of less than US$5.00 per share, subject to certain exceptions.  Our securities may be covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and accredited investors such as, institutions with assets in excess of US$5,000,000 or an individual with net worth in excess of US$1,000,000 or annual income exceeding US$200,000 or US$300,000 jointly with his or her spouse. For transactions covered by this rule, the broker-dealers must make a special suitability determination for the purchase and receive the purchasers written agreement of the transaction prior to the sale.  Consequently, the rule may affect the ability of broker-dealers to sell our securities and also affect the ability of our investors to sell their shares in the secondary market.



Failure to Maintain Effective Internal Controls Could Have a Material Adverse Effect on Our Operations.We are required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, which requires annual management assessments of the effectiveness of our internal controls over financial reporting and commencing with the Companys 2007 fiscal year, a report by our Independent Auditors addressing these assessments. During the course of our testing we may identify deficiencies which we may not be able to remediate for our  annual compliance with the requirements of Section 404.  If we fail to achieve and maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Moreover, effective internal controls are necessary for us to produce reliable financial reports and are important to help prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our stock could drop significantly.



Item 4.

Information on the Company



A.

History and Development of the Company



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



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Tan Range Exploration Corporation on August 13, 1991.  The name of the Company was again changed to Tanzanian Royalty Exploration Corporationon February 28, 2006.  The Company is also registered in the Province of British Columbia as an extra provincial company under the Company Act (British Columbia).



The principal executive office of the Company is located at 93 Benton Hill Road, Sharon, Connecticut, 06069, U.S.A., and its telephone number is (860) 364-1830.



The Company is a mineral resource company with exploration stage properties, which means that the Company is engaged in the search for mineral deposits and that the properties are not in development or production.



Cautionary Note to U.S. Investors Concerning Estimates of
 Measured and Indicated Mineral Resources



As an Alberta corporation, the Company is subject to certain rules and regulation issued by Canadian securities administrators.  The Company files this Annual Report as its Annual Information Form (AIF) with theBritish Columbia, Alberta and Ontario Securities Commissions via the System for Electronic Document Analysis and Retrieval (SEDAR).  Under the AIF, the Company is required to provide detailed information regarding its properties including mineralization, drilling, sampling and analysis, security of samples and mineral resource and mineral reserve estimates.  Further, the Company describes its properties utilizing mining terminology such as measured mineral resources and indicated mineral resources that are required by Canadian regulations but are not recognized by the United States Securities and Exchange Commission (SEC).  For clarification, the Company has no properties that contain reserves as defined by either the SEC or Canadian regulations, and is providing the following information on inferred mineral resources, in part,  in order to meet its requirements under National Instrument 43-101 adopted by the Canadian securities administrators.  U.S. investors are cautioned not to assume that any part or all of mineral resources will ever be converted into reserves.



The Itetemia Property, located in Tanzania, consists of seven (7)  contiguous prospecting licenses.  One prospecting licence  is subject to a 3% net smelter royalty.  The Company has a 90% interest in one of the other prospecting licences which is subject to a 2% royalty interest.  The Companys Itetemia Property contains an inferred mineral resource of 500,000 tonnes grading 7 g/t gold, using a 2 g/t gold cut-off  (see page 25 herein for further details).



In November 2004, Barrick advised the Company that it was returning the Itetemia properties which were covered by an option and joint venture agreement dated May 31, 1999 as amended April 24, 2001 between the Company and Barrick Gold Corporation (Barrick).  Barrick was granted the exclusive option to earn an undivided 60% interest in the Itetemia Project.  In exchange for the option, Barrick agreed to provide funding to the Company totalling $4,000,000, which has been completed.



The Companys Luhala property, also located in Tanzania, consists of six (6) contiguous prospecting licenses.  The Luhala property was the focus of an exploration program under an option agreement dated April 25, 1999 with Newmont Overseas Exploration Limited (Newmont).  Newmont terminated their option on the property during the year 2000.  The Company continues its ongoing exploration program on the Luhala property (see page 27 for current exploration details).



The Kigosi Project area encompasses approximately 1,078 square miles and includes fourteen (14) prospecting licenses.  In September 2006 the Company announced that its drill rig will be moved to Kigosi to begin drilling.  The Company previously discovered three new gold occurrences on the Kigosi Property (forming a part of the Companys Lake Victoria Goldfield Properties held through its subsidiary, Tanzania American International Development Corporation (Tanzam).  Two of the three occurrences are located at the north end of a three kilometre long northwest trending structure that may be responsible for concentrating the mineralization reported at the northern and southern limits of this prominent geological feature (see: Lake Victoria Goldfield Properties for further details).





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Exploration activity throughout fiscal 2004 was spent undertaking a first pass BLEG soils program over the Tanzam licenses in the Lake Victoria Goldfields Properties project area.  This work was conducted on eight licenses within six locations; namely, Geita, Ushirombo West, Biharamulo, Biharamulo North, Shinyanga, and Nyanzaga North.  The Shinyanga and Nyanzaga North project areas returned encouraging results that require detailed follow-up.



Heavy mineral indicator sampling and ground magnetic follow-up was conducted during fiscal 2004 on aeromagnetic targets identified on the Tanzam properties.  Work was completed on the Kanagele, Lunguya, and Ushirombo project areas, where 34 anomalies were ground proofed and sampled for indicator minerals.  The results from the sampling program are being used to further refine exploration methodologies.



The Company currently has royalty agreements with two industry partners covering 5 prospecting licences; oneof these prospecting licences are under agreement with Barrick Gold Corporation; and 4 prospecting licenses with Northern Mining Explorations.



At the present time, the Companys land position totals 121 prospecting licenses in the Lake Victoria Greenstone Belt and Kabanga/Kagera Nickel Belt regions of Tanzania covering an area of approximately 10,762 square kilometres.



Significant Acquisitions and Significant Dispositions



The Companys principal capital expenditures and divestitures (including interests in other companies and amounts invested) for the last three fiscal years are described as follows:



During the year ended August 31, 2003 the Company signed royalty and option agreements on nine (9) (which have now been divided into 12) prospecting licenses in the Lake Victoria goldfields area of Tanzania with Northern Mining Explorations/Explorations Minieres du Nord (MDN).  In December 2003 MDN returned one of the subject prospecting licenses to the Company and in December 2004, MDN returned another of the subject prospecting licenses to the Company.  In December 2005 and March 2006, MDN returned an additional six prospecting licenses.  There are currently 4 prospecting licensees subject to this agreement.  Under the agreement, MDN holds the right to earn 100% of the Companys underlying interest in the licenses for an up-front cash payment of US$80,000, plus US$1.8 million in option payments and US$1.5 million in property expenditures over the five year life of the agreements.  MDN must also complete a feasibility study and make a production decision by December 31, 2008 and achieve production within 18 months or be subject to cash penalties in lieu of royalty payments.  The Company retains the right to escalating net smelter royalties on commercial production that are tied to the price of gold and range from 0.5% below US$250 per ounce to a maximum of 2% at US$380 per ounce.



In April 2005 the RC/RAB drill rig purchased by the Company was delivered and drilling commenced shortly thereafter.  The Company purchased the drill rig primarily for availability and custom design for function. Presently, the availability in Tanzania for contract exploration drilling is tight.  Further, the Company believes that its operators of the equipment will be of a higher quality than those services provided by an unrelated contractor.



Also during fiscal 2005, the Company acquired additional prospecting licenses, including 7 licenses covering an area of  4,434 sq.km. in the Kabanga Nickel region. In October 2006 the Company reported it had prioritized exploration targets on its holdings in the Kibara Nickel Belt following an examination of historical data.



The

 Company entered into a Purchase and Sale Agreement


 (the Agreement)

 with Ashanti Goldfields Cayman Limited (Ashanti)

 dated September 26, 2006 for the repurchase of its rights to the Kigosi property, including all related camp and equipment, along with the purchase of a non-associated property, the Dongo, from Ashanti in a transaction valued at US$900,000. The price of the acquisition will be satisfied by the issuance to Ashanti a total of 180,058 common shares of the Company, in two tranches

 and subject to certain conditions

 consisting

 of (i) the issuance and allotment of 160,052 common shares

 to be

 issued in consideration of the



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transfer to the Company of the Kigosi Rights, as defined in the Agreement and (ii) subject to receipt of ministerial consent from the Tanzanian government to the transfer from Ashanti to the Company of the Dongo Rights, as defined in the Agreement, the issuance and allotment to Ashanti of 20,006 common shares of the Company.



The Companys exploration activities for the 2006 fiscal year continued with the Companys RC/RAB drill on several of the Companys properties located throughout the Lake Victoria Greenstone Belt.  Diamond drilling programs were carried out on the Companys Luhala and Itetemia properties.  There were no significant property acquisitions during the period.



For the year ended August 31, 2006 the Company reported a net loss of $4,326,722.  A total of $1,690,402 of mineral properties and deferred exploration expenses was written off relating to abandoned mineral properties.  The Companys total capital lease obligation as at August 31, 2006 is $156,364.  The Company incurred deferred exploration expenditures of $2,545,075 (net) during the year ended August 31, 2006.



B.

Business Overview



The Company is a natural resource company, which since its incorporation has engaged in the acquisition of interests in and the exploration of natural resource properties.  The Company commits its own resources to the initial evaluation of mineral properties and in select situations, if and when warranted, the Company will enter into joint venture agreements with other corporations to further the exploration of such properties, in exchange for annual rental/option payments and post-production royalty payments.  At present, the Companys natural resource activities do not generate any income from production.



The Companys general area of interest has been in the exploration of gold properties in regional East Africa.  The Company has explored gold properties in Ethiopia, Tanzania, Zambia, Swaziland and South Africa. At the present time, the Company is exploring 121 mineral resource properties in the Lake Victoria Greenstone Belt and Kabanga/Kagera Nickel Belt regions of Tanzania.  Tanzania remains the prime focus of the Companys activities.  Other corporations, including Barrick Gold Corporation (Barrick), Ashanti Goldfields Limited (Ashanti Goldfields), Northern Mining Explorations, and Newmont Overseas Exploration Corporation have funded  some  of the  work on the Companys properties in this area since 1999 under option arrangements, with the exception of properties explored by subsidiary company Tanzania American International Development Corporation 2000 Limited (Tanzam) which were privately funded.  The Company currently has joint venture and royalty agreements with its two industry partners covering a total of 5 prospecting licences: 1 with Barrick, and 4 with Northern Mining Explorations.



In the Companys view, this joint venture and royalty strategy offers investors leverage to gold prices with lower risk and shareholder dilution.  Future production royalties from any producing properties discovered by the Companys joint venture partners would provide the Company with a direct interest in the mines cash flow, with exposure to any benefits from new discoveries and production growth, but without the capital obligations, and environmental and social liabilities, associated with direct ownership.



Plan of Operations



Exploration Activities



All of the properties in which the Company holds an interest are in the exploration stage only.  Mineral exploration and development involves a high degree of risk and few properties, which are explored, are ultimately developed into producing mines.  There is no assurance that the Companys mineral exploration activities will result in any discoveries of commercial bodies of ore.  The long-term profitability of the Companys operations will be in part directly related to the cost and success of its exploration programs, which may be affected by a number of factors beyond the control of the Company.





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By way of general description of the Companys operating activities, the Companys business operations involve using known or published geological and geophysical data to locate mineral resource properties meriting further exploration or development.  Once identified, the Company must stake and apply for registration to title of the mineral properties, or negotiate the acquisition of such properties from any third party owners.  Upon registration or acquisition of title, the Company then designs a program of preliminary exploration which can involve grid mapping, geophysical and magnetic surveying, geochemical surveying, geological sampling, grab sampling, assaying and other forms of prospecting as circumstances may require.  Based on the preliminary results, mineral properties are ranked according to merit for further exploration work, which may involve further mapping, more detailed geophysical and geochemical surveying, and trenching to identify potential drill targets.  If mineralization is indicated which merits further investigation, drill targets are selected, and a diamond drilling program for underground sampling and assaying will commence.



Based on the drilling program results, the Company will develop models of the underlying geology and mineralized zones for more detailed testing.  After further drilling, some mineralized zones may be classified as inferred or indicated mineral resources.  With sufficient infill drilling, these inferred or indicated mineral resources can be confirmed as a measured mineral resource, upon which a pre-feasibility study can be prepared by a qualified, independent mining engineer or geologist to determine whether mining activities are economic in the circumstances of the particular property.  A pre-feasibility study must be completed under the requirements of National Instrument 43-101 in Canada in order for mineral reserves to be designated.  A final or bankable feasibility study must be completed for the designation of reserves under the SECs Industry Guide 7.  If the bankable feasibility study is favorable, the Company can then use the feasibility study to seek out the necessary financing from a merchant banker or other financial institution for mine construction and development. A further mine feasibility study would be prepared to confirm the appropriate mining method based on the metallurgical studies of the ore, and to develop a mining plan.



At any point along this plan of operation, the Company may seek to interest larger mining companies in its mineral properties, which show potential for further development.  It is highly unlikely that the Company would pursue any particular property through to mineral production by itself.  By exploring and developing properties to a point where major mining companies are interested, the Company will leave the risk of mine development and operations to those companies, while retaining a carried interest or royalty from any future production.



During 2006 fiscal year, the Company continued evaluation of all prospecting licenses in its portfolio with a view of offering some of them for royalty agreements to other mining companies.  The evaluation of their potential comprises geological mapping, soil sampling and geophysical interpretations.  Currently, prospecting licenses which have potential diamond targets are being prospected using ground magnetic surveys, followed by loam sampling and analysis for indicator minerals.



The Company  continued its efforts for the farming-out of identified properties for royalty agreements with other mining companies, and continue to examine and review other exploration opportunities in Tanzania.



Exploration



The Companys principal exploration properties are currently all located in the United Republic of Tanzania, Africa.  The government of Tanzania is a stable, multi-party democracy.  Mineral exploration in Tanzania is affected by local climatic, political, and economic conditions.  The Companys properties have year round access, although seasonal winter rains from December to March may result in flooding in low lying areas, which are dominated by mbuga (black organic rich laustrine flood soils).  Further, most lowland areas are under active cultivation for corn, rice, beans and mixed crops by subsistence farmers.  As a result, the area has been deforested by local agricultural practices for many years.  The seasonal rains and deforested areas can create a muddy bog in some areas, which can make access more difficult, and could impede or even prevent the transport of heavy equipment to the Companys mineral properties at certain times of the year between December to March.





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Competition



The mining industry in which the Company is engaged is in general, highly competitive.  Competitors include well-capitalized mining companies, independent mining companies and other companies having financial and other resources far greater than those of the Company.  The Company competes with other mining companies in connection with the acquisition of gold and other precious metal properties.  In general, properties with a higher grade of recoverable mineral and/or which are more readily mineable afford the owners a competitive advantage in that the cost of production of the final mineral product is lower.  Thus, a degree of competition exists between those engaged in the mining industries to acquire the most valuable properties.  As a result, the Company may eventually be unable to acquire attractive gold mining properties.



Dependence on Customers and Suppliers



The Company is not dependent upon a single or few customers or supplier for revenues or its operations.



Governmental Regulations



The Companys mineral interests in Tanzania are initially held under prospecting licenses granted pursuant to the Mining Act, 1998 (Tanzania) for a period of up to three years, and are renewable two times for a period of up to two years each.  We must pay annual rental fees for our prospecting licenses based on the total area of the license measured in square kilometres, multiplied by US$20.00 per sq. km.  There is also an initial one-time preparation fee of US$200.00 per license.  Upon renewal, we pay a renewal fee of US$200.00 per license.  Renewals of our prospecting licenses can take many months and even years to process by the regulatory authority in Tanzania.



All prospecting licenses in Tanzania also require the holder to expend funds in the employment and training of Tanzanian personnel, which expenditures typically amount to US$5,000 per year, and in exploration expenditures, which are set out in the Mining Act, 1998 (Tanzania).  At each renewal, at least 50% of our licensed area must be relinquished.  If the Company wishes to keep the relinquished one-half portion, it must file a new application for the relinquished portion.



We must hold a mining license to carry on mining activities, and a mining license will only be granted to the holder of a prospecting license over the area.  A mining license is granted for a period of 25 years or the life of the mine.  It is renewable for a period not exceeding 15 years.  We do not hold any mining licenses, only prospecting licenses.  Prospecting and mining license holders must submit regular reports in accordance with mining regulations.  Upon commercial production, the government of Tanzania imposes a royalty on the gross value of all production at the rate of 3% of all gold produced.  The applicable regulatory body in Tanzania is the Ministry of Energy and Minerals.



In July 1999, environmental management and protection regulations under the Mining Act, 1998 (Tanzania) came into force.  An environmental impact statement and an environmental management plan must accompany special mining license, mining license and gemstone mining license applications for mineral rights.  In addition to the establishment of environmental regulations, the Tanzanian Government has improved management procedures for effective monitoring and enforcement of these regulations by strengthening the institutional capacity, especially in the field offices.  The Government has provided rules for the creation of reclamation funds to reinstate land to alternative uses after mining and it has developed guidelines for mining in restricted areas, such as forest reserves, national parks, sources of water and other designated areas.  These regulations have not had any material adverse effect on the Companys operations, which are exploration in nature at this time.



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C.

Organization Structure



The Company has the following four subsidiaries:





|                                                                                |                               |                                                               |    
|------------------------------------------------------------------------------- | ----------------------------- | ------------------------------------------------------------- | ---
|Name of Subsidiary                                                              | Jurisdiction of Incorporation | Percentage &Type of Securities Owned or Controlled by Company
|Voting Securities Held                                                          | Non-Voting Securities        
|Itetemia Mining Company Limited(1)                                              | Republic of Tanzania, Africa  | 90% (common)                                                  | n/a
|Lunguya Mining Company Ltd.(2)                                                  | Republic of Tanzania, Africa  | 60% (common                                                   | n/a
|Tancan Mining Company Limited (Tancan)                                        | Republic of Tanzania, Africa  | 100% (common)                                                 | n/a
|Tanzania American International Development Corporation 2000 Limited (Tanzam) | Republic of Tanzania, Africa  | 100% (common)                                                 | n/a

(1)

The remaining 10% interest is held by Stamico.

(2)

The remaining 40% interest is held by Northern Mining Consulting Ltd.



D.

Property, Plant and Equipment



The Companys business is the acquisition and exploration of mineral properties, with a primary focus on exploring for gold properties in Tanzania.  The Company funds its activities by way of the sale and issuance of its securities to accredited investors.  The Company also obtains operating funds through sales of and options to sell its various mineral property interests to other parties, retaining a royalty interest.  The Companys properties are without a known body of commercial ore, with no established reserves, and the Companys activities to date on such properties have been exploratory in nature.



Itetemia Property



The following discussion regarding the geological information on the Itetemia Property is summarized from a technical report prepared in accordance with the requirements of NI 43-101F1 dated May 2, 2001 entitled, Independent Review of the Itetemia Project, Lake Victoria Greenstone Region, Tanzania by Michael J. Michaud, M.Sc. P. Geo. of Steffen Robertson and Kirsten Consulting (Canada) Inc. (the Itetemia Report).  The reader is referred to the complete text of the Itetemia Report, which is available online at www.sedar.com, filed on March 10, 2003 under the heading, Engineering Report and Certificate of Qualifications.



Property Description and Location



The Itetemia Property currently consists of seven (7) contiguous prospecting licenses, covering approximately 79.34 km2.  The seven (7) prospecting licenses now comprising the Itetemia Property are held in the names of the following companies and expire as indicated:







|                       |                |                   |                          |                  
|---------------------- | -------------- | ----------------- | ------------------------ | -----------------
|Prospecting License    | Name Of Holder | Date Granted      | Last Renewal Application | Expiry Date      
|Ngula North
PL 2374/03 | Tanzam         | November 25, 2003 | n/a                      | November 24, 2006



17



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|                                              |                            |                                                   |                          |                                               
|--------------------------------------------- | -------------------------- | ------------------------------------------------- | ------------------------ | ----------------------------------------------
|Prospecting License                           | Name Of Holder             | Date Granted                                      | Last Renewal Application | Expiry Date                                   
|Itetemia
PL 1450/2000;
PL 2523/04; PL 3308/05 | Itetemia Mining Co. Tancan | March 10, 2005; 
 May 18, 2004 
    June 14, 2005 | n/a
n/a 
    n/a         | March 10, 2007
May 18, 2007 
    June 14, 2008
|Ngula
PL 1612/2000
PL 2578/04                 | Tancan
Tancan              | August 29, 2005
June 28, 2004                     | n/a
n/a                  | August 29, 2007
June 28, 2007                 
|Itetemia North
PL 2038/2002                   | Tancan                     | November 1, 2002                                  | October 31, 2005         | November 1, 2005*                             

*

While the license has expired, the Company has applied for a renewal and has no reason to believe that such renewal application will not be granted in the ordinary course.



The Itetemia and Ngula prospecting licenses have been renewed twice, each time for a period of two years. The rental payments and minerals permitted to be pursued under such licenses are summarized below:



|                                            |                                  |                                                                                                                     
|------------------------------------------- | -------------------------------- | --------------------------------------------------------------------------------------------------------------------
|Prospecting License                         | Annual Rentals &Preparation Fees | Minerals Covered                                                                                                    
|Ngula North
PL 2374/03                      | US$268.20                        | All except building materials and gems                                                                              
|Itetemia
PL 1450/2000
PL 2523/04
PL 3308/05 | US$464.35**
US$371.40
US$385.74  | All except building materials and gems
All except building materials and gems
All except building materials and gems
|Ngula
PL 1612/2000 
PL 2578/04              | US$145.50**
US$116.40            | All except building materials and gems
All except building materials and gems                                       
|Itetemia North
PL 2038/2002                 | US$343.00                        | All except building materials and gems                                                                              

*

First renewal annual rental fees =US$30/sq.km.

**

Second renewal annual rental fees = US$50/sq.km.







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19



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Accessibility, Climate, Local Resources, Infrastructure and Physiography



The Itetemia Property is located in the Mwanza Region of the Lake Victoria Greenstone Region, Tanzania, approximately 90 kilometres by air southwest of the city of Mwanza, situated on the south shore of Lake Victoria.The property is accessed via local roads from Geita or by plane from Mwanza to an airstrip accommodating the neighbouring Bulyanhulu Mine, owned by Barrick.  The Barrick airstrip is 3.75 km west of the western boundary of the Itetemia prospecting license, and approximately 4 km northeast of the Nyamykonze village. Local resources are available at Mwanza, located on the southern shore of Lake Victoria.



The topography in the region and on the property consists of large flat-lying areas surrounded by numerous small hills. The hills have elevations of up to 100 m above local terrain.  The hills are thickly vegetated and access is only possible along cut lines.  Little outcrop exists on the property. The climate is similar to the rest of the region.  The rainy season starts in November and lasts to the middle of April, but precipitation is irregular from one season to another. The dry seasons are usually hot. Mwanza, located along the southern shore of Lake Victoria, can, and has, provided limited supplies for mining and exploration operations in the area.  Dwellers in the area of the Itetemia Project, such as the neighbouring Nyamykonze village, are traditionally subsistence farmers and ranchers, and have limited mining experience from the Bulyanhulu operation and numerous small scale activities.  Water for the purpose of mining and processing is not readily available in the region; however, a pipeline from Lake Victoria built by Barrick for its Bulyanhulu Mine, provides an adequate supply.



The large, relatively flat terrain surrounding the known gold mineralization may be suitable for potential tailings and waste rock storage and for heap leach pads and a potential processing plant. Electric power is available via the national grid within 5 km; due to the unreliability of such power, alternative forms of residual or back-up power would be necessary for mining or processing operations, such as diesel power generation used by Barrick at its Bulyanhulu mine.



Ownership



Prior Ownership



Only two of the prospecting licenses comprising the Itetemia Property, namely, Itetemia and Itetemia North, were previously held by third parties.  With respect to the Itetemia prospecting license, the interest of the Company was acquired from State Mining Corporation of Tanzania (Stamico) pursuant to a joint venture agreement dated July 12, 1994 (the Stamico Venture Agreement).  The Stamico Venture Agreement obligated the Company to make two initial payments of Tsh1,000,000 and US$7,200, both of which were satisfied. With respect to the Itetemia North prospecting license, the interest of the Company was acquired from RSR (Tanzania) Limited by agreement dated April 20, 1995 (the RSR Royalty Agreement). The RSR Royalty Agreement obligated the Company to pay a sum of US$35,000, which payment was made.



The Companys Interest



Prior to the Barrick Venture Agreement (defined below), four of the prospecting licenses comprising the Itetemia Property, namely, Itetemia Village, Mwingilo, Ngula and Itetemia East, were indirectly 100% held by the Company; in the case of the Itetemia North prospecting license, the Company held an indirect 100% interest therein, through Tancan, subject only to the 2% NSR Royalty payable pursuant to the RSR Royalty Agreement. In the case of the Itetemia prospecting license, Tancan acquired its interest pursuant to the Stamico Venture Agreement, as amended June 18, 2001 and July 2005, which provides, among other things, that:



1.

Tancan had to pay Stamico, on execution of the Stamico Venture Agreement, the sum of US$7,200 (as an advance against the 2% gross revenue royalty) and TS1,000,000.





20



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2.

Tancan and Stamico were to form a joint venture company for the purpose of holding the prospecting license that shall be held 10% by Stamico (with no obligation to contribute) and 90% by Tancan, which was effected through the formation of Itetemia Mining Co.



3.

Stamico is entitled to acquire an additional 20% interest in the joint venture company by paying a sum equal to 20% of the cost of placing the property into commercial production based on the feasibility study submitted to the Government of Tanzania for such purpose.



4.

Tancan shall assist Stamico in raising the required capital to exercise the right referred to in (3) above.



5.

Tancan was to expend the sum of US$25,000 in the first year and US$50,000 annually thereafter in relation to the training of Tanzanian personnel.



6.

Upon commencement of commercial production, Stamico shall receive a 2% gross revenue royalty, which shall be increased to a 2.5% gross revenue royalty should a mine on the Itetemia prospecting license produce recoverable gold in excess of 12 grams per tonne.



7.

Tancan shall pay to Stamico, as an advance against the 2% gross revenue royalty, the sum of US$7,200 on or before every anniversary of the Stamico Venture Agreement up until the development phase, upon and after which the annual sum of US$10,000 shall be paid as an advance against such royalty.



8.

Tancan shall show preference to Stamico for the provision of local materials and services during the period of mining operations.



9.

As amended July 2005, Tancan shall pay to Stamico the sum of US$15,000 on or before July 12 of 2006 and 2007and ending upon commercial production, provided that commercial production commences by December 31, 2007, failing which the aforementioned payment shall be revisited and US$20,000 thereafter.



10.

Tancan may assign its rights under the agreement, subject to the prior written consent of Stamico.



By an option and joint venture agreement dated May 31, 1999 as amended April 24, 2001 between the Company and Barrick (the Barrick Venture Agreement), Barrick agreed to provide funding to the Company totalling $4,000,000.



On November 23, 2004 Barrick advised that they would return the Itetemia Prospecting Licences (with the exception of PL 2374/03 which is held under the Barrick Exploration Africa Limited (BEAL) Agreement) to the Company.



History



The exploration history of the Itetemia Property from 1988 to 2005may be summarized as follows:

Itetemia Exploration History Synopsis

|            |                                     |                                                                                                                                                                                                                                                 
|----------- | ----------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Year        | Operator                            | Work Performed                                                                                                                                                                                                                                  
|1988  1992 | BRG, a Tanzanian-German Corporation | First modern exploration program conducted, consisting of geological mapping, ground geophysics, magnetometer, horizontal loop electromagnetic (HLEM), pulse electromagnetic, and induced polarization (IP) surveys, trenching and sampling.
|1993        | Stamico                             | Continued BRGs work and completed an air photo interpretation of the region, resulting in the identification of a northerly trenching gold bearing structure.                                                                                  



21



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|          |                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--------- | --------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Year      | Operator                                      | Work Performed                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|1994      | Stamico                                       | Completed regional geological mapping, and geochemical soil sampling on the northern and southwestern portions of the licensed area.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|1995      | Tancan                                        | Detailed soil sampling in several areas confirmed strong gold anomalies along the northwest trend.  A 100 m long trench trending northwesterly was dug, returning anomalous grades of gold.  Pangea drilled six reverse circulation (RC) holes by mistake on the southwest corner of Itetemia.  Tancan also begins first RC drilling program consisting of 4 holes totalling 374 m, in the southwest corner, but subeconomic intersections were recovered.                                                                                                                                                                                                                                                                                                                                                                    
|1996      | Geodass (under contract to Pangea and Tancan) | Airborne magnetic and radiometric surveys completed over Itetemia, Itetemia North and Ngula prospecting licenses.  A magnetic survey was conducted on the Golden Horseshoe Reef and 25 kms of IP which further defined the reef and extended the reef for more than one kilometre.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|1996      | Tancan                                        | Next phase of RC drilling continued with 39 holes totalling 3,596 m (Oct. 95 to July 96) covering the main HLEM anomalies.  Most of the conductors were explained by the presence of argillite horizons, containing 1-50% sulphides.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|1997      | Tancan                                        | A fence of 66 RC holes totalling 2,188 m were drilled in the southern portion of the license.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|1998      | Tancan                                        | A further 14 RC holes were drilled totalling 1,350 m in the southwest portion to test several IP anomalies, the best results returned 0.65 g/t Au over 9.0 m and 1.1 g/t Au over 8.0 m, respectively.  A second phase of 14 RC holes totalling 831 m, were drilled in the area of the Golden Horseshoe Reef to test IP anomalies and the south eastern extension of the reef near the granite contact.  Holes RC-65 and RC-66 intersected 0.7 g/t Au over 5.0 m, respectively, west of the reef.
The next phase of diamond drilling focused on the Golden Horseshoe Reef with 21 holes totalling 2,032 m drilled to test the gold showing.  The holes were drilled at a spacing of 15 m to 50 m.  The Golden Horseshoe Reef appears to be terminated to the southeast by an intrusion and seems to be pinching to the northwest.
|1999-2000 | Tancan                                        | A rotary air blast (RAB) drilling program of 151 holes totalling 6,660 m, in seven fences were drilled; the northwestern extension of the Golden Horseshoe Reef was intersected, returning 0.28 g/t Au over 33 m.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|2001      | Tancan                                        | 1,100 metres drilled to evaluate down dip potential of gold mineralization in the Golden Horseshoe Reef (GHR) deposit.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|2002-2004 | Barrick                                       | Exploration program carried out by Barrick.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|2005      | Tancan                                        | Reviewed reports received from Barrick detailing the exploration work they conducted on the property to November 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          





22



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Geology



Regional



The Lake Victoria area contains 12 Archean Nyanzian greenstone belts which are surrounded by and have been interrupted by numerous granitic intrusions.  The Nyanzian belts comprise a volcano-sedimentary sequence composed of mafic to felsic volcanics (lavas and tuffs), BIF and shales. The greenstone belts have been grouped into locally distinct geographic regions.  One of these regions is the Southwest Mwanza Region which includes a large area south of town of Mwanza, located on the south shore of Lake Victoria.  There are five greenstone belts in the Southwest Mwanza Region, one of which is the Ushirombo belt. The Ushirombo belt is an east-west trending belt, the eastern end of which is located approximately 25 km west of the southern end of Smith Sound on Lake Victoria. The eastern end of the belt is arcuate in shape and trends northerly tangential to the northwestern flank of the Siga Hills.



Property



The Itetemia Property is underlain by the northerly trending eastern portion of the Ushirombo Nyanzian greenstone belt.  Granite underlies the eastern and northern portions of the property.  The greenstone/granite contact trends northerly through the east-central portion of the Itetemia prospecting license and through the central portion of the Itetemia East prospecting license onto the Itetemia Village license; at which point, the contract tends westerly through the Mwingilo license cutting the northeast corner of the Ngula license. Sixty percent of the Itetemia, Itetemia North and Ngula licenses are underlain by the Nyanzian greenstone belt.  The remaining 40% is underlain by granite.  Granite variably underlies 90 to 100% of the Itetemia East, Itetemia Village and Mwingilo prospecting licenses. The mbuga soil covers 10 to 40% of the property.



Lithology



The lithologies encountered on the Itetemia and Itetemia North prospecting licenses can be divided into three volcano-sedimentary domains: (i) Northeast Domain, (ii) Central Domain and (iii) Southwest Domain. The granite truncates these domains to the east. The Northeast Domain is composed of basalt, felsic flows, thick to thin sequences of argillite and dykes/sill of gabbro.  The domain is up to 3 km thick, exhibits a north to north-northeasterly trend and has numerous extensive HLEM conductors.  The conductors are related to argillite dominantly located in one horizon at the top of the sequence.  A massive sulphide unit/zone is situated at the bottom of this horizon marking change in the volcanism.



Mineralization



The sulphide mineralization encountered on the Itetemia Property comprise massive to semi-massive, stringers, veins and veinlets, disseminated and nodular mineralization.  The types of mineralization are (i) sulphides associated with volcanism activity; (ii) remobilized sulphides associated with deformation (shear hosted); and (iii) sulphides associated with sedimentation.  The gold and metallic contents associated with this mineralization are variable and the relation between the grades and the mineralized type is not well known at this stage.



The massive to semi-massive sulphide mineralization seems to be related to volcanism.  It occurs in two areas on the Property.  One area is located in the northern part of the licenses and has been intersected by the hole ITDD-06.  More than 30 m. of sulphides were intersected at the contact between a QFP and an argillite horizon separating two pillowed basalts.  The sulphide content ranges from 10 to 90% pyrrhotite, 2 to 5% pyrite, trace to 5% sphalerite, trace to 1% copper.



The Golden Horseshoe Reef mineralization occurs as massive sulphide veins locally ranging from 15-30 cm wide.  Sulphides dominantly appear in veins/veinlets less than 5 cm wide in felsic volcanic rocks.  Five to



23



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thirty percent pyrite-pyrrhotite is common over sections of 1 to 15 m along the holes.  They are sub-concordant and parallel to the schistosity.  The strong shearing at the Golden Horseshoe Reef probably represents a remobilization of the sulphides.



Mineral Resource Estimation



Cautionary Note to U.S. Investors Concerning Estimates of
 Measured and Indicated Mineral Resources



This section uses the terms mineral resource and inferred mineral resource.  We advise U.S. investors that while those terms are recognized and required by Canadian regulations, the U.S. Securities and Exchange Commission does not recognize them.  U.S. investors are cautioned not to assume that any part or all of mineral deposits in these categories will ever be converted into reserves.



In 1998, Minestart Management Inc. (Minestart) was retained by Tancan to prepare a mineral resource estimation for the Golden Horseshoe Reef.  The mineral resource was calculated based on 13 diamond drill holes which were drilled at 25 m. intervals along strike for approximately 300 m. and to a depth of approximately 50 m. The mineral resource was calculated using polygons on cross-sections incorporating a 2 g/t gold cutoff and a constant bulk density of 2.7 tonnes/cubic meter. Minestart estimated the mineral resource for the Golden Horseshoe Reef to be 500,000 tonnes grading 7 g/t gold.  As an integral part of its review, the Company hired Steffen, Robertson and Kirsten Consulting (Canada) Inc. (“SRK”) to review the mineral resource estimate prepared by Minestart, and SRK provided the following observations:



·

SRK believes there is a need for more near-surface and down-dip information in order to better define the controls on the mineralization and the geometry of the mineralized horizon. With respect to the density, SRK notes that the bulk density was used for estimating the bulk tonnage. Given the climate and the weathering environment, the density of sulfide rich rocks and volcanics could vary considerably and based on their experience it may be required to weigh the assays during compositing and estimating the bulk tonnage of the mineralized and unmineralized zones.



