HNDI Handeni Gold Inc (CE)

The following discussion of our financial condition, changes in financial condition and results of operations for the three and nine months ended February 28, 2013 and February 29, 2012 should be read in conjunction with our unaudited interim financial statements and related notes for the three and nine months ended February 28, 2013 and February 29, 2012 included herewith and our audited consolidated financial statements as at May 31, 2012, May 31, 2011 and for the period from inception (January 5, 2004) to May 31, 2012 included in our Annual Report on Form 10-K for our fiscal year ended May 31, 2012 as filed with the SEC. All financial information in this Management’s Discussion and Analysis (“MD&A” or the “discussion”) is expressed and prepared in conformity with U.S. generally accepted accounting principles. All dollar references are to the U.S. dollar, the Company’s reporting currency, unless otherwise noted. Some numbers in this MD&A have been rounded to the nearest thousand for discussion purposes.

FORWARD-LOOKING STATEMENTS

This MD&A contains forward-looking statements that involve risks, uncertainties and assumptions with respect to the Company’s activities and future financial results, which are made based upon management’s current expectations and beliefs. These forward-looking statements involve risks and uncertainties, including statements regarding the Company’s capital needs, business plans and expectations. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including, but not limited to, those set forth under “Risk Factors” and elsewhere in this annual report. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. Management disclaims any obligation to publicly update these statements, or disclose any difference between its actual results and those reflected in these statements. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

Overview

We are an exploration stage company engaged in the acquisition and exploration of mineral properties. We have interests in mineral claims known as the Handeni District Project and the Mkuvia Alluvial Gold Project (of which the licenses have lapsed), located in the Republic of Tanzania in East Africa, through prospecting licenses (“PLs”) and primary mining licenses (“PMLs”) issued by the government of the Republic of Tanzania.

None of our mineral claims contain any substantiated mineral deposits, resources or reserves of minerals to date. Exploration has been carried out on these claims, in particular the 4 PLs of 800 km ² in the Handeni District. Accordingly, additional exploration of these mineral claims is required before any conclusion can be drawn as to whether any commercially viable mineral deposit may exist on any of our mineral claims. Our plan of operations is to continue exploration and drilling work in order to ascertain whether our mineral claims warrant further advanced exploration to determine whether they possess commercially exploitable deposits of minerals. We will not be able to determine whether or not any of our mineral claims contain a commercially exploitable mineral deposit, resource or reserve, until appropriate exploratory work has been completed and an economic evaluation based on that work concludes economic viability.

We are considered an exploration or exploratory stage company, because we are involved in the examination and investigation of land that we believe may contain valuable minerals, for the purpose of discovering the presence of ore, if any, and its extent. There is no assurance that a commercially viable mineral deposit exists on the properties underlying our mineral claim interests, and considerable further exploration will be required before a final evaluation as to the economic and legal feasibility for our future exploration is determined.

Our Mineral Claims

Handeni District Prospecting Licenses

Currently, our primary focus is on the Handeni District Project. Effective September 21, 2010, our Board of Directors ratified the entering into and immediate closing of a certain Mineral Property Acquisition Agreement (the “Acquisition Agreement”) dated September 15, 2010 with IPP Gold Limited (“IPP Gold”), pursuant to which we acquired an undivided 100% legal, beneficial and registerable interest in and to four prospecting licences, totaling approximately 800 square kilometres, located in the Handeni District of Tanzania and which were owned or controlled by IPP Gold and its affiliates.

In accordance with the terms of the Acquisition Agreement, effective September 21, 2010, IPP Gold has now become a major stakeholder in our Company. Pursuant to the terms of the Acquisition Agreement, we issued 133,333,333 restricted shares of common stock to IPP Gold in exchange for 100% interest in the four PLs of the Handeni Project, with no further payments in shares or cash required.

The Commissioner for Minerals of Tanzania has confirmed the recording in the Central Register and the transfer of 100% of each of the Prospecting License Nos. 6742/2010, 6743/2010, 6744/2010 and 6779/2010, which comprise the Handeni Project, from IPP Gold to our Company, and that such transfer has been duly recorded on the terms and conditions contained in such Prospecting Licenses.