·

With respect to the 2.0 g/t cutoff grade used in the estimation, SRK believes that initially, it might be possible to mine the reef by way of a very narrow and shallow open pit.  However, it is more likely that given the higher grade mineralization, narrow widths and current limited strike length the Golden Horseshoe Reef would be more amenable to underground mining methods.  As such, the cutoff grade of 2.0 g/t gold initially used to estimate the mineral resource may be too low.



·

With respect to the diamond drilling core recovery, SRK considers the NQ size to be appropriate and that it has been appropriately split using a diamond saw.  The split core remains in good condition and is stored on-site in a proper facility. The rock quality is very good. The core recovery is excellent.



SRK believes the mineral resource estimation prepared by Minestart to be an inferred mineral resource as defined by standards set by the Canadian Institute of Mining, Metallurgy and Petroleum (see: Glossary of Technical Terms  Canadian Terminology at page 5 herein).



Exploration



During the 2006 exploration season, the Company initiated exploration work at Itetemia for its own account in September 2005 and conducted a second-in-house evaluation of the GHR, the primary zone hosting gold values.  The Company completed four diamond drill holes on the Itetemia Project with one of the better holes returning 2.5 metres grading 6.13 g/t and 4.0 metres averaging 6.75g/t. Another hole returned an even higher grade intercept of 4.0 metres grading 11.1 g/t. The drill program succeeded in confirming the existence of a continuous economically attractive  pay shoot  down to a depth of 450 metres, representing a total down plunge distance of 550 metres.



24



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The Company has incurred total net costs (after any recoveries and write offs) of $6,393,041 on the Itetemia Property to August 31, 2006.



THE ITETEMIA PROPERTY IS WITHOUT KNOWN MINERAL RESERVES AND ANY PROPOSED PROGRAM IS AN EXPLORATORY SEARCH FOR ORE.



Luhala Property



The following discussion regarding both the Luhala and Lunguya Properties below is summarized from a technical report prepared in accordance with the requirements of NI 43-101F dated February 28, 2003 entitled, Report on the 2002 Exploration of the Luhala Concessions and the Lunguya Concessions, Lake Victoria Goldfields District, North-Central Tanzania by Dr. Jim L. Oliver, Ph.D., P. Geo. (the Luhala and Lunguya 2002 Report).  The reader is referred to the complete text of the Luhala and Lunguya 2002 Report, which is available at www.sedar.com, filed on March 10, 2003 under the heading, Other.



Property Description and Location



The Luhala property is located in Misungwi District of Mwanza Region of Tanzania (see property location map).  It lies approximately 70 kilometres south of the city of Mwanza.  The Luhala property consists of six (6) prospecting licenses (namely, Luhala PL 1451/00, Luhala PL 2519/04, Luhala PL 3315/05, Shilalo PL 2297/03, Ngobo PL 1559/00 and Sima PL 1560/00).  These prospecting licenses are in good standing with respect to required filings and payments with the Government of Tanzania.



The Company has a 100% interest in the Luhala prospecting license, and has the right to acquire a 100% interest in the Ngobo and Sima prospecting licenses by making a series of payments to the property holder, Widescope Promotion Ltd. (Widescope), totaling US$120,000 over six years for the Ngobo license and US$84,000 over six years for the Sima license, which payments have now been completed.  Widescope retains a 2% net smelter returns royalty on both the Ngobo and Sima licenses, which the Company may buy back, in each case, one-half (i.e. 1%) for US$1,000,000. For the Shilalo license, the Company has earned the right to acquire  a 100% interest by having made a series of payments to the property owner totaling US$16,000.  The Shilalo property owner retains a 2% net smelter return royalty, of which the Company may buy back one-half (i.e.1%) for US$ 250,000.



Each of the prospecting licenses forming the Luhala property has the following mandatory annual work and rental payments:



|                                                           |              |                                            |                                          
|---------------------------------------------------------- | ------------ | ------------------------------------------ | -----------------------------------------
|Prospecting License                                        | Work Program | Annual Rentals                             | Minerals Covered                         
|Luhala
PL 1451/00
PL 2519/04                    PL 3315/05 | None         | US$696.50**
US$575.30            US$478.60 | all excluding building materials and gems
|Shilalo
PL 2297/03                                         | None         | US$74.40                                   | all excluding building materials and gems
|Ngobo
PL 1559/00                                           | None         | US$300**                                   | all excluding building materials and gems
|Sima
PL 1560/00                                            | None         | US$514.50**                                | all excluding building materials and gems

*First renewal annual rental fees = US$30/sq.km.

** Second renewal annual rental fees = US$50/sq.km.



The Luhala property covers an area of approximately 76square kilometers.  The target on the Luhala property is gold stockwork mineralization associated with felsic rock units in dilational structures.



25



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Accessibility, Climate, Local Resources, Infrastructure and Physiography



Access to the Luhala Property is via the main Mwanza  Shinyanga road, which is a single lane, good to excellent quality, asphalt highway.  Approximately 45 kms south of Mwanza, a dirt road from a junction at the settlement of Manawa, leads southwest to the town of Misasi.  The property has year round access, although seasonal winter rains, December to March, may result in flooding in low lying areas which are dominated by mbuga (black organic rich laustrine flood soils).  Most lowland areas are under active cultivation, corn, rice, beans and mixed crops, by subsistence farmers.  Low scrub and thorn bushes cover the small hills.  The area has been, for many years, deforested by local agricultural practices.



At Luhala, the mean elevation is approximately 1,200 m above sea level, with a series of small sub-rounded hills, rising up to one hundred metres above the surrounding plain.  These hills are typically formed by either resistive iron formations or felsic volcanic rocks.  Mafic volcanic rocks weather recessively and are typically only exposed in trenches through well formed laterite profiles.  Laterite development is extensive with brick-red laterites overlying weak mottled zones and saprolites at a depth of approximately 3-5 ms.  Deep weathering penetrates 45 - 60 ms vertically within the subsurface.



An enthusiastic and competent labor force is available through the surrounding villages, and local people have been routinely hired during the trenching, drilling and soil sampling programs conducted on this property.  However, no other significant infrastructure is available.



History



Luhala has had a significantly more protracted exploration history than Lunguya, beginning with the initial exploration by the then Tanganyikan Geological Survey in 1947.  The exploration history of Luhala may be summarized as:



LUHALA EXPLORATION HISTORY SYNOPSIS



|       |                               |                                                                                                                                               
|------ | ----------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------
|Year   | Operator                      | Work Performed                                                                                                                                
|1947   | Tanganyikan
Geological Survey | Underground adit, Shilalo West                                                                                                                
|1960s | Unknown                       | Minor test pits and trenches                                                                                                                  
|1994   | Tan Range                     | Grab sampling and panning, Luhala Hills                                                                                                       
|1996   | Tan Range                     | Airbourne magnetic survey, 505 m diamond drilling in two drill holes                                                                          
|1997   | JCI/Tan Range                 | MMI survey, 5,700 samples collected, geological mapping and sampling, 243 grab samples, gradient array IP over Luhala Hills, 5 DDHs for 549 m
|2000   | Newmont/Tan Range             | 251 Rotary Air Blast (RAB) drill holes                                                                                                        
|2001   | Tan Range                     | 10 DDHs, 1204  m, trenching and sampling, 32 RAB holes, totaling 1969 m. Regional mapping                                                    
|2002   | Tan Range                     | Property mapping.                                                                                                                             
|2003   | Tan Range                     | Updated geological model                                                                                                                      
|2004   | Tan Range                     | Trenching Kisunge hill, 14 RC holes drilled on new model on Kisunge Hill.                                                                     
|2005   | Tan Range                     | Re-logged all drill holes and trenches.  Drill preparation.                                                                                   









26



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Geology



Luhala is found within the eastern portion of the Buhungukira Belt, a local place name assigned to one to the eight greenstone belts in the Lake Victoria District.  These rocks are believed to be the eastern continuation of the Geita  Greenstone Belt and consist of dominantly Upper Nyanzian rock sequences.



In the Luhala area, the predominant structural grain is dominated by an early deformational event which has deformed all supracrustal rocks into tight, south to southwest plunging, west overturned, synforms and antiforms.  The short limbs of these folds may have east-west strikes and modest, 40 degree south dips. The long limbs of these folds have north to northeast strikes and generally much steeper, 60  80 degree, and east dips.



At Luhala, three principal mineralized zones have been identified. These include Kisunge Hill, Shilalo South, and Shilalo West.  All of the three principal mineralized areas are linked by a common southwest plunging antiform, the limbs of which are separated by 500 to 800 ms and converge just south of Line 6200 E and 3800 N.  Mineralization to Kisunge Hill is associated with a chert  felsic volcanic contact.  As Shilalo South, structurally controlled gold mineralization closely tracks the position of a massive to locally well-bedded chert or cherty iron formation.  The results of diamond drilling in Shilalo West strongly outline the importance of the felsic volcanic - chert  structural sites and gold association.  For example, borehole LSD  08A is collared in the hangingwall to the Shilalo West mineralized zone, traverses the host rhyolite-chert lithology, and terminates in the footwall.  This borehole intersected significant gold mineralization of 3.55 g/t Au over 5 m near the hangingwall contact of the felsic volcanic rocks, and is mineralized repeatedly at over one gram ranges throughout much of the felsic host interval, which in this borehole is over 35 metres thick.



The felsic volcanic rock package at Shilalo West once again presents an excellent structural site for the development of dilatant sites and gold mineralization.  As at Shilalo South, a well defined planar, brittle-ductile structural zone was not identified at Shilalo West.  Gold distribution is likely related to volumes of extensional and shear extensional veinlets, which are developed within the felsic volcanic rocks at or near, the felsic volcanic red tuff contact.



Exploration



Drilling with the Companys combination RC/RAB drill commenced in October 2005.  In December 2005, the Company announced initial results from a 29 hole RC/RAB drilling program at Luhala that significantly expanded the resource potential on the property.   During this phase of drilling, a specific emphasis was placed on determining the structural controls for the higher grade mineralization, producing a 3-D model of the mineralization for follow-up in 2006.



A Phase 4 drill program was initiated at Luhala in February 2006, with the first results reported shortly thereafter in March. The drill program included 40 RC holes, representing some 2,519 metres of drilling within the Kisunge Central, West, Northeast and Southeast Zones. The Kisunge Central and West Zones were found to combine to form the Kisunge Central Zone.  Drilling of the Kisunge East Zones confirmed the presence of a higher grade zone of rocks that extends from the Kisunge Northeast Zone to west of the Kisunge Southeast Zone. These rocks form a steeply plunging anti-clinorium, a regional fold (bend) structure that is composed of smaller folds. This whole zone was subsequently referred to as the Kisunge Main Zone.



Among the better results returned from the Kisunge Central Zone were 4.0 metres of 6.0 g/t and 5. 0 metres grading 5.18 g/t. Notable results from the Kisunge Main Zone included 7.0 metres averaging 6.83 g/t and 5.0 metres grading 5.18 g/t.



Results from the Phase 5 drill program were released in April 2006 and confirmed that the Kisunge Main Zone hosted anomalous gold values along a strike length of 1,200 metres, excluding a zone some 200 metres wide where a barren dyke cut across the mineralized trend.  The holes in the Main Zone were designed to intersect and test the gold potential in the most prospective stratigraphic package (rock unit) at a shallow depth as



27



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no trenching had been conducted in this area before to establish near-surface mineral potential.  The best values from the Kisunge Main Zone in Phase 5 included 4.0 metres averaging 5.69 g/t along with 3 metres grading 3.29 g/t.   A Phase 6 drill program was completed in April 2006 and included 15 RC drill holes representing some 986 metres of drilling. All the RC holes were drilled in the Main Zone as no access was available to further test the Kiginga anomaly due to heavy rainfall. Three holes were drilled on the eastern limb of the Main Zone and 12 holes on the southern limb. Among the better values reported were: 3.0 metres of 2.50 g/t, 2.0 metres grading 2.39 g/t and 6.0 metres averaging 2.35 g/t.  A Phase 7 drill program was completed in August 2006 with the results reported immediately after the companys fiscal year end. This particular phase consisted of nine diamond drill holes aggregating some 991 metres, all of which tested the eastern limb of the Kisunge Main Zone.



Because diamond drilling produces a cylindrical core sample, invaluable structural information was obtained during this program which showed the gold deposit to have a shallow dip that will require further RC drilling for definition purposes. Some of the most notable results from this program included 3.0 metres @ 7.89 g/t, 2.44 metres averaging 3.90 g/t and 1.44 metres @ 10.95 g/t.



The Company has incurred total net costs (after any recoveries) of $4,079,789 on the Luhala Property  to August 31, 2006.



Mineralization



At Luhala, gold mineralization is associated with zones of diffuse silicification, localized around small cm and mm scale fractures within competent chert and felsic volcanic rock units.  Major discordant vein structures are not identified and planar high strain zones are absent.



No specific gravity data have been calculated for any of the rocks cored in these intervals and without strong cross sectional control, no reliable resource estimates for any of the principal mineralized zones at Kisunge, Shilalo South and Shilalo West may be calculated.



Drilling



Drilling programs were completed on the Luhala prospecting license in 2001, consisting of nine diamond drill holes, totaling 1,865 metres with an average depth of 207 metres.  The holes were planned along the three best RAB section lines (7400E, 7600E and 8000E) on Kisunge Hill, as well as some testing of a lower ranked target on the Shilalo South.  Some gold mineralization was encountered, including 4.3 metres at 1.84 g/t, 8.5 metres at 1.23 g/t, and 14.4 metres at 5.72 g/t, using a 1g/t cut-off.  Diamond drilling has shown that these gold zones are not steep.  The distribution of gold at Kisunge would appear to be flat to moderately dipping.



No drilling programs were conducted during 2002 or 2003 on the Luhala Property, but a further US$100,000 in RC drilling was performed during the 2004 exploration season.  The Kisunge hill area was targeted where trenching in 2001 identified numerous zones of surface mineralization.



In March-April, 2004, old trenches from L7400E to L7600E as well as the trench on L8000E were cleaned to expose the floor of the trench for remapping. Four new trenches were excavated, the first along L7650E. The remaining three trenches were excavated along E-W lines to determine if N-S structures (similar to that shown at Kisunge outlier) might have a determining control on gold mineralization at Kisunge hill.



As detailed above under Exploration, RC/RAB and diamond drilling programs continued on the Luhala property throughout fiscal 2006.



THE LUHALA PROPERTY IS WITHOUT KNOWN MINERAL RESERVES AND ANY PROPOSED EXPLORATION PROGRAM IS AN EXPLORATORY SEARCH FOR ORE.





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Lunguya Project Area



Property Description and Location



The Lunguya Property is located in the Kahama District of Tanzania (see property location map), and the Companys interest therein is held indirectly through Tanzam.  The Lunguya Property is situated in the Lake Victoria Greenstone Belts, approximately 100 kms by air to the southwest of Mwanza and about 15 kms south of  Bulyanhulu.  The Lunguya Property consists of eight (8)  prospecting licenses (namely, the Lunguya 1766/01 and 2828/04, Lunguya East 1887/02 and 3273/05, Shilela North 2059/02 and 4074/06, Shilela  2472/04 and Lunguya West PL 2193/03).  These prospecting licenses are in good standing with respect to required filings and payments with the Government of Tanzania.



With respect to Lunguya PL 1766/02, in January, 2003, a Shareholders Agreement was entered into wherein a new company, Lunguya Mining Company Limited (LMC), was created to form a joint venture between Northern Mining Consultancy Company Limited (NMCCL), Tanzam and LMC.  Tanzam has a 60% shareholding and NMCCL has the remaining 40% shareholding in LMC.



The Lunguya Property covers an area of 323 square kilometers.  There are no work requirements, and property payments on each of licenses are as follows:



|                                                                            |                                  |                                               
|--------------------------------------------------------------------------- | -------------------------------- | ----------------------------------------------
|Prospecting License                                                         | Annual Rentals &Preparation Fees | Minerals Covered                              
|Lunguya 
PL 1766/01
PL 2828/04                                              | US$1,071.30*
US$714.20           | all excluding building
materials and gemstones
|Lunguya East 
PL 1887/02                                    
    PL 3273/05 | US$1,272.60* 
    US$848.40      | as above                                      
|Shilela North 
PL 2059/02                                    PL 4074/06     | US$685.60 
    US $542.80        | as above                                      
|Shilela 
PL 2472/04                                                         | US$1,025.00                      | as above                                      
|Lunguya West 
PL 2193/03                                                    | US$1,622.80                      | as above                                      

* First renewal annual rental fees = US$30/sq.km.



Through prospecting and mining option agreements, the Company has options to acquire interests ranging from 60% to 75% in the eight (8)  licenses.  To maintain the options, the Company is required to make certain expenditures and fund all exploration costs of the properties.  During the fiscal year ended August 31, 2003, the Company abandoned one of the licenses, and wrote-off $35,342 in costs deferred to such license.  There are no royalties to the original license holder.  At Shilela North, through a Prospecting and Mining Option Agreement signed by Tanzam dated June 25, 1999, the Company has a right to obtain a 70% working interest in this project and no royalties are required.  The payment schedule is identical at Shilela.  At Lunguya East, the Company can earn up to a 70% interest and no royalty is required.  For PL 1990/02, through a Prospecting and Mining Option Agreement dated June 10, 1999, the Company can earn a right to obtain a 75% working interest in this project and no royalty is required; an initial payment of US$50,000 was made and no annual payments are required.



Internal to the Lunguya prospecting license (1766/01) is a small approximately 1.0 square kilometre primary mining license (PML).  The PML is currently held by Mr. Joseph Magunila who is exploiting the Nyamakwenge Reefs.  Negotiations for control and the validity of this license is currently under discussion with



29



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relevant private and government third parties.  Portions of the currently known veins at Lunguya and some of the RC and Lunguya diamond drilling, conducted by the Company in 2002, lie within this mining license.



Accessibility, Climate, Local Resources, Infrastructure and Physiography



The Lunguya Property can be reached by plane from Mwanza to an airstrip accommodating Bulyanhuylu or by road via Geita up to the Bulyanhulu/Kahama road intersection. From Kahama, the property is located approximately 8 kms to the south, toward Lunguya village. Secondary roads and trails traverse the property. The Nyamakwenge Reef, located in the northeastern part of the property, can be accessed using a 12 kms dirt tract passing to the north of the property.  Climate and elevation are similar to the Luhala Property.



Very little outcrop (less than 1%) has been identified at Lunguya.  The entire property is flat and covered largely by granitic sands and grey orange laterities derived from granitic sources.  Like Luhala, Lunguya is actively cultivated, but also is being actively mined by a few score artisanal miners along the trend of the Nyamakwenge Reefs.  No significant infrastructure, power or water is available on site.  However, the entire infrastructure of the region including electricity, air transport, health clinics, schools, and improved road networks, have been greatly improved due to the proximity to Barricks Bulyanhulu mine, some 20 kms to the north.



History



Exploration in the Lunguya area has had a much briefer history than the exploration of the Luhala area.  Reconnaissance overviews of this area are documented, but no significant historical exploration activities are known to the Company.  The license was acquired by the Company in 2001 and a program of bulk leach extractable gold (BLEG) sampling, geological mapping, rock sampling, reverse circulation (RC) and diamond drilling was initiated.



Geology



The very limited outcrop exposures on the Lunguya concession necessitate development of a geological and interpretive environment largely based on geophysical interpretations.



Regionally, Lunguya is located near the eastern terminus of the inner volcanic arc, lower Nyanzian, of the Sukumaland Greenstone belt.  The succession is dominated by tholeiitic volcanic rocks containing lesser felsic tuffaceous rocks and  argillaceous horizons cut by thin quartz porphyry dykes and sills.  The thick, banded iron formation and felsic flows characteristic of the outer arc Upper Nyanzian sequence are absent. Most of the map scale granite  greenstone contacts strike north-south.  No information is available with respect to the orientation of sub-surface contacts.



At Lunguya, all currently known, auriferous structural zones track at an oblique angle, the eastern granodiorite-mafic volcanic contact.  Auriferous veins strike at 020° to 030° with the dominant intrusive volcanic contact trending at approximately 360°.  On the property scale, two 330° trending fault  structures are interpreted to offset the Lunguya vein into two fault repeated vein segments, having strike lengths of  approximately 180 and 300 m.  A few score artisanal miners have exploited these veins to a depth not exceeding 30 vertical ms subsurface. A second set of auriferous reefs, the Nyikoboko Reefs, are located 12 kilometres to the south. This area is associated with a smaller set of largely inactive artisanal dumps and workings.



Based on the aeromagnetic data a new model has been proposed whereby a large NS trending shear zone is believed to exist below a thick black cotton soil (mbuga) cover. The thin veins associated with the Nyikoboko and Nyamakwengwe reefs probably represent secondary structures from the main shear. This idea has been tested using biogeochemistry and results are pending.







30



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Exploration



During the 2005 exploration period, an auger drilling program was initiated on the Lunguya project area to test various anomalies reported in previous exploration programs. The aim of this particular program was to start testing some of the less attractive RAB drill targets while waiting the arrival of the drill rig in Mwanza.  The Company carried out limited exploration in 2005 undertaking regional biogeochemical (BGC) surveys across the entire Project area.



Limited exploration activities were carried out on the Lunguya property during fiscal 2006.  The greater portion of the shear zone is covered by mbuga, and to test the idea biogeochemistry was conducted in 2003 over the mbuga on a 400m x 50m grid system where some 2,291 samples were collected. Abundant one point gold anomalies with pathfinder support have been identified. These will be tested with IP in the 2007 dry season.



The Company has deferred total net costs (after any recoveries and write offs) of $2,826,034 on the Lunguya Property to August 31, 2006.



Mineralization



Lunguya is a mineralized brittle ductile strain zone, developing internal to a major granite-greenstone contact. Gold is associated with one fault offset vein which is likely broken into two segments, the Western and Eastern reefs.  Lesser veins are also present.  Initial sampling of artisanal vein waste dumps indicated the presence of well mineralized dump samples.  The site contained greater than 200 of these small pits-shafts ranging from 1 to 20 metres deep.



Diamond drill and RC programs at Lunguya have demonstrated excellent geological continuity of the Nyamakwenge West and East Reefs but weaker continuity of grade.  The difficulty in obtaining representative gold grades from small core samples of vein material containing coarse particulate gold is a well documented phenomenon.  Significant assays obtained during the 2002 diamond drill program at Lunguya are summarized in Table 4 of the Luhala and Lunguya 2002 Report.  Widths in these boreholes are approximately true widths and the boreholes have been collared roughly perpendicular to the strike and dip of the mineralized structural zones.



Drilling



Two programs of drilling where initiated on the Lunguya property during 2002. This included a seven hole RC program totaling 535 metres completed in late August 2002.  A follow-up diamond drill program consisting of 1175 metres, in 18 boreholes was completed in November and December of 2002.



Core recovery measurements where made on site by geotechnician of the Company.  RC boreholes (LGRC 01  07) utilized the same grid system as the diamond drill program.  The location of all drill collars were marked with concrete monuments.  Drilling was concentrated on the Lunguya Reefs (11 boreholes) with three boreholes completed on the Nyikoboko Reefs.  A series of geological cross-sections and plans (Figures 10 to Figure 18 in the Luhala and Lunguya 2002 Report), summarize the results of these programs.  Both RC and diamond drill data are combined on these sections.  Drill collar locations for 12 diamond holes and 7 RC holes on the Nyamakwenge Reefs are shown on Figure 9 of the Luhala and Lunguya 2002 Report.  Drill logs for diamond drill holes are compiled on Appendix III and for RC holes in Appendix IV of the Luhala and Lunguya 2002 Report.  Assay results for diamond drill holes are compiled in Appendix V and RC assay data in Appendix VI of the Luhala and Lunguya 2002 Report.



THE LUNGUYA PROPERTY IS WITHOUT KNOWN MINERAL RESERVES AND ANY EXPLORATION PROGRAM IS AN EXPLORATORY SEARCH FOR ORE.





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Tulawaka Project Area



The Tulawaka Project is located in the Biharamulo District of Kagera Region of Tanzania and is approximately 160 kilometers west-southwest of Mwanza.  The Tulawaka Project consists of nine (9) prospecting licenses, including six (6) licenses held through Tanzam.   These prospecting licenses are in good standing with respect to required filings and payments with the Government of Tanzania.  The Company has incurred $955,269 in total costs on the Tulawaka Project to August 31, 2006.  Two of the Tulawaka prospecting licences are under option to MDN.



The Tulawaka Project covers an area of approximately 297 square kilometers.  The property lies on an east-west magnetic trend, between the Kakindu gold discovery (Ashanti) and the Tuluwaka gold discovery (Pangea).  RAB (rotary air blast) drilling on the Mnekezi property intersected mineralized chert sequences which included intersections of 5 meters @ 0.26 grams/tonne gold, 3 meters @ 0.24 grams/tonne gold and 1 meter @ 0.37 grams/tonne gold.  Much of this project has been joint ventured to MDN.



Exploration



In October 2005, MDN announced significant drill intersections from their initial drill program in the Tulawaka Area:



|         |                   |                           |                   
|-------- | ----------------- | ------------------------- | ------------------
|Hole No  | Interval
(metres) | Intercept Length
(metres) | Gold
(grams/tonne)
|NTRAB 14 | 28-37             | 9.0                       | 7.27              
|NTRAB 15 | 8-9               | 1.0                       | 1.60              
|         | 14-16             | 2.0                       | 2.60              
|NTRAB 16 | 4-7               | 3.0                       | 7.63              
|         | 29-31             | 2.0                       | 22.45             
|NTRAB 17 | 5-9               | 4.0                       | 13.34             
|NTRAB 18 | 6-7               | 1.0                       | 3.70              
|NTRAB 20 | 7-9               | 2.0                       | 2.03              



MDN noted that the holes were drilled at 60° to the horizontal and were sited heel-to-toe on the drill fences to ensure they completely overlapped.  Target depth was 70 metres and the drill fences were spaced approximately 150 metres apart.  The drilling employed RAB and RC techniques.



The discovery area is located approximately 15 kilometres from the Tulawaka Gold Mine (Barrick 70% - MDN 30%) and extends for a strike distance of approximately 0.4 kilometres and across a width of 0.3 kilometres. It was tested initially by four drill fences comprising 23 drill holes for a total of 1,475 metres. MDN reported that the target evaluated in the drill program was previously unknown and still remains open along strike and at depth.  According to MDN, a follow up drilling program is being arranged in order to further investigate the gold mineralization that has just been discovered and to probe two additional targets in other nearby Prospecting Licenses.  The recent program tested three targets, two of which revealed significant gold intersections as reported above. Located about 10 kilometres from an earlier discovery made by MDN in the region, MDN describes the latest find as an entirely different gold occurrence.  MDN said both gold discoveries are interpreted as being associated with shear zones that are close to the contact of volcanic and granitic rocks, and both remain open on strike and at depth. We are confident that yet more significant gold occurrences will be found in this region, which has remained virtually unexplored until now.



Samples from the MDN drill program were prepared and analyzed by Humac Laboratories in Tanzania. The anomalous results were subsequently independently checked by the ALS Chemex laboratory in South Africa. The drilling program was carried out under the direction of Geologist Brian Lloyd, supervised by Carlos Bertoni, P.Geo., a Qualified Person under NI 43-101.





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In October 2005, MDN announced a significant gold discovery on a Prospecting License (PL) held under option from the Company in the Tulawaka region of Tanzania.  In March 2006, MDN announced assay results from the Isozibi gold discovery on PL2182/03 which is located about 17 kilometres northwest of the Tulawaka gold mines process plant. The discovery is known to extend for approximately one kilometre along strike and across a width of 0.9 kilometres. This previously unknown gold occurrence is associated with fracture zones in iron formations, a particularly attractive environment for the emplacement of gold deposits.  The discovery was tested by 26 RC drill holes for a total of 2,582 metres. Among the most significant drill intersections from this initial drill program were 2.0 metres averaging 4.4 g/t and 1.0 metre grading 3.25 g/t.



On November 15, 2006, MDN announced significant assay results from the RC drill program they carried out on the Viyonza Zone, which includes the Nyantimba license optioned from the Company.



THE TULAWAKA PROPERTY IS WITHOUT KNOWN MINERAL RESERVES AND ANY EXPLORATION PROGRAM IS AN EXPLORATORY SEARCH FOR ORE.



Lake Victoria Goldfield Properties



The following discussion regarding the Lake Victoria Goldfield Properties below is summarized in part from a technical report prepared in accordance with the requirements of NI 43-101F dated March 21, 2002 entitled, Project Technical Review on 52 Prospecting Licenses, Lake Victoria Goldfields Tanzania by Stephen R. McMullan, P. Geo. of  Poseidon Geophysics (Pty) Ltd. (the 52 PL Report).  The reader is referred to the complete text of the 52 PL Report, which is available at www.sedar.com, filed on March 28, 2002 under the heading, Technical Reports.



Property Description and Location



Tanzam, a mineral investment company wholly-owned by the Company, currently holds various interests in 121 prospecting licenses in the Lake Victoria Goldfields Belts of north-western Tanzania (the LVGB) in order to explore for economic mineral deposits.



Tanzam engaged Geodass (Pty) Limited of Johannesburg, South Africa (now Fugro Airborne Surveys (Pty) Limited) to undertake and manage an integrated mineral exploration program in the LVGB in August 1999. The exploration program was designed primarily to explore for gold mineralisation, without bias for mode of occurrence. Other commodities including base metals, diamonds and industrial minerals were also considered and suitable exploration methods were adopted for a multi-commodity approach.



As of the date hereof, Tanzam holds interests in the following licenses:



|       |                         |      |                    |                                           |             |      
|------ | ----------------------- | ---- | ------------------ | ----------------------------------------- | ----------- | -----
|Book # | JV Partner              | JV%  | Project Area       | Old PL#                                   | New PL#     | Sq Km
|1      | Wazawa Limited          | 65%  | Ushirombo, Kahama  | 752/97                                    | 1846/01     | 18.01
|79     | Tanzam (Wazawa Limited) | 65%  | Ushirombo, Kahama  | Relinquished 1/2 1846/01 (1st renewal)    | 3147/05     | 10.49
|2      | Martedo Investment      | 65%  | Diabohika Bukombe  | 1795/01                                   | Appl. R-724 | 6.0  
|       | Martedo Investment      | 65%  | Diabohika Bukombe  | Relinquished 1/2 PL 1795/01 (1st renewal) | Appl. 4269  | 6.0  
|3      | Afrigold Limited        | 65%  | Igando, Biharamulo | 1798/01                                   | Appl. R-725 | 17.70
|       | Afrigold Limited        | 65%  | Igando, Biharamulo | Relinquished 1/2 PL 1798/01 (1st renewal) | Appl. 4270  | 17.70
|4      | Tanzam                  | 100% | Bwanga, Kahama     | 1946/02                                   | 1946/02     | 36.18



33



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|       |                                          |      |                      |                                           |             |       
|------ | ---------------------------------------- | ---- | -------------------- | ----------------------------------------- | ----------- | ------
|Book # | JV Partner                               | JV%  | Project Area         | Old PL#                                   | New PL#     | Sq Km 
|175    | Tancan                                   | 100% | Bwanga, Kahama       | Relinquished 1/2 1946/02 (1st renewal     | 3496/05     | 36.18 
|5      | Jope Buisness/ Mineral Industries        | 65%  | Nyambale, Geita      | 1951/02                                   | 1951/02     | 51.45 
|177    | Tanzam (Jope Business/Mineral Ind        | 65%  | Nyambale, Geita      | 1951/02                                   | 3631/05     | 51.45 
|7      | Tese Mining/F-B Minerals                 | 51%  | Runazi, Biharamulo   | 2102/02                                   | Appl. R-582 | 44.5  
|       | Tese Mining/F-B Minerals
(Sigo for Tese) | 51%  | Runazi, Biharamulo   | Relinquished 1/2 PL 2102/02               | Appl. 3510  | 45.79 
|8      | Jope Business                            | 65%  | Kisengo, Biharamulo  | 1275/99                                   | 2448/04     | 78.88 
|9      | Jope Business                            | 65%  | Nyaesero, Biharamulo | 2182/03                                   | Appl. R-638 | 41.16 
|       | Tanzam (Jope Business)                   | 65%  | Nyaesero, Biharamulo | Relinquished 1/2 PL 2182/03               | Appl. 3755  | 41.16 
|10     | Tanzam                                   | 100% | Kaniha, Biharamulo   | 1947/02                                   | 1947/02     | 60.35 
|176    | Tancan                                   | 100% | Kaniha, Birharamulo  | Relinquished 1/2 1947/02 (1st renewal)    | 3497/05     | 60.02 
|15     | Tese Mining/ F-B Minerals                | 51%  | Kigosi               | 2040/02                                   | Appl. R-536 | 42.0  
|       | Tanzam (Tese Mining)                     | 51%  | Kigosi               | Relinquished 1/2 2040/02 (1st renewal)    | Appl. 3301  | 42.0  
|16     | Bazo Enterprises                         | 65%  | Kigosi               | 1775/01                                   | Appl. R-714 | 9.98  
|       | Bazo Enterprises                         | 65%  | Kigosi               | Relinquished 1/2 1775/01 (2nd renewal)    | Appl. 4184  | 9.98  
|157    | Y. Shekwavi (Bazo Enterprises)           | 65%  | Kigosi               | Relinquished 1/2 1775/01                  | 2927/04     | 19.80 
|17     | Afrigold Limited                         | 65%  | Kigosi               | 1796/01                                   | Appl. R-726 | 21.08 
|       | Afrigold Limited                         | 65%  | Kigosi               | Relinquished 1/2 PL 1796/01 (2nd renewal) | Appl. 4271  | 21.8  
|149    | Hasanet Ltd. (Afrigold Limited)          | 65%  | Kigosi               | Relinquished 1/2 1796/01 (1st renewal)    | 2925/04     | 41.82 
|18     | Martedo Investment                       | 65%  | Kigosi               | 1400/99                                   | 2449/04     | 34.28 
|19     | Tanzam                                   | 100% | Kigosi               | 2191/03                                   | Appl. R-635 | 73.99 
|       | Tanzam                                   | 100% | Kigosi               | Relinquished 1/2 PL 2191/03 (1st renewal) | Appl. 3776  | 73.41 
|20     | Abbys Mining Co                         | 65%  | Kigosi               | 1854/2001                                 | 1854/2001   | 67.87 
|159    | Tanzam (Abbys Mining Co.)               | 65%  | Kigosi               | Relinquished 1/2 1854/01                  | 3178/05     | 86.38 
|21     | Madaba Minerals Ltd.                     | 70%  | Lunguya              | 1887/02                                   | 1887/02     | 42.42 
|164    | Tanzam (Madaba Minerals Ltd.)            | 70%  | Lunguya              | Relinquished 1/2 1887/02                  | 3273/05     | 42.42 
|96     | Tanzam (Charles Shumbi)                  | 70%  | Kigosi               | Relinquished 1/2 1762/01                  | 2833/04     | 17.29 
|28     | Northern Mining Consultancy              | 60%  | Lunguya              | 1766/01                                   | Appl. R-700 | 17.855



34



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|       |                                       |     |              |                                           |             |       
|------ | ------------------------------------- | --- | ------------ | ----------------------------------------- | ----------- | ------
|Book # | JV Partner                            | JV% | Project Area | Old PL#                                   | New PL#     | Sq Km 
|       | Northern Mining Consultancy           | 60% | Lunguya      | Relinquished 1/2 PL 1766/01 (2nd renewal) | Appl. 4119  | 17.855
|93     | Tanzam (Northern  Mining Consultancy) | 60% | Lunguya      | Relinquished 1/2 1766/01                  | 2828/04     | 35.71 
|29     | Tanzam (Reapa Bus. Assoc. Inc.)       | 65% | Mbogwe       | 1942/02                                   | 1942/02     | 77.15 
|174    | Tanzam (Reapa Bus. Assoc)             | 65% | Mbogwe       | Relinquished 1/2 1942/02 (1st renewal)    | 3495/05     | 77.15 
|30     | Tanzam (Abbys Mining Co.)            | 65% | Lunguya      | 2193/03                                   | Appl. R-637 | 40.57 
|       | Tancan (Abbys Mining Co.)            | 65% | Lunguya      | Relinquished 1/2 PL 2193/03 (1st renewal) | Appl. 3775  | 40.57 
|31     | Tanzam (Abbys Mining Co.)            | 65% | Mbogwe       | 2194/03                                   | Appl. R-634 | 69.73 
|       | Tancan (Abbys Mining Co.)            | 65% | Mbogwe       | Relinquished 1/2 PL 2194/03               | Appl. 3774  | 68.44 
|32     | Tanzam (Abbys Mining Co.)            | 65% | Mbogwe       | 2195/03                                   | Appl. R-636 | 82.29 
|       | Tancan (Abbys Mining Co.)            | 65% | Mbogwe       | Relinquished 1/2 PL 2195/03 (1st renewal) | Appl. 3773  | 78.87 
|33     | JSN Limited                           | 70% | Itetemia     | 1300/99                                   | 2374/04     | 13.41 
|34     | Dalles & Shamwada                     | 65% | Biharamulo   | 1269/99                                   | 2510/04     | 102.9 
|35     | Germina Lukuvi                        | 65% | Kanegele     | 1815/01                                   | 1815/01     | 18.96 
|36     | Zahabu Investments                    | 70% | Lunguya      | 2059/02                                   | Appl. R-553 | 17.12 
|183    | Tanzam (Zahabu Investments)           | 70% | Lunguya      | Relinquished 1/2 PL 2059/02 (1st renewal) | 4074/06     | 17.14 
|37     | Fenites Limited                       | 70% | Lunguya      | 1307/99                                   | 2472/04     | 51.25 
|38     | Afrigold Limited                      | 70% | Mbogwe       | 1308/99                                   | 2455/04     | 143.4 
|42     | JSN Limited                           | 65% | Kanegele     | 2056/02                                   | Appl. R-555 | 11.37 
|184    | Tanzam (JSN Limited)                  | 65% | Kanegele     | Relinquished 1/2 PL 2056/02 (1st renewal) | 4075/06     | 11.77 
|43     | Afrigold Limited                      | 65% | Kanegele     | 1311/99                                   | 2502/04     | 51.41 
|45     | Sigo Gems                             | 65% | Kigosi       | 1853/2001                                 | 1853/2001   | 11    
|162    | Tanzam (Sigo Gems)                    | 65% | Kigosi       | Relinquished 1/2 1853/01 1st renewal)     | 3181/05     | 11    
|47     | Digitel Holdings                      | 70% | Geita        | 1086/98                                   | 2506/04     | 51.45 
|50     | Tamo Geo-Consult                      | 80% | Ushirombo    | 1401/99                                   | 1401/99     | 38.09 
|81     | Tanzam (Tamo Geo-Consult)             | 80% | Ushirombo    | Relinquished 1/2 1401/99 (1st renewal)    | 2466/04     | 74.60 
|180    | Barrick (Tanzam)
(Tamo Geo-Consult)   | 80% | Ushirombo    | Relinquished 1/2 1401/99 (2nd renewal)    | 3073/05     | 36.60 
|74     | Tanzam (Tamo Geo-Consult)             | 80% | Ushirombo    | Relinquished 1/2 1402/99
(2nd renewal)    | 3102/05     | 21.81 



35



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|       |                               |      |              |                                           |             |       
|------ | ----------------------------- | ---- | ------------ | ----------------------------------------- | ----------- | ------
|Book # | JV Partner                    | JV%  | Project Area | Old PL#                                   | New PL#     | Sq Km 
|53     | Tangulf Express Ltd.          | 85%  | Majimoto     | 2070/02                                   | Appl. R-556 | 25.41 
|182    | Tanzam (Tangulf Express Ltd.) | 85%  | Majimoto     | Relinquished 1/2 PL 2070/02 (1st renewal) | 4073/06     | 25.41 
|54     | RSR (T) Ltd.                  | 90%  | Mwadui       |                                           | 2513/04     | 8.381 
|55     | RSR (T) Ltd.                  | 85%  | Kanegele     |                                           | 2514/04     | 59.42 
|56     | Teddy & Co.                   | 90%  | Igunga       |                                           | 2541/04     | 58.23 
|57     | Hasanet Limited               | 90%  | Mwadui       | 2285/03                                   | Appl. R-681 | 51.35 
|       | Hasanet Limited               | 90%  | Mwadui       | Relinquished 1/2 PL 2285/03 (1st renewal) | Appl. 4034  | 51.35 
|58     | State Mining Co.              | 80%  | Nzega        |                                           | 2576/04     | 103.8 
|60     | F. Mjasambu & Partners        | 90%  | Mwadui       |                                           | 2701/04     | 28.44 
|61     | Tanzam                        | 100% | Mwadui       |                                           | 2704/04     | 14.75 
|62     | Tanzam                        | 100% | Mwadui       |                                           | 2705/04     | 128.3 
|63     | Tanzam                        | 100% | Kabanga      | PLR 2707/04 (1st renewal)                 | Appl. R-722 | 198   
|64     | Tanzam                        | 100% | Kabanga      |                                           | 2708/04     | 64.04 
|65     | Abbys Mining Co.             | 90%  | Kanegele     |                                           | 2688/04     | 13.71 
|66     | Tanzam                        | 100% | Kabanga      |                                           | PLR 2827/04 | 146.2 
|67     | Tanzam                        | 100% | Kabanga      |                                           | PLR 2831/04 | 117.3 
|68     | Hydro-Geos Consulting         | 90%  | Mwadui       |                                           | PLR 2813/04 | 217.8 
|69     | Tanzam                        | 100% | Kabanga      |                                           | PLR 2706/04 | 428.4 
|70     | Assalaam Almasi               | 85%  | Mwadui       |                                           | 2843/04     | 72.0  
|71     | Givex Company Limited         | 90%  | Kibara       |                                           | 2785/04     | 90.96 
|73     | B. Nguka                      | 85%  | Kanagele     |                                           | 3098/05     | 57.42 
|75     | F.Mbaga                       | 85%  | Kibara       |                                           | 2931/04     | 127.50
|76     | Tanzam                        | 100% | Igunga       |                                           | 3112/05     | 26.26 
|77     | Tanzam                        | 100% | Mwadui       |                                           | 3113/05     | 22.70 
|78     | Mdabwa/Yusufu                 | 90%  | Kibara       |                                           | 3146/05     | 103.0 
|150    | RSR (Tanzania) Limited        | 85%  | Mwadui       |                                           | 2462/04     | 51.43 
|151    | F. Mbaga                      | 85%  | Nzega        |                                           | 2930/04     | 64.35 
|156    | Tanzam                        | 100% | Kabanga      |                                           | PLR 2966/04 | 694.20
|158    | B. Nguka                      | 85%  | Mwadui       |                                           | 3172/05     | 99.70 
|160    | Tanzam                        | 100% | Mwadui       |                                           | 3179/05     | 107.10
|163    | Tanzam                        | 100% | Kabanga      |                                           | PLR3272/05  | 2779.0
|168    | Tanzam                        | 100% | Kibara       |                                           | 3314/05     | 2.79  
|170    | Assalaam Almasi Ltd           | 80%  | Mwadui       |                                           | 2465/804    | 32.96 
|171    | Trust Marck Investment Ltd.   | 90%  | Manonga      | 2069/02                                   | Appl. R-554 | 31.38 
|181    | Trust Marck Investment Ltd.   | 90%  | Manonga      | Relinquished 1/2 PL 2069/02 (1st renewal) | 4072/06     | 30.59 



As of the date hereof, Tancan holds interests in the following prospecting licenses:



|       |                          |           |              |         |         |      
|------ | ------------------------ | --------- | ------------ | ------- | ------- | -----
|Book # | License Holder           | TancanJV% | Project Area | Old PL# | New PL# | Sq Km
|101    | Itetemia Mining Co. Ltd. | 90%       | Itetemia     | 1450/00 | R-370   | 9.287



36



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|       |                                   |      |              |                                           |             |       
|------ | --------------------------------- | ---- | ------------ | ----------------------------------------- | ----------- | ------
|Book # | JV Partner                        | JV%  | Project Area | Old PL#                                   | New PL#     | Sq Km 
|166    | Tancan (Itetemia Mining Co. Ltd.) | 90%  | Itetemia     | Relinquished 1/2 1450/00
(2nd renewal)    | 3308/05     | 9.287 
|84     | Itetemia Mining Co. Ltd.          | 90%  | Itetemia     | Relinquished 1/2   1450/00
(1st renewal)  | 2523/04     | 18.57 
|102    | Tancan                            | 100% | Luhala       | 1451/00                                   | 1451/00     | 13.93 
|169    | Tanzam (Tancan)                   | 100% | Luhala       | Relinquished 1/2
1451/00
(2nd renewal)    | 3315/05     | 13.93 
|83     | Tancan                            |      | Luhala       | Relinquished 1/2   1451/00
(1st renewal)  | 2519/04     | 27.865
|104    | Tancan                            | 100% | Itetemia     | 2038/02 (1st renewal)                     | Appl. R-537 | 8.574 
|106    | Tancan                            | 100% | Itetemia     | 1612/00                                   | 1612/00     | 2.91  
|85     | Tancan                            | 100% | Itetemia     | Relinquished 1/2 PL 1612/00 (1st renewal) | 2578/04     | 5.82  
|108    | Widescope Promotion               | 100% | Luhala       | 1559/00                                   | 1559/00     | 6.0   
|109    | Widescope Promotion               | 100% | Luhala       | 1560/00                                   | 1560/00     | 10.29 
|110    | Tancan                            | 100% | Luhala       | Relinquished 1/2 PL 2297/03               | Appl. 4086  | 1.86  
|113    | Dia Consult Ltd.                  | 100% | Tulawaka     | 427/96                                    | 2473/04     | 54.01 
|98     | Dia Consult Ltd.                  | 100% | Tulawaka     | Relinquished 1/2 PL 427/96 (1st renewal)  | 2803/04     | 55.76 
|124    | Charles Shumbi                    | 90%  | Kanagele     | 1375/99                                   | 1375/99     | 5.26  
|       | Charles Shumbi                    | 90%  | Kanagele     | Relinquished 1/2 PL 1375/99               | Appl. 4023  | 5.26  
|92     | Tancan (Charles Shumbi)           | 90%  | Kanagele     | Relinquished 1/2 1375/99
(2nd renewal)    | 2699/04     | 5.415 
|99     | Tancan (Charles Shumbi)           | 90%  | Kanagele     | Relinquished 1/2 (1st renewal)            | 2883/04     | 10.5  
|125    | Mega Deposit Explorers            | 90%  | Kigosi       | PLR 2019/02                               | PL 3507/05  | 180.0 
|72     | Tancan (Mega Deposit Explorers)   | 90%  | Kigosi       | Relinquished 1/2 PL 3507/05 (1st renewal) | 3070/05     | 315.2 
|130    | Dismas Calist                     | 90%  | Shinyanga    | 2217/03                                   | Appl. R-667 | 61.08 
|       | Dismas Calist                     | 90%  | Shinyanga    | Relinquished 1/2 2217/03                  | Appl. 3876  | 61.08 
|131    | Makweba/Kusundwa                  | 90%  | Tulawaka     | 2295/03                                   | Appl. R-688 | 17.51 
|       | Makweba/Kusundwa                  | 90%  | Tulawaka     | Relinquished 1/2 PL 2295/03 (1st renewal) | Appl. 4085  |       
|132    | Eb-Hance Co.                      | 90%  | Kibara       | 2308/03                                   | Appl. R-708 | 26.675
|       | Eb-Hance Co.                      | 90%  | Kibara       | Relinquished 1/2 PL 2308/03 (1st renewal) | Appl. 4158  | 26.67 



37



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|       |                                  |      |                |                                            |             |       
|------ | -------------------------------- | ---- | -------------- | ------------------------------------------ | ----------- | ------
|Book # | JV Partner                       | JV%  | Project Area   | Old PL#                                    | New PL#     | Sq Km 
|133    | Mussah Mussah                    | 90%  | Nyanzaga North | 2279/03                                    | Appl. R-682 | 17.895
|       | Mussah Mussah                    | 90%  | Nyanzaga North | Relinquished 1/2 PL 2279/03 (1st renewal)  | Appl. 4033  |       
|134    | Hasanet Ltd.                     | 90%  | Manonga        | 2272/03                                    | Appl. R-680 | 27.41 
|       | Hasanet Ltd.                     | 90%  | Manonga        | Relinquished 1/2 PL 2272/03 (1st renewal)  | Appl. 4035  |       
|135    | Trust Marck Investments          | 90%  | Manonga        | 2007/02                                    | Appl. R-526 | 5.235 
|179    | Tancan
(Trust Marck Investments) | 90%  | Manonga        | Relinquished 1/2 PL 2007/02 (1st renewal)  | PL 3819/05  | 5.402 
|136    | Mbonimpa, J&F                    | 90%  | Manonga        |                                            | 2461/04     | 116.5 
|137    | Bey & Daniel                     | 90%  | Manonga        | 1817/01                                    | 1817/01     | 18.98 
|154    | Tancan (Bey & Daniel)            | 90%  | Manonga        | Relinquished 1/2
1817/01 (1st renewal)     | 2969/04     | 18.95 
|138    | Hasanet                          | 90%  | Manonga        |                                            | 2487/04     | 24.84 
|139    | Dismast Calist                   | 90%  | Igunga         |                                            | 2458/04     | 152.4 
|140    | Tancan                           | 100% | Manonga        |                                            | 2655/04     | 75.65 
|142    | Tancan                           | 100% | Manonga        |                                            | 2657/04     | 120.3 
|143    | Tancan                           | 100% | Manonga        |                                            | 2658/04     | 100.3 
|144    | Tancan                           | 100% | Manonga        |                                            | 2667/04     | 7.7   
|145    | Tancan                           | 100% | Igunga         |                                            | 2668/04     | 30.25 
|146    | Tancan                           | 100% | Manonga        |                                            | 2669/04     | 91.58 
|147    | Tancan                           | 100% | Igunga         | PLR 2670/04                                | Appl. R-707 | 109.65
|       | Tancan                           | 100% | Igunga         | Relinquished 1/2 PLR 2670/04 (1st renewal) | Appl. 4157  | 109.65



The total land area currently held under license is approximately 10,762 km2.



History



Prior to Tanzams acquisition of the original fifty-two prospecting licenses (PL), little systematic work using modern exploration methods had been undertaken on the licenses. Tanzam acquired the licenses through negotiation with local vendors and prospectors, and by direct application to the Geological Survey (Madini), within the Mineral Resources Department of the Ministry of Water, Energy and Minerals of Tanzania.



Tanzams interest in the prospecting licenses is variable, depending on the agreements with the individual vendors. However, it is common to all agreements with the vendors that Tanzam has exclusive rights to sell the project to a third party without restraint. Compensation to the vendors remains the responsibility of Tanzam.



Tanzam has granted to BEAL an option to acquire the total rights, titles and interests held by Tanzam in the following prospecting license:



PL 2374/03



If such option is exercised, Tanzam is entitled to (i) certain payments after the Commercial Production Date (as defined) with respect to the first mine constructed by BEAL on any property covered by the license; and (ii) a 1.5% net smelter return (which may, in certain circumstances, be reduced).





38



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The Company has deferred total net costs of $20,356,725 on all of the Lake Victoria Goldfields Properties to August 31, 2006.



Mineralisation



Lake Victoria Goldfields Belt



The Lake Victoria Goldfields have produced the greatest proportion of Tanzanias mineral wealth and are still the most fertile and prospective for gold exploration.  Ninety percent of Tanzanias gold production to 1991 had come from the district and new production is likely.  Significant gold resources have been discovered in the Lake Victoria Goldfields in the last decade by other third parties.



Artisanal Gold Mining



Official estimates indicate that artisanal gold mining in Tanzania produces 8 to 15 tonnes of gold per annum. Black market dealers have previously purchased most of this production, but Meremeta (a state-owned gold company) has set up regional buying centres to capture most of this production. The net benefit is both to the State in gaining foreign currency, and to the artisanal miners who can sell gold at set prices based on world commodity markets.



Historically, artisanal miners have only operated on a cash basis, i.e. where the gold grade was less than approximately 40g/t, the artisanals could not profitably mine the ore.  Artisanals actively explored the Lake Victoria Goldfields, and have discovered several significant deposits that are currently being developed commercially by other mining companies.



Geology



Tanzania is underlain by the Tanzanian Craton, a crustal block of predominately Archaean (>2,500 Ma) rocks surrounded and overlain by younger sediments and mobile belts.  It is one of the core blocks of Africa, and is essentially a continuation of the Congo Craton.



The Lake Victoria Goldfields consist of a granite greenstone terrain that extends northwards into SW Kenya.  The internal stratigraphy of the greenstone belts is reasonably well constrained.  It consists of a lower, essentially mafic, volcanic unit in which ultramafic rocks are rare, overlain by chemical and classic sediments and then felsic volcanics.  This assemblage is called the Nyanzian Group.  The Nyanzian Group is unconformably overlain by a classic sedimentary sequence, also Archean, known as the Kavirondian Group.  These sediments contain clasts of all Nyanzian lithogies, some of which appear to have been deformed before erosion.  In addition they contain debris of some granitoids.  However, the main period of granitoid emplacement post-dates the Kavirondian.  Although there was early tectonism, the main pervasive deformation post-dates the bulk of the granites, imparting a foliation to all these lithogies.  Some Archaean granitoids of the Belt appear to pot-date this foliation.  Further discussion on the regional and local geology is set out above, under the section on Geology for the Itetemia Property.



Exploration



Kibara Property



Following up on gold anomalies previously recognized by regional BLEG sampling and on high copper and gold values from one grab sample in March and June of 2004, field crews collected 12 grab samples, mostly as float, which were submitted for analysis. Many of these samples were noted in the field to have high copper concentrations.



In addition, a 100m x 100m grid was established over the initial copper-gold anomaly and soil samples were collected for multi-element analysis. Assessment of this multi-element data is still in progress but maximum values of 0.198 ppm and 2760 ppm were observed for gold and copper respectively.  The preliminary grab



39



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sampling results from the Nyakona Hill area on its Kibara project in the Lake Victoria goldfields of northwest Tanzania yielded the following assay results:



|          |                        |           
|--------- | ---------------------- | ----------
|Sample No | Gold
(grams per tonne) | Copper
(%)
|J-6733    | 3.33                   | 18.15     
|J-6734    | 2.20                   | <1%       
|J-6735    | 1.45                   | 1.25      
|J-6736    | 0.73                   | <1%       
|J-6737    | 2.80                   | 17.15     
|J-6738    | 1.25                   | <1%       
|J-6739    | 0.03                   | <1%       
|J-6740    | 3.44                   | 6.61%     
|J-6741    | 3.27                   | 5.70%     
|J-6742    | 0.15                   | <1%       
|J-6743    | 0.02                   | <1%       
|J-6744    | 0.09                   | <1%       





All rock samples were analyzed by fire assay with an ICP-MS finish, with ore grade values undergoing fire assay with an AA finish.  Soils were analyzed for gold by fire assay with an ICP-MS finish, and up to 34 elements using AR and ICP-AES.  All analyses were undertaken by ALS Chemex in Brisbane, Australia.



Significant assay results were received in March 2006 from a trenching program on the Companys Kibara Gold Project, with 20 samples returning values exceeding 1.22 g/t gold. In addition to the gold values, encouraging copper and silver assay results were received from the trenching program. Seventeen samples returned values greater than 1% Cu, nine samples returned values greater than 5% Cu, and four values were above 10% Cu. Silver values ranged from detection levels to 87 g/t (2.5 oz/ton).



In 2006, the Company undertook a regional Biogeochemistry (BGC) program on a 400 metres x 200 metres grid system. Some 3,567 samples were collected and  submitted to Acme Vancouver for analysis. Results have been received and are currently being analyzed.



The Company has incurred total net costs (after any recoveries) of $162,775 on the Kibara Property  to August 31, 2006.



Shinyanga Project



TheShinyanga license is situated amongst the scattered greenstone units of the Shinyanga greenstone belt some 25 kilometres  north of the Nzega greenstone belt. Principal rock types include meta-basalt with quartz veinlets, banded iron formation (BIF), granite and diabase dykes. Greenstone cover is estimated at 50% with the balance comprising granitic rocks. There are also known kimberlite occurrences within this project area that could be prospective for diamonds.



In June 2005, drilling commenced on the Companys 120 square kilometers Shinyanga Property in the southeastern portion of the Lake Victoria Greenstone Belt in Tanzania. Approximately 6,000 metres of rotary drilling was planned, comprising about 300 shallow holes.



Four trenches were excavated in September 2004 at Shinyanga directly beneath areas defined by anomalous quartz debris samples. The overall Shinyanga gold anomaly is at least 4 kilometres long by 1 kilometre wide and is open to the west where it disappears under overburden. A single trench at Shinyanga intersected an alternating sequence of meta-basalt and meta-diorite with a strong foliation and quartz veining along the contact zones.  The quartz veins are typically thin, being less than 20 centimetres, but they contain high



40



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grade gold intersections, with selected grab samples carrying up to 65 grams per tonne gold. As reported on November 10, 2004, re-sampling of the trench, taking true width channel samples along the best zone in the south-facing sidewall, returned the following intersections:

|                    |                               |                             
|------------------- | ----------------------------- | ----------------------------
|Rock Type           | Sample Width
(Channel Sample) | Gold Grade
(Grams per tonne)
|Footwall diorite    | 0.5 m                         | 0.03                        
|Footwall basalt     | 0.5 m                         | 0.49                        
|Quartz vein         | 15 cm                         | 10.3                        
|Foliated basalt     | 30 cm                         | 0.39                        
|Quartz vein         | 8 cm                          | 10.3                        
|Hanging wall basalt | 0.5 m                         | 1.02                        



The license is situated amongst the scattered greenstone units of the Shinyanga greenstone belt, some 25 kilometres to the north of the Nzega greenstone belt. Principal rock types include meta-basalt with quartz veinlets, banded iron formation (BIF), granite and diabase dykes. Greenstone cover is estimated at 50% with the balance comprising granitic rocks. There are also known kimberlite occurrences within this project area that could be prospective for diamonds.



During the period July-August 2005, Rotary Air Blast (RAB) drilling in the Shinyanga Project area succeeded in identifying a north-westerly trending zone of gold mineralization along three drill fences.  This trend is supported by anomalous gold in soil values and a single anomalous biogeochem value.  The gold trend identified by the drilling follows the trend of a prominent depression that could be interpreted as a shear/fault zone, which appears to follow the regionally important trend direction that plays host to the Bulyanhulu gold mine.  Within the Shinyanga Project Area, RAB drilling was completed on the Manghongo PL and 107 RAB holes were drilled, totaling 2,188 metres.  In addition, seven reverse circulation (RC) holes were drilled, comprising 141 metres.  In August 2005, a total of 686 samples were submitted for gold analysis and two batches for multi-element analyses from BGC anomalies.



A follow-up RC program was completed in January 2006. Drilling was conducted over the Eastern and Central mineralized zones that gave the best RAB intersections. The drilling consisted of 16 drill holes aggregating 784 metres. In addition, 316 samples were collected and submitted to Humac Lab in Mwanza for gold analysis.  From the drilling it is evident that the Central Zone is conducive to the deposition of gold mineralization albeit of low grade. It appears that there are two zones of gold mineralization, one thick low grade zone and a thinner higher grade zone.



The Company has incurred total net costs (after any recoveries) of $108,998 on the Shinyanga Property to August 31, 2006.



Kigosi Project



The Kigosi Property forms part of the greenschist-amphibolite facies metamorphic belts of the Kigosi-Miyabi Granite-Greenstone Terrain situated in the southwestern Sukumaland Greenstone Belt. The terrain is bounded to the south by the Kigosi-Haneti Granitoid Tectonic Zone of extensive granite intrusions and deep-seated lineaments.



The Project hosts gold mine workings that were discovered and have been worked on by local artisans for decades. Subsurface geology in these workings sub-crops intermittently along a strike length of at least 4.8-kilometres.  No exploration activities were performed on the Kigosi property during fiscal 2006.



Kanagele Project



In February 2005 heavy mineral analysis of sample material from the Kanegele project area returned



41



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mostly ilmenite diamond indicator minerals. In total, 15 ilmenite grains were picked from one sample site, the highest number collected from a single sampling point to date. The grains appear to be associated with nearby magnetic targets which should simplify follow-up work.  An auger drill program similar to that which was carried out on the Geita Project area was carried out in the Kanagele project area.  This program confirmed that several mineral indicator grains from this prospect had a kimberlite source, the principal host rock for diamonds.  Grab samples returned anomalous gold values from artisanal workings within Banded Iron Formation which are considered prospective for large tonnage mineral deposits.  Drilling commenced on the Shenda License in mid-August 2005 and was completed in September.  The Shenda Prospecting License represents the second license where the biogeochemical method is being tested by drilling various shallow geochemical holes.  A total of 316 holes were drilled totaling 3,647 metres.  In addition, six RC holes were drilled totaling 258 metres.  In one of the holes, vein material up to 3.0 metres thick was encountered, along with a sulphide-rich layer in the footwall vein.  Two drill holes intersected a pegmatite containing pyrite that is considered to have more potential than the actual reef structure that was the programs primary target.  The majority of the Shenda PL consists of unaltered, undeformed granite.  Of the entire program, 23 homes intersected quartz veining that was typically thin, although two holes intersected thicker veins ranging from 2-3 metres.



Rotary drilling commenced on the Shenda License in mid-August 2005 and was completed in September 2005. The Shenda Prospecting License represents the second license where the Companys biogeochemical method was tested by drilling various shallow geochemical holes.  A total of 316 holes were drilled totaling 3,647 metres.  In addition, six RC holes were drilled totaling 258 metres. Due to discouraging results this license was returned to the vendor. No exploration activities were performed on the remainder of the Kanagele property during fiscal 2006.  The Company has incurred total net costs (after any recoveries) of $1,077,512 on the Kanagele Property to August 31, 2006, net of write off of $291,480.





Ushirombo West Project Area



In March 2005 an extensive auger drilling program was carried out in the  Ushirombo West Project area region to test areas with anomalous gold values.  Microprobe analysis confirmed that a chromite grain discovered in the Ushirombo West Project Area had a kimberlite source.



Limited exploration activities were performed on the Ushirombo West property during fiscal 2006.  The Company has incurred total net costs (after any recoveries) of $237,223 on the Ushirombo West Property to August 31, 2006.



Igunga Project



During June 2005, 1,936 samples were collected from 39 traverses covering 387 square kilometres in the Igunga Project Area, which was also botanically mapped by a BGC field crew to establish plant associations and distribution patterns.  A small greenstone occurrence exists on the extreme southwest corner of this License.  BGC sampling of the Itunduru License in the Igunga Project Area continued during July 2005 and 3,742 samples were collected from 74 traverses covering 327.75 line kilometres.  The purpose of this program was to establish plant associations and distribution patterns.  A limited follow-up BCG program was carried out on the Igunga Property during fiscal 2006.



Geita Project Area



In June 2005, a follow-up stream sampling program returned kimberlitic grains from a target area that produced favourable results in 2004.  Further sampling and ground magnetic work are planned on this particular target area.  Limited exploration activities were performed on the Geita property during fiscal 2006.  The Company has incurred total net costs (after any recoveries) of $361,053 on the Geita Property to August 31, 2006.





42



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Diamond Exploration



Stream sediment sampling and auger drilling programs carried out in the fall of 2004 returned diamond indicator minerals from several properties that will be the subject of follow-up work during the 2005 exploration period.  The 2005 diamond exploration program consisted of sampling for diamond indicator minerals carried out on two magnetic targets in the Geita Project area using an auger drill.



Ground magnetic surveys were completed on kimberlite targets in the Mwadui, Igunga and Nzega Project areas in September 2005 and these targets were subsequently tested by a RAB drilling program a short time later in November.  Five previously known kimberlite bodies were intersected at Mwadui along with two new pipes. In addition, two brand new kimberlite pipes were discovered at Igunga and another two at Nzega for a grand total of 11. One of the pipes at Nzega occurs close to artisanal diamond activity for alluvials in a nearby river bed.  Subsequent testing confirmed that a range of diamondiferous kimberlite indicator minerals including G10and G3garnets were identified in four kimberlite pipes on its Nzega and Igunga Project Areas. Based on the probed results from the kimberlites at Igunga and Nzega, both project areas have potential to host diamondiferous kimberlites.



THE LAKE VICTORIA GOLDFIELDS PROPERTIES ARE WITHOUT KNOWN MINERAL RESERVES AND ANY EXPLORATION PROGRAM IS AN EXPLORATORY SEARCH FOR ORE.



Drill Rig



In April 2005, the Companys drill rig and support vehicle was delivered. The unit is a combination Reverse Circulation (RC) and Rotary Air Blast (RAB) drill rig with a rod storage capacity of 14 tonnes.  In order to ensure maximum mobility and efficiency, the drill rig was assembled on a reconditioned Samil 100 truck and is coupled with an Ingersoll Rand XHP900SCAT air compressor. A similar truck fitted with a 3,000 litre water tank and a 3,000 litre diesel tank will be used to support drilling operations.



Accessory equipment includes 200 metre sets of RAB and RC drill rods with percussion hammers and drill bits and basic spares that should ensure continuity of drilling.. The spares and stores will be accommodated in Mwanza in a store house / maintenance depot consisting of two storage containers and an office which are presently being refurbished.   The drill management team working out of the Company's Mwanza office gathered the necessary documents and crews ready for the drill program. The entire crew attended a safety and first aid course conducted by the Company's security contract company, Knight Support Tanzania Ltd.  The Companys RC/RAB drill rig was in constant use during fiscal 2006 carrying out drilling programs on several of the Companys properties.



Biogeochemistry



A key component in the Companys optimization of its exploration process is the deployment of biogeochemistry techniques in its field programs.  One of the major problems confronting mineral explorers in the Lake Victoria Greenstone Belt - and for that matter in most other greenstone belts in the world - is the presence of deep overburden which frequently masks the existence of favorable host rocks for gold, diamonds and other mineral commodities.



Biogeochemical protocols have been developed relating to the selection and analysis of sample materials and specially-trained crews have been put into the field to gather samples for analysis. In addition, a biogeochemistry laboratory has been established in Mwanza for the preparation of sample materials which are then sent to independent laboratories.  In order to protect its internally developed biogeochemical methodology via international laws governing intellectual property, the Company has submitted a patent application which is currently pending legal review.   The BGC program of collecting and analyzing samples continued throughout fiscal 2006.





43



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Item 5.

Operating and Financial Review and Prospects



This discussion and analysis of the operating results and the financial position of the Company for the years ended August 31, 2006, 2005, and 2004, and should be read in conjunction with the consolidated financial statements and the related notes attached hereto.



Critical Accounting Policies



The Company is in the process of exploring its mineral properties and has not yet determined whether these properties contain mineral deposits that are economically recoverable.  The recoverability of the amounts shown for mineral properties and related deferred costs are dependent upon the existence of economically recoverable reserves, securing and maintaining title and beneficial interest in the properties, obtaining necessary financing to explore and develop the properties, and upon future profitable production or proceeds from disposition of the mineral properties.



In accordance with Canadian generally accepted accounting principles, acquisition costs and exploration and development costs relating to mineral properties are deferred until the properties are brought into production, at which time they are amortized on a unit-of-production basis, or until the properties are abandoned or sold or management determines that the mineral property is not economically viable, at which time the deferred costs are written off.  Option payments on mineral properties are exercisable at the discretion of the Company and, accordingly, are only recognized as paid.



Amounts recovered from third parties to earn an interest in the Companys mineral properties are applied as a reduction of the deferred exploration costs.  The amounts shown as deferred expenditures and property acquisition costs represent net costs to date, less amounts amortized and/or written off, and do not necessarily represent present or future values.



Overhead costs directly related to exploration are allocated to the mineral properties explored during the year and are deferred and amortized using the same method applied to property-specific exploration costs.  All other overhead and administration costs are expensed in the year they are incurred.



For the purposes of United States generally accepted accounting principles (US GAAP), the Company expenses all exploration expenditures made prior to commercially mineable deposits being identified.  Property acquisition costs are capitalized as incurred and are subject to impairment analysis on occurrence of a triggering event.   See Note 11(a) of the Consolidated Financial Statements of the Company.



The Consolidated Financial Statements utilize estimates and assumptions principally regarding mineral properties, going concern and future income taxes and stock-based compensation, that reflect managements expectations at the date of preparation.  Events or circumstances in the future, many of which are beyond the control of the Company, may impact these expectations and accordingly could lead to different assumptions and estimates from those utilized.  Factors that could impact the estimates and assumptions that were made at the date of preparation of the Consolidated Financial Statements have been previously discussed under the heading Risk Factors.



A.

Operating Results



The following discussion and analysis of the financial condition and operating results of the Company for the three years ended August 31, 2006, 2005 and 2004 should be read in conjunction with the Consolidated Financial Statements and related notes to the financial statements which have been prepared in accordance with Canadian GAAP.  The discussion and analysis set for the below covers the results measured under Canadian GAAP.  Material differences between the application of Canadian GAAP and U.S. GAAP to the Companys audited financial statements exist as described in Note 11 to the Consolidated Financial Statements.



44



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Fiscal year ended August 31, 2006 compared to fiscal year ended August 31, 2005



The loss before income tax in 2006 was $4,327,000; a $748,000 increase from last years loss before income taxes of $3,579,000. The major reason for the higher loss before income taxes in 2006 was due to increases of write off of Mineral properties and deferred exploration costs of $60,000, professional fees of $338,000 and $134,000 in stock-based compensation expense.  During the year, professional fees increased as the Company was engaged in litigation which amounted to $243,000; year end audit fees increased by $40,000 and legal fees relating to the issuance of the RSUs was approximately $50,000.  Property investigation costs decreased to $24,000 from $134,000 due to a concentrated effort in drilling properties owned.  The 2006 foreign exchange loss of $140,000 is consistent with that of 2005.  Net interest earned was $23,000 for the year ending August 31, 2006, an increase of $34,000 from 2005 due to higher cash balances in 2006.  The increase in Transfer Agent and Listing fees from $140,000 for the year ended August 31, 2005 to $205,000 is largely due to the listing on the American Stock Exchange.  The increase in Salaries and Benefits from $691,000 for the year ending August 31, 2005 to $765,000 for the current year is a result of both a larger staff to accommodate the operation of the drill rig and a higher wage level to remain competitive with local salary scales.



The Company recorded a non-cash future income tax recovery of $648,000 during the year ended August 31, 2005 due to additional tax basis accumulating in Tanzania in excess of the carrying value of mineral properties and deferred exploration costs.  No such recovery was recorded in the current year, resulting in a loss for the year of $4,327,000 compared to a loss of $2,931,000 in the prior year.