We obtained a Technical Report on the Handeni Property (the “Handeni Report”), dated April 25, 2011, as prepared at our request by Avrom E. Howard, MSc, FGA, PGeol (Ontario), Principal Consultant at Nebu Consulting LLC. Mr. Howard is a Qualified Person in accordance with Canadian National Instrument 43-101 “Standards for Disclosure of Mineral Projects” and its Companion Policy (collectively, “NI 43-101”) and is a Practicing Professional Geologist registered with the Association of Professional Geoscientists of Ontario (registration number 0380). The Handeni Report follows on the heels of a detailed geological compilation and exploration report prepared in 2010 by Dr. Reyno Scheepers, a South African professional geologist who has been a director of our Company since 2010 and is our current Chief Executive Officer. Upon independent review by, and to the satisfaction of Mr. Howard, much of the content from Dr. Scheepers’s report has been referred to and referenced in the Handeni Report.

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On August 5, 2011, the Company entered a Mineral Property Acquisition Agreement (the “2011 Acquisition Agreement”) with Handeni Resources Limited (“Handeni Resources”), a limited liability company registered under the laws of Tanzania. The Chairman of the Board of Directors of the Company has an existing ownership and/or beneficial interest(s) in Handeni Resources. Pursuant to the 2011 Acquisition Agreement, the Company had an exclusive option to acquire from Handeni Resources a 100% interest in mineral licenses covering an area of approximately 2.67 square kilometers to the east of Magambazi Hill, which is adjacent to the area covered by the Company’s four existing prospecting licenses (totaling approximately 800 square kilometers) in the Handeni District.

On November 30, 2011, the Company completed the 2011 Acquisition Agreement and issued 15,000,000 restricted common shares to Handeni Resources as payment. As at November 30, 2011, the fair market price of the Company’s common stock was $0.11 per share; accordingly, the Company recorded a total fair market value of $1,650,000 as the mineral licenses acquisition cost.

To comply with the laws and regulations of the Republic of Tanzania whereby foreign companies may not own primary mining licenses, on July 19, 2012, the Company:

Much of the information regarding the Handeni District Project as provided below is based on information provided in the Handeni Report.

The author of the Handeni Report visited the Handeni property on February 26, 2011, accompanied by Dr. Scheepers. Given the almost total absence of outcrop across the property area, on the one hand, and the abundance of district to regional scale geological data, recent exploration data, intensive artisanal mining activity in the boundary area between the Company’s Handeni property and the adjacent Magambazi property belonging to Canaco Resources Inc. and their well-publicized news releases and developments, on the other, the author of the Handeni Report determined that he was able to complete a meaningful property visit within the timeframe of a single day to his technical satisfaction sufficient for the purpose of preparing the Handeni Report.

Location and Access

The Handeni property lies within the historic Handeni artisanal gold mining district, located in Tanga Province, roughly 175 kilometers northwest of Tanzania’s largest city, Dar Es Salaam, and 100 kilometers southwest of the more northerly coastal city of Tanga. The road from Dar Es Salaam to Tanga is paved; the secondary road that heads northwest from this road to the town of Handeni, a distance of 65 kilometers, is currently being upgraded and paved. The Handeni property is located roughly 35 kilometers south of the town of Handeni. From this point, a number of dirt roads head south across various portions of the Handeni property and beyond. Driving time from Dar Es Salaam is approximately five hours, depending on traffic and the weather.

Access during the dry season is not difficult and does not even require a 4X4 vehicle. Roads within the licenses are mostly tracks, some of which are not accessible during the rainy season. The area experiences two rainy seasons, namely a short wet period during November and December and the main rain season lasting from April to June. Exploration conditions during the rainy periods may be difficult, specifically during the April to June period. Fuel is available at a number of points along the north - south portion of the journey and in Handeni town itself.

The average elevation in the Company’s license area is 450 meters above sea level. The area is densely vegetated with tall trees and grass over undulating hills of gneiss that comprise the main topographic feature in the area. Muddy, slow moving rivers and creeks crisscross the valleys and plains; some of the larger streams may experience high flow during intense rainfalls.

The area is scarcely populated with occasional small villages where people are engaged in small scale mixed farming and artisanal gold mining. Handeni town is a community of several thousand inhabitants haphazardly spread over a series of small, rounded hills, where basic services and accommodation are available.

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Within the property are several, smaller areas that belong to small scale artisanal miners, all of which are indicated in red in the license map presented below. The areas found within PL 6742/2010 predate the arrival of IPP Gold and remain in the hands of the local artisanal miners to whom Primary Licenses, or what are informally known as “Primary Mining Licenses” or PMLs have been issued. The rectangular area in red on PL6743/2010 belonged to Handeni Resources as discussed below. Artisanal gold mining activity remains ongoing in some of these areas.

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License Map, Handeni Property Prospecting Licenses, showing excluded areas in red

Toward the western edge of PL 6743/2010 are several more PMLs that do not belong to the Company. The area colored in green in the figure below is a unitized block of four PMLs that were acquired by Canaco Resources Inc. (“CRI”) from their owners; this is where the most intensive artisanal gold mining activity is currently taking place, with laborers working at a variety of mining and milling sites adjacent to and up the hill from a shanty town of huts that is found just north of Magambazi hill. It is the Company’s understanding that CRI has reached an agreement with the original owners of these PMLs and the people currently working there which will lead to their ceasing artisanal operations and vacating the site.

Ownership of a single, isolated claim block, depicted in fuchsia below remains uncertain; and which is something that IPP Gold and the Company are attempting to ascertain. Ownership of the smaller, rectangular red block that overlies the CRI-Company boundary also remains unknown; and which again is another matter that IPP Gold and the Company are currently pursuing. The remaining block of 32 PMLs, shown as a grid of blue lines below, belongs to the Company as described above.

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History

General. Mining in Tanzania in the modern era dates back over one hundred years, first under German colonial rule; during the First World War a number of military engagements took place there. After the war ended control of the area was ceded to the British, under whose colonial authority mining and other activities continued and expanded. Mining focused on gold, diamonds and a variety of colored gemstones, notably including the discovery and development of the world’s largest diamondiferous kimberlite pipe (to date) by Canadian geologist John Williamson, a deposit that remains in production to this day. Shortly after achieving independence from the British in 1961, Tanzania nationalized most private sector industries, in turn resulting in the exodus of foreign investment and private capital and the consequent decline in economic activity in all sectors, including mining. Finally, beginning in the 1990s, in line with many other developing countries around the world, the Tanzanian government instituted several reforms to move towards a free market economy, privatize the mining industry and encourage both domestic and foreign investment in all economic sectors. In the case of the mining industry, this was supplemented, in 1998, through the passage of a new, more industry-friendly mining code. This code has been streamlined under the Mining Act of 1998 (revised 2010) (the “Mining Act”) currently controlling exploration, mining and related activities in the country.

Tanzania is a significant producer of gold, diamonds and a variety of colored gemstones including tanzanite; the trade name for generally heat treated, bluish-purple zoisite. The Merelani Hills, east of Arusha, is the only place o n e a r t h where this gemstone variety of V-rich zoisite is found in commercial quantities. A recently discovered uranium deposit is currently under development, as well, in the southeast area of the country. Tanzania is Africa’s third leading gold producer, after Ghana and South Africa, with several major and junior companies producing and exploring for gold, mostly in northwestern Tanzania, south of Lake Victoria, in an area informally known as the Lake Victoria gold belt.

The Handeni Property. Gold has been known in the Handeni area for many years with some attributing its discovery to the Germans prior to World War One; however, it was the increase in gold prices and consequent increase in artisanal gold mining activity in the Handeni area that led to the discovery of larger deposits of placer gold, in turn leading in 2003 to a classic gold rush. The discovery and mining of lode deposits followed, soon after, along with the growth of a shanty mining town at the northern base of Magambazi Hill.

In 2005, the Company’s majority shareholder, IPP Gold, entered into negotiations with a group of 34 local artisanal miners that collectively controlled four PMLs on and near Magambazi Hill, site of the area’s known lode mineralization, and upon failing in this endeavor acquired a number of PMLs east of Magambazi Hill from other local owners. A portion of a large (1,200 km ² ) Prospecting Reconnaissance License (“PLR”) which belonged to Midlands Minerals Tanzania Limited was also acquired by IPP Gold.