Fiscal year ended August 31, 2005 compared to fiscal year ended August 31, 2004



The loss before income tax in 2005 was $3,578,628; a $1,962,264 increase from 2004 loss before income taxes of $1,616,364. The major reason for the higher loss before income taxes in 2005 was the write-off of deferred mineral property and exploration costs of $1,629,932 on the abandonment of certain mineral properties in 2005.  There was no abandonment or write-off of deferred exploration costs in 2004. A loss on foreign exchange of $134,650 was incurred in 2005 as compared to a gain of $48,630 in 2004.  The 2005 foreign exchange loss  is a result of exchange-related losses associated with the decline in value of the US dollar and Tanzanian shilling relative to the Canadian dollar.  Net interest earned has decreased from $30,626 for the year ending August 31, 2004 to an expense of $11,488 for 2005.  The reduction in interest earned is a reflection of the sale of high interest yielding bonds and includes interest paid on the interim financing and the Companys capital lease obligation for the Companys drill rig.  The increase in insurance expense from $65,744 for the year ending August 31, 2004 to $97,412 for 2005 and the increase in amortization from $54,643 for the year ending August 31, 2004 to $88,981 for 2005 are both attributable to the acquisition of the drill rig and its ancillary equipment.  The increase in Transfer Agent and Listing fees from $68,895 for the year ended August 31, 2004 to $140,166 is largely due to the listing on the American Stock Exchange.  The increase in Salaries and Benefits from $604,368 for  the year ending August 31, 2004 to $691,059 for 2005 is a result of both a larger staff to accommodate the operation of the drill rig and a higher wage level to remain competitive  with local salary scales.  Some of these increased expenses have been offset by a reduction in Professional Fees from $201,167 for the year ending August 31, 2004 to $147,333 for 2005 and a reduction in Property Investigation costs from $254,991 for the year ending August 31, 2004 to $133,627 for 2005.  Professional Fees were reduced due to the successful initial completion of the Form 20-F in 2004 and Property Investigation Costs have decreased due to the focus on exploring properties held in inventory rather than increasing our portfolio of properties.  The Company recorded a recovery in capital taxes during the year end August 31, 2004 of $46,052, and no such recovery was incurred in the 2005 year.



The Company recorded a non-cash future income tax recovery of $647,565 during the year ended August 31, 2005 due to additional tax basis accumulating in Tanzania in excess of the carrying value of mineral properties and deferred exploration costs.  No such recovery was recorded in the prior year, resulting in a loss for the year of $2,931,063 compared to a loss of $1,616,364 in the prior year.





45



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Inflation



Historically, inflation has not affected the Companys business in the current locations where it is doing business and the Company does not expect it to affect the Companys operations in the future.



B.

Liquidity and Capital Resources



The Company had $3,175,000in cash at August 31, 2006, compared to $1,396,000 as at August 31, 2005.  The Company had working capital of $2,838,000 at August 31, 2006, compared to $1,389,000  at August 31, 2005.  Although the Company believes it has enough resources through working capital and share subscription agreements to finance operations for its 2007 fiscal year, ultimately the Company will need to obtain additional financing to sustain operations at the present rate of activity.  Historically, the Company has raised funds through equity financing, entering into joint venture or royalty agreements with other mining companies, and the exercise of options and warrants to fund its operations.  The Companys funding requirements by major expenditure category, listed in order of priority are:



(a)

exploration work,

(b)

new property investigations, and

(c)

general and administrative costs.



Exploration work and new property investigations can generally be deferred until adequate capital resources are available, and general and administrative costs can be reduced during periods when funding is not available.



At this time, the Company has no operating revenues, and does not anticipate any operating revenues unless the Company is able to find, acquire, place in production and operate a profitable mining property.



In February 2005, the Company completed the twenty-fourth (24) tranche of a twenty-four (24) tranche private placement pursuant to a Subscription Agreement dated March 5, 2003 made between the Company and James E. Sinclair, Chairman and Chief Executive Officer of the Company for the purchase of 2,137,629 common shares for $2,950,000.



The Company also completed a $1,000,000 private placement pursuant to a separate Subscription Agreement dated January 5, 2004 between the Company and James E. Sinclair for 622,278 common shares at a price of $1.607 per share.



On January 13, 2005, the Company entered into private placement subscription agreement with the Companys Chairman and C.E.O. for the purchase of an aggregate of $3,000,000 worth of common shares of the Company in eight separate quarterly tranches of $375,000 each.  As at November 16, 2006 the Company has completed the following seven (7) tranches of the eight (8) tranche private placement:



(a)

May 9, 2005  382,653 common shares at a price of $0.98 per share;

(b)

August 18, 2005  259,516 common shares at a price of $1.445 per share;

(c)

December 16, 2005  90,405 common shares at a price of $4.148 per share;

(d)

February 14, 2006  47,807 common shares at a price of $7.844 per share;

(e)

May 12, 2006  40,783 common shares at a price of $9,195 per share;

(f)

August 14, 2006  44,664 common shares at a price of $8.396 per share;

(g)

November 16, 2006  54,058 common shares at a price of $6.937 per share.



On June 20, 2005 the Company completed a $1,000,000 private placement pursuant to a separate Subscription Agreement between the Company and James E. Sinclair for 819,000 common shares at a price of $1.221 per share.





46



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On September 30, 2005 the Company completed a $950,000 private placement pursuant to a separate Subscription Agreement with the Companys Chairman and C.E.O. for the purchase of  442,478 common shares at a price of $2.147 per share.



On February 23, 2006 the Company completed a US$1.25 million private placement pursuant to a separate Subscription Agreement between the Company and James E. Sinclair for 183,440 common shares at a price of C$7.844 per share.



On March 8, 2006 the Company completed a US$1.25 million private placement pursuant to a Subscription Agreement between the Company and Guild Investment Management, Inc. for 215,820 common shares at a price of C$6.667 per share.



On May 12, 2006 the Company completed a $1,000,000 private placement pursuant to a separate Subscription Agreement between the Company and James E. Sinclair for 107,124 common shares at a price of $9.335 per share.



On August 8, 2006 the Company entered into private placement subscription agreement with the Companys Chairman and C.E.O. for the purchase of an aggregate of $3,000,000 worth of common shares of the Company in eight separate quarterly tranches of $375,000 each.  The initial quarterly period shall commence February 1, 2007.



Mineral Property Projects:



As at August 31, 2006 amounts capitalized in respect of mineral properties were $20,593,948 an increase  from August 31, 2005 when the balance was $19,739,275, and an increase  from August 31, 2004 when the balance was $19,853,296.



During the fiscal year ended August 31, 2006, the Company capitalized mineral property exploration costs of $2,545,000 (net of option payments received of $320,000 on its mineral resource properties.  The Company wrote off  $1,690,000 in exploration expenditures on areas abandoned in the year ended August 31, 2006.



For information on the Companys commitments for property and rental payments, refer to Item 4.



C.

Research and Development, Patents and License, etc.



Not Applicable.



D.

Trend Information



No known trend.



E.

Off Balance Sheet Arrangements



The Company has no material off balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Companys financial condition.





47



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F.

Tabular Disclosure of Contractual Obligations



The following table sets out the Companys known contractual obligations as of the latest fiscal year end:







|                          |                        |           |           |                   |    
|------------------------- | ---------------------- | --------- | --------- | ----------------- | ---
|Contractual Obligations   | Payments Due by Period
|Total                     | Less than
1 year       | 2-3 years | 4 years   | More than
5 years
|Vancouver Office Lease(1) | $15,000                | $15,000   | Nil       | Nil               | Nil
|Capital Lease             | US$172,695(2)          | US$44,829 | US$89,658 | US$38,208         | Nil

(1)

Expires on April 30, 2007

(2)

Includes finance charges



Item 6.

Directors, Senior Management and Employees



A.

Directors and Senior Management



The following is a list of the Companys current directors and officers.  The directors named below were all re-elected by the Companys shareholders on February 27, 2006 with the exception of Mr. Deane who was appointed a Director by the Board effective September 1, 2006.



Mrs. Victoria Luis wished to step aside as Chief Financial Officer and Corporate Secretary.   Ms. Regina Kuo-Lee was appointed Chief Financial Officer effective September 1, 2006.  Mrs. Helen Hansen was appointed Corporate Secretary effective September 1, 2006.



|                                                                                                   |                                                                                                                                                                                                                                                          |                                        
|-------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------
|Name, Municipality of Residence and Position With the Company                                      | Principal occupation or employment and, if not a previously elected director, occupation during the past 
5 years                                                                                                                                        | Served as a Director Continuously Since
|James E. SinclairSharon, Connecticut
Chairman, Chief Executive Officer and Director                | Chairman and CEO of the Company                                                                                                                                                                                                                          | April 30, 2002                         
|Victoria LuisSherman, Connecticut
Director, Former Chief Financial Officer and Corporate Secretary | Corporate Accountant of the Company;  Chief Financial Officer and Secretary of the Company to August 31, 2006                                                                                                                                            | April 30, 2002                         
|Regina Kuo-Lee Toronto,Ontario
Chief Financial Officer                                             | Chief Financial Officer of the Company; Chief Financial Officer and Vice President of Finance of Trimin Capital Corp. from 2004 to January 2006;  Controller of Tektronix Canada Inc. 2003 to 2004; Controller of Evertz Microsystems Inc. 2000 to 2002. | Not a Director                         



48



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|                                                                     |                                                                                                                   |                                        
|-------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------- | ---------------------------------------
|Name, Municipality of Residence and Position With the Company        | Principal occupation or employment and, if not a previously elected director, occupation during the past 
5 years | Served as a Director Continuously Since
|Jonathan G. DeaneMwanza, Tanzania
Director, President                | President of the Company since 2004; Exploration Manager of the Company since 1996                                | September 1, 2006                      
|Marek J. KreczmerWestVancouver, 
British Columbia
Director           | President, CEO and Director of Northwestern Mineral Ventures Inc.                                                 | July 24, 1991                          
|Ulrich E. RathToronto, Ontario
Director                              | President and CEO and Director of Chariot Resources Ltd.                                                          | October 7, 2003                        
|Anton EsterhuizenJohannesburg, South Africa
Director                 | Managing Director, Pangea Exploration (Pty)                                                                       | January, 2001                          
|William HarveySharon, Connecticut
Director                           | Psychologist                                                                                                      | April 30, 2002                         
|Rosalind MorrowToronto, Ontario
Director                             | Lawyer; Partner, Borden Ladner Gervais LLP                                                                        | October 20, 2003                       
|Dr. Norman BettsStoreytown,New Brunswick
Director                    | Associate Professor, Faculty of Business Administration, University of New Brunswick                              | January 4, 2005                        
|Florian NgunangwaDar es salaam, Tanzanian
Vice President East Africa | Vice President East Africa of the Company                                                                         | Not a Director                         
|Helen HansenCorporate Secretary                                      | Office Manager of the Company                                                                                     | Not a Director                         



Directors and Senior Management



James E. Sinclair

Chairman, Chief Executive Officer and Director



Mr. Sinclair became Chairman and CEO of the Company following the Companys acquisition in April, 2002 of Tanzam, a Tanzanian gold exploration company formerly controlled by the Sinclair family.  Mr. Sinclair, aged 65, devotes his full time to the business and affairs of the Company.



Mr. Sinclair is primarily a precious metals specialist and a commodities and foreign currency trader.  His past experience includes that of founder of the Sinclair Group of Companies (1977), which offered full brokerage services in stocks, bonds, and other investment vehicles.  The companies, which operated branches in New York,



49



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Kansas City, Toronto, Chicago, London and Geneva, were sold in 1983.  Mr. Sinclair served as a Precious Metal Advisor to Hunt Oil and the Hunt family from 1981 to 1984 for the liquidation of their silver position. Mr. Sinclair was a general partner and member of the executive committee of two New York Stock Exchange firms and also President of Sinclair Global Clearing Corporation (Commodity clearing firm) and Global Arbitrage (derivative dealer in metals and currencies).  Mr. Sinclair was President of James Sinclair Financial Research SARL in Luxembourg. Mr. Sinclair held the position of Chairman of Sutton Resources from 1989 to 1995.



Mr. Sinclair is the author of numerous magazine articles and three books, which deal with a variety of investment subjects, including precious metals, trading strategies and geopolitical events and their relationship to world economics and the markets.



Victoria Luis, M.B.A., CSCPA and AICPA Member

Corporate Accountant and Director



Mrs. Luis wished to step aside as Chief Financial Officer and Corporate Secretary.  She will now focus her energies and experience on strategic planning and other corporate issues.



Prior to her association with the Company, she was a board member of Tanzam in addition to being its Chief Financial Officer, a position she also held with an associated company, Sinclair Financial.



Before joining Tanzam, Mrs. Luis held various management positions with General Electric Capital Corporation where she was part of a team that facilitated the amalgamation of companies acquired by GE.



She earned her Masters of Business Administration with a specialization in Accounting in 1998 and her Bachelors of Science in Finance in 1990.  Ms. Luis, aged 37, devotes her full time to the business and affairs of the Company.



Regina Kuo-Lee, C.A.

Chief Financial Officer



Ms. Kuo-Lee was appointed Chief Financial Officer effective September 1, 2006.   Ms. Kuo Lee, a Chartered Accountant, has more than 16 years experience in the accounting field, more recently as CFO and Vice President of Finance for Trimin Capital Corp., a management company with large equity interests in operating businesses.   She also has several years experience as a Controller in the technology sector and worked as an internal auditor in the brokerage industry after five years with Deloitte & Touche, Chartered Accountants in Toronto.



Jonathan G. Deane, M.Sc. (Geol.), B.Sc. (Honors)

Director and President



Mr. Jonathan G. Deane was appointed to the Board of Directors effective September 1, 2006.  Mr. Deane retains his position as President of the Company, including responsibility for all its exploration activities in Tanzania.



Prior to his association with the Company, he held various positions with Gold Fields Namibia, including Senior Exploration Geologist, from 1988 to 1994 and Senior Mine Geologist with Otjihase Copper Mine, Central Namibia from April, 1994 to July, 1996.



Mr. Deane, aged 45, devotes his full time to the business and affairs of the Company.





50



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Marek J. Kreczmer, M.Sc. (Geol.), B.Sc. (Geol.)

Director



Mr. Kreczmer is President and CEO of Northwestern Mineral Ventures Inc. a Canadian company exploring for uranium in Canada and Niger and precious metals in Mexico.    He is a director of Golden Patriot Mining Inc., a Canadian company exploring for minerals in Mexico. Mr. Kreczmer is also a Director of Soho Resources Corp., a Canadian company developing a gold deposit in Mexico.



Mr. Kreczmer was the President of the Company since its inception in 1991until December 31, 2003.  He established the Company's operating subsidiary in Tanzania, Tancan Mining Company Limited (Tancan).  Mr. Kreczmer has initiated, formed and operated several exploration joint ventures with senior gold companies.  He is responsible for representing the Company's interests in various management and technical committees required to operate these joint ventures, and is currently the Chairman of the Technical Committee of the Company.



Mr. Kreczmer has an extensive background in the mineral exploration business.  He was a project geologist for two leading Canadian explorers, Cameco and Granges Exploration.  The exploration focus for these companies included base metals, uranium and gold.  His responsibilities included all aspects of administering the exploration budget, on-site field management, and the set-up and establishment of an exploration team to deal with specific project objectives.  Mr. Kreczmer, aged 55, devotes approximately 10% of his time to the business and affairs of the Company.



Ulrich E. Rath

Director



Mr. Rath has a wide range of experience in the mining industry, and has specific experience in South Africa and Peru.  Currently Mr. Ulrich Rath is the President and CEO and Director of Chariot Resources Ltd., a junior resource company focused on the exploration, acquisition and development of copper and precious metal mineral deposits in the Andes region of Latin America.  As the former President, CEO and Director of Chimera Gold Corp. Ulrich Rath was responsible for facilitating the $US67 million acquisition of gold operations in the East Rand region of South Africa that now produce more than 200,000 ounces gold per annum. Subsequently, the Board of Chimera agreed to a 1:1 merger with Bema Gold Corp.  He was formerly the CEO and a director of EAGC Ventures Inc. and the CEO and director of Compania Minera Milpo.   Mr. Rath was also formerly Vice-President, Corporate Development, for Rio Algom Ltd. from December 1992 to October 1998.  Rio Algom Ltd. was a U.S. reporting issuer, whose common shares were listed on the American Stock Exchange.  Mr. Rath, aged 59, devotes approximately 10% of his time to the business and affairs of the Company.



Anton Esterhuizen

Director



Mr. Esterhuizen is an experienced geologist working extensively in Africa. Among his career highlights, he is credited with the discovery and evaluation of the Xstrata Group's world-class, high-grade Rhovan vanadium deposit in South Africa, the re-evaluation of the sizeable Burnstone gold deposit, also in South Africa, and a number of Tanzanian gold deposits, including the Tulawaka deposit, which attracted major players into Tanzania. He is responsible for the discovery of a number of titanium-zirconium mineral sand deposits including the world class Corridor Sands deposit in Mozambique and the Kwale deposit in Kenya. At present, Mr. Esterhuizen is Managing Director of Pangea Exploration (Pty) Limited in Johannesburg and a director of Northwestern Mineral Ventures Inc. Mr. Esterhuizen is a fellow of the Geological Society of South Africa and the first recipient of the Des Pretorius Memorial Award for outstanding work in economic geology in Africa. He also received the Dreyer Award from the Society for Mining Metallurgy and Exploration Inc. for outstanding achievements in applied economic geology.  Mr. Esterhuizen, aged 55, devotes approximately 5% of his time to the business and affairs of the Company.





51



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Dr. William Harvey, B.A., Ph.D.

Director



Dr. Harvey is presently a consultant and technical expert to a variety of research centres and state and federal programs in the United States.  He is a consultant to: National Drug Information Centre for Families in Action; American Institute of Research; Office of Juvenile Justice & Delinquency Prevention; National Institute on Drug Abuse; and National Institute on Alcoholism and Alcohol Abuse.  He is involved in the formulation of new programs and policies aimed at the betterment of society.  The Sinclair family has already made a significant donation to a private trust, The Tanzanian Relief Fund, which in turn has funded the hospital at Bulyanhulu.  Dr. Harvey will expand the role which the Company has at the local level to ensure that stakeholder interests are addressed.  Dr. Harvey, aged 73, devotes approximately 10% of his time to the business and affairs of the Company.



Rosalind Morrow, B.A., B.Ed., LL.B.

Director



Ms. Morrows practice includes a special emphasis on financings and acquisitions for the financial services and communications industry sectors, project and government financings, and corporate governance.  She advises issuers, underwriters, and investors in connection with debt and equity offerings and investments, including domestic and trans-border public offerings and private placements, capital restructurings and corporate and securities law compliance.  Ms. Morrow devotes approximately 10% of her time to the business and affairs of the Company.



Dr. Norman Betts, Ph.D.

Director



Dr. Betts is an Associate Professor, Faculty of Business Administration, University of New Brunswick (UNB) Canada and is a Fellow of the New Brunswick Institute of Chartered Accountants (FCA). He also serves as a director and chair of the Audit Committee of Minacs Worldwide Inc. and Slam Exploration Ltd. in addition to being a director and member of the Audit Committee of Tembec Inc. and the New Brunswick Power Corporation.



Dr. Betts is a co-chair of the Board of Trustees of the UNB Pension Plan for Academic Employees and is a director of the Nature Conservancy for the Atlantic region.  A former Finance Minister and Minister of Business with the Province of New Brunswick, Dr. Betts was awarded a PhD in Management from the School of Business at Queens University in Kingston, Ontario in 1992.





Penalties or Sanctions



No directors or officers of the Company, or a shareholder holding a sufficient number of securities of the Company to affect materially the control of the Company has:



(a)

been subject to any penalties or sanctions imposed by a court relating to Canadian securities legislation or by a Canadian securities regulatory authority or has entered into a settlement agreement with a Canadian securities regulatory authority; or



(b)

been subject to an other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor in making an investment decision;



except for Mr. James E. Sinclair who entered into a settlement agreement dated July 22, 1998 with the British Columbia Securities Commission and paid a fine of $2,000 in connection with the issuance of a news release and proxy circular prepared in connection with a proxy contest for Sutton Resources Ltd. (Sutton), a reporting issuer of which Mr. Sinclair was a director, which contained a statement which was not accurate, since the



52



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statement was not properly qualified to distinguish between the acquisition cost and current market cost of the Sutton shares in question.



Personal Bankruptcies



No director or officer of the Company, or a shareholder holding a sufficient number of securities of the Company to affect materially the control of the Company, or a personal holding company of any such persons has, within the 10 years before the date of this Annual Report, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets of the director or officer.



Conflicts of Interest



There is no existing material conflict or interest between the Company or its subsidiaries and a director or officer of the Company or its subsidiaries.  However, certain directors and officers of the Company are and may continue to be involved in the mining and mineral exploration industry through their direct and indirect participation in corporations, partnerships or joint ventures which are potential competitors.  Situations may arise in connection with potential acquisitions and investments where the other interests of these directors and officers may conflict with the interests of the Company.  As required by law, each of the directors of the Company is required to act honestly, in good faith and in the best interests of the Company.  Any conflicts which arise shall be disclosed by the directors and officers in accordance with the Business Corporation Act (Alberta) and they will govern themselves in respect thereof to the best of their ability with the obligations imposed on them by law.



B.

Compensation



The Company has four (4) executive officers, namely James E. Sinclair, Chief Executive Officer of the Company, Victoria Luis, Former Chief Financial Officer of the Company,  Regina Kuo-Lee, Chief Financial Officer of the Company, and Jonathan G. Deane, President of the Company.



The following table sets forth particulars concerning the compensation since their appointments of the executive officers, as defined in Form 51-102F6 prescribed by the Regulations under the Securities Act of the Province of Alberta, for the Companys last three fiscal years ended August 31, 2006:







|                                                          |                  |                                      |                        |                                                    |               |             |             |            
|--------------------------------------------------------- | ---------------- | ------------------------------------ | ---------------------- | -------------------------------------------------- | ------------- | ----------- | ----------- | -----------
|Name and Principal Position
(a)                           | Fiscal Year
(b)  | Annual Compensation                  | Long Term Compensation | All Other Compen-
sation ($)
(i)                  
|Salary
($)
(c)                                            | Bonus
($)
(d)    | Other Annual Compen-
sation 
($)
(e) | Awards                 | Shares or Units Subject to Resale Restrictions
(g) | Payouts      
|Securities under Options (RSUs)
/SARs Granted (#)
(f)     | LTIP Payouts
(h)
|James E. Sinclair,
Chief Executive 
Officer               | 2006
2005
2004   | $­­Nil
$36,861
$119,100              | $Nil
Nil
Nil           | $6,250
$10,000
$10,000                             | N/A
Nil
Nil   | Nil
Nil
Nil | Nil
Nil
Nil | Nil
Nil
Nil
|Victoria Luis,
Former Secretary & Chief Financial Officer | 2006
2005
2004   | $57,020
$61,362
$66,430              | $4,707
$5,066
$4,792   | $6,250
$10,000
$10,000                             | 2,785
Nil
Nil | Nil
Nil
Nil | Nil
Nil
Nil | Nil
Nil    



53



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|                                                      |                  |                                      |                        |                                                    |               |             |                      |            
|----------------------------------------------------- | ---------------- | ------------------------------------ | ---------------------- | -------------------------------------------------- | ------------- | ----------- | -------------------- | -----------
|Name and Principal Position
(a)                       | Fiscal Year
(b)  | Annual Compensation                  | Long Term Compensation | All Other Compen-
sation ($)
(i)                  
|Salary
($)
(c)                                        | Bonus
($)
(d)    | Other Annual Compen-
sation 
($)
(e) | Awards                 | Shares or Units Subject to Resale Restrictions
(g) | Payouts      
|Securities under Options (RSUs)
/SARs Granted (#)
(f) | LTIP Payouts
(h)
|Regina Kuo-Lee, Chief Financial Officer               | 2006 2005
2004   | $9,800
N/A
N/A                       | Nil
N/A
N/A            | Nil
N/A
N/A                                        | Nil
N/A
N/A   | Nil
N/A
N/A | Nil
N/A
N/A          | N/A
N/A
N/A
|Jonathan G. Deane,
President                          | 2006
2005
2004   | $118,071
$125,973
$113,974           | $4,658
$Nil
$5,574     | $5,450
$6,000
$4,020                               | 6,964
Nil
Nil | Nil
Nil
Nil | $5,907
$6,299
$5,583 | Nil
Nil
Nil





The Company has not set aside or accrued any funds for pension, retirement or similar benefits.



Long Term Incentive Plan Awards to Named Executive Officers



The Company has made long-term incentive plan awards during the fiscal year ended August 31, 2006, to executive officers of the Company. See Restricted Stock Unit Plan and Employee Share Ownership Plan.



Options (including Restricted Stock Units (RSUs)) and SARs Exercised by Named Executive Officers



The following options were exercised during the fiscal year ended August 31, 2006 by the named executive officers:



|                                                            |                                         |                                  |                                                                                        |                                                                                                             
|----------------------------------------------------------- | --------------------------------------- | -------------------------------- | -------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------
|Name
(a)                                                    | Securities
Acquired on
Exercise
(#)
(b) | Aggregate
Value
Realized
($)
(c) | Unexercised
Options (RSUs) /SARs
at August 31, 2006
(#)
Exercisable/
Unexercisable
(d) | Value of
Unexercised
in-the-Money
Options (RSUs)
/SARs
at August 31, 2006
($)
Exercisable/
Unexercisable
(e)
|James E. Sinclair,
CEO                                      | Nil                                     | N/A                              | N/A                                                                                    | N/A                                                                                                         
|Victoria Luis,
Former Chief Financial Officer and Secretary | 37,500                                  | $235,875                         | 2,785                                                                                  | $21,974                                                                                                     
|Regina Kuo-Lee,
Chief Financial Officer                     | N/A                                     | N/A                              | N/A                                                                                    | N/A                                                                                                         
|Jonathan Deane,
President                                   | N/A                                     | N/A                              | 6,964                                                                                  | $54,946                                                                                                     



Directors Fees, Restricted Stock Unit Plan and Stock Option Plan



A Restricted Stock Unit Plan (the RSU Plan) was approved by the shareholders at the Annual Meeting



54



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held February 27, 2006.  The Board of Directors has recently implemented the RSU Plan under which employees and directors are compensated for their services to the Company.  Annual compensation for outside directors is $50,000  per year, plus $5,000 per year for serving on Committees, plus $2,500 per year for serving as Chair of a Committee.  At the election of each individual director, up to one- third of the annual compensation may be received in cash, paid quarterly.  The remainder of the directors annual compensation (at least two-thirds, and up to 100%) will be awarded as Restricted Stock Units (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.



Prior to implementing the RSU Plan in April 2006, directors were compensated for their services to the Company by the payment of $10,000 per annum, and $2,500 per committee served by each director.  Directors fees of $91,000 were paid to directors during the fiscal year ended August 31, 2006.  Under the RSU Plan, outside directors were granted 35,027 RSUs during the fiscal year ended August 31, 2006.



In addition to these arrangements, directors are also compensated by the Company for their services in their capacity as directors under a Stock Option Plan (the Plan).  The Plan is administered by the Companys Board of Directors and options are granted at their discretion.  The number of shares reserved and available for issue under the Plan shall not exceed 8,144,132 or such greater number of shares as may be determined by the Board and approval, if required, by the shareholders of the Company and by any relevant stock exchange or other regulatory authority.  Options must expire no later than five years from the date such options are granted.



As of April 3, 2003, the Board resolved that the Company will not grant any further options under the Plan and that upon exercise or expiration of all stock options currently outstanding, the Plan be terminated.



Restricted Stock Unit Plan



The RSU Plan was approved by the shareholders at the Annual Meeting held February 27, 2006.  The RSU Plan is intended to enhance the Corporations and its Affiliatesability 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 Corporation and its Affiliates and to expend maximum effort to improve the business results and earnings of the Corporation, by providing to such persons an opportunity to acquire or increase a direct proprietary interest in the operations and future success of the Corporation. To this end, the RSU Plan provides for the grant of restricted stock units. Any of these awards of restricted stock units may, but need not, be made as 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.



Employee Share Ownership Plan



By an agreement dated May 1, 2003, the Company appointed Olympia Trust Company of Calgary, Alberta, as trustee (the Trustee) to manage and administer an employee share ownership plan (ESOP).  Under the ESOP, eligible employees, directors, and consultants can elect to contribute up to 30% of their salary or compensation on a monthly basis for investment by the Trustee in shares of the Company.  The Company will contribute funds equal to 100% of the employees contribution up to an amount equal to 5% or less of the employees salary.  The Company will contribute funds equal to 50% of the employees contribution for the next 6% to 30% inclusive of the employees salary.  All share purchases will be at market prices at the time of purchase, through the facilities of the Toronto Stock Exchange using registered representatives.  To August  31, 2006 nine participants, together with Company contributions, have purchased a total of 169,314 common shares under the ESOP.  The average monthly participant contributions are $4,072 and the Companys matching contribution is $3,939 per month.



Employment Agreements



There are currently no service or employment contracts with directors or officers of the Company, except for the employment contract dated June 8, 2004 with Jonathan Deane, which provides for a remuneration



55



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of US$375 per day, on an after tax basis, and payable monthly, plus employee benefits including accommodation and board in Mwanza at the Companys staff house.



C.

Board Practices



The directors of the Company serve a one year term and are elected at the Annual General Meeting of shareholders.  At the last Annual General Meeting, held on February 27, 2006, the shareholders elected James E. Sinclair, Marek J. Kreczmer, Victoria Luis, Anton Esterhuizen, William Harvey, Rosalind Morrow, Norman Betts and Ulrich E. Rath as directors.  The officers of the Company are elected by the Board serve at the pleasure of the Board.  Mr. Jonathan G. Deane was appointed to the Board of Directors effective September 1, 2006.



The Company has an audit committee  (the  Audit and Compensation Committee) consisting of Ulrich E. Rath, William Harvey and Dr. Norman Betts.  The roles and responsibilities of the audit and compensation committee have been specifically defined as described below under Audit Committee Information, and include responsibilities for overseeing management reporting on internal control.  The audit and compensation committee has direct communication channels with the external auditors.



The Company also has a compensation committee (the Audit and Compensation Committee)comprised of Ulrich E. Rath,  William Harvey and Dr. Norman Betts.  The AuditandCompensation Committee periodically reviews the compensation paid to directors, management, and employees based on such factors as time commitment, comparative fees paid by other companies in the industry in North America and Africa, level of responsibility and the Companys current position as an exploration company with limited operating revenue.



The Company has formed a Technical Committee comprised of Marek J. Kreczmer (Chairman), Ulrich E. Rath, Anton Esterhuizen, and Jonathan G. Deane.  The Committee sets the definitive exploration policy for the Company and reports directly to the Board of Directors.



AUDIT COMMITTEE INFORMATION

Under Multilateral Instrument 52-110  Audit Committees (MI 52-110) reporting issuers in those jurisdictions which have adopted MI 52-110 are required to provide disclosure with respect to its Audit Committee including the text of the Audit Committees Charter, composition of the Committee, and the fees paid to the external auditor.  The Company is a reporting issuer in Alberta, B.C. and Ontario.  MI 52-110 has not been adopted in B.C., but it has been adopted in Alberta and Ontario.  Accordingly, the Company provides the following disclosure with respect to its Audit Committee:



1.  The Audit Committees Charter



1.0

Purpose of the Committee



1.1

The purpose of the Audit Committee is to assist the Board in its oversight of the integrity of the Company's financial statements and other relevant public disclosures, the Company's compliance with legal and regulatory requirements relating to financial reporting, the external auditors' qualifications and independence and the performance of the internal audit function and the external auditors.



2.0

Members of the Audit Committee



2.1

All of the Members must be "financially literate" as defined under MI 52-110, Audit Committees, having sufficient accounting or related financial management expertise to read and understand a set of financial statements, including the related notes, that present



56



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a breadth and level of complexity of the accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Company's financial statements.



2.2

The Audit Committee shall consist of no less than three Directors.



2.3

All of the Members of the Audit Committee shall be "independent" as defined under MI 52-110.



3.0

Relationship with External Auditors



3.1

The external auditors are the independent representatives of the shareholders, but the external auditors are also accountable to the Board of Directors and the Audit Committee.



3.2

The external auditors must be able to complete their audit procedures and reviews with professional independence, free from any undue interference from the management or directors.



3.3

The Audit Committee must direct and ensure that the management fully co-operates with the external auditors in the course of carrying out their professional duties.



3.4

The Audit Committee will have direct communications access at all times with the external auditors.



4.0

Non-Audit Services



4.1

The external auditors are prohibited from providing any non-audit services to the Company, without the express written consent of the Audit Committee.  In determining whether the external auditors will be granted permission to provide non-audit services to the Company, the Audit Committee must consider that the benefits to the Company from the provision of such services, outweighs the risk of any compromise to or loss of the independence of the external auditors in carrying out their auditing mandate.



4.2

Notwithstanding section 4.1, the external auditors are prohibited at all times from carrying out any of the following services, while they are appointed the external auditors of the Company:



(i)

acting as an agent of the Company for the sale of all or substantially all of the undertaking of the Company; and



(ii)

performing any non-audit consulting work for any director or senior officer of the Company in their personal capacity, but not as a director, officer or insider of any other entity not associated or related to the Company.



5.0

Appointment of Auditors



5.1

The external auditors will be appointed each year by the shareholders of the Company at the annual general meeting of the shareholders.



5.2

The Audit Committee will nominate the external auditors for appointment, such nomination to be approved by the Board of Directors.



57



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6.0

Evaluation of Auditors



6.1

The Audit Committee will review the performance of the external auditors on at least an annual basis, and notify the Board and the external auditors in writing of any concerns in regards to the performance of the external auditors, or the accounting or auditing methods, procedures, standards, or principles applied by the external auditors, or any other accounting or auditing issues which come to the attention of the Audit Committee.



7.0

Remuneration of the Auditors



7.1

The remuneration of the external auditors will be determined by the Board of Directors, upon the annual authorization of the shareholders at each general meeting of the shareholders.



7.2

The remuneration of the external auditors will be determined based on the time required to complete the audit and preparation of the audited financial statements, and the difficulty of the audit and performance of the standard auditing procedures under generally accepted auditing standards and generally accepted accounting principles of Canada.



8.0

Termination of the Auditors



8.1

The Audit Committee has the power to terminate the services of the external auditors, with or without the approval of the Board of Directors, acting reasonably.



9.0

Funding of Auditing and Consulting Services



9.1

Auditing expenses will be funded by the Company.  The auditors must not perform any other consulting services for the Company, which could impair or interfere with their role as the independent auditors of the Company.



10.0

Role and Responsibilities of the Internal Auditor



10.1

At this time, due to the Company's size and limited financial resources, the Chief Financial Officer of the Company shall be responsible for implementing internal controls and performing the role as the internal auditor to ensure that such controls are adequate.



11.0

Oversight of Internal Controls



11.1

The Audit Committee will have the oversight responsibility for ensuring that the internal controls are implemented and monitored, and that such internal controls are effective.



12.0

Continuous Disclosure Requirements



12.1

At this time, due to the Company's size and limited financial resources, the Chief Financial Officer of the Company is responsible for ensuring that the Company's continuous reporting requirements are met and in compliance with applicable regulatory requirements.







58



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13.0

Other Auditing Matters



13.1

The Audit Committee may meet with the Auditors independently of the management of the Company at any time, acting reasonably.



13.2

The Auditors are authorized and directed to respond to all enquiries from the Audit Committee in a thorough and timely fashion, without reporting these enquiries or actions to the Board of Directors or the management of the Company.



14.0

Annual Review



14.1

The Audit Committee Charter will be reviewed annually by the Board of Directors and the Audit Committee to assess the adequacy of this Charter.



15.0

Independent Advisers



15.1

The Audit Committee shall have the power to retain legal, accounting or other advisors to assist the Committee.



2.  Composition of the Audit Committee



Following are the members of the Audit and Compensation Committee:



|                     |                |                        
|-------------------- | -------------- | -----------------------
|Ulrich Rath          | Independent(1) | Financially literate(2)
|William Harvey       | Independent(1) | Financially literate(2)
|Norman Betts (Chair) | Independent(1) | Financially literate(2)

(1)A member of an audit committee is independent if the member has no direct or indirect material relationship with the Company, which could, in the view of the Board of Directors, reasonably interfere with the exercise of a members independent judgment.