Between 2005 and 2010, IPP Gold carried out exploration over its PLR leading to the upgrading of its holdings from one PLR to four PLs of 800 km2, in August 2010. Exploration work included airborne magnetic and radiometric surveys, ground magnetic surveys, reconnaissance geological mapping, soil sampling, pitting and trenching. It is these four PLs that were acquired by the Company from IPP Gold.

Geological Setting

Regional Geology. The geological framework of Tanzania reflects the geologic history of the African continent as a whole. Its present appearance is a result of a series of events that began with the evolution of the Archean shield, followed by its modification through metamorphic reworking and accretion of other continental rocks, in turn covered by continentally derived sediments. Pre-rift magmatism followed by active rifting has also left a major mark upon the Tanzanian landscape.

Several regional geological mapping programs have been carried out across the country over the past one hundred plus years, which has led to the recognition of several major litho-structural provinces from Archean to recent age. The Archean craton covers most of the western two thirds of the country, roughly bounded to the east by the East African Rift. Archean rocks host all of the country’s kimberlite pipes and contained lode diamond deposits, and most of its lode gold deposits. The Archean basement terrain is bounded to the east and west by a series of Proterozoic mobile belts; this area, particularly that to the east, hosts most of the country’s wide variety of colored gemstone deposits. Some recent research suggests that portions of this assumed Proterozoic terrane may actually consist of Archean crust that has undergone a later phase of higher grade metamorphism.

The Phanerozoic is represented by a series of sedimentary units of Paleozoic to Mesozoic age, in turn followed by a pre-rift period of kimberlitic and related, alkalic, mantle-derived intrusive and extrusive activity that presaged active rifting. Rocks related to this event intrude up to Upper Mesozoic and Lower Cenozoic sedimentary formations. Next came a period of rift-related intrusive and extrusive activity concentrated in the Arusha area – to the northeast and Mbeya area – to the southwest, which is responsible for volcanoes such as Mt. Meru and Mt. Kilimanjaro. Finally, a wide variety of recent and largely semi- to un-consolidated wind, water and weathering-derived recent formations are found across the country, a number of which host placer gold, diamond and colored gemstone deposits.

Property Geology. The geology of the Handeni area comprises amphibolite to granulite facies metamorphic rocks interpreted to originally have formed a sequence of ultramafic to felsic volcanic flows, black shales and quartz-bearing sedimentary rocks. High grade metamorphism has converted these original lithologies to a variety of metamorphic equivalents, including biotite-hornblende-garnet-pyroxene gneiss, migmatitic augen garnet- hornblende-pyroxene gneiss, quartzo-feldspathic hornblende-biotite-pyroxene gneiss, pyroxene-hornblende-biotite-garnet granulite and others. The entire assemblage has been folded into a synform with a northwest-southeast axis, complicated by numerous faults, some of which are spatially associated with gold mineralization.

Recent research by geologists from the University of Western Australia suggests that much of what has previously been considered to be of Proterozic age (Usagaran System) may in fact be overprinted Archean crust. This hypothesis has been invoked to help interpret the geology within which gold in this area is found and as the basis for an analogy between this gold mineralization and that found in less metamorphosed, bona fide Archean rocks in the Lake Victoria gold district, a few hundred km to the northwest. However, this is a hypothesis, only, one that may be used for exploration modeling purposes but one that still requires more work.

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Mineralization

The Handeni property is at an early stage of exploration. There are no known mineral resources or reserves on the Handeni property, nor are there any known deposits on the property.

Insufficient work has been completed on the Company’s property to be able to comment to any significant extent about the nature of gold mineralization found and that may be found therein. However, comments regarding mineralization may be made upon the basis of information released by CRI, the company that owns the immediately adjacent Magambazi gold deposit, a deposit that remains the subject of an ongoing drilling program and geological studies and which is considered to be the type occurrence/deposit for the evolving Handeni district. The hill within which this deposit is found extends southeast onto the Company’s property.