(2)An individual is financially literate if he has the ability to read and understand a set of financial statements that present a breadth of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Companys financial statements.

3.  Relevant Education and Experience



Dr. Betts is the Chair of the Committee.  He is the former Minister of Finance of New Brunswick and current Associate Professor of Business Administration, University of New Brunswick; Mr. Rath is the President and CEO of a Canadian resource company; and Dr. William Harvey is a psychologist and businessman.

4.- 6.  Reliance on Certain Exemptions



At no time since the commencement of the Companys most recently completed financial year has the Company relied on the exemption in Section 2.4 of MI 52-110 (De Minimis Non-audit Services), Section 3.3(2) (Controlled Companies), Section 3.6 (Temporary Exemption for Limited and Exceptional Circumstances), or an exemption from MI 52-110, in whole or in part, granted under Part 8 of Multilateral Instrument 52-110.  Nor has the Issuer relied on Section 3.8 (Acquisition of Financial Literacy) of MI 52-110.



7.  Audit Committee Oversight

At no time since the commencement of the Companys most recently completed financial year was a recommendation of the Audit Committee to nominate or compensate an external auditor not adopted by the



59



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Board of Directors.



8.  Pre-Approval Policies and Procedures



The Audit Committee is authorized by the Board of Directors to review the performance of the Companys external auditors and approve in advance the provision of services other than auditing and to consider the independence of the external auditors, including a review of the range of services provided in the context of all consulting services bought by the Company. The Audit Committee is authorized to approve in writing any non-audit services or additional work which the Chairman of the Audit Committee deems is necessary, and the Chairman will notify the other members of the Audit Committee of such non-audit or additional work and the reasons for such non-audit work for the Committees consideration, and if thought fit, approval in writing.



9.  External Auditor Service Fees

The fees billed by the Companys external auditors in each of the last two fiscal years for audit and non-audit related services provided to the Company or its subsidiaries (if any) are as follows:

|                                               |                                      |                    |             |               
|---------------------------------------------- | ------------------------------------ | ------------------ | ----------- | --------------
|Financial Year                Ending August 31 | Audit Fees                           | Audit Related Fees | Tax Fees(1) | All Other Fees
|2006                                           | Canada - $80,000
Tanzania  US$5,000 | Nil                | Nil         | Nil           
|2005                                           | Canada - $46,285
Tanzania  US$7,045 | Nil                | Nil         | Nil           



(1)Tax advice and planning assistance including review of and assistance with capital tax assessments.



D.

Employees



The Company has two (2) full time employees located in Vancouver, British Columbia, Canada, 43 full time employees located in Mwanza, Tanzania, and two (2) full time employees located in Dar es Salaam, Tanzania.



The Company also contracts three or more persons on a full time or part time basis as dictated by the exploration activities on its properties.  The full time and temporary employees of the Company as at the most recent fiscal year end can be grouped according to main category of activity and geographic location as follows:



|                        |                |                     |                     |                       |                      
|----------------------- | -------------- | ------------------- | ------------------- | --------------------- | ---------------------
|Location                | Category       | Full Time Employees | Temporary Employees | Full Time Consultants | Part Time Consultants
|Vancouver, Canada       | Administration | 1                   | Nil                 | Nil                   | 1                    
|Exploration             | 1              | Nil                 | Nil                 | Nil                  
|Mwanza, Tanzania        | Administration | 5                   | Nil                 | Nil                   | Nil                  
|Exploration             | 38             | Nil                 | 2                   | 1                    
|Dar es Salaam,
Tanzania | Administration | 2                   | Nil                 | 1                     | Nil                  
|Exploration             | Nil            | Nil                 | Nil                 | Nil                  
|Connecticut, USA        | Administration | Nil                 | Nil                 | 2                     | 1                    
|Exploration             | Nil            | Nil                 | Nil                 | Nil                  





60



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E.

Share Ownership



The following table sets forth the share ownership of the directors and officers of the Company as of August 31, 2006:



|                  |                  |        
|----------------- | ---------------- | -------
|Name of Owner     | Number of Shares | Percent
|James E. Sinclair | 3,134,538        | 3.6%   
|Victoria Luis     | 167,500          | 0.1%   
|Jonathan G. Deane | 2,907            | <0.01% 
|Marek J. Kreczmer | 453,756          | 0.5%   
|Ulrich E. Rath    | Nil              | N/A    
|Anton Esterhuizen | 55,000           | <0.1%  
|William Harvey    | 300,000          | 0.3%   
|Rosalind Morrow   | 345,000          | 0.4%   
|Norman Betts      | 5,000            | <0.01% 
|Florian Ngunangwa | 41,462           | <0.01% 



Options Granted to Directors and Officers During the Fiscal Year Ended August 31, 2006



No stock options were granted to directors or officers during the fiscal year ended August 31, 2006, or subsequent thereto, to the date of this Annual Report.



Outstanding Stock Options



The following information as of August 31, 2006, reflects outstanding stock options held by directors and officers of the Company:



|                                                   |               |               |                |                
|-------------------------------------------------- | ------------- | ------------- | -------------- | ---------------
|Name                                               | No. of Shares | Date of Grant | Exercise Price | Expiration Date
|William Harvey                                     | 75,000        | May 3, 2002   | $0.79          | May 3, 2007    
|Options held by officers
and directors as a group: | 75,000       



RSUs Granted to Directors and Officers During the Fiscal Year Ended August 31, 2006:



|                  |             |                               |                   |                              
|----------------- | ----------- | ----------------------------- | ----------------- | -----------------------------
|Name              | No. of RSUs | Date of Grant                 | Vesting Period(1) | Expiration Date              
|                  |             |                               |                   |                              
|Victoria Luis     | 2,785       | April 11, 2006                | 3 years           | April 11, 2009               
|Jonathan G. Deane | 6,964       | April 11, 2006                | Minimum 1 year(2) | April 11, 2009               
|Marek J. Kreczmer | 5,501       | April 11, 2006                | 1 year            | April 11, 2007               
|Ulrich E. Rath    | 2,368
2,785 | April 11, 2006
April 11, 2006 | 1 year
3 years    | April 11, 2007
April 11, 2009
|Anton Esterhuizen | 5,989       | April 11, 2006                | 1 year            | April 11, 2007               
|William Harvey    | 5,223       | April 11, 2006                | 1 year            | April 11, 2007               
|Rosalind Morrow   | 7,660       | April 11, 2006                | 1 year            | April 11, 2007               
|Norman Betts      | 5,501       | April 11, 2006                | 1 year            | April 11, 2007               
|Helen Hansen      | 2,785       | April 11, 2006                | 3 years           | April 11, 2009               



61



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|                                                |             |               |                   |                
|----------------------------------------------- | ----------- | ------------- | ----------------- | ---------------
|Name                                            | No. of RSUs | Date of Grant | Vesting Period(1) | Expiration Date
|RSUs held by officers and
directors as a group: | 47,561      |              

(1) Subject to the conditions of the RSU Plan with respect to earlier vesting

(2)Performance Goals specified



Outstanding RSUs



All RSUs granted to directors and officers are outstanding as at August 31, 2006.



Item 7.

Major Shareholders and Related Party Transactions



A.

Major Shareholders



As far as it is known to the Company, it is not directly or indirectly owned or controlled by any other corporation or by the Canadian Government, or any foreign government.  The Company has no knowledge of any arrangements which at a subsequent date would result in a change of control.  All of the Companys issued common shares rank equally as to voting rights, dividends, and any distribution of assets on winding-up or liquidation.



As of August 31, 2006, the Company knows of no person who owned more than five (5%) of the outstanding shares of each class of the Companys voting securities.



The following table sets out the portion of common shares of the Company held by registered shareholders in Canada, the United States of America, and all other countries by total number of holders, total shareholdings, percentage of total issued shares, and percentage of total holders as at August 31, 2006:



|                                    |                     |                      |                                   |                            
|----------------------------------- | ------------------- | -------------------- | --------------------------------- | ---------------------------
|Jurisdiction
Shareholders of Record | No. of Shareholders | No. of Common Shares | Percentage of Total Issued Shares | Percentage of Total Holders
|United States                       | 291                 | 36,200,846           | 41.98%                            | 79%                        
|Canada                              | 61                  | 49,760,120           | 57.70%                            | 16%                        
|Other Countries                     | 18                  | 280,109              | 0.32%                             | 5%                         
|TOTAL                               | 370                 | 86,241,075           | 100%                              | 100%                       



B.

Related Party Transactions



Financing



On August 8, 2006 the Company entered into private placement subscription agreement with the Companys Chairman and C.E.O. for the purchase of an aggregate of $3,000,000 worth of common shares of the Company in eight separate quarterly tranches of $375,000 each.  The initial quarterly period shall commence February 1, 2007.



On May 12, 2006 the Company completed a $1,000,000 private placement pursuant to a separate Subscription Agreement between the Company and James E. Sinclair for 107,124 common shares at a price of $9.335 per share.



On February 23, 2006 the Company completed a US$1.25 million private placement pursuant to a separate Subscription Agreement between the Company and James E. Sinclair for 183,440 common shares at a price of $7.844 per share.





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On September 30, 2005 the Company completed a $950,000 private placement pursuant to a separate Subscription Agreement with the Companys Chairman and C.E.O. for the purchase of  442,478 common shares at a price of $2.147 per share.



On June 20, 2005 the Company completed a $1,000,000 private placement pursuant to a separate Subscription Agreement between the Company and James E. Sinclair for 819,000 common shares at a price of $1.221 per share.



Pursuant to a Subscription Agreement dated January 13, 2005 made between the Company and James E. Sinclair, Mr. Sinclair has subscribed for a placement of common shares of the Company for aggregate proceeds to the Company of C$3,000,000.  Mr. Sinclair has agreed to subscribe for eight (8) quarterly tranches of C$375,000 each, commencing February 1, 2005.  The pricing of each quarterly tranche will be based on the weighted average trading price of the Companys common shares for the last five consecutive trading days of each quarterly period.  Each tranche is subject to approval by the Toronto Stock Exchange and American Stock Exchange.  As at November 16, 2006 the Company has completed the following seven (7) tranches of the eight (8) tranche private placement:



(a)

May 9, 2005  382,653 common shares at a price of $0.98 per share;

(b)

August 18, 2005  259,516 common shares at a price of $1.445 per share;

(c)

December 16, 2005  90,405 common shares at a price of $4.148 per share;

(d)

February 14, 2006  47,807 common shares at a price of $7.844 per share;

(e)

May 12, 2006  40,783 common shares at a price of $9,195 per share;

(f)

August 14, 2006  44,664 common shares at a price of $8.396 per share.

(g)

November 16, 2006  54,058 common shares at a price of $6.937 per share.



The Company completed a $1,000,000 private placement pursuant to a separate Subscription Agreement dated January 5, 2004 between the Company and James E. Sinclair for 622,278 common shares at a price of $1.607 per share.



In February 2005 the Company completed a private placement pursuant to a Subscription Agreement dated March 5, 2003 made between the Company and James E. Sinclair to purchase common shares of the Company over a two-year period representing a value between $1,500,000 and $3,000,000.  Mr. Sinclair agreed to conduct these share purchases in 24 separate tranches, each tranche having a minimum subscription of $62,500.  At the sole option of Mr. Sinclair, each tranche may have been increased to a maximum of $125,000.  The price paid for the shares was equal to the weighted average trading price of the Companys shares for the last five consecutive trading days of each month immediately preceding the closing of each tranche.  Mr. Sinclair completed twenty-four (24) tranches for the purchase of 2,137,629 common shares for $2,950,000.



Other Financing



On March 8, 2006 the Company completed a US$1.25 million private placement pursuant to a Subscription Agreement between the Company and Guild Investment Management, Inc. for 215,820 common shares at a price of $6.667 per share.



Other



During the year ended August 31, 2006, $190,887 (2005 - $44,813; 2004 - $22,435) was paid or payable by the Company to certain directors and a former director for consulting fees, and $90,687 (2005 - $92,986; 2004 - $88,470) was paid to directors for directors fees.



Accounts receivable include advances to related parties of $Nil (2005 - $46,000; 2004 - $21,000), which consisted of funds advanced to officers and directors for exploration and corporate activities conducted in the normal course of business.  As of the date of this report, this receivable has been received.



63



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C.

Interest of Experts and Counsel



Not Applicable.



Item 8.

Financial Statements



A.

Consolidated Statements and Other Financial Information



This Annual Report contains the audited consolidated financial statements of the Company for the fiscal years ended August 31,  2006, 2005, and 2004 with the Report of Independent Registered Public Accounting Firm, comprised of:



(a)

Consolidated Balance Sheets as of August 31, 2006 and 2005;



(b)

Consolidated Statements of Operations and Deficit for the years ended August 31, 2006, 2005 and 2004;



(c)

Consolidated Statements of Cash Flows for the years ended August 31, 2006, 2005 and 2004; and



(d)

Notes to the consolidated financial statements.



Dividend Policy



The Company has never paid dividends and does not intend to in the near future.



Litigation



The Company commenced an action to protect against statements of defamation from being posted on internet chat sites.  As at August 31, 2006 the litigation was settled satisfactorily.  There are no other legal proceedings which may have or have had a significant affect on the Companys financial position or profitability.



B.

Significant Changes

None.

Item 9.

The Offering and Listing

A.

Offering and Listing Details

The common stock of the Company was listed on the Toronto Stock Exchangeunder the symbol TNX on October 29, 2001, and prior to that date the Companys common stock was listed on the Canadian Venture Exchange (CDNX), now known as the TSX Venture Exchange.



The common stock of the Company was listed on the American Stock Exchange under the symbol TRE on May 12, 2005.



As at August 31, 2006 there were 291 registered shareholders in the United States holding 41.98%  of the Companys outstanding common stock, representing approximately 79% of the total number of shareholders. The Companys Common stock is issued in registered form and the percentage of shares reported to be held by registered holders in the United States is taken from the records of the Computershare Trust Company of Canada in the City of Vancouver, the registrar and transfer agent for the common stock.



The number of registered shareholders resident in the United States is attributed as to 3.1%  to directors and officers of the Company who are United States residents; a further 0.9% held by United States residents who are immediate family members of a director and officer of the Company; a further <0.1%  by United States



64



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residents who were formerly shareholders of Tanzam; and the balance of 37.88% are United States residents who have purchased shares in the secondary market, through the facilities of the Toronto Stock Exchange or American Stock Exchange.



The high and low prices expressed in Canadian dollars on the Toronto Stock Exchange for the Companys common stock for the last six months and for each quarter for the last three fiscal years:



|                                       |                                           |       |            | 
|-------------------------------------- | ----------------------------------------- | ----- | ---------- | 
|                                       | Toronto Stock Exchange
(Canadian Dollars)
|Last Six Months                        | High                                      | Low   | Volume    
|October 2006                           | $7.29                                     | $5.09 | 2,394,633 
|September 2006                         | $8.05                                     | $5.00 | 3,747,311 
|August 2006                            | $8.90                                     | $7.43 | 1,792,813 
|July 2006                              | $9.19                                     | $7.81 | 1,933,387 
|June 2006                              | $9.25                                     | $6.75 | 7,759,939 
|May 2006                               | $10.08                                    | $7.00 | 3,909,524 
|2005-2006                              | High                                      | Low   | Volume    
|Fourth Quarter ended August 31, 2006   | $9.25                                     | $6.75 | 11,486,139
|Third Quarter ended May 31, 2006       | $10.08                                    | $6.55 | 11,316,509
|Second Quarter ended February 20, 2006 | $8.75                                     | $3.69 | 19,740,648
|First Quarter ended November 30, 2005  | $4.42                                     | $2.00 | 18,045,485
|                                       |                                           |       |           
|2004-2005                              | High                                      | Low   | Volume    
|Fourth Quarter ended August 31, 2005   | $2.11                                     | $1.02 | 6,765,101 
|Third Quarter ended May 31, 2005       | $1.16                                     | $0.88 | 6,777,842 
|Second Quarter ended February 20, 2005 | $1.27                                     | $0.91 | 10,358,012
|First Quarter ended November 30, 2004  | $1.57                                     | $1.06 | 10,078.220
|                                       |                                           |       |           
|Last Five Fiscal Years                 | High                                      | Low   |           
|2006                                   | $10.08                                    | $2.00 |           
|2005                                   | $2.11                                     | $0.88 |           
|2004                                   | $2.10                                     | $0.99 |           
|2003                                   | $2.10                                     | $0.65 |           
|2002                                   | $1.05                                     | $0.20 |           
|2001*Commenced trading Oct. 29, 2001   | N/A                                       | N/A   |           





|                |                                      |       |            | 
|--------------- | ------------------------------------ | ----- | ---------- | 
|                | American Stock Exchange
(US Dollars)
|Last Six Months | High                                 | Low   | Volume    
|October 2006    | $6.50                                | $4.56 | 7,481,300 
|September 2006  | $7.24                                | $4.44 | 15,098,100
|August 2006     | $7.80                                | $6.75 | 6,240,800 
|July 2006       | $8.20                                | $6.93 | 6,929,200 
|June 2006       | $8.15                                | $6.18 | 13,827,700
|May 2006        | $8.68                                | $6.80 | 17,975,900



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|                                                                    |                                      |       |            | 
|------------------------------------------------------------------- | ------------------------------------ | ----- | ---------- | 
|                                                                    |                                      |       |           
|                                                                    |                                      |       |           
|                                                                    |                                      |       |           
|                                                                    | American Stock Exchange
(US Dollars)
|2005-2006                                                           | High                                 | Low   | Volume    
|Fourth Quarter ended August 31, 2006                                | $8.20                                | $6.18 | 26,997,700
|Third Quarter ended May 31, 2006                                    | $8.87                                | $5.70 | 52,771,300
|Second Quarter ended February 28, 2006                              | $7.24                                | $3.30 | 74,499,700
|First Quarter ended November 30, 2005                               | $3.57                                | $1.82 | 46,454,200
|                                                                    |                                      |       |           
|2004-2005                                                           | High                                 | Low   | Volume    
|Fourth Quarter ended August 31, 2005                                | $1.76                                | $0.85 | 12,680,000
|Third Quarter ended May 31, 2005*
(*Commenced trading May 12, 2005) | $0.92                                | $0.73 | 1,271,000 





B.

Plan of Distribution



Not Applicable.



C.

Markets



The Companys common stock is listed on the Toronto Stock Exchange under the trading symbol TNX and on the American Stock Exchange under the trading symbol TRE.



D.

Selling Shareholders



Not Applicable.



E.

Dilution



Not Applicable.



F.

Expenses of the Issue



Not Applicable.



Item 10.

Additional Information



A.

Share Capital



As of April 3, 2003, the Board resolved that the Company authorize for issuance up to a maximum 91,000,000 common shares, subject to further resolutions of the Company's Board of Directors, from time to time.  Of the 91,000,000 common shares authorized, without par value, 86,241,075 shares were issued and outstanding as of August 31, 2006.



Each of the common shares has equal dividend, liquidation and voting rights.  Voters of the common shares are entitled to one vote per share on all matters that may be brought before them.  Holders of the common shares are entitled to receive dividends when declared by the Board from funds legally available therefor.  The common shares are not redeemable, have no conversion rights and carry no pre-emptive or other rights to subscribe for additional shares.  The outstanding common shares are fully paid and non-assessable.



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The following table reconciles the total number of shares outstanding for the last three fiscal years:



|                                                  |               |               
|------------------------------------------------- | ------------- | --------------
|                                                  | No. of Shares | Amount        
|Total Outstanding at August 31, 2003              | 80,191,542    | $39,423,971   
|Add:Stock Options Exercised for cash              | 730,000       | $    346,500  
|Issued for cash                                   | 1,477,050     | $ 2,250,000   
|Issued for share subscription previously received | 65,445        | $    125,000  
|Total Outstanding at August 31, 2004              | 82,464,037    | $42,145,471   
|Add:Stock Options Exercised for cash              | 107,500       | $       69,325
|Issued for cash                                   | 2,204,517     | $  2,625,000  
|Total Outstanding as at August 31, 2005           | 84,776,054    | $44,839,796   
|Add:Stock Options Exercised for cash              | 292,500       | $    229,675  
|Issued for cash                                   | 793,468       | $5,513,979    
|Issued for share subscription previously received | 379,053       | $    813,828  
|Total Outstanding as at August 31, 2006           | 86,241,075    | 51,397,278    





Due to the issuance of 20,000,000 common shares for the acquisition of Tanzam in April, 2002, more than 10% of the total outstanding shares have been issued for non-cash consideration within the last five years.



Shares are issued by the Company with the regulatory acceptance of the Toronto Stock Exchange and American Stock Exchange, upon resolution of the Board of Directors of the Company.  There are a total of 86,241,075 common shares issued and a further 575,000 common shares reserved for issuance under outstanding stock options and RSUs as at August 31, 2006.



B.

Articles of Association and Bylaws



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 Articles of 424547 Alberta Ltd. were amended on August 13, 1991 as follows:



·

the name of the Company was changed to Tan Range Exploration Corporation;

·

the restriction on the transfer of shares was removed; and

·

a new paragraph regarding the appointment of additional directors was added as follows:



(b)

The Directors, may, between annual general meetings, appoint one or more additional directors of the Company to serve until the next annual general meeting, but the number of additional Directors shall not at any time exceed one-third (1/3) of the number of Directors who held office at the expiration of the last annual meeting of the corporation.



The Company was registered in the Province of British Columbia as an extra provincial company under the Company Act (British Columbia) on August 5, 1994.





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The Articles of the Company were further amended on February 15, 1996 as follows:



·

the provisions of the Articles authorizing the issue of Class B Voting shares, Class C

Non-Voting shares and Class D Preferred shares were deleted;

·

Class A voting shares were redesignated as Common shares; and

·

a provision was added to allow meetings of shareholders to be held outside Alberta in either of the cities of Vancouver, British Columbia or Toronto, Ontario.



The Articles of the Company were further amended on February 28, 2006 as follows:



·

the name of the Company was changed to its present name, Tanzanian Royalty Exploration Corporation.



Common Shares



All issued and outstanding common shares are fully paid and non-assessable.  Each holder of record of common shares is entitled to one vote for each common share so held on all matters requiring a vote of shareholders, including the election of directors.  The holders of common shares will be entitled to dividends on a pro-rata basis, if and when as declared by the board of directors.  There are no preferences, conversion rights, preemptive rights, subscription rights, or restrictions or transfers attached to the common shares.  In the event of liquidation, dissolution, or winding up of the Company, the holders of common shares are entitled to participate in the assets of the Company available for distribution after satisfaction of the claims of creditors.



The rights of shareholders cannot be changed without a special resolution of at least 2/3 of the votes cast by the shareholders who voted in respect of the resolution, and separate classes of shareholders are entitled to separate class votes.  Any such alteration of shareholders rights would also require the regulatory acceptance of the Toronto Stock Exchange.  There are no provisions of the Companys Articles or Bylaws that would have the effect of delaying, deferring, or preventing a change of control of the Company, and that would operate only with respect to a merger, acquisition, or corporate restructuring involving the Company (or any of its subsidiaries).



The Companys Shareholder Rights Plan was allowed to expire on April 19, 2005.  This program, which was introduced in 2000, was implemented as a means of delaying an acquisition by a suitor by a potential increase in share capital.  It is the opinion of management that in todays strict corporate governance environment that renewal of this program was not in the best interest of the Company.  It should be noted that the Company neither has nor expects a suitor at this time.



Powers and Duties of Directors



The directors shall manage or supervise the management of the affairs and business of the Company and shall have authority to exercise all such powers of the Company as are not, by the Business Corporations Act (Alberta) or by the Articles or Bylaws, required to be exercised by the Company in a general meeting.



Directors will serve as such until the next annual meeting.  In general, a director who is, in any way, directly or indirectly interested in an existing or proposed contract or transaction with the Company whereby a duty or interest might be created to conflict with his duty or interest director, shall declare the nature and extent of his interest in such contract or transaction or the conflict or potential conflict with his duty and interest as a director.  Such director shall not vote in respect of any such contract or transaction with the Company in which he is interested and if he shall do so, his vote shall note be counted, but he shall be counted in the quorum present at the meeting at which such vote is taken.  However, notwithstanding the foregoing, directors shall have the right to vote on determining the remuneration of the directors.



The directors may from time to time on behalf of the Company:  (a) borrow money in such manner and amount from such sources and upon such terms and conditions as they think fit; (b) issue bonds, debentures and



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other debt obligations; or (c) mortgage, charge or give other security on the whole or any part of the property and assets of the Company.



At least one-quarter of the directors of the Company should be persons ordinarily resident in Canada and all must be at least 18 years of age.  There is no minimum share ownership to be a Director.  No person shall be a Director of the Company who is not capable of managing their own affairs; is an undischarged bankrupt or who is a person who is not an individual.



Shareholders



An annual general meeting shall be held once in every calendar year at such time and place as may be determined by the directors.  A quorum at an annual general meeting and special meeting shall be two shareholders or one or more proxy holder representing two shareholders, or one shareholder and a proxy holder representing another shareholder.  There is no limitation imposed by the laws of Canada or by the charter or other constituent documents of the Company on the right of a non-resident to hold or vote the common shares, other than as provided in the Investment Canada Act, (the Investment Act) discussed below under Item 10. Additional Information, D. Exchange Controls.



In accordance with Alberta law, directors shall be elected by an ordinary resolution which means (a) a resolution passed by the shareholders of the Company in general meeting by a simple majority of the votes cast in person or by proxy, or (b) a resolution that has been signed by all shareholders entitled to vote on the resolution.



Under Alberta law certain items such as an amendment to the Companys articles or entering into a merger, requires approval by a special resolution, which means (a) a resolution passed by a majority of not less than 2/3 of the votes cast by the shareholders of the Company who, being entitled to do so, vote in person or by proxy at a general meeting of the company (b) a resolution consented to in writing by every shareholder of the Company who would have been entitled to vote in person or by proxy at a general meeting of the Company, and a resolution so consented to is deemed to be a special resolution passed at a general meeting of the Company.



C.

Material Contracts



The following are the material contracts of the Company (other than contracts in the ordinary course of business) entered into within the last two years:



|                   |                                     |                                                                                                                                                                |                                                                                                                                                                                                                                          
|------------------ | ----------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Date               | Names of Parties                    | Description of General Nature of the Contract                                                                                                                  | Consideration Paid; Terms and Conditions                                                                                                                                                                                                 
|September 26, 2006 | Ashanti Goldfields (Cayman) Limited | Purchase and Sale Agreement to purchase interest of Ashanti Goldfields (Cayman) Limited in Kigosi and Dongo properties                                         | 180,058 common shares of the Company with a deemed value of US$900,000 based on the weighted average trading price of the Companys common shares for the five consecutive trading days preceding the date of execution of the Agreement.
|August 8, 2006     | James E. Sinclair and the Company   | Subscription Agreement for purchase of  $3,000,000 worth of common shares over a two year period, in 8 separate quarterly tranches commencing February 1, 2007 | The pricing of each quarterly tranche will be based on the weighted average trading price of the Companys common shares for the last five consecutive trading days of each quarterly period.                                            
|May 2, 2006        | James E. Sinclair and the Company   | Subscription Agreement for purchase of 107,124 common shares                                                                                                   | $9.335 per share for a total of $1,000,000                                                                                                                                                                                               



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|                  |                                                           |                                                                                                                                                               |                                                                                                                                                                                                                                          
|----------------- | --------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Date              | Names of Parties                                          | Description of General Nature of the Contract                                                                                                                 | Consideration Paid; Terms and Conditions                                                                                                                                                                                                 
|January 25, 2006  | James E. Sinclair and the Company                         | Subscription Agreement for purchase of 183,440 common shares                                                                                                  | $7.844 per share for a total of $1,438,903.36 (US$1,250,000)                                                                                                                                                                             
|January 25, 2006  | Guild Investment Management, Inc. and the Company         | Subscription Agreement for purchase of 215,820 common shares                                                                                                  | $6.667 per share for a total of $1,438,871.94 (US$1,250,000)                                                                                                                                                                             
|September 7, 2005 | James E. Sinclair and the Company                         | Subscription Agreement for purchase of 442,478 common shares                                                                                                  | $2.147 per share for a total of $950,000                                                                                                                                                                                                 
|June 20, 2005     | James E. Sinclair and the Company                         | Subscription Agreement for purchase of  819,000 common shares                                                                                                 | $1.221 per share for a total of $1,000,000                                                                                                                                                                                               
|January 13, 2005  | James E. Sinclair and the Company                         | Subscription Agreement for purchase of $3,000,000 worth of common shares over a two year period, in 8 separate quarterly tranches commencing February 1, 2005 | The pricing of each quarterly tranche will be based on the weighted average trading price of the Companys common shares for the last five consecutive trading days of each quarterly period.                                            
|September 7, 2004 | Northern Mining Explorations Ltd. (NME) and the Company | Letter of Intent granting to NME the right to acquire all of the Companys interests in 3 prospecting licenses                                                | US$10,000, plus up to US$560,000 in installments over the next five years; US$75,000 in exploration work within the next 2 years; up to 12,000 metres in diamond drilling over the next 5 years; and a sliding scale NSR royalty up to 2%
|January 5, 2004   | James E. Sinclair and the Company                         | Subscription Agreement for purchase of 622,278 common shares                                                                                                  | $1.607 per share for a total of $1,000,000                                                                                                                                                                                               



D.

Exchange Controls



Canada



There is no law, governmental decree or regulation in Canada that restricts the export or import of capital or affects the remittance of dividends, interest or other payments to a non-resident holder of common shares other than withholding tax requirements.  Any such remittances to United States residents are subject to withholding tax.  See Taxation.



There is no limitation imposed by the laws of Canada or by the charter or other constituent documents of the Company on the right of a non-resident to hold or vote the common shares, other than as provided in the Investment Act.  The following discussion summarizes the principal features of the Investment Act for a non-resident who proposes to acquire the common shares.



The Investment Canada Act generally prohibits implementation of a reviewable investment by an individual, government or agency thereof, corporation, partnership, trust or joint venture (each an entity) that is not a Canadian as defined in the Investment Canada Act (a non-Canadian), unless after review, the Director of Investments appointed by the minister responsible for the Investment Canada Act is satisfied that the investment is likely to be of net benefit to Canada.  An investment in the common shares by a non-Canadian



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other than a WTO Investor (as that term is defined by the Investment Canada Act, and which term includes entities which are nationals of or are controlled by nationals of member states of the World Trade Organization) when the Company was not controlled by a WTO Investor, would be reviewable under the Investment Canada Act if it was an investment to acquire control of the Company and the value of the assets of the Company, as determined in accordance with the regulations promulgated under the Investment Canada Act, was $5,000,000 or more, or if an order for review was made by the federal cabinet on the grounds that the investment related to Canadas cultural heritage or national identity, regardless of the value of the assets of the Company.  An investment in the common shares by a WTO Investor, or by a non-Canadian when the Company was controlled by a WTO Investor, would be reviewable under the Investment Canada Act if it was an investment to acquire control of the Company and the value of the assets of the Company, as determined in accordance with the regulations promulgated under the Investment Canada Act was not less than a specified amount, which for 2005was any amount in excess of $237 million.  A non-Canadian would acquire control of the Company for the purposes of the Investment Canada Act if the non-Canadian acquired a majority of the common shares.  The acquisition of one third or more, but less than a majority of the common shares would be presumed to be an acquisition of control of the Company unless it could be established that, on the acquisition, the Company was not controlled in fact by the acquirer through the ownership of the common shares.



Certain transactions relating to the common shares would be exempt from the Investment Canada Act, including:  (a) an acquisition of the common shares by a person in the ordinary course of that persons business as a trader or dealer in securities; (b) an acquisition of control of the Company in connection with the realization of security granted for a loan or other financial assistance and not for a purpose related to the provisions of the Investment Canada Act; and (c) an acquisition of control of the Company by reason of an amalgamation, merger, consolidation or corporate reorganization following which the ultimate direct or indirect control in fact of the Company, through the ownership of the common shares, remained unchanged.



Foreign Investments and Exchange in Tanzania



Tanzania adopted in 1997 an Investment Act under which the Tanzania Investment Centre (TIC), as agency for investment promotion and facilitation, was established.  Foreign investment is welcome and in order to enjoy certain tax benefits under the Investment Act, the minimum equity contribution whether in kind or in cash must be not less than US$300,000.



In 1992, the stringent foreign exchange legislation was repealed and the restriction on foreign commercial banks abolished. Any person whether resident or not may establish foreign currency accounts with any of the commercial banks and transfer foreign currency outside Tanzania without restriction.  The Bank of Tanzania regulates commercial banks and approves the establishment of offshore foreign currency accounts by residents.  There are no controls on foreign exchange rates or interest rate on loans and overdrafts.



E.

Taxation



Canadian Federal Income Tax Consequences



The following summarizes the principal Canadian federal income tax consequences applicable to the holding and disposition of common shares in the capital of the Company by a United States resident, a corporation or partnership created or organized in or under the laws of the United States or of any political subdivision thereof, an entity created or organized in or under the laws of the United States or of any political subdivision thereof, which has elected to be treated as a corporation for U.S. federal income tax purposes, an estate whose income is taxable in the U.S. irrespective of source, or a trust subject to primary supervision of a court within the U.S. and control of a U.S. fiduciary, and who holds common shares solely as capital property and who owns (directly and indirectly) no more than 5% of the value of the total outstanding stock of the Company (a U.S. Holder).  This summary is based on the current provisions of the Income Tax Act (Canada) (the Tax Act), the regulations thereunder, all amendments thereto publicly proposed by the government of Canada, the published administrative practices of Canada Revenue Agency, and on the current provisions of the



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Canada-United States Income Tax Convention, 1980, as amended (the Treaty).  Except as otherwise expressly provided, this summary does not take into account any provincial, territorial or foreign (including without limitation, any U.S.) tax law or treaty.  It has been assumed that all currently proposed amendments will be enacted substantially as proposed and that there is no other relevant change in any governing law or practice, although no assurance can be given in these respects.



Each U.S. Holder is advised to obtain tax and legal advice applicable to such U.S. Holders particular circumstances.



Every U.S. Holder is liable to pay a Canadian withholding tax on every dividend that is or is deemed to be paid or credited to the U.S. Holder on the U.S. Holders common shares.  The statutory rate of withholding tax is 25% of the gross amount of the dividend paid.  The Treaty reduces the statutory rate with respect to dividends paid to a U.S. Holder for the purposes of the Treaty.  Where applicable, the general rate of withholding tax under the Treaty is 15% of the gross amount of the dividend, but if the U.S. Holder is a corporation that owns at least 10% of the voting stock of the Company and beneficially owns the dividend, the rate of withholding tax is 5% for dividends paid or credited after 1996 to such corporate U.S. Holder.  The Company is required to withhold the applicable tax from the dividend payable to the U.S. Holder, and to remit the tax to the Receiver General of Canada for the account of the U. S. Holder.



Pursuant to the Tax Act, a U.S. Holder will not be subject to Canadian capital gains tax on any capital gain realized on an actual or deemed disposition of a common share, including a deemed disposition on death, provided that the U.S. Holder did not hold the common share as capital property used in carrying on a business in Canada, and that neither the U. S. Holder nor persons with whom the U.S. Holder did not deal a arms length (alone or together) owned or had the right or an option to acquire 25% or more of the issued shares of any class of the Company at any time in the five years immediately preceding the disposition.



United States Federal Income Tax Consequences



The following is, in the opinion of the Company after consultation with its professional advisors, a discussion of material United States federal income tax consequences, under current law, generally applicable  to a U.S. Holder (as defined above) of common shares of the Company. This discussion does not address all potentially relevant federal income tax matters and it does not address consequences peculiar to persons subject to special provisions of federal income tax law. In addition, this discussion does not cover any state, local or foreign tax consequences. (See Taxation  Canadian Federal Income Tax Consequences above). Accordingly, holders and prospective holders of common shares of the Company are urged to consult their own tax advisors about the specific federal, state, local, and foreign tax consequences to them of purchasing, owning and disposing of common shares of the Company, based upon their individual circumstances.



The following discussion is based upon the sections of the Internal Revenue Code of 1986, as amended (the Code), Treasury Regulations, published Internal Revenue Service (IRS) rulings, published administrative positions of the IRS and court decisions that are currently applicable, any or all of which could be materially and adversely changed, possibly on a retroactive basis, at any time and which are subject to differing interpretations. This discussion does not consider the potential effects, both adverse and beneficial, of any proposed legislation which, if enacted, could be applied, possibly on a retroactive basis, at any time.



Passive Foreign Investment Company.



The Company believes that it could be a passive foreign investment company (PFIC) for United States federal income tax purposes with respect to a U.S. Holder (as defined above).  The Company will be a PFIC with respect to a U.S. Holder if, for any taxable year in which such U.S. Holder held the Companys shares, either (i) at least 75% of the gross income of the Company for the taxable year is passive income, or (ii) on average, at least 50% of the Companys assets are attributable to assets that produce or are held for the production of passive income.  In each case, the Company must take into account a pro rata share of the income and the assets of any



72



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corporation in which the Company owns, directly or indirectly, 25% or more of the stock by value (the look-through rules).  Passive income generally includes dividends, interest, royalties, rents (other than rents and royalties derived from the active conduct of a trade or business and not derived from a related person), annuities, and gains from assets that produce passive income.  As a publicly traded corporation, the Company would apply the 50% asset test based on the value of the Companys assets.



Because the Company may be a PFIC, unless a U.S. Holder who owns shares in the Company (i) elects (a section 1295 election) to have the Company treated as a qualified electing fund (a QEF) (described below), or (ii) marks the stock to market (described below), the following rules apply:



1.

Distributions made by the Company during a taxable year to a U.S. Holder who owns shares in the Company that are an excess distribution (defined generally as the excess of the amount received with respect to the shares in any taxable year over 125% of the average received in the shorter of either the three previous years or such U.S. Holder's holding period before the taxable year) must be allocated ratably to each day of such shareholders holding period.  The amount allocated to the current taxable year and to years when the Company was not a PFIC must be included as ordinary income in the shareholders gross income for the year of distribution.  The remainder is not included in gross income but the shareholder must pay a deferred tax on that portion.  The deferred tax amount, in general, is the amount of tax that would have been owed if the allocated amount had been included in income in the earlier year, plus interest.  The interest charge is at the rate applicable to deficiencies in income taxes.  For a U.S. Holder that is not a corporation, the interest charge is wholly non-deductible.



2.

The entire amount of any gain realized upon the sale or other disposition of the shares will be treated as an excess distribution made in the year of sale or other disposition and as a consequence will be treated as ordinary income and, to the extent allocated to years prior to the year of sale or disposition, will be subject to the interest charge described above.



A shareholder that makes a section 1295 election will be currently taxable on his or her pro rata share of the Companys ordinary earnings and net capital gain (at ordinary income and long term capital gains rates, respectively) for each taxable year of the Company, regardless of whether or not distributions were received. The shareholders basis in his or her shares will be increased to reflect taxed but undistributed income.  Distributions of income that had previously been taxed will result in a corresponding reduction of basis in the shares and will not be taxed again as a distribution to the shareholder.



A shareholder may make a section 1295 election with respect to a PFIC for any taxable year of the shareholder (shareholders election year).  A section 1295 election is effective for the shareholders election year and all subsequent taxable years of the shareholder.  Procedures exist for both retroactive elections and filing of protective statements.  Once a section 1295 election is made it remains in effect, although not applicable, during those years that the Company is not a PFIC.  Therefore, if the Company re-qualifies as a PFIC, the section 1295 election previously made is still valid and the shareholder is required to satisfy the requirements of that election. Once a shareholder makes a section 1295 election, the shareholder may revoke the election only with the consent of the Commissioner.  Nevertheless, the Commissioner in his discretion may invalidate or terminate a section 1295 election applicable to a shareholder, if the shareholder and the Company fail the annual reporting requirements of the section 1295 election.



If a shareholder makes the section 1295 election for the first taxable year of the Company as a PFIC that is included in the shareholders holding period of the PFIC shares, the PFIC qualifies as a pedigreed QEF with respect to the shareholder.  If a QEF is an unpedigreed QEF with respect to the shareholder, the shareholder is subject to both the non-QEF and QEF regimes.  Under the proposed regulations, a  PFIC that qualifies as a pedigreed QEF with respect to the shareholder would be taxed currently on his or her share of the PFICs earnings and profits, whether distributed or not.  On the other hand, a PFIC that qualifies as an unpedigreed QEF with respect to the shareholder would be taxed currently on his or share of the PFICs earnings and profits, whether distributed or not, during the period the PFIC shares qualify as a QEF; and would be taxed under the



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excess distribution and interest charge rules during the period the PFIC shares do not qualify as a QEF. Certain elections are available which enable shareholders to convert an unpedigreed QEF into a pedigreed QEF thereby avoiding such dual application.



A shareholder making the section 1295 election must make the election on or before the due date, as extended, for filing the shareholders income tax return for the first taxable year to which the election will apply. A shareholder must make a section 1295 election by completing a Form 8621, Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund (the Form); attaching said Form to its federal income tax return; and reflecting in the Form the information provided in the PFIC Annual Information Statement or if the shareholder calculated the financial information, a statement to that effect.  The PFIC Annual Information Statement must include the shareholders pro rata shares of the ordinary earnings and net capital gain of the PFIC for the PFICs taxable year or information that will enable the shareholder to calculate its pro rata shares.  In addition, the PFIC Annual Information Statement must contain information about distributions to shareholders and a statement that the PFIC will permit the shareholder to inspect and copy its permanent books of account, records, and other documents of the PFIC necessary to determine that the ordinary earnings and net capital gain of the PFIC have been calculated according to federal income tax accounting principles.  A shareholder may also obtain the books, records and other documents of the foreign corporation necessary for the shareholder to determine the correct earnings and profits and net capital gain of the PFIC according to federal income tax principles and calculate the shareholders pro rata shares of the PFICs ordinary earnings and net capital gain.  In that case, the PFIC must include a statement in its PFIC Annual Information Statement that it has permitted the shareholder to examine the PFICs books of account, records, and other documents necessary for the shareholder to calculate the amounts of ordinary earnings and net capital gain.  A shareholder that makes a Section 1295 election with respect to a PFIC held directly or indirectly, for each taxable year to which the Section 1295 election applies, must comply with the foregoing submissions.



Because the Companys stock is marketable under section 1296(e), a U.S. Holder may elect to mark the stock to market each year.  In general, a PFIC shareholder who elects under section 1296 to mark the marketable stock of a PFIC includes in ordinary income each year an amount equal to the excess, if any, of the fair market value of the PFIC stock as of the close of the taxable year over the shareholders adjusted basis in such stock.  A PFIC shareholder is also generally allowed an ordinary deduction for the excess, if any, of the adjusted basis of the PFIC stock over the fair market value as of the close of the taxable year.  Deductions under this rule, however, are allowable only to the extent of any net mark to market gains with respect to the stock included by the PFIC shareholder for prior taxable years.  While the interest charge regime under the PFIC rules generally does not apply to distributions from and dispositions of stock of a PFIC where the U.S. Holder has marked to market, coordination rules for limited application will apply in the case of a U.S. Holder that marks to market PFIC stock later than the beginning of the shareholder's holding period for the PFIC stock, unless the PFIC stock was a QEF with respect to the U.S. Holder.



Special rules apply with respect to the calculation of the amount of the foreign tax credit with respect to excess distributions by a PFIC or current income inclusions under a QEF.



Distribution on Common Shares of the Company



In general, U.S. Holders receiving dividend distributions (including constructive dividends) with respect to common shares of the Company are required to include in gross income for United States federal income tax purposes the gross amount of such distributions, equal to the U.S. dollar value of such distributions on the date of receipt (based on the exchange rate on such date), to the extent that the Company has current or accumulated earnings and profits, without reduction for any Canadian income tax withheld from such distributions. Such Canadian tax withheld may be credited, subject to certain limitations, against the U.S. Holders federal income tax liability or, alternatively, may be deducted in computing the U.S. Holders federal taxable income. (See  more detailed discussion at Foreign Tax Credit below). To the extent that distributions exceed current or accumulated earnings and profits of the Company, they will be treated first as a tax-free return of capital up to the U.S. Holders adjusted basis in the common shares and thereafter as gain from the sale or exchange of property.



74



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Preferential tax rates for long-term capital gains are applicable to a U.S. Holder which is an individual, estate or trust. There are currently no preferential tax rates for long-term capital gains for a U.S. Holder which is a corporation.





In the case of foreign currency received as a dividend that is not converted by the recipient into U.S. dollars on the date of receipt, a U.S. Holder will have a tax basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Generally any gain or loss recognized upon a subsequent sale or other disposition of the foreign currency, including the exchange for U.S. dollars, will be ordinary income or loss. However, an individual whose realized gain does not exceed $200 will not recognize that gain, provided that there are no expenses associated with the transaction that meet the requirements for deductibility as a trade or business expense (other than travel expenses in connection with a business trip) or as an expense for the production of income.



Dividends paid on the common shares of the Company generally will not be eligible for the dividends received deduction provided to corporations receiving dividends from certain United States corporations.  A U.S. Holder which is a corporation and which owns shares representing at least 10% of the voting power and value of the Company may, under certain circumstances, be entitled to a 70% (or 80% if the U.S. Holder owns shares representing at least 20% of the voting power and value of the Company) deduction equal to the United States source portion of dividends received from the Company (unless the Company qualifies as a passive foreign investment company (a PFIC) as defined above). The Company does not anticipate that it will earn any U.S. source income, however, and therefore does not anticipate that any U.S. Holder which is a corporation will be eligible for the dividends received deduction.



Foreign Tax Credit



A U.S. Holder who pays (or has withheld from distributions) Canadian income tax with respect to the ownership of common shares of the Company may be entitled, at the option of the U.S. Holder, to either receive a deduction or a tax credit for such foreign tax paid or withheld. Generally, it will be more advantageous to claim a credit because a credit reduces United States federal income taxes on a dollar-for-dollar basis, while a deduction merely reduces the taxpayers income subject to tax. This election is made on a year-by-year basis and generally applies to all foreign taxes paid by (or withheld from) the U.S. Holder during that year. There are significant and complex limitations which apply to the credit, among which is the general limitation that the credit cannot exceed the proportionate share of the U.S. Holders United States income tax liability that the U.S. Holders foreign source income bears to his or its worldwide taxable income. In the determination of the application of this limitation, the various items of income and deduction must be classified into foreign and domestic sources. Complex rules govern this classification process. In addition, this limitation is calculated separately with respect to specific classes of income such as passive income,  high withholding tax interest, financial services income, shipping income, and certain other classifications of income. Dividends distributed by the Company will generally constitute passive income or, in the case of certain U.S. Holders, financial services income for these purposes. The availability of the foreign tax credit and the application of  the limitations on the credit are fact specific, and U.S. Holders of common shares of the Company should consult their own tax advisors regarding their individual circumstances.  U.S. Holders should be aware that recently enacted legislation eliminates the financial services income category for taxable years beginning after December 31, 2006.  Under the recently enacted legislation, the foreign tax credit limitation categories are limited to passive category income and general category income.



Disposition of Common Shares of the Company



In general, U.S. Holders will recognize gain or loss upon the sale of common shares of the Company equal to the difference, if any, between (i) the amount of cash plus the fair market value of any property received, and (ii) the shareholders tax basis in the common shares of the Company. Preferential tax rates apply to long-term capital gains of U.S. Holders which are individuals, estates or trusts. In general, gain or loss on the sale of



75



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common shares of the Company will be long-term capital gain or loss if the common shares are a capital asset in the hands of the U.S. Holder and are held for more than one year. Deductions for net capital losses are subject to significant limitations. For a U.S. Holder that is an individual, estate, or trust, capital losses may be used to offset capital gains and up to US$3,000 of ordinary income and any unused portion of net capital loss may be carried over to be used in later taxable years until such net capital loss is thereby exhausted. For U.S. Holders that are corporations (other than corporations subject to Subchapter S of the Code), an unused net capital loss may be carried back three years and carried forward five years from the loss year to be offset against capital gains until such net capital loss is thereby exhausted.



Controlled Foreign Corporations.



Sections 951 through 964 and Section 1248 of the Code relate to controlled foreign corporations (CFCs).  A foreign corporation that qualifies as a CFC will not be treated as a PFIC with respect to a shareholder during the portion of the shareholders holding period after December 31, 1997, during which the shareholder owns, directly or indirectly, 10% or more of the total voting power of the outstanding shares of the Company (a 10% Shareholder) and the corporation is a CFC.  A CFC is a foreign corporation where more  than 50% of the corporations voting stock or value is owned by U.S. shareholders on any day during the foreign corporations taxable year. The PFIC provisions continue to apply in the case of PFIC that is also a CFC with respect to shareholders that are not 10% Shareholders.



The 10% Shareholders of a CFC are subject to current U.S. tax on their pro rata shares of certain income of the CFC and their pro rata shares of the CFCs earnings invested in certain U.S. property.  The effect is that the CFC provisions may impute some portion of such a corporations undistributed income to certain shareholders on a current basis and convert into dividend income some portion of gains on dispositions of stock, which would otherwise qualify for capital gains treatment.



The Company does not believe that it will be a CFC.  It is possible that the Company could become a CFC in the future.  Even if the Company were classified as a CFC in a future year, however, the CFC rules referred to above would apply only with respect to 10% Shareholders.





U.S. Information Reporting and Backup Withholding.



Payments made within the United States, or by a U.S. payor or U.S. middleman, of dividends or proceeds arising from certain sales or other taxable dispositions of the common shares of the Company are generally subject to the information reporting requirements of the Code.  Dividends may be subject to backup withholding at the rate of 28% unless the holder provides a taxpayer identification number on a properly completed Form W-9 or otherwise establishes an exemption.  U.S. Holders that are corporations generally are excluded from these information reporting and backup withholding tax rules.



The amount of any backup withholding will not constitute additional tax and will be allowed as a credit against the U.S. Holder's federal income tax liability, provided the required information is furnished to the IRS.



Filing of Information Returns.



Under a number of circumstances, a U.S. Holder acquiring shares of the Company may be required to file an information return.  In particular, any U.S. Holder who becomes the owner, directly or indirectly, of 10% or more of the shares of the Company will be required to file such a return.  Other filing requirements may apply, and U.S. Holders should consult their own tax advisors concerning these requirements.







76



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Tanzania



Taxation



Tax in Tanzania is levied on the income of any person which is deemed to have accrued in or was derived in Tanzania, in the case of individuals, if he was resident in Tanzania during the year of income for a total of 183 days, or an average of 122 days per year over 3 tax years.  Prevailing income tax rate is 30% in the case of both corporate entities and individuals.



Value Added Tax (VAT)



|                                                    |     
|--------------------------------------------------- | ----
|Taxable Supplies                                    | Rate
|Supply of goods and services in Mainland Tanzania   | 20% 
|Import of goods and services in Mainland Tanzania   | 20% 
|Export of goods and services from Mainland Tanzania | 0%  



VAT registrable threshold is Tshs. 20 Million (or about US$20,000 at prevailing exchange rates).



Withholding Tax



Withholding tax is charged at the rates specified below:



|                                                         |          |             
|-------------------------------------------------------- | -------- | ------------
|                                                         | Resident | Non-Resident
|Dividend (unlisted companies)                            | 10%      | 10%         
|Interest                                                 | 15%      | 15%         
|Royalty                                                  | 0%       | 20%         
|Management and Professional Fees                         | 0%       | 20%         
|Rental Income                                            | 15%      | 20%         
|Pension/Retirement Annuity                               | 0%       | 15%         
|Insurance Commission                                     | 7.5%     | 0%          
|Goods and Services (not applicable to TIN Cert. Holders) | 2%       | 2%          



Special Rates for Persons Engaged in Mining Operations Rates



|                                                                                                              |          |             
|------------------------------------------------------------------------------------------------------------- | -------- | ------------
|                                                                                                              | Resident | Non-Resident
|Dividend                                                                                                      | 10%      | 10%         
|Technical Service Fee                                                                                         | 3%       | 3%          
|Management Fee up to 2% of Operating Costs                                                                    | 0%       | 3%          
|Management Fee  Excess Over 2%                                                                               | 0%       | 20%         
|Interest on Foreign Sourced Loans*                                                                            | 0%       | 0%          
|Companies listed on the Dar es Salaam Stock Exchange enjoy a preferential withholding tax on 5% on dividends. |          |             

*

In respect of mining companies having Development Agreements with Government.



Capital Gains Tax



Capital Gains Tax is chargeable on Premises and Financial Assets.  The prevailing rate is 10%.



Stamp duty



Stamp duty is changeable on conveyance of property, shares and registration of securities as follows:



77



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|                                |     
|------------------------------- | ----
|                                | Rate
|Conveyance                      | 4%  
|Transfer of Shares or Debenture | 1%  
|Insurance Commission            | 7.5%



Customs Duty



Imports into Tanzania are subject to duty as follows:



|                                                                                                                             |         
|---------------------------------------------------------------------------------------------------------------------------- | --------
|                                                                                                                             | Rate    
|Capital Goods                                                                                                                | 5%      
|Semi-processed inputs and spare parts other than for motor vehicles                                                          | 10%     
|Fully processed inputs and motor vehicle spare parts                                                                         | 15%     
|Consumer Goods                                                                                                               | 25%     
|Equipment and supplies imported by persons engaged in mining operations subcontractors  up to one (1) year after production | 0%      
|Thereafter                                                                                                                   | 5% (max)



Mining Sector



There is a special fiscal regime for mining companies which provides for 100% depreciation allowance on all mining capital expenditures.  Losses may be carried forward for an unlimited period of time.  There is also an exemption on import duty for mining equipment and supplies up to one year after start up of production as well as a 10% withholding tax on dividends and maximum 3% withholding tax on management fees up to 2% of operating costs and 20% for any excess over 2% of the operating costs.  Mining companies may opt to keep their books of account in the United States Dollar Currency.  The special regime applies for subcontractors and providers of technical services to the mining sector as well.  The government of Tanzania also imposes a royalty on the gross value of all production equal to 5% for diamonds and 3% for all gold produced.



Double Taxation Agreement



Tanzania has a tax treaty to prevent double taxation with Canada, Denmark, Finland, India, Italy, United Kingdom, Norway, Sweden and  Zambia. Tanzania is also in the process of negotiating treaties with several countries including Belgium, Burundi, Iran, Lebanon, Malaysia, Mauritius, Pakistan, Rwanda.



F.

Dividends and Paying Agents



Not Applicable.



G.

Statement by Experts



Not Applicable.



H.

Documents on Display



The Company will file annual reports and other information with the Securities and Exchange Commission. You may read and copy any document that we file at the Commissions Public Reference Room at 100 F Street, NE, Washington, D.C. 20549.  Please call the Securities and Exchange Commission at 1-800-SEC-0330 for more information about the Public Reference Rooms.  The Securities and Exchange Commission also maintains a website, www.sec.gov, where you may obtain our reports.  We also file certain



78



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reports with the Canadian Securities Administrators that you may obtain through access of the SEDAR website, www.sedar.com.



Copies of the Companys material contracts are kept in the Companys administrative headquarters.



I.

Subsidiary Information



Not Applicable.



Item 11.

Quantitative and Qualitative Disclosures About Market Risk



The Company is exposed to market risk, primarily related to foreign exchange and metals prices (gold in particular).  The Company uses the Canadian dollar as its reporting currency, but the Company converts Canadian dollars to U.S. dollars, and then U.S. dollars to Tanzanian schillings.  The Company is therefore exposed to foreign exchange movements in Tanzania where the Company is incurring costs in conducting exploration activities.  Most of the Companys exploration work is conducted in U.S. dollars; however, some general and administrative expenses are paid in Tanzanian schillings.



The following table sets forth the percentage of the Company's administrative expense by currency for the year ended August 31, 2006.



By Currency



|                    |     
|------------------- | ----
|                    | 2006
|Canadian Dollar     | 35% 
|U.S. Dollar         | 40% 
|Tanzanian Schilling | 25% 
|Total:              | 100%



Such administrative expense by currency may change from time to time, but it has been roughly the same year to year.  Further, the Company incurred net exploration costs of $2,545,075 and $1,515,911 for the years ended August 31, 2006 and 2005, respectively, which are primarily paid in U.S. dollars.



The Company has not entered into any material foreign exchange contracts to minimize or mitigate the effects of foreign exchange fluctuations on the Company's operations.  Based on prior years, the Company does not believe that it is subject to material foreign exchange fluctuations.  However, no assurance can be given that this will continue to be true in the future.



The Company has no long-term debt, therefore, the Company does not believe that the interest rate market risk to be material.  The Company has a fixed rate capital lease obligation outstanding in the amount of $156,364.



The market prices of most precious metals, including gold, have generally increased over the past three years, but are subject to market fluctuations based primarily on supply and demand.



The following table sets out the cumulative average prices of gold for the past five years, based on the London Metals Market afternoon price fix in U.S. dollars:



|        |         |         |         |                            
|------- | ------- | ------- | ------- | ---------------------------
|2002    | 2003    | 2004    | 2005    | 2006
(Average to August 31)
|$309.73 | $363.38 | $409.72 | $444.74 | $601.45                    



79



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Item 12.

Description of Securities Other than Equity Securities



Not Applicable.



Part II



Item 13.

Defaults, Dividend Arrears and Delinquencies



None.



Item 14.

Material Modifications to the Rights of Security Holders and Use of Proceeds



None.



80



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Item 15.

Controls and Procedures



Disclosure Controls and Procedures



The Company carried out an evaluation, under the supervision and with the participation of the Companys management, including the Companys chief executive officer and principal financial officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures as of August 31, 2006 pursuant to Exchange Act Rule 13a-15(e) or Rule 15d-15(e).  Based upon that evaluation, the Companys chief executive officer and principal financial officer concluded that the Companys disclosure controls and procedures as of the end of the fiscal year covered by this Annual Report were effective to provide reasonable assurance that information required to be disclosed in the reports the Company files and submits under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms.



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.  The Companys internal control over financial reporting is a process designed under the supervision of the Companys CEO and CFO, and effected by the Companys Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with Canadian generally accepted accounting principles.



Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with policies and procedures may deteriorate.



Management has assessed the effectiveness of the Companys internal control over financial reporting as of August 31, 2006.  In making this assessment, management used the criteria described in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  Based on Managements assessment in accordance with the Internal Control  Integrated Framework, management has concluded that internal control over financial reporting was effective as of August 31, 2006.



Changes in Internal Controls over Financial Reporting



There has been no change in the Companys internal control over financial reporting during the fiscal year ended August 31, 2006 that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.



Item 16.

[Reserved]



Item 16 A.

Audit Committee Financial Expert



The Companys audit committee financial expert is Dr. Norman Betts, who is an independent director, as defined under MI 52-110 andas defined pursuant to National Association of Securities Dealers (NASD) Rule 4200(a)(15) (as such definition may be modified or supplemented).  The Securities and Exchange Commission has indicated that the designation of an audit committee financial expert does not make that person an expert for any purpose, impose any duties, obligations, or liability on that person that are greater than those imposed on members of the audit committee and board of directors who do not carry this designation, or affect the duties, obligations, or liabilities of any other member of the audit committee.



81



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Item 16 B.

Code of Ethics



We have adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer, controller and other persons performing similar functions.  A copy of our code of ethics can be found on our website at www.TanzanianRoyaltyExploration.com.  The Company will report any amendment or wavier to the code of ethics on our website within five (5) days.



Item 16 C.

Principal Accountant Fees and Services



The independent auditor for the fiscal year ended August 31, 2006 and 2005 was KPMG LLP, Chartered Accountants.  The following summarizes the significant professional services rendered by KPMG to the Company for the year ended August 31, 2006:



|                                |                                      |                    |             |                  
|------------------------------- | ------------------------------------ | ------------------ | ----------- | -----------------
|Financial Year Ending August 31 | Audit Fees                           | Audit Related Fees | Tax Fees(1) | All other Fees(2)
|2006                            | Canada  $80,000
Tanzania - US$5,000 | Nil
Nil            | Nil
Nil     | Nil
Nil          
|2005                            | Canada  $46,285
Tanzania - US$7,045 | Nil
Nil            | Nil
Nil     | Nil
Nil          

(1)

Tax advice and planning assistance including review of and assistance with capital tax assessments.



Item 16 D.

Exemptions from the Listing Standards for Audit Committees



Not Applicable.



Item 16 E.

Purchase of Equity Securities by the Issuer and Affiliated Purchasers



Not Applicable.



Part III



Item 17.

Financial Statements



The consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles and are expressed in Canadian dollars.  The consolidated financial statements attached have been reconciled to U.S. Generally Accepted Accounting Principles.  See Item 8 (A).



Item 18.

Financial Statements



Not Applicable.



Item 19.

Exhibits



(a)

Exhibits



(4)(a)

-

Subscription Agreement dated January 25, 2006 between  the Company and James E. Sinclair.



(4)(b)

-

Subscription Agreement dated January 25, 2006 between the Company and Guild Investment Management, Inc.



(4)(c)

-

Subscription Agreement dated May 2, 2006 between the Company and James E. Sinclair.



82



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(4)(d)

-

Subscription Agreement dated August 8, 2006 between the Company and James E. Sinclair.



(4)(e)

-

Restricted Stock Unit Incentive Plan



(4)(f)

-

Purchase and Sale Agreement dated September 26, 2006 between the Company and Ashanti Goldfields (Cayman) Limited.



12.1

Certification of the Principal Executive Officer under the Sarbanes-Oxley Act



12.2

Certification of the Principal Financial Officer under the Sarbanes-Oxley Act



13.

Certificate under section 906.





83



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|                                                                                                                                                                                                                                       
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Consolidated Financial Statements
(Expressed in Canadian dollars)

TANZANIAN  ROYALTY  EXPLORATION  CORPORATION
(formerly Tan Range Exploration Corporation)
(An Exploration Stage Company)

Years ended August 31, 2006, 2005 and 2004









---

| |                                                                                                |  |                                                                  |  |  | 
| | ---------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------- |  |  | 
| |                                                                                                | 
| | KPMG LLP
Chartered Accountants
PO Box 10426  777 Dunsmuir Street
Vancouver  BC  V7Y 1K3
Canada |  | Telephone
(604) 691-3000
Fax
(604) 691-3031
Internet
www.kpmg.ca







|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Directors of Tanzanian Royalty Exploration Corporation
(formerly Tan Range Exploration Corporation)

We have audited the accompanying consolidated balance sheets of Tanzanian Royalty Exploration Corporation (formerly Tan Range Exploration Corporation) as of August 31, 2006 and 2005 and the consolidated statements of operations and deficit and cash flows for each of the years in the three-year period ended August 31, 2006.  These consolidated financial statements are the responsibility of the Companys management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of August 31, 2006 and 2005 and the results of its operations and its cash flows for each of the years in the three-year period ended August 31, 2006 in accordance with Canadian generally accepted accounting principles.
Canadian generally accepted accounting principles vary in certain significant respects from accounting principles generally accepted in the United States of America.  Information relating to the nature and effect of such differences is presented in note 11 to the consolidated financial statements.


[trec6k112906029.jpg]
Chartered Accountants

Vancouver, Canada
November 3, 2006





|                                                                                                                          
|--------------------------------------------------------------------------------------------------------------------------
|KPMG LLP, a Canadian limited liability partnership is the Canadian
member firm of KPMG International, a Swiss cooperative.





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|                                                                                                                                                                                                            |                                                             |              |              |            |          
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------- | ------------ | ------------ | ---------- | ---------
|TANZANIAN ROYALTY EXPLORATION CORPORATION
(formerly Tan Range Exploration Corporation)
(An Exploration Stage Company)
Consolidated Balance Sheets
(Expressed in Canadian dollars)

August 31, 2006 and 2005
|                                                                                                                                                                                                            | 2006                                                        | 2005        
|                                                                                                                                                                                                           
|Assets                                                                                                                                                                                                     
|                                                                                                                                                                                                           
|Current assets:                                                                                                                                                                                            
|                                                                                                                                                                                                            | Cash and cash equivalents                                   | $            | 3,174,549    | $          | 1,395,468
|                                                                                                                                                                                                            | Accounts and other receivables (note 8)                     | 18,824       | 77,677      
|                                                                                                                                                                                                            | Inventory                                                   | 158,380      | 49,934      
|                                                                                                                                                                                                            | Prepaid expenses                                            | 80,457       | 73,273      
|                                                                                                                                                                                                            |                                                             | 3,432,210    | 1,596,352   
|                                                                                                                                                                                                            |                                                             |             
|Mineral properties and deferred exploration costs (note 3)                                                                                                                                                  | 20,593,948                                                  | 19,739,275  
|                                                                                                                                                                                                            |                                                             |             
|Equipment and leasehold improvements (note 4)                                                                                                                                                               | 865,809                                                     | 922,056     
|                                                                                                                                                                                                            |                                                             |             
|                                                                                                                                                                                                            | $                                                           | 24,891,967   | $            | 22,257,683
|                                                                                                                                                                                                           
|Liabilities and Shareholders Equity                                                                                                                                                                       
|                                                                                                                                                                                                           
|Current liabilities:                                                                                                                                                                                       
|                                                                                                                                                                                                            | Accounts payable and accrued liabilities                    | $            | 559,312      | $          | 172,812  
|                                                                                                                                                                                                            | Current portion of obligations under capital lease (note 5) | 34,625       | 34,634      
|                                                                                                                                                                                                            |                                                             | 593,937      | 207,446     
|                                                                                                                                                                                                            |                                                             |             
|Obligations under capital lease (note 5)                                                                                                                                                                    | 121,739                                                     | 175,011     
|                                                                                                                                                                                                            |                                                             |             
|Shareholders equity:                                                                                                                                                                                       |                                                             |             
|                                                                                                                                                                                                            | Share capital (note 7)                                      | 51,397,278   | 44,839,796  
|                                                                                                                                                                                                            | Share subscriptions received (note 7(b))                    | 750,000      | 813,828     
|                                                                                                                                                                                                            | Contributed surplus                                         | 134,133      | -           
|                                                                                                                                                                                                            | Deficit                                                     | (28,105,120) | (23,778,398)
|                                                                                                                                                                                                            |                                                             | 24,176,291   | 21,875,226  
|                                                                                                                                                                                                            |                                                             |             
|                                                                                                                                                                                                            | $                                                           | 24,891,967   | $            | 22,257,683
|                                                                                                                                                                                                           
|Nature of operations (note 1)                                                                                                                                                                              
|Commitments (notes 3 and 9)                                                                                                                                                                                
|Subsequent events (notes 3(c) and 10)                                                                                                                                                                      
|                                                                                                                                                                                                           
|                                                                                                                                                                                                           
|See accompanying notes to consolidated financial statements.                                                                                                                                               
|                                                                                                                                                                                                           





| |  |  
| |  | -
| |  | 1





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|                                                                                                                                                                                                                                                    |                                                                         |              |           |              |           |              |           |  |  |  | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | ------------ | --------- | ------------ | --------- | ------------ | --------- |  |  |  | 
|TANZANIAN ROYALTY EXPLORATION CORPORATION
(formerly Tan Range Exploration Corporation)
(An Exploration Stage Company)
Consolidated Statements of Operations and Deficit
(Expressed in Canadian dollars)

Years ended August 31, 2006, 2005 and 2004
|                                                                                                                                                                                                                                                    | 2006                                                                    | 2005         | 2004     
|                                                                                                                                                                                                                                                    |                                                                         |              |          
|Expenses:                                                                                                                                                                                                                                           |                                                                         |              |          
|                                                                                                                                                                                                                                                    | Amortization                                                            | $            | 96,694    | $            | 88,981    | $            | 54,643   
|                                                                                                                                                                                                                                                    | Annual general meeting                                                  |              | 94,097    |              | 36,299    |              | 21,894   
|                                                                                                                                                                                                                                                    | Capital tax                                                             |              | -         |              | 3,243     |              | (46,052) 
|                                                                                                                                                                                                                                                    | Consulting and management fees                                          |              | 177,771   |              | 139,054   |              | 140,099  
|                                                                                                                                                                                                                                                    | Insurance                                                               |              | 105,729   |              | 97,412    |              | 65,744   
|                                                                                                                                                                                                                                                    | Memberships, courses and publications                                   |              | 6,889     |              | 649       |              | 6,551    
|                                                                                                                                                                                                                                                    | Office and administration                                               |              | 92,071    |              | 76,022    |              | 82,643   
|                                                                                                                                                                                                                                                    | Office rentals                                                          |              | 61,972    |              | 65,760    |              | 103,134  
|                                                                                                                                                                                                                                                    | Press releases                                                          |              | 89,844    |              | 41,814    |              | 23,642   
|                                                                                                                                                                                                                                                    | Printing and mailing                                                    |              | 35,794    |              | 46,220    |              | 19,266   
|                                                                                                                                                                                                                                                    | Professional fees                                                       |              | 484,653   |              | 147,333   |              | 201,167  
|                                                                                                                                                                                                                                                    | Promotions and shareholder relations                                    |              | 63,026    |              | 12,495    |              | 8,408    
|                                                                                                                                                                                                                                                    | Salaries and benefits                                                   |              | 765,173   |              | 691,059   |              | 604,368  
|                                                                                                                                                                                                                                                    | Stock-based compensation                                                |              | 134,133   |              | -         |              | -        
|                                                                                                                                                                                                                                                    | Telephone and fax                                                       |              | 21,261    |              | 29,407    |              | 29,592   
|                                                                                                                                                                                                                                                    | Training                                                                |              | -         |              | 18,756    |              | 14,433   
|                                                                                                                                                                                                                                                    | Transfer agent and listing                                              |              | 204,795   |              | 140,166   |              | 68,895   
|                                                                                                                                                                                                                                                    | Travel and accommodation                                                |              | 60,565    |              | 36,881    |              | 40,284   
|                                                                                                                                                                                                                                                    |                                                                         |              | 2,494,467 |              | 1,671,551 |              | 1,438,711
|                                                                                                                                                                                                                                                    |                                                                         |              |           |              |           |              |          
|Other expenses (earnings):                                                                                                                                                                                                                          |                                                                         |              |           |              |           |             
|                                                                                                                                                                                                                                                    | Foreign exchange                                                        |              | 139,856   |              | 134,650   |              | (48,630) 
|                                                                                                                                                                                                                                                    | Interest, net                                                           |              | (22,262)  |              | 11,488    |              | (30,626) 
|                                                                                                                                                                                                                                                    | Loss (gain) on sale of asset                                            |              | -         |              | (93)      |              | 12,692   
|                                                                                                                                                                                                                                                    | Gain on sale of short-term investments                                  |              | -         |              | (2,527)   |              | (10,774) 
|                                                                                                                                                                                                                                                    | Property investigation costs                                            |              | 24,259    |              | 133,627   |              | 254,991  
|                                                                                                                                                                                                                                                    | Write-off of mineral properties and deferred exploration costs (note 3) |              | 1,690,402 |              | 1,629,932 |              | -        
|                                                                                                                                                                                                                                                    |                                                                         |              | 1,832,255 |              | 1,907,077 |              | 177,653  
|                                                                                                                                                                                                                                                    |                                                                         |              |           |              |           |             
|Loss before income taxes                                                                                                                                                                                                                            |                                                                         | (4,326,722)  |           | (3,578,628)  |           | (1,616,364) 
|                                                                                                                                                                                                                                                    |                                                                         |              |           |              |           |             
|Future income tax recovery                                                                                                                                                                                                                          |                                                                         | -            |           | 647,565      |           | -           
|                                                                                                                                                                                                                                                    |                                                                         |              |           |              |           |             
|Loss for the year                                                                                                                                                                                                                                   |                                                                         | (4,326,722)  |           | (2,931,063)  |           | (1,616,364) 
|                                                                                                                                                                                                                                                    |                                                                         |              |           |              |           |             
|Deficit, beginning of year                                                                                                                                                                                                                          |                                                                         | (23,778,398) |           | (20,847,335) |           | (19,230,971)
|                                                                                                                                                                                                                                                    |                                                                         |              |           |              |           |             
|Deficit, end of year                                                                                                                                                                                                                                | $                                                                       | (28,105,120) | $         | (23,778,398) | $         | (20,847,335)
|                                                                                                                                                                                                                                                    |                                                                         |              |           |              |           |             
|Basic and diluted loss per share                                                                                                                                                                                                                    | $                                                                       | (0.05)       | $         | (0.04)       | $         | (0.02)      
|                                                                                                                                                                                                                                                    |                                                                         |              |           |              |           |             
|Weighted average number of shares outstanding (note 2(k))                                                                                                                                                                                           |                                                                         | 85,666,361   |           | 83,387,939   |           | 81,056,126  
|                                                                                                                                                                                                                                                    |                                                                         |              |           |              |           |             
|See accompanying notes to consolidated financial statements.                                                                                                                                                                                       