According to the aforementioned report prepared by Dr. Scheepers, gold is found within garnet-amphibolite zones within biotite-feldspar gneiss at three locations in the Company’s property, locations where historical lode gold occurrences have been documented. Gold occurs in quartz veins as well as within the garnet amphibolites adjacent to the quartz veins. Proof of this association is informally corroborated by the testimony of local, artisanal miners, who apparently recover gold both from quartz veins and gold-bearing gneiss that is not quartz vein bearing. Gold in the Company’s property has also been documented in soils and placers, at a variety of locations, as well.

Exploration Activities

Whereas gold was known in the Handeni area prior to the arrival in 2005 of the Company’s predecessor, IPP Gold, there is no history of any formal exploration in the area aside from limited work at Magambazi Hill itself. IPP Gold’s initial work consisted of soil sampling and a ground magnetic survey over an area of 200 square kilometers covering the area now located within PL6743/2010 immediately east of Magambazi Hill. Over the five years that ensued, this was followed by a series of exploration campaigns involving a variety of exploration methods, in turn followed by interpretation and further work in an iterative fashion. A table summarizing the work completed by IPP Gold (much of which was completed under the supervision of Dr. Scheepers) may be found below.

Several exploration targets were delineated on the basis of the aforementioned work either based upon anomalous gold soil geochemical results alone, or other features singly or in combination, that based upon gold deposit models have been deemed significant. Paramount among these are structural features are folds, shear zones, faults and thrust faults that have been interpreted on the basis of the magnetic and radiometric data, particularly where they have been seen to be coincident with anomalous gold in soils or locations of historical artisanal mining. Regardless of the gold deposit model one favors, structure is of fundamental significance as a conduit for and host to gold bearing solutions and, in this light therefore, all locations where anomalous gold has been found coincident with interpreted structures must be considered significant, particularly at this early stage of exploration on the Handeni property and in the district as a whole.

Conclusions and Recommendations

The author of the Handeni Report indicated that the most important conclusions to be derived at this juncture are:

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Exploration conducted 2011/2012.

During our fiscal year ended May 31, 2012, we achieved the following:

Drill hole positions for the 28 drilled Magambazi core drill holes.

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The drilling program on the Magambazi East targets outlined the following:

Kwandege drill hole positions.

Blue dots represent positions of current artisanal workings and the area outlined in purple is an approximately 1km ² sulphide and radioelement enriched zone. Hole KW2_10 was drilled on a potential south eastward extension of the main Kwandege mineralized zone.

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Of the three drill holes drilled on the chargeability zone (outlined in purple on figure above (KW3_01, KW3_02 and KW3_03) (Fig. 1), all three intersected the zone associated with gold mineralization in the Handeni area but only KW3_01 yielded anomalous gold values of 0.24 g/t over 1 m intersections. Thus, despite large percentages of pyrite, as well as some arsenopyrite being present in most of the core intersected on the chargeability anomaly as outlined, general gold values over this anomaly are unexpectedly low. The potential for gold on the perimeter of the chargeability zone however remains high and further drilling is required.

Anomalous gold values were intercepted over large portions of drill core in KW2_10, drilled on a potential south eastern extension of the main Kwandege mineralization zone. Although no values of economic grade are present in this single drill hole, the garnet amphibolite (the favourable zone for gold mineralization) was intersected. The lower values are most likely due to an unfavourable sub-surface structural intersection and further drilling is necessary to assess the (new) south eastern extension of the main Kwandege target.

The best intersections obtained on the first phase of the Kwandege drilling project (32 holes) were:

The Company is currently focusing its exploration efforts on:

The estimated budget for the completion of these exploration programs is provided below:

During the quarter ended August 31, 2012, we:

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Other exploration related activities currently under way on the companies Handeni licenses include:

During the quarter ended November 30, 2012, the Company:

A major focus of the company at this stage is target prioritization and selection of areas on the property to retain. The first draft of recommendations in this regard is to be finalized by the Company’s technical committee. The final draft of the document is expected to be handed in by middle March 2013.

During the quarter ended February 28, 2013, the Company:

Mkuvia Alluvial Gold Project

Our other property of interest has been the Mkuvia Alluvial Gold Project. This Project consists of four PLs (the background to the Company’s interest in these PLs is set out in detail below). The Company is aware that the four PLs expired during May and June of 2012. At this time the Company is considering its interest in these PLs going forward but no final determination has been made as of yet.

By way of background, on June 27, 2008 but effective on August 4, 2008 when ratified by our Board of Directors, the Company entered into a Joint Venture Agreement with Mkuvia Maita (“Mr. Maita”), the registered holder of certain PLs over certain areas covering approximately 430 square kilometers located in the Liwale and Nachigwea Districts of Tanzania. Pursuant to this agreement the Company had the right to enter, sample, drill and otherwise explore for minerals on the property underlying the prospecting licenses as granted by the Government of Tanzania under the Mining Act, subject to a perpetual net smelter royalty return of 3% payable to Mr. Maita.

Effective on July 14, 2009, our Board of Directors ratified, confirmed and approved our entering into of a new Joint Venture Agreement (the “New Mkuvia Agreement”) with Mr. Maita. The New Mkuvia Agreement covers a slightly smaller area than the original agreement, covering an area of approximately 380 square kilometers located in the Liwale and Nachigwea Districts of Tanzania, and more particularly described as follows:

• Prospecting License No. 5673/2009;
• Prospecting License No. 5669/2009;
• Prospecting License No. 5664/2009; and
• Prospecting License No. 5662/2009.

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The New Mkuvia Agreement, which is dated for reference June 5, 2009, supersedes and replaces the prior joint venture agreement as entered into by and between our Company and Mr. Maita (the “Prior Agreement”) regarding prior prospecting licenses held by Mr. Maita over substantially the same area, known as the “Mkuvia Project”, which is the focus of our current exploration and development efforts.

Pursuant to the terms of the New Mkuvia Agreement we shall continue to have the right to enter, sample, drill and otherwise explore for minerals on the property underlying the new PLs as granted by the Government of Tanzania under the Mining Act and any other rights covered by the PLs listed above.

In consideration for the entry into of the New Mkuvia Agreement, we were required to pay Mr. Maita US$40,000 upon signing of the New Mkuvia Agreement. In addition, and upon commencement of any production on the property underlying the prospecting licenses, Mr. Maita is still entitled to receive a perpetual net smelter royalty return of 3% from any product realized from the property underlying the PLs under the New Mkuvia Agreement. By entering into the New Mkuvia Agreement, we are no longer required to pay Mr. Maita the balance of approximately US$460,000 in aggregate yearly cash payments previously due under the Prior Agreement in consideration, in part, of our Company reducing the current unexplored property area underlying the prospecting licenses under the New Mkuvia Agreement by approximately 50 square kilometers.

The property has several overlying primary mining licenses (again PMLs) that have mineral rights that lie within the boundaries of the Mkuvia property. Generally, PMLs represent limited mining rights which allow the small scale exploration of minerals by local miners and must predate the establishment of a prospecting license. PMLs are retained exclusively for Tanzanian citizens. The maximum size of the demarcated area for a PML for all minerals other than building materials is 10 hectares. The PML is granted for a period of five years, renewable once upon request. When a PML expires, the mineral rights succeed to the underlying PL and cannot be renewed or re-staked thereafter, so long as the PL remains valid. Specifically, the PMLs on the Mkuvia property consist of approximately 115 licenses owned by Mr. Maita, and have been provided for in the New Mkuvia Agreement. Upon a successful mining permit application and receipt, the PMLs will be collapsed and superseded by the PL rights.

We obtained a Technical and Recourse Report on the Mkuvia Alluvial Gold Project, dated July 24, 2009, as prepared by Laurence Stephenson, P. Eng., and Ross McMaster, MAusIMM. This report was prepared in accordance with NI 43-101. Much of the information regarding the Mkuvia Alluvial Gold Project as provided below is based on information provided in that NI 43-technical report.

Effective November 7, 2009, we entered into a purchase agreement (the “Purchase Agreement”) with Ruby Creek Resources, Inc. (“Ruby Creek”), pursuant to which Ruby Creek has the right to purchase a 70 percent interest in 125 square kilometres of our 380 square kilometre Mkuvia Alluvial Gold Project upon payment of $3,000,000 over a three-year period. The schedule by which Ruby Creek is to pay such $3,000,000 to our Company is as follows:

• $100,000 within five business days of signing of the Purchase Agreement (received);
• $150,000 within 15 business days of signing of the Purchase Agreement (received);
• $100,000 upon satisfactory completion of Ruby Creek’s due diligence (received);
• $400,000 upon closing under the Purchase Agreement and receipt of the first mining license;
• $750,000 within 12 months of closing;
• $750,000 within 24 months of closing and
• $750,000 within 36 months of closing (this final payment may be made, in Ruby Creek’s discretion, in cash or shares of Ruby Creek).

In a further purchase agreement between our Company and Ruby Creek dated for reference May 19, 2010 and fully executed on June 16, 2010 (the “Further Purchase Agreement”), Ruby Creek agreed to purchase 70% of the remaining 255 sq km of the Mkuvia Alluvial Gold Project in accordance with the terms of such Further Purchase Agreement. Under the terms of the Further Purchase Agreement, Ruby Creek will earn a 70 percent interest in the remaining 255 square kilometres of our 380 square kilometre Mkuvia Alluvial Gold Project by making payments totaling $6,000,000 to us. The schedule by which Ruby Creek is to pay such $6,000,000 to us is as follows:

• $200,000 due within seven days of execution of the Further Purchase Agreement (received);
• $150,000 (received) plus the issuance of 4 million restricted shares of common stock of Ruby Creek, with an agreed upon value of $0.80 per share for a stated valuation of $3.2 million, within 30 days of the receipt of Certificates of Acknowledgement for all underlying and related Agreements from the Commissioner for Minerals in Tanzania as required by the Mining Act of Tanzania (Certificates of Acknowledgement received August 12, 2010, and shares issued on December 16, 2010);
• $450,000 on June 1, 2011 (unpaid);
• $1,000,000 on June 1, 2012 (unpaid); and
• $1,000,000 on June 1, 2013 (which may be satisfied by the issuance of stock by Ruby Creek).

Thus, the combined payments under the November 2009 and the June 2010 Purchase Agreement and Further Purchase Agreement provide for a total commitment of $9,000,000 payable to our Company by Ruby Creek to purchase a 70% interest in the entire 380 square kilometre Mkuvia Alluvial Gold Project.

The ownership structure of the interest in the Mkuvia Alluvial Gold Project shall be a 70% interest for Ruby Creek, a 25% interest for our Company and a 5% interest for Mr. Mkuvia Maita, the original owner of the underlying PLs. In addition, Mr. Maita retains a 3% net smelter royalty. However, the Further Purchase Agreement also provides that Ruby Creek may increase its ownership position from a 70% interest to 75%, reducing our position to 20%, by giving notice to us and paying $1,000,000 to us by June 1, 2011 (unpaid).

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As indicated in “PART II – OTHER INFORMATION, Item 1. – Legal Proceedings” below, on February 8, 2012, Ruby Creek filed a lawsuit against the Company in the Supreme Court, State of New York, in which Ruby Creek alleges that the Company participated in a fraudulent transfer of the mineral property interests that Ruby Creek had the right to purchase pursuant to the above-referenced Purchase Agreement and Further Purchase Agreement with the Company. The Company is of the view that such allegations are without merit and intends to vigorously contest the action. On February 23, 2012, the Company filed a lawsuit against Ruby Creek in the Supreme Court of British Columbia (the “British Columbia Action”), seeking relief for Ruby Creek’s breach of its payment obligations under the above-referenced Purchase Agreement and Further Purchase Agreement and seeking an order that Ruby Creek remove the U.S. restrictive legend from Ruby Creek shares issued to the Company under the agreements. To date, Ruby Creek is in default with respect to $1.45 million in scheduled payments due to the Company under the Purchase Agreement and Further Purchase Agreement.