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|                                                                                                                                                                                                                                        |                                                                        |           |             |           |             |           |             |  |  |  | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------- | --------- | ----------- | --------- | ----------- | --------- | ----------- |  |  |  | 
|TANZANIAN ROYALTY EXPLORATION CORPORATION
(formerly Tan Range Exploration Corporation)
(An Exploration Stage Company)
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)

Years ended August 31, 2006, 2005 and 2004
|                                                                                                                                                                                                                                        | 2006                                                                   | 2005      | 2004       
|                                                                                                                                                                                                                                        |                                                                        |           |            
|Cash provided by (used in):                                                                                                                                                                                                             |                                                                        |           |            
|                                                                                                                                                                                                                                        |                                                                        |           |            
|Operations:                                                                                                                                                                                                                             |                                                                        |           |            
|                                                                                                                                                                                                                                        | Loss for the year                                                      | $         | (4,326,722) | $         | (2,931,063) | $         | (1,616,364)
|                                                                                                                                                                                                                                        | Items not affecting cash:                                              |           |             |           |             |           |            
|                                                                                                                                                                                                                                        | Amortization                                                           |           | 96,694      |           | 88,981      |           | 54,643     
|                                                                                                                                                                                                                                        | Stock-based compensation                                               |           | 134,133     |           | -           |           | -          
|                                                                                                                                                                                                                                        | Loss (gain) on sale of asset                                           |           | -           |           | (93)        |           | 12,692     
|                                                                                                                                                                                                                                        | Gain on sale of short-term investments                                 | -         |             | (2,527)   |             | (10,744) 
|                                                                                                                                                                                                                                        | Write-off of mineral properties and deferred exploration costs         |           | 1,690,402   |           | 1,629,932   |           | -          
|                                                                                                                                                                                                                                        | Future income tax recovery                                             |           | -           |           | (647,565)   |           | -          
|                                                                                                                                                                                                                                        |                                                                        |           | (2,405,493) |           | (1,862,335) |           | (1,559,773)
|                                                                                                                                                                                                                                        | Changes in non-cash working capital                                    |           |             |           |             |           |            
|                                                                                                                                                                                                                                        | Accounts receivable and other receivables                              |           | 58,853      |           | (16,642)    |           | (16,747)   
|                                                                                                                                                                                                                                        | Inventory                                                              |           | (108,446)   |           | (49,934)    |           | -          
|                                                                                                                                                                                                                                        | Prepaid expenses                                                       |           | (7,184)     |           | (36,362)    |           | (490,529)  
|                                                                                                                                                                                                                                        | Accounts payable and accrued liabilities                               |           | 386,500     |           | 26,140      |           | (312,328)  
|                                                                                                                                                                                                                                        |                                                                        |           | (2,075,770) |           | (1,939,133) |           | (2,379,377)
|                                                                                                                                                                                                                                        |                                                                        |           |            
|Investing:                                                                                                                                                                                                                              |                                                                        |           |            
|                                                                                                                                                                                                                                        | Mineral properties and deferred exploration costs (note 3)             |           | (2,865,096) |           | (1,817,102) |           | (1,512,784)
|                                                                                                                                                                                                                                        | Option payments received and recoveries                                |           | 320,021     |           | 301,191     |           | 331,934    
|                                                                                                                                                                                                                                        | Equipment and leasehold improvement additions                          |           | (40,447)    |           | (140,403)   |           | (40,660)   
|                                                                                                                                                                                                                                        | Sale (purchase) of short-term investments, net                         |           | -           |           | 417,728     |           | 521,763    
|                                                                                                                                                                                                                                        | Proceeds on disposal of asset                                          |           | -           |           | 2,653       |           | -          
|                                                                                                                                                                                                                                        |                                                                        |           | (2,585,522) |           | (1,235,933) |           | (699,747)  
|                                                                                                                                                                                                                                        |                                                                        |           |            
|Financing:                                                                                                                                                                                                                              |                                                                        |           |            
|                                                                                                                                                                                                                                        | Share capital issued - net of issuance costs                           |           | 5,743,654   |           | 2,694,325   |           | 2,596,500  
|                                                                                                                                                                                                                                        | Share subscriptions received                                           |           | 750,000     |           | 813,828     |           | -          
|                                                                                                                                                                                                                                        | Repayment of obligations under capital lease                           | (53,281)  |             | (5,067)   |             | -        
|                                                                                                                                                                                                                                        | 6,440,373                                                              | 3,503,086 | 2,596,500  
|                                                                                                                                                                                                                                        |                                                                        |           |             |           |             |          
|Increase (decrease) in cash and cash equivalents                                                                                                                                                                                        | 1,779,081                                                              |           | 328,020     |           | (482,624)  
|                                                                                                                                                                                                                                        |                                                                        |           |             |           |             |          
|Cash and cash equivalents, beginning of year                                                                                                                                                                                            |                                                                        | 1,395,468 |             | 1,067,448 |             | 1,550,072
|                                                                                                                                                                                                                                        |                                                                        |           |             |           |             |          
|Cash and cash equivalents, end of year                                                                                                                                                                                                  | $                                                                      | 3,174,549 | $           | 1,395,468 | $           | 1,067,448
|                                                                                                                                                                                                                                        |                                                                        |           |             |           |             |          
|Supplementary information:                                                                                                                                                                                                              |                                                                        |           |            
|                                                                                                                                                                                                                                        | Interest received (paid), net                                          | $         | 22,262      | $         | (11,488)    | $         | 50,382     
|                                                                                                                                                                                                                                        | Non-cash transactions:                                                 |           |             |           |             |           |            
|                                                                                                                                                                                                                                        | Purchase of automotive equipment by way
of capital lease               |           | -           |           | 214,712     |           | -          
|                                                                                                                                                                                                                                        | Deposit paid in 2004 for drilling equipment purchased in 2005          |           | -           |           | 484,978     |           | -          
|                                                                                                                                                                                                                                        | Shares issued in current year for subscriptions received in prior year |           | 813,828     |           | -           |           | -          
|                                                                                                                                                                                                                                        |                                                                        |           |             |           |             |           |            
|                                                                                                                                                                                                                                        |                                                                        |           |             |           |             |           |            
|See accompanying notes to consolidated financial statements.                                                                                                                                                                           



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|                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|TANZANIAN ROYALTY EXPLORATION CORPORATION
(formerly Tan Range Exploration Corporation)
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)

Years ended August 31, 2006, 2005 and 2004
|                                                                                                                                                                                                                                            
|1.                                                                                                                                                                                                                                           | Nature of operations:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                             | Tanzanian Royalty Exploration Corporation (the Company) is incorporated under the laws of Alberta, Canada and its primary business activities are the acquisition and exploration of mineral properties including the optioning out of properties for pre-production option payments and royalties on future gold production.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                             | The Company is in the process of exploring its mineral properties and has not yet determined whether these properties contain mineral deposits that are economically recoverable.  Consequently, the Company considers itself to be an exploration stage company.  Although at August 31, 2006 the Company has spending commitments (note 3) which approximate its working capital, it has financing commitments of $3,000,000 from its chairman and chief executive officer (CEO) (note 7(b)), and, if necessary, could adjust the extent and timing of certain expenditures.  The recoverability of the amounts shown for mineral properties and related deferred costs are ultimately dependent upon the existence of economically recoverable reserves, securing and maintaining title and beneficial interest in the properties, obtaining necessary financing to explore and develop the properties, entering into agreements with others to explore and develop the mineral properties, and upon future profitable production or proceeds from disposition of the mineral properties. The amounts shown as mineral properties and deferred exploration costs represent net costs incurred to date, being less amounts recovered from third parties and/or written off, and do not necessarily represent present or future values.
|                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|2.                                                                                                                                                                                                                                           | Significant accounting policies:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                             | These consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles.  A reconciliation of material measurement differences to accounting principles generally accepted in the United States and practices prescribed by the Securities and Exchange Commission is provided in note 11.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                             | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Principles of consolidation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | These consolidated financial statements include the accounts of the Company and its subsidiaries.  All intercompany amounts are eliminated on consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                             | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Translation of foreign currencies:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | The measurement currency of the Company in these consolidated financial statements is the Canadian dollar.  The Companys subsidiaries are considered integrated foreign subsidiaries and their accounts are translated using the temporal method.  Under this method, monetary assets and liabilities are translated at the prevailing year-end exchange rates.  Non-monetary assets are translated at historical exchange rates.  Revenue and expense items are translated at the average rate of exchange for the year except for those arising from non-monetary assets which are translated at the historical exchange rate.  Translation gains and losses are included in the statements of operations and deficit.
|                                                                                                                                                                                                                                             | (c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Cash and cash equivalents:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Cash and cash equivalents consist of cash on deposit with banks or highly liquid short-term interest-bearing securities with maturities at purchase dates of three months or less when acquired.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         



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|                                                                                                                                                                                                                                            
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|TANZANIAN ROYALTY EXPLORATION CORPORATION
(formerly Tan Range Exploration Corporation)
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)

Years ended August 31, 2006, 2005 and 2004
|                                                                                                                                                                                                                                            







|   |                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | 
|-- | -------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 
|2. | Significant accounting policies (continued):
|   | (d)                                          | Short-term investments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                              | Interest-bearing securities having a term to maturity in excess of three months but less than one year are classified as short-term investments.  Short-term investments are stated at the lower of cost and market value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | (e)                                          | Inventory:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                              | Inventory consists of supplies for the Companys drilling rig and is stated at the lower of cost and replacement cost.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | (f)                                          | Mineral properties and deferred exploration costs:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                              | The Company holds various positions in mineral property interests, including prospecting licences, reconnaissance licences, and options to acquire mining licences or leases.  All of these positions are classified as mineral properties for financial statement purposes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                              | Acquisition costs and exploration costs, including option payments, relating to mineral properties are deferred until the properties are brought into production, at which time they will be amortized on a unit-of-production basis, or until the properties are abandoned, sold or to be sold or management determines that the mineral property is not economically viable, at which time the unrecoverable deferred costs are written off.  Option payments arising on the acquisition of mineral property interests are exercisable at the discretion of the Company and are recognized as paid or payable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                              | Amounts recovered from third parties to earn an interest in the Companys mineral properties are applied as a reduction of the mineral property and deferred exploration costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                              | Overhead costs directly related to exploration are allocated to the mineral properties explored during the year and are deferred and are to be amortized using the same method applied to property-specific exploration costs.  All other overhead and administration costs are expensed in the year they are incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                              | Under CICA Handbook Section 3061, Property, Plant and Equipment, for a mining property, the cost of the asset includes exploration costs if the enterprise considers that such costs have the characteristics of property, plant and equipment.  Emerging Issue Committee Abstract 126, Accounting by Mining Enterprises for Exploration Costs, (EIC-126) states that a mining enterprise that has not established mineral reserves objectively, and therefore does not have a basis for preparing a projection of the estimated cash flow from the property, is not precluded from considering the exploration costs to have the characteristics of property, plant and equipment.  EIC-126 also sets forth the EICs consensus that a mining enterprise in the development stage is not required to consider the conditions in Accounting Guideline No. 11 Enterprises in the Development Stage (AcG 11) regarding impairment in determining whether exploration costs may be initially capitalized.  With respect to impairment of capitalized exploration costs, EIC-126 sets forth the EICs consensus that a mining enterprise in the development stage that has not established mineral reserves objectively, and, therefore, does not have a basis for preparing a projection of the estimated cash flow from the property, is not obliged to conclude that capitalized costs have been impaired.  However, such an enterprise should consider the conditions set forth in AcG 11 and CICA Handbook Section 3061 in determining whether a subsequent write-down of capitalized exploration costs related to mining



5





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|                                                                                                                                                                                                                                            
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|TANZANIAN ROYALTY EXPLORATION CORPORATION
(formerly Tan Range Exploration Corporation)
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)

Years ended August 31, 2006, 2005 and 2004
|                                                                                                                                                                                                                                            





|                        |  |  | 
|----------------------- |  |  | 
|properties is required.



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| |  | 6





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|                                                                                                                                                                                                                                            
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|TANZANIAN ROYALTY EXPLORATION CORPORATION
(formerly Tan Range Exploration Corporation)
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)

Years ended August 31, 2006, 2005 and 2004
|                                                                                                                                                                                                                                            







|   |                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |  |  | 
|-- | --------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | 
|2. | Significant accounting policies (continued):                   
|   | (f)                                                             | Mineral properties and deferred exploration costs (continued):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                 | The Company considers that its exploration costs have the characteristics of property, plant and equipment, and, accordingly, defers such costs.  Furthermore, pursuant to EIC-126, deferred exploration costs are not automatically subject to regular assessment of recoverability, unless conditions, such as those discussed in AcG 11, exist.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                 | The Company follows these recommendations and therefore the unproven mineral property claim costs are initially capitalized.  Such assets are tested for impairment in accordance with the provisions of the CICA Handbook Section 3063, Impairment of Long-Lived Assets.  Mineral properties and deferred exploration costs are tested for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.  An impairment loss is recognized if, at the date it is tested for recoverability, the carrying amount of the mineral property exceeds the sum of the undiscounted cash flows expected to result from its production and/or eventual disposition.  The impairment loss is measured as the amount by which the carrying amount of the mineral property exceeds its fair value.
|   | (g)                                                             | Equipment and leasehold improvements:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                 | Equipment and leasehold improvements, other than mineral properties and deferred exploration and development costs, are recorded at cost and amortization is provided for on a declining balance basis using the following rates:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Assets                                                          | Rate                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Machinery and equipment                                         | 20% to 30%                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Automotive                                                      | 30%                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Computer equipment                                              | 30%                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Drilling equipment and automotive equipment under capital lease | 6.67%                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Leasehold improvements                                          | 20%                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | (h)                                                             | Stock-based compensation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                 | Effective September 1, 2002, the Company adopted the new standard of the Canadian Institute of Chartered Accountants with respect to the accounting for stock-based compensation and other stock-based payments.  The new standards have been applied prospectively.  All stock-based compensation is determined based on the fair value method and expensed over the expected vesting period.  The fair value of restricted stock units is determined as the market price of the Companys shares on the grant date as determined for accounting purposes.                                                                                                                                                                                                                                                                                       



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|                                                                                                                                                                                                                                            
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|TANZANIAN ROYALTY EXPLORATION CORPORATION
(formerly Tan Range Exploration Corporation)
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)

Years ended August 31, 2006, 2005 and 2004
|                                                                                                                                                                                                                                            







|   |                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | 
|-- | -------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|2. | Significant accounting policies (continued):
|   | (i)                                          | Income taxes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                              | The Company follows the asset and liability method of accounting for income taxes.  Under the asset and liability method, future income tax assets and liabilities are determined based on differences between the financial statement carrying values of existing assets and liabilities and their respective income tax bases (temporary differences) and loss carry forwards, and are measured using the enacted or substantively enacted tax rates expected to be in effect when the temporary differences are likely to reverse.  Future tax benefits, such as non-capital loss carry forwards, are recognized if realization of such benefits is considered more likely than not.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | (j)                                          | Asset retirement obligation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                              | The Company recognizes the fair value of a future asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that results from the acquisition, construction, development, and/or normal use of the assets if a reasonable estimate of fair value can be made.  The Company concurrently recognizes a corresponding increase in the carrying amount of the related long-lived asset that is depreciated over the life of the asset.  The fair value of the asset retirement obligation is estimated using the expected cash flow approach that reflects a range of possible outcomes discounted at a credit-adjusted risk-free interest rate.  Subsequent to the initial measurement, the asset retirement obligation is adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation.  Changes in the obligation due to the passage of time are recognized in income as an operating expense using the interest method.  Changes in the obligation due to changes in estimated cash flows are recognized as an adjustment of the carrying amount of the related long-lived asset that is depreciated over the remaining life of the asset.
|   |                                              | The Company has determined that it has no material asset retirement obligations as at August 31, 2006 and 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | (k)                                          | Loss per share:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                              | Loss per share has been calculated using the weighted average number of common shares issued and outstanding.  Shares held in escrow subject to performance conditions for release are considered contingently issuable shares and are excluded from the weighted average number of shares used in calculating loss per share prior to their eligibility for release.  All outstanding stock options, restricted stock units, special warrants and share purchase warrants, all of which could potentially dilute basic loss per share, have not been included in the computation of diluted loss per share because to do so would be anti-dilutive.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      



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| |  | 8





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|                                                                                                                                                                                                                                            
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|TANZANIAN ROYALTY EXPLORATION CORPORATION
(formerly Tan Range Exploration Corporation)
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)

Years ended August 31, 2006, 2005 and 2004
|                                                                                                                                                                                                                                            







|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | 
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|2. | Significant accounting policies (continued):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | (l)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Financial instruments:                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | The Companys financial assets and liabilities consist of cash and cash equivalents, accounts and other receivables, accounts payable and accrued liabilities and obligations under capital lease.  The fair value of the Companys financial assets and liabilities is estimated to approximate their carrying value due either to the short-term to maturity or the existence of interest rates that approximate market rates.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | (m)                                                                                                                                                                                                                                                                                                                                                                                                                              | Use of estimates:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                  | The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the year.  Areas requiring the use of estimates and measurement uncertainties include the valuation and impairment of value of mineral properties and deferred exploration costs, the determination of stock-based compensation expense and the determination of future income taxes.  Actual results may differ from managements estimates.
|   | (n)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Segmented information:                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | The Companys principal operations are located in Tanzania.  The Company conducts its business in a single operating segment being the investment in and exploration of mineral properties.  Substantially all mineral properties (note 3) and equipment and leasehold improvements are situated in Tanzania (note 4).                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|3. | Mineral properties and deferred exploration costs:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The Company 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | For each concession granted in Tanzania under a prospecting or a reconnaissance licence, the Company is required to carry out a minimum amount of exploration work before a mining licence can be granted for further development.  Commencing with the new mining act issued in Tanzania in 1998, a prospecting licence is issued for a period of up to three years and renewable two times for a period up to two years each.  At each renewal at least 50% of the remaining area is relinquished.  A reconnaissance licence is issued for one year and renewed for a period not exceeding a year.  All prospecting licences are granted subject to an annual rental fee of not more than U.S. $30 per square kilometer payable to the government of Tanzania, a minimum exploration work commitment, and employment and training of Tanzanians.  In addition, the government of Tanzania imposes a royalty on the gross value of all production at the rate of 3% of all gold produced.



| |  |  
| |  | -
| |  | 9





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|                                                                                                                                                                                                                                            
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|TANZANIAN ROYALTY EXPLORATION CORPORATION
(formerly Tan Range Exploration Corporation)
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)

Years ended August 31, 2006, 2005 and 2004
|                                                                                                                                                                                                                                            







|   |                                                                     |                      |                    |              |              |              |              |                  |              |                |             |               |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|-- | ------------------------------------------------------------------- | -------------------- | ------------------ | ------------ | ------------ | ------------ | ------------ | ---------------- | ------------ | -------------- | ----------- | ------------- |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|3. | Mineral properties and deferred exploration costs (continued):     
|   | The continuity of expenditures on mineral properties is as follows:
|   |                                                                     |                      |                    |              |              |              |              |                  |              |                |             |              
|   |                                                                     | Itetemia Project (a) | Luhala
Project (b) | Kigosi (c)   | Lunguya (d)  | Kanagele (e) | Tulawaka (f) | Ushirombo (g)    | Mbogwe (h)   | Biharamulu (i) | Other (j)   | Total        
|   |                                                                     |                      |                    |              |              |              |              |                  |              |                |             |              
|   | Balance, August 31, 2003                                            | $  6,563,782         | $  2,579,230       | $  1,497,381 | $  2,593,338 | $  854,701   | $  1,557,708 | $     930,242    | $  1,044,912 | $  642,450     | $  408,702  | $  18,672,446
|   | Camp, field supplies and travel                                     | -                    | 13,967             | -            | 5,528        | 3,406        | -            | 1,098            | -            | 2,259          | 21,386      | 47,644       
|   | Exploration and field overhead                                      | -                    | 168,588            | 39,175       | 129,371      | 101,526      | 56,643       | 52,614           | 41,485       | 28,182         | 348,888     | 985,189      
|   | Geological consulting and field wages                               | 18,717               | 1,274              | -            | -            | -            | -            | -                | -            | -              | (21,113)    | (19,839)     
|   | Geophysical and geochemical                                         | -                    | 4,813              | 3,986        | 60,625       | 73,524       | 2,598        | 16,065           | 2,288        | 5,244          | 91,976      | 261,119      
|   | Property option costs                                               | -                    | 50,546             | -            | -            | 21,706       | -            | -                | -            | 274            | 164,833     | 237,359      
|   | Parts and equipment                                                 | -                    | 108                | -            | -            | -            | -            | -                | -            | -              | 109         | 217          
|   | Trenching and drilling                                              | -                    | 1,095              | -            | -            | -            | -            | -                | -            | -              | -           | 1,095        
|   | Option payments received                                            | (17,496)             | -                  | (58,811)     | -            | -            | (88,926)     | (123,275)        | (17,496)     | (25,930)       | -           | (331,934)    
|   | Reclassifications                                                   | -                    | -                  | 286,762      | -            | -            | -            | (286,762)        | -            | -              | -           | -            
|   |                                                                     | 1,221                | 240,391            | 271,112      | 195,524      | 200,162      | (29,685)     | (340,260)        | 26,277       | 10,029         | 606,079     | 1,180,850    
|   |                                                                     |                      |                    |              |              |              |              |                  |              |                |             |              
|   | Balance, August 31, 2004                                            | 6,565,003            | 2,819,621          | 1,768,493    | 2,788,862    | 1,054,863    | 1,528,023    | 589,982          | 1,071,189    | 652,479        | 1,014,781   | 19,853,296   
|   | Exploration expenditures:                                           |                      |                    |              |              |              |              |                  |              |                |             |              
|   | Camp, field supplies and travel                                     | 339                  | 17,089             | -            | 4,432        | 20,091       | -            | 6,248            | 1,849        | -              | 111,172     | 161,220      
|   | Exploration and field overhead                                      | 2,800                | 142,948            | 28,278       | 29,945       | 68,848       | 16,095       | 63,611           | 36,488       | 14,109         | 534,210     | 937,332      
|   | Geological consulting and field wages                               | -                    | -                  | 14,332       | -            | -            | -            | -                | -            | -              | -           | 14,332       
|   | Geophysical and geochemical                                         | -                    | 30,200             | -            | 42,932       | 33,298       | 34           | 9,271            | 1,893        | 1,393          | 83,610      | 202,631      
|   | Property acquisition costs                                          | 18,635               | 92,788             | 16,549       | -            | 60,149       | 12,075       | -                | -            | -              | 242,019     | 442,215      
|   | Parts and equipment                                                 | -                    | 4,639              | -            | -            | -            | -            | -                | -            | -              | -           | 4,639        
|   | Trenching and drilling                                              | -                    | 40,593             | -            | -            | 899          | 3,502        | -                | -            | -              | 9,739       | 54,733       
|   | Recoveries                                                          | (24,146)             | -                  | -            | -            | -            | (130,226)    | -                | (24,146)     | (122,673)      | -           | (301,191)    
|   |                                                                     | (2,372)              | 328,257            | 59,159       | 77,309       | 183,285      | (98,520)     | 79,130           | 16,084       | (107,171)      | 980,750     | 1,515,911    
|   |                                                                     | 6,562,631            | 3,147,878          | 1,827,652    | 2,866,171    | 1,238,148    | 1,429,503    | 669,112          | 1,087,273    | 545,308        | 1,995,531   | 21,369,207   
|   | Write-offs                                                          | (656,500)            | -                  | -            | (73,010)     | -            | -            | (316,476)        | (299,118)    | (43,399)       | (241,429)   | (1,629,932)  
|   |                                                                     |                      |                    |              |              |              |              |                  |              |                |             |              
|   | Balance, August 31, 2005                                            | 5,906,131            | 3,147,878          | 1,827,652    | 2,793,161    | 1,238,148    | 1,429,503    | 352,636          | 788,155      | 501,909        | 1,754,102   | 19,739,275   
|   | Exploration expenditures:                                           |                      |                    |              |              |              |              |                  |              |                |             |              
|   | Camp, field supplies and travel                                     | 7,861                | 82,544             | 250          | 3,110        | 2,969        | 3,172        | 1,811            | -            | 7,426          | 67,525      | 176,668      
|   | Exploration and field overhead                                      | 32,321               | 361,174            | 14,989       | 29,337       | 19,279       | 20,898       | 9,446            | 5,116        | 40,652         | 488,818     | 1,022,030    
|   | Geological consulting and field wages                               | 2,882                | -                  | -            | -            | -            | -            | -                | -            | -              | -           | 2,882        
|   | Geophysical and geochemical                                         | 3,413                | 231,846            | -            | 47           | 41,600       | 875          | 77               | -            | 4,174          | 194,280     | 476,312      
|   | Property acquisition costs                                          | 13,098               | 116,462            | 17,404       | -            | 58,433       | 11,729       | -                | 13,098       | -              | 249,817     | 480,041      
|   | Parts and equipment                                                 | -                    | 114                | -            | -            | -            | -            | -                | -            | -              | -           | 114          
|   | Trenching and drilling                                              | 470,995              | 177,764            | -            | 379          | 8,563        | -            | -                | -            | -              | 49,348      | 707,049      
|   | Recoveries                                                          | (43,660)             | -                  | (77,610)     | -            | -            | (87,531)     | -                | (43,660)     | (67,560)       | -           | (320,021)    
|   |                                                                     | 486,910              | 969,904            | (44,967)     | 32,873       | 130,844      | (50,857)     | 11,334           | (25,446)     | (15,308)       | 1,049,788   | 2,545,075    
|   |                                                                     |                      |                    |              |              |              |              |                  |              |                |             |              
|   | Write-offs                                                          | -                    | (37,993)           | (34,401)     | -            | (291,480)    | (423,377)    | (363,970)        | -            | -              | (539,181)   | (1,690,402)  
|   |                                                                     |                      |                    |              |              |              |              |                  |              |                |             |              
|   | Balance, August 31, 2006                                            | $  6,393,041         | $  4,079,789       | $  1,748,284 | $  2,826,034 | $ 1,077,512  | $   955,269  | $              - | $    762,709 | $  486,601     | $ 2,264,709 | $  20,593,948



| |  |   
| |  | --
| |  | 10









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|   |                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | 
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|3. | Mineral properties and deferred exploration costs (continued):                                                                                                                              
|   | The Company has assessed the carrying value of mineral properties and deferred exploration costs as at August 31, 2006 and concluded that additional write-downs of $1,690,402 are required.
|   | (a)                                                                                                                                                                                          | Itetemia Project:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                              | The Itetemia property consists of seven (2005 - seven) contiguous prospecting licences.  Collectively, the Company refers to these concessions as the Itetemia Project.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                              | One prospecting licence is subject to a 3% net smelter royalty.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                              | The Company acquired a 90% interest in another of the prospecting licences through an agreement with the State Mining Corporation (Stamico) dated July 18, 1994.  Stamico retains a 2% royalty interest as well as a right to earn back an additional 20% interest in the prospecting licence 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 US$1,000,000.                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                              | The Company is required pay to Stamico an annual option fee of US$15,000 for each of 2006 and 2007 and US$20,000 thereafter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                              | One of the licenses is subject to the option agreement with BEAL (note 3(k)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | (b)                                                                                                                                                                                          | Luhala Project:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                              | The Luhala property consists of six (2005 - eight) contiguous prospecting licences.  Collectively, the Company refers to these concessions as the Luhala Project.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                              | During the years ended August 31, 2001 and 2000, the Company entered into option agreements to acquire three additional licences, named Shilalo, Ngobo and Sima.  For Shilalo, the Company has made payments totaling US$16,000, for Ngobo, the Company has made payments totalling US$132,000, and for Sima, has made payments totalling US$84,000 in order to maintain the options.  The vendor in each case retains a 2% net smelter return royalty, of which the Company may buy back, in each case, one-half (i.e., 1%) for US$1,000,000.                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                              | For the Shilalo licence, the vendor retains a 2% net smelter return royalty, of which the Company may buy back one-half (i.e., 1%) for US$250,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                              | During the year ended August 31, 2006, the Company abandoned certain licenses in the area and wrote off $37,993 of costs related to the abandoned area.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | (c)                                                                                                                                                                                          | Kigosi:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                              | The Kigosi property consists of fourteen (2005 - fifteen) prospecting licences.  During the year ended August 31, 2004, the Company reclassified certain licenses from the Ushirombo and Ushirombo West with deferred costs of $286,762 (note 3(g)) to the Kigosi property.  The Company has a 100% interest in two of the licences and, through prospecting and mining option agreements entered into in the 2003 fiscal year, has options to acquire between 51% to 90% interests in the other twelve licences.  The Company must make payments totalling US$162,000 over eight years (US$36,000 paid to date with the balance required as follows:  2006 - US$16,000; 2007 - US$18,000; 2008 - US$20,000; 2009 - US$22,000; 2010 - US$24,000, 2011 - US$26,000) and is required to fund all costs of exploration of the properties in order to maintain the options.







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|   |                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | 
|-- | -------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|3. | Mineral properties and deferred exploration costs (continued):
|   | (c)                                                            | Kigosi (continued):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                | During the year ended August 31, 2006, the Company abandoned certain licences in the area and wrote off $34,401 of costs related to the abandoned area.                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                | On July 21, 2003, the Company entered into an agreement with Ashanti Goldfields (Cayman) Limited (Ashanti), granting Ashanti the option to acquire the total rights, titles and interests of the Company in the prospecting licences in the Kigosi area, save and except for a royalty varying between 0.5% to 2% of net smelter returns, depending on the market price of gold, to be paid by Ashanti to the licence owners.  During the year ended August 31, 2006, Ashanti advised the Company that they would not proceed with this agreement.                                                                   
|   |                                                                | As a result, the Company entered into a Purchase and Sale Agreement dated September 26, 2006 for the repurchase of its rights to the Kigosi property, including all related camp and equipment, along with the purchase of a non-associated property, the Dongo, from Ashanti.                                                                                                                                                                                                                                                                                                                                         
|   |                                                                | The acquisition will be satisfied by the issuance to Ashanti a total of 180,058 common shares of the Company in two tranches and subject to certain conditions set out below. The two tranches will consist of (i) the issuance of 160,052 common shares to be issued in consideration of the transfer to the Company of the Kigosi Rights, as defined in the Agreement, and (ii) subject to receipt of ministerial consent from the Tanzanian government to the transfer from Ashanti to the Company of the Dongo Rights, as defined in the Agreement, the issuance to Ashanti of 20,006 common shares of the Company.
|   |                                                                | The agreement is subject to regulatory approval.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | (d)                                                            | Lunguya:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                | The Lunguya property consists of eight (2005 - seven) prospecting licences.  Through prospecting and mining option agreements the Company has options to acquire interests ranging from 60% to 75% in the eight licences.  To maintain the options, the Company is required to meet certain expenditure requirements and fund all exploration costs of the properties.                                                                                                                                                                                                                                                 







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|   |                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |  |     |         |  |  |  | 
|-- | -------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | --- | ------- |  |  |  | 
|3. | Mineral properties and deferred exploration costs (continued):
|   | (e)                                                            | Kanagele:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                | The Kanagele property consists of ten (2005 - eleven) prospecting licences.  In 2002, the Company entered into an option agreement requiring payments totaling US$72,000 over eight years (US$30,000 paid to date) in exchange for a 90% interest in three prospecting licence and an option to purchase the remaining 10% upon production decision.  In 2004, the Company entered into an option agreement for one prospecting license requiring payments of US$145,000 (US$33,000 paid to date) over nine years.  The Company has options to acquire a 65% interest in the other seven licences acquired through prospecting and option agreements.  The Company is required to fund all exploration costs of the properties.
|   |                                                                | In 2005, the Company entered into an agreement on two prospecting licenses for an 85% interest requiring payments of US$173,000 over six years (US$36,000 paid to date).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                | Details by year of the required option payments described above are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |  |     |        
|   |                                                                | 2007                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |  | US$ | 43,000 
|   |                                                                | 2008                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |  |     | 47,000 
|   |                                                                | 2009                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |  |     | 51,000 
|   |                                                                | 2010                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |  |     | 55,000 
|   |                                                                | Thereafter                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |     | 95,000 
|   |                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |  |     |        
|   |                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |  | US$ | 291,000
|   |                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |  |    
|   |                                                                | During the year ended August 31, 2006, the Company abandoned certain licences in the area and wrote-off $291,480 of costs related to the abandoned area.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | (f)                                                            | Tulawaka:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                | The Tulawaka property consists of nine (2005 - fifteen) prospecting licences.  The Company owns five of the licences and has options to acquire interests ranging from 65% to 90% in the other four licences through prospecting and option agreements.  Two licences are subject to an option agreement with Northern Mining Explorations Ltd. (Northern) (note 3(l)).                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                | During the year ended August 31, 2003, the Company entered into a prospecting mining option agreement to acquire a 90% interest in a prospecting license.  The Company must make payments of US$117,000 over nine years, (US$30,000 paid to date with the balance required as follows:  2007 - US$12,000; 2008 - US$13,000; 2009 - US$14,000; 2010 - US$15,000; 2011 - US$16,000; 2012 - US$17,000) and is required to fund all exploration costs of property to maintain its option.                                                                                                                                                                                                                                          
|   |                                                                | During the year ended August 31, 2006, the Company abandoned certain licences in the area and wrote-off $423,377 of costs related to the abandoned area.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       







---







|   |                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |  |  |               |  |  |  | 
|-- | -------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | ------------- |  |  |  | 
|3. | Mineral properties and deferred exploration costs (continued):
|   | (g)                                                            | Ushirombo and Ushirombo West:                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                | The Ushirombo and Ushirombo West properties consist of four prospecting licences (2005 - twelve).  The Company holds 100% interest in one of these licences and through prospecting and option agreements has options to acquire interests ranging from 65% to 80% in the other three licences.  The Company is required to fund all exploration costs of the properties.                                                            
|   |                                                                | During the year ended August 31, 2006, the Company abandoned certain licences in the area and wrote-off $363,970 of costs related to the abandoned area.                                                                                                                                                                                                                                                                             
|   | (h)                                                            | Mbogwe:                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                | The Mbogwe property consists of five (2005 - four) licences.  The Company, through prospecting and option agreements, has options to acquire interests ranging from 51% to 80% in these licences.  The Company is required to fund all exploration costs of the properties.  One of the licences is subject to the option agreement with BEAL (note 3(k)).                                                                           
|   | (i)                                                            | Biharamulu:                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                | The Biharamulu property consists of six (2005 - five) prospecting licences.  The Company has a 100% interest in two of these licences and through prospecting and option agreements has options to acquire interests ranging from 51% to 65% in the other four licences. The Company is required to fund all exploration costs of the properties.  Two of the licences are subject to the option agreement with Northern (note 3(l)).
|   | (j)                                                            | Other:                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                | The Companys other properties consist of several prospecting licences.  The Company has options to acquire interests in these properties ranging from 51% to 100%.  To maintain these options and licences, the Company must make the following future payments to maintain its options:                                                                                                                                            
|   |                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |  |  |              
|   |                                                                | 2007                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |  |  | $     286,500
|   |                                                                | 2008                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |  |  | 319,500      
|   |                                                                | 2009                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |  |  | 317,500      
|   |                                                                | 2010                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |  |  | 348,500      
|   |                                                                | 2011                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |  |  | 354,500      
|   |                                                                | Thereafter                                                                                                                                                                                                                                                                                                                                                                                                                            |  |  |  | 349,000      
|   |                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |  |  |              
|   |                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |  |  | $  1,975,500 
|   |                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |  | 
|   |                                                                | During the year ended August 31, 2006, the Company abandoned certain licences in these areas and wrote-off $539,181 of costs related to the abandoned area.                                                                                                                                                                                                                                                                          







---







|   |                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |  |     |        | 
|-- | -------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | --- | ------ | 
|3. | Mineral properties and deferred exploration costs (continued):
|   | (k)                                                            | Joint venture with Barrick Exploration Africa Ltd. (BEAL):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                | Barrick Exploration Africa Ltd. ("BEAL") had the option to acquire the total rights, titles and interests of the Company in twelve prospecting licences in different properties, herein called the BEAL project.  In exchange for this option, BEAL paid US$100 to the Company.  To maintain and exercise the option, BEAL was required to incur US$250,000 in exploration and development costs on the BEAL project within a year of closing the agreement (completed), and thereafter, BEAL must expend US$50,000 each year for each retained prospecting licence.  In addition, BEAL must make the following annual payments to the Company for each retained prospecting licence (US$50,000 paid to date):                                                                                             
|   |                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |  |     |       
|   |                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |  |     |       
|   |                                                                | December 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |  | US$ | 40,000
|   |                                                                | December 2006 and subsequent years                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |  |     | 40,000
|   |                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |  |     |       
|   |                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |  |     |       
|   |                                                                | The Company has received from BEAL notices of relinquishment for all rights, titles, and interests for a total of ten prospecting licenses included in the option agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                | As at August 31, 2006, of the two remaining prospecting licences in the BEAL project, one licence is located in Mbogwe and one in Itetemia.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                | Within thirty days after commercial production, BEAL must pay the Company US$1,000,000 and an additional US$1,000,000 on each of the next two years. BEAL will also pay the owner of the licence 1.5% of net smelter returns.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | (l)                                                            | Option Agreement with Northern Mining Explorations Ltd. (Northern):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                | On January 20, 2003, as amended on March 18, 2003, the Company entered into an agreement with Northern granting Northern the exclusive option to acquire the total rights, titles and interests of the Company in certain prospecting licences.  In exchange for this option, Northern paid US$80,000.  In addition, to maintain and exercise the option, Northern must make annual payments for each retained prospecting licence, incur minimum exploration and development expenditures and certain drilling requirements, undertake all obligations of the Company in respect of the licences and complete a feasibility study by December 31, 2008.  Upon exercise of the option, the Company shall retain a net smelter return royalty fluctuating between 0.5% to 2% depending on the price of gold.