In addition to the British Columbia Action, on May 21, 2012 in answering Ruby Creek’s claim in New York, the Company counter claimed against Ruby Creek on the basis of the alleged breaches set out in the British Columbia Action (the “New York Counter Claim”). On November 19, 2012, the British Columbia Action was dismissed on the grounds that the Court in British Columbia did not have jurisdiction and further that the dismissal was without prejudice to either of the Company’s and Ruby Creek’s respective actions in New York against one another. This Order was granted by consent of both the Company and Ruby Creek.

We have not received any update from Ruby Creek on its exploration activities conducted on the Mkuvia properties during the financial year ended May 31, 2012 to date. The Company is hopeful that it will be able to receive such exploration data in order to assist it in determining whether to make an application for the remaining portion of the PLs through what the Company is informed is a tender process to come.

Compliance with Government Regulation

We are subject to local laws and regulation governing the exploration, 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 material adverse impact on our Company. Applicable laws and regulations will require us to make certain capital and operating expenditures to initiate new operations. Under certain circumstances, we may be required to close an operation once it is started until a particular problem is remedied or to undertake other remedial actions. This would have a material adverse effect on our results and financial condition.

Our mineral interests in Tanzania are held under PLs granted pursuant to the Mining Act for an initial period of three years and are renewable in two successive periods of two years only. The annual rental fees following the first renewal will be US$150 per square kilometer per year and following the second renewal the rental fee will be US$200 per square kilometer per year. There is also an initial one-time “preparation fee” of $200 per license. Upon renewal, we pay a fee of $300 per license. Renewals of our PLs can take many months and even years to process by the regulatory authority in Tanzania.

All PLs in Tanzania require the holder to employ and train local residents, typically amounting to $5,000 per year, and make exploration expenditures, as set out in the Mining Act. At each renewal, at least 50% of our licensed area must be relinquished. If we wish to keep the relinquished one-half portion, we must file a new application for the relinquished portion.

The geographical area covered by a PL may contain one or more previously granted PML. A PML is a mining license granted only to a Tanzanian citizen consisting of an area not to exceed 10 hectares. Once a PL is granted, no additional PMLs can be granted within the geographical area covered by the PL. The PL is subject to the rights of previously granted and existing PMLs. The holder of a PL will have to work around the geographical area of the PML unless the PL holder acquires the PML and any rights to the land covered by the PML.

We must hold a mining license to carry on mining activities, which are granted only to the holder of a PL covering a particular 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. Other than the PMLs being held under Handeni Resources, we do not hold any mining licenses, only PLs. An application for the 32 PMLs being held under agreement by Handeni Resources to be changed into a mining license (ML) is underway. 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 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, near sources of water and other designated areas. These regulations have not had any material effect on our operations to date.

Competition

We operate in a highly competitive industry, competing with other mining and exploration companies, and institutional and individual investors, which are actively seeking minerals exploration properties throughout the world together with the equipment, labour and materials required to exploit such properties. Many of our competitors have financial resources, staff and facilities substantially greater than ours. The principal area of competition is encountered in the financial ability to cost effectively acquire prime minerals exploration prospects and then exploit such prospects. Competition for the acquisition of minerals exploration properties is intense, with many properties available in a competitive bidding process in which we may lack technological information or expertise available to other bidders. Therefore, we may not be successful in acquiring, exploring and developing profitable properties in the face of this competition. No assurance can be given that a sufficient number of suitable minerals exploration properties will be available for acquisition, exploration and development.

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Employees

Other than our directors and executive officers, we had approximately ten full-time equivalent employees and consultants as of February 28, 2013, seven of which were located in Tanzania. We retain independent geologists and consultants on a contract basis to conduct the work programs on our mineral properties in order to carry out our plan of operations.

Research and Development Expenditures

We have not incurred any research or development expenditures since our incorporation.

Subsidiaries

The Company has two subsidiaries, both of which are Tanzanian companies: (i) HG Limited (formerly DLM Tanzania Limited); and (ii) Douglas Lake Tanzania Limited, which is inactive.

Patents and Trademarks

We do not own, either legally or beneficially, any patent or trademark.

Plan of Operations

Our plan of operations for the fiscal year ending May 31, 2013 is to focus on the exploration of our mineral properties in Tanzania, particularly on the Handeni property. During this fiscal year, we estimated