---







|   |                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |           |   |                          |   |                |  |  |  |  |  |  |  |  |  |  |  | 
|-- | -------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------- | - | ------------------------ | - | -------------- |  |  |  |  |  |  |  |  |  |  |  | 
|3. | Mineral properties and deferred exploration costs (continued):
|   | (l)                                                            | Option Agreement with Northern Mining Explorations Ltd. (Northern) (continued):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                | On September 7, 2004, the Company entered into a second option agreement with Northern, granting Northern the exclusive option to acquire the total rights, titles, and interest of the Company in certain prospecting licenses all located in the Tulawaka area.  In exchange for this option, Northern is required to make annual payments for each retained prospecting license, incur minimum exploration and development expenditures and certain drilling requirements, and undertake all obligations of the Company in respect of the licenses.  Upon exercise of the option, the Company shall retain a net smelter royalty fluctuating between 0.5% to 2% depending on the price of gold.
|   |                                                                | As at August 31, 2006, of the four prospecting licences optioned to Northern, two are located in Biharamulu and two are located in Tulawaka.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|4. | Equipment and leasehold improvements:                         
|  
|   | 2006                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | Cost      |   | Accumulated
amortization |   | Net book
value
|   |                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |           |   |                          |   |               
|   | Drilling equipment                                             | $                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 564,311   | $ | 55,185                   | $ | 509,126       
|   | Automotive under capital lease                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 214,712   |   | 22,678                   |   | 192,034       
|   | Automotive                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 143,715   |   | 103,805                  |   | 39,910        
|   | Computer equipment                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 104,961   |   | 74,800                   |   | 30,161        
|   | Machinery and equipment                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 157,171   |   | 64,508                   |   | 92,663        
|   | Leasehold improvements                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 6,873     |   | 4,958                    |   | 1,915         
|   |                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |           |   |                          |   |               
|   |                                                                | $                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 1,191,743 | $ | 325,934                  | $ | 865,809       
|   |                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |           |   |                          |   |               
|  
|   | 2005                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | Cost      |   | Accumulated
amortization |   | Net book
value
|   |                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |           |   |                          |   |               
|   | Drilling equipment                                             | $                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 564,311   | $ | 18,810                   | $ | 545,501       
|   | Automotive under capital lease                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 214,712   |   | 8,962                    |   | 205,750       
|   | Automotive                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 157,279   |   | 97,008                   |   | 60,271        
|   | Computer equipment                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 107,043   |   | 54,155                   |   | 52,888        
|   | Machinery and equipment                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 101,078   |   | 46,168                   |   | 54,910        
|   | Leasehold improvements                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 6,873     |   | 4,137                    |   | 2,736         
|   |                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |           |   |                          |   |               
|   |                                                                | $                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 1,151,296 | $ | 229,240                  | $ | 922,056       
|   |                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |           |   |                          |   |               







---







|   |                                                                                                                                                                                              |                                             |  |   |             |           |             |           |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------- |  | - | ----------- | --------- | ----------- | --------- |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|5. | Obligations under capital lease:                                                                                                                                                            
|   | During the year, the Company has financed two vehicles by entering into capital leasing arrangements.  Future minimum lease obligations are due as follows:                                 
|  
|   |                                                                                                                                                                                              |                                             |  |   |            
|   | 2007                                                                                                                                                                                         | $    49,760                                
|   | 2008                                                                                                                                                                                         | 49,760                                     
|   | 2009                                                                                                                                                                                         | 49,760                                     
|   | 2010                                                                                                                                                                                         | 42,411                                     
|   |                                                                                                                                                                                              |                                            
|   | Net minimum lease payments (US$172,695)                                                                                                                                                      | 191,691                                    
|   | Less amount representing interest at 9.0%                                                                                                                                                    | (35,327)                                   
|   |                                                                                                                                                                                              |                                            
|   | Present value of net minimum capital lease payments                                                                                                                                          | 156,364                                    
|   | Current portion                                                                                                                                                                              | 34,625                                     
|   |                                                                                                                                                                                              |                                            
|   |                                                                                                                                                                                              | $  121,739                                 
|   |                                                                                                                                                                                              |                                            
|   | Interest of $17,242 (2005 - $3,040; 2004 - nil) relating to obligations under capital lease has been included in interest expense.                                                          
|   |                                                                                                                                                                                             
|6. | Income taxes:                                                                                                                                                                               
|   | Substantially all differences between actual income tax recovery of nil (2005 - $647,565; 2004 - nil) and the expected income tax recovery relate to losses not recognized for tax purposes.
|   | The tax effects of significant temporary differences which would comprise tax assets and liabilities at August 31, 2006 and 2005 are as follows:                                            
|   |                                                                                                                                                                                             
|   |                                                                                                                                                                                              |                                             |  |   | 2006        |           | 2005       
|   |                                                                                                                                                                                              |                                             |  |   |             |           |            
|   | Future income tax assets:                                                                                                                                                                    |                                             |  |   |             |           |            
|   |                                                                                                                                                                                              | Equipment                                   |  |   | $           | 74,000    | $           | 78,000   
|   |                                                                                                                                                                                              | Non-capital losses for tax purposes         |  |   |             | 2,679,000 |             | 2,070,000
|   |                                                                                                                                                                                              | Capital losses for tax purposes             |  |   |             | 40,000    |             | 43,000   
|   |                                                                                                                                                                                              | Resource related deductions carried forward |  |   | 3,300,000   |           | 3,500,000  
|   |                                                                                                                                                                                              |                                             |  |   |             | 6,093,000 |             | 5,691,000
|   |                                                                                                                                                                                              |                                             |  |   |             |           |            
|   | Valuation allowance                                                                                                                                                                          |                                             |  |   | (6,093,000) |           | (5,691,000)
|   |                                                                                                                                                                                              |                                             |  |   |             |           |            
|   | Net future income tax assets                                                                                                                                                                 |                                             |  | $ | -           | $         | -          
|   |                                                                                                                                                                                              |                                             |  |   |             |           |            







---







|   |                                                                                                                                                                                                                                                                                                                                                                         |                                                                                        |  |                  |   |            |  |  |  |  | 
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------- |  | ---------------- | - | ---------- |  |  |  |  | 
|6. | Income taxes (continued):                                                                                                                                                                                                                                                                                                                                              
|   | In assessing the recoverability of future tax assets, management considers whether it is more likely than not that some portion or all of the future tax assets will not be realized.  The ultimate realization of future tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible.
|   | At August 31, 2006, the Company has approximately $7,200,000 of Canadian non-capital losses available for income tax purposes to reduce Canadian taxable income in future years that expire in years up to, and including 2026.                                                                                                                                        
|   | The Company has a capital loss carry forward of approximately $250,000 which is available indefinitely to reduce future capital gains for tax purposes, and resource pools of approximately $10,100,000 which are available indefinitely to reduce future income for tax purposes.                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                        
|7. | Share capital:                                                                                                                                                                                                                                                                                                                                                         
|   | (a)                                                                                                                                                                                                                                                                                                                                                                     | Authorized:                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                         | 91,000,000 common voting shares (2005 - 91,000,000; 2004 - 91,000,000)                
|   | (b)                                                                                                                                                                                                                                                                                                                                                                     | Issued common shares, warrants and share subscriptions:                               
|   |                                                                                                                                                                                                                                                                                                                                                                         |                                                                                        |  |                  |   |           
|   |                                                                                                                                                                                                                                                                                                                                                                         |                                                                                        |  | Number
of shares |   | Amount    
|   |                                                                                                                                                                                                                                                                                                                                                                         |                                                                                        |  |                  |   |           
|   |                                                                                                                                                                                                                                                                                                                                                                         | Balance, August 31, 2003                                                               |  | 80,191,542       | $ | 39,423,971
|   |                                                                                                                                                                                                                                                                                                                                                                         | Issued for cash                                                                        |  | 1,477,050        |   | 2,250,000 
|   |                                                                                                                                                                                                                                                                                                                                                                         | Issued for share subscriptions previously received                                     |  | 65,445           |   | 125,000   
|   |                                                                                                                                                                                                                                                                                                                                                                         | Stock options exercised                                                                |  | 730,000          |   | 346,500   
|   |                                                                                                                                                                                                                                                                                                                                                                         |                                                                                        |  |                  |   |           
|   |                                                                                                                                                                                                                                                                                                                                                                         | Balance, August 31, 2004                                                               |  | 82,464,037       |   | 42,145,471
|   |                                                                                                                                                                                                                                                                                                                                                                         | Issued for cash                                                                        |  | 2,204,517        |   | 2,625,000 
|   |                                                                                                                                                                                                                                                                                                                                                                         | Stock options exercised                                                                |  | 107,500          |   | 69,325    
|   |                                                                                                                                                                                                                                                                                                                                                                         |                                                                                        |  |                  |   |           
|   |                                                                                                                                                                                                                                                                                                                                                                         | Balance, August 31, 2005                                                               |  | 84,776,054       |   | 44,839,796
|   |                                                                                                                                                                                                                                                                                                                                                                         | Issued for cash                                                                        |  | 793,468          |   | 5,513,979 
|   |                                                                                                                                                                                                                                                                                                                                                                         | Issued for share subscriptions previously received                                     |  | 379,053          |   | 813,828   
|   |                                                                                                                                                                                                                                                                                                                                                                         | Stock options exercised                                                                |  | 292,500          |   | 229,675   
|   |                                                                                                                                                                                                                                                                                                                                                                         |                                                                                        |  |                  |   |           
|   |                                                                                                                                                                                                                                                                                                                                                                         | Balance, August 31, 2006                                                               |  | 86,241,075       | $ | 51,397,278
|   |                                                                                                                                                                                                                                                                                                                                                                         |                                                                                        |  |                  |   |           
|   |                                                                                                                                                                                                                                                                                                                                                                         | The Company had no share purchase warrants outstanding as at August 31, 2006 and 2005.







---







|   |                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |  | 
|-- | -------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  |  | 
|7. | Share capital (continued):
|   | (b)                        | Issued common shares, warrants and share subscriptions (continued):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                            | On March 5, 2003, the Company completed a private placement subscription agreement with the Companys chairman and CEO for the sale of between $1,500,000 to $3,000,000 worth of common shares of the Company in 24 separate monthly closings.  The sales price of the common shares was equal to the five day weighted average trading price for the last five consecutive trading days of each month immediately preceding the closing date.  Each closing was to be between $62,500 to $125,000.  As at August 31, 2005, the Company has issued in total 2,137,629 common shares and received $2,950,000 pursuant to this subscription agreement.                                                                                                                                                                                                                                                        
|   |                            | On January 13, 2005, the Company completed a private placement subscription agreement with the Companys chairman and CEO for the sale of $3,000,000 worth of common shares in eight separate quarterly closings.  The sales price of the common shares will be equal to the five day weighted average trading price for the last five consecutive trading days of each quarter immediately preceding the closing date.  As at August 31, 2006, the Company issued in total 865,828 common shares (2005 - 642,169 common shares) and received cash proceeds of $2,250,000 (2005 - $750,000) pursuant to this agreement.  As at August 31, 2006, the Company has also received $750,000 from the Chairman and CEO pursuant to this private placement subscription agreement for which shares have not been issued.  These funds are recorded as share subscriptions received at August 31, 2006 (note 10(b)).
|   |                            | During the year ended August 31, 2005, in addition to the monthly and quarterly private placements discussed above, the chairman and CEO also subscribed for an additional 819,000 common shares at a price of $1.221 per share, resulting in gross proceeds of $1,000,000 to the Company.  During the year ended August 31, 2004, in addition to the monthly private placements discussed above, the chairman and CEO also subscribed for an additional 622,278 common shares of the Company at $1.607 per share, resulting in gross proceeds of $1,000,000 to the Company.                                                                                                                                                                                                                                                                                                                                
|   |                            | During the year ended August 31, 2006, in addition to the quarterly private placements discussed above, the Chairman and CEO completed a private placement subscription agreement for 107,124 common shares at a price of $9.335 per share, resulting in gross proceeds of $1,000,000 to the Company.  On February 23, 2006 the Chairman and CEO also completed a private placement subscription agreement for 183,440 common shares of the Company at $7.844 per share, resulting in gross proceeds of $1,438,903 to the Company.  In addition to the above, on September 30, 2005 the Chairman and CEO completed a private placement subscription agreement for 442,478 common shares of the Company at $2.147 per share, resulting in gross proceeds of $950,000 to the Company.                                                                                                                         
|   |                            | On August 8, 2006 the Company entered into a private placement subscription agreement with the Chairman and CEO for the purchase of an aggregate of $3,000,000 worth of common shares of the Company in eight separate quarterly tranches of $375,000 each.  The initial quarterly period shall commence February 1, 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                            | Also during the year ended August 31, 2006, a third party purchased 215,820 common shares at $6.667 per share for gross proceeds to the Company of $1,458,872.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              







---







|   |                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                  |  |                        |  |  |  |  |  |  |  |  | 
|-- | -------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- |  | ---------------------- |  |  |  |  |  |  |  |  | 
|7. | Share capital (continued):
|   | (c)                        | Stock options:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                            | The Company has a stock option plan which is administered by the board of directors and options are granted at their discretion.  The number of shares reserved, set aside and available for issue under the plan should not exceed 8,109,132 or such greater number of shares as may be determined by the board and approved, if required, by the shareholders of the Company and by any relevant stock exchange or regulatory authority.  Options must expire no later than five years from the date such options are granted.  The purpose of granting such options is to assist the Company in compensating, attracting, retaining and motivating directors, officers and employees of the Company and to closely align the personal interests of those directors, officers and employees with those of the shareholders.  Stock option activity during the three years ended August 31, 2006 was as follows:
|   |                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                  |  |                       
|   |                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | Number
of shares |  | Weighted
average price
|   |                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                  |  |                       
|   |                            | Outstanding, August 31, 2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  | 1,255,000        |  | $  0.59               
|   |                            | Exercised                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  | (730,000)        |  | 0.47                  
|   |                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                  |  |                       
|   |                            | Outstanding, August 31,2004                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | 525,000          |  | 0.76                  
|   |                            | Exercised                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  | (107,500)        |  | 0.64                  
|   |                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                  |  |                       
|   |                            | Outstanding, August 31, 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  | 417,500          |  | 0.79                  
|   |                            | Exercised                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  | (292,500)        |  | 0.79                  
|   |                            | Cancelled                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  | (50,000)         |  | 0.79                  
|   |                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                  |  |                       
|   |                            | Outstanding, August 31, 2006                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  | 75,000           |  | 0.79                  
|   |                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                  |  |                       
|   |                            | At August 31, 2006, the following director and employee stock options were outstanding and exercisable:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                            | Number of
common shares                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | Exercise price   |  | Expiry date           
|   |                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                  |  |                       
|   |                            | 75,000                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | $  0.79          |  | May 3, 2007           
|   |                           
|   | (d)                        | 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 5 percent and 30 percent of the participants salaries.  All contributions fully vest immediately.  ESOP compensation expense for the year ended August 31, 2006 was $60,577 (2005 - $57,362) and is included in salaries and benefits expense.                                                                                                                                                                                                                                                                                                                                       







---







|    |                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|7.  | Share capital (continued):                                                                                                                                                                                                                                                                                                                                                                                               
|    | (e)                                                                                                                                                                                                                                                                                                                                                                                                                       | Restricted share units:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                           | During 2006, the Company received shareholder approval to institute a Restricted Stock Unit Plan.  The Plan is designed to compensate employees and directors for their services to the Company.  Of the 500,000 shares available under the plan, 69,565 have been granted as of August 31, 2006.  Of the shares granted, 40,598 units are expected to vest on the first anniversary of the grant date with the remainder vesting on the third anniversary of the grant date.  Total stock-based compensation expense related to the issue of restricted stock was $134,311 (2005 - nil), with a corresponding amount credited to contributed surplus as the shares have not been issued.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|8.  | Related party transactions:                                                                                                                                                                                                                                                                                                                                                                                              
|    | In addition, to related party transactions disclosed elsewhere in these consolidated financial statements, during the year ended August 31, 2006, $190,887 (2005 - $44,813; 2004 - $22,435) was paid or payable by the Company to certain directors or entities affiliated with the directors and a former director for consulting fees.  Directors were paid $90,687 (2005 - $92,986; 2004 - $88,470) for director fees.
|    | Accounts and other receivables include nil (2005 - $46,000) receivable from an entity related to a director.                                                                                                                                                                                                                                                                                                             
|    | Accounts payable and accrued liabilities include $41,966 (2005 - $24,325) payable to certain directors and a former director for consulting and directors fees.                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                          
|9.  | Commitments:                                                                                                                                                                                                                                                                                                                                                                                                             
|    | In addition to the property payments committed to by the Company to maintain options in certain prospecting and mining option agreements (note 3), the Company is committed to rental payments of approximately $15,750 for premises in 2007.                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                          
|10. | Subsequent events:                                                                                                                                                                                                                                                                                                                                                                                                       
|    | (a)                                                                                                                                                                                                                                                                                                                                                                                                                       | From September 1, 2006 to November 3, 2006, the Company entered into four new prospecting licenses.  All of these represent renewals of past licenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | (b)                                                                                                                                                                                                                                                                                                                                                                                                                       | Subsequent to August 31, 2006, the Company issued 54,058 common shares, to the chairman and CEO of the Company in consideration for $375,000 in previously paid share subscriptions (note 7(b)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          







---







|    |                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|11. | Reconciliation between Canadian and United States generally accepted accounting principles:                                                                                                                                                                                                                                                                                                
|    | These financial statements have been prepared in accordance with Canadian generally accepted accounting principles (Canadian GAAP).  A description of United States generally accepted accounting principles (US GAAP) and rules prescribed by the United States Securities and Exchange Commission (SEC) that result in material measurement differences from Canadian GAAP follows:
|    | (a)                                                                                                                                                                                                                                                                                                                                                                                         | Mineral property and deferred exploration cost:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                             | Under Canadian GAAP, the Company capitalizes mineral property acquisition and exploration costs as described in note 2(f).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                             | For US GAAP purposes, exploration and land use costs (including option payments) on mineral properties are expensed as incurred for US GAAP purposes, until commercially minable deposits are determined to exist within a particular property.  Property acquisition costs are capitalized as incurred and are subject to impairment analysis on occurrence of a triggering event, which is effectively a negative event that differs from the Companys original expectations made at the time of the acquisition.  Such acquisition costs will be amortized on a unit of production basis once production commences.
|    |                                                                                                                                                                                                                                                                                                                                                                                             | For Canadian GAAP purposes, cash flows relating to mineral property exploration and land use costs are reported as investing activities in the consolidated statements of cash flows.  For US GAAP purposes, these costs would be characterized as operating activities in the consolidated statements of cash flows.                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                             | During the years ended August 31, 2006 and 2005, the Company wrote down mineral property and deferred exploration costs in its consolidated financial statements prepared in accordance with Canadian GAAP (note 3).  The mineral property exploration costs incurred would previously have been expensed for US GAAP and, as such, have been added back to loss from operations under US GAAP for the years ended August 31, 2006 and 2005.                                                                                                                                                                           
|    | (b)                                                                                                                                                                                                                                                                                                                                                                                         | Income taxes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                             | As described in note 2(i), the Company follows the asset and liability method of accounting for income taxes.  This is consistent with the method used for US GAAP purposes.  However, differences to amounts recorded for future income taxes arose in prior years on the application of US GAAP to the financial statements due to the differences in accounting for mineral property exploration and land use costs under the different GAAPs.                                                                                                                                                                      







---







|    |                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | 
|--- | ------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|11. | Reconciliation between Canadian and United States generally accepted accounting principles (continued):
|c   | (c)                                                                                                     | Stock-based compensation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                         | The Company adopted the new recommendations of the Canadian Institute of Chartered Accountants with respect to the accounting for stock-based compensation on September 1, 2002.  The Financial Accounting Standards Board Statement No. 123, Accounting for Stock-Based Compensation (SFAS 123) became effective for US GAAP purposes for fiscal years beginning after December 15, 1995.  The Financial Accounting Standards Board Statement No. 123R, Share-Based Payments (SFAS 123R) became effective for the Company commencing September 1, 2005.  SFAS 123R replaces SFAS 123 and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees (APB Opinion No. 25).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                         | As allowed by SFAS 123, the Company continued to follow the intrinsic value principles of APB Opinion 25, up to August 31, 2005, in measuring compensation expense for employee options.  Under the intrinsic value method, compensation cost is the excess, if any, of the quoted market value of the stock at the measurement date, which is generally the grant date, over the amount an employee must pay to acquire the stock.  The application of APB 25 resulted in compensation expense of $61,850 being recognized for stock-based compensation plans for employees prior to August 31, 2001, and no material expense for any of the other periods presented up to August 31, 2005.  On September 1, 2005, the Company adopted SFAS 123R for US GAAP purposes, which requires the cost of employee services received in exchange for an award of equity instruments to be based on the grant-date fair value of the award.  The accounting for employee awards under SFAS 123R is similar to the Companys accounting policy for Canadian GAAP purposes, and, as such, a GAAP difference does not arise during the year ended August 31, 2006 and there is no cumulative effect on adoption on September 1, 2005.
|    |                                                                                                         | SFAS 123 and SFAS 123R require the fair value of the stock options granted to non-employees to be expensed.  During the years ended August 31, 2006, 2005 and 2004, no options to non-employees were granted or vested, and accordingly, no expense was recognized for non-employee stock options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|c   |                                                                                                         | The cumulative effect of stock options granted to non-employees for the period from implementation of SFAS 123 to August 31, 2002 would have been a $393,078 increase in the deficit and share capital.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                         | With respect to escrowed shares, US GAAP generally considers escrowed shares to be a compensatory arrangement between the Company and the holder of the shares.  Accordingly, the difference between the market value of escrowed shares at the time the shares are eligible for release from escrow and the consideration paid or payable on the issue of the shares is recognized and charged to operations as compensation expense in the period the escrowed shares are eligible for release from escrow.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                         | 5,000,000 common shares of the Company held in escrow at August 31, 2002 became eligible for release during fiscal 2003.  Based on the market price at that time, $2,300,000 was charged to operations for US GAAP purposes in 2003.  No charge was made or required under Canadian GAAP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 







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|    |                                                                                                         |                                                                                                                                                                                      |              |   |              |  |  |  |  |  |  | 
|--- | ------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------ | - | ------------ |  |  |  |  |  |  | 
|11. | Reconciliation between Canadian and United States generally accepted accounting principles (continued):
|    | (d)                                                                                                     | Reconciliation:                                                                                                                                                                     
|    |                                                                                                         | The effect of the measurement differences between Canadian GAAP and US GAAP on the consolidated balance sheets and statements of operations and cash flows is summarized as follows:
|    |                                                                                                         | (i)
Assets:                                                                                                                                                                         
|    |                                                                                                         |                                                                                                                                                                                      | 2006         |   | 2005        
|    |                                                                                                         |                                                                                                                                                                                      |              |   |             
|    | Assets, under Canadian GAAP                                                                             | $                                                                                                                                                                                    | 24,891,967   | $ | 22,257,683  
|    | Adjustment for mineral properties and deferred exploration (note 11(a))                                 |                                                                                                                                                                                      | (13,730,251) |   | (12,373,892)
|    |                                                                                                         |                                                                                                                                                                                      |              |   |             
|    | Assets, under US GAAP                                                                                   | $                                                                                                                                                                                    | 11,161,716   | $ | 9,883,791   
|    |                                                                                                         |                                                                                                                                                                                      |              |   |             
|    |                                                                                                         | (ii)
Share capital and share subscriptions received:                                                                                                                                
|    |                                                                                                         |                                                                                                                                                                                      | 2006         |   | 2005        
|    |                                                                                                         |                                                                                                                                                                                      |              |   |             
|    | Share capital and share subscriptions received, under Canadian GAAP                                     | $                                                                                                                                                                                    | 52,147,278   | $ | 45,653,624  
|    | Adjustment for stock-based compensation for employees (note 11(c))                                      |                                                                                                                                                                                      | 61,850       |   | 61,850      
|    | Adjustment for stock-based compensation for non-employees (note 11(c))                                  |                                                                                                                                                                                      | 393,078      |   | 393,078     
|    | Adjustment for escrow shares (note 11(c))                                                               |                                                                                                                                                                                      | 2,300,000    |   | 2,300,000   
|    |                                                                                                         |                                                                                                                                                                                      |              |   |             
|    | Share capital and share subscriptions received, under US GAAP                                           | $                                                                                                                                                                                    | 54,902,206   | $ | 48,408,552  
|    |                                                                                                         |                                                                                                                                                                                      |              |   |             







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|    |                                                                                                         |                               |                        |   |              |   |             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|--- | ------------------------------------------------------------------------------------------------------- | ----------------------------- | ---------------------- | - | ------------ | - | ----------- |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|11. | Reconciliation between Canadian and United States generally accepted accounting principles (continued):
|    | (d)                                                                                                     | Reconciliation (continued):  
|    |                                                                                                         | (iii)
Deficit:               
|    |                                                                                                         |                               | 2006                   |   | 2005        
|    |                                                                                                         |                               |                        |   |             
|    | Deficit, under Canadian GAAP                                                                            | $                             | (28,105,120)           | $ | (23,778,398)
|    | Adjustment for stock-based compensation for employees (note 11(c))                                      |                               | (61,850)               |   | (61,850)    
|    | Adjustment for stock-based compensation for non-employees (note 11(c))                                  |                               | (393,078)              |   | (393,078)   
|    | Adjustment for escrow shares (note 11(c))                                                               |                               | (2,300,000)            |   | (2,300,000) 
|    | Adjustment for mineral property exploration costs (note 11(a))                                          |                               | (13,730,251)           |   | (12,373,892)
|    |                                                                                                         |                               |                        |   |             
|    | Deficit, under US GAAP                                                                                  | $                             | (44,590,299)           | $ | (38,907,218)
|    |                                                                                                         |                               |                        |   |             
|    |                                                                                                         | (iv)
Loss and loss per share:
|    |                                                                                                         |                               | Years ended August 31,
|    |                                                                                                         |                               | 2006                   |   | 2005         |   | 2004       
|    |                                                                                                         |                               |                        |   |              |   |            
|    | Loss for the year, under Canadian GAAP                                                                  | $                             | (4,326,722)            | $ | (2,931,063)  | $ | (1,616,364)
|    | Adjustment for mineral property exploration costs (note 11(a))                                          |                               | (1,356,359)            |   | (529,742)    |   | (1,180,850)
|    | Adjustment for future income taxes (note 11(b))                                                         |                               | -                      |   | (150,106)    |   | 17,700     
|    |                                                                                                         |                               |                        |   |              |   |            
|    | Loss for the year, under US GAAP                                                                        | $                             | (5,683,081)            | $ | (3,610,911)  | $ | (2,779,514)
|    |                                                                                                         |                               |                        |   |              |   |            
|    | Basic and diluted loss per share, under US GAAP                                                         | $                             | (0.07)                 | $ | (0.04)       | $ | (0.03)     
|    |                                                                                                         |                               |                        |   |              |   |            
|    | Weighted average number of shares outstanding                                                           |                               | 85,666,361             |   | 83,387,939   |   | 81,056,126 
|    |                                                                                                         |                               |                        |   |             







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|    |                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                        |   |             |   |             |  |  |  |  |  | 
|--- | ------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------- | - | ----------- | - | ----------- |  |  |  |  |  | 
|11. | Reconciliation between Canadian and United States generally accepted accounting principles (continued):
|    | (d)                                                                                                     | Reconciliation (continued):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                         | (v)
Cash flows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Years ended August 31,
|    |                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 2006                   |   | 2005        |   | 2004       
|    |                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                        |   |             |   |            
|    | Cash used in operating activities, under Canadian GAAP                                                  | $                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | (2,075,770)            | $ | (1,939,133) | $ | (2,379,377)
|    | Adjustment for mineral properties and deferred exploration (note 11(a))                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | (2,545,075)            |   | (1,515,911) |   | (1,180,850)
|    |                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                        |   |             |   |            
|    | Cash used in operating activities, under US GAAP                                                        | $                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | (4,620,845)            | $ | (3,455,044) | $ | (3,560,227)
|    |                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                        |   |             |   |            
|    | Cash used in investing activities, under Canadian GAAP                                                  | $                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | (2,585,522)            | $ | (1,235,933) | $ | (699,747)  
|    | Adjustment for mineral properties and deferred exploration (note 11(a))                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 2,545,075              |   | 1,515,911   |   | 1,180,850  
|    |                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                        |   |             |   |            
|    | Cash provided by (used in) investing activities, under US GAAP                                          | $                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | (40,447)               | $ | 279,978     | $ | 481,103    
|    |                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                        |   |             |   |            
|    | (e)                                                                                                     | Recent pronouncements:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                         | (i)
In June 1, 2005, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 154,"Accounting Changes and Error Corrections"("SFAS 154"), a replacement of APB Opinion No. 20, "Accounting Changes",and SFAS No.3, "Reporting Accounting Changes in Interim Financial Statements".SFAS 154 requires retrospective application to prior periods' financial statements of a change in accounting principle unless it is impracticable to do so.  This is a change from the existing practice that requires most accounting changes to be accounted for by including in net income in the period of the change the cumulative effect of changing to the new accounting principle.  SFAS 154 will be effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.  The impact of SFAS 154 cannot be determined until such time as the Company makes a change in accounting policy.                                                                       
|    |                                                                                                         | (ii)
In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainties and Income Taxes" ("FIN 48").  FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with SFAS Statement 109, "Accounting for Income Taxes" ("SFAS 109").  SFAS 109 does not prescribe the recognition threshold or measurement attribute for the financial statement recognition and measurement of a tax position taken in a tax return.  FIN 48 clarifies the application of SFAS 109 by defining a criterion that an individual tax position must meet for any part of the benefit of that position to be recognized in an enterprise's financial statements.  Additionally, it provides guidance on measurement, derecognition, classification, interests and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006.  The Company has not yet determined the effects of adopting FIN 48.







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|    |                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | 
|--- | ------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 
|11. | Reconciliation between Canadian and United States generally accepted accounting principles (continued):
|    | (e)                                                                                                     | Recent pronouncements (continued):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                         | (iii)In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157,"Fair Value Measurements"("SFAS 157").  SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements.  SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.  The Company has not yet determined the effect of adoption of SFAS 157.







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SIGNATURE



The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.





Dated:

November 28, 2006





TANZANIAN ROYALTY EXPLORATION CORPORATION











By:

James E. Sinclair

James E. Sinclair,

Chairman and Chief Executive Officer







---







EXHIBIT 12.1

CERTIFICATIONS



I, James E. Sinclair, certify that:



1.

I have reviewed this annual report on Form 20-F of Tanzanian Royalty Exploration Corporation;



2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;



3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;



4.

The Company's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:



(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;



(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;



(c)

Evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and



(d)

Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and



5.

The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions):



(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and



(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting.



Date:  November 28, 2006



James E. Sinclair

James E. Sinclair,

Chairman and Chief Executive Officer

(Principal Executive Officer)









---







EXHIBIT 12.2

CERTIFICATION

I, Regina Kuo-Lee, certify that:



1.

I have reviewed this annual report on Form 20-F of Tanzanian Royalty Exploration Corporation;



2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;



3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;



4.

The Company's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:



(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;



(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;



(c)

Evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and



(d)

Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and



5.

The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions):



(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and



(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting.



Date:

November 28, 2006



Regina Kuo-Lee

Regina Kuo-Lee,

Chief Financial Officer

(Principal Financial Officer)









---







Exhibit 13



CERTIFICATION

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF

TITLE 18,UNITED STATES CODE)





Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of Title 18, United States Code), each of the undersigned officers of Tanzanian Royalty Exploration Corporation (the Company), does hereby certify with respect to the Annual Report of the Company on Form 20-F for the year ended August 31, 2006  as filed with the Securities and Exchange Commission (the Form 20-F) that, to the best of their knowledge:



(1)

the Form 20-F fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and



(2)

the information contained in the Form 20-F fairly presents, in all material respects, the financial condition and results of operations of the Company.



Dated:

November 28, 2006









James E. Sinclair

James E. Sinclair,

Chairman and Chief Executive Officer

(Principal Executive Officer)







Regina Kuo-Lee

Regina Kuo-Lee,

Chief Financial Officer

(Principal Financial Officer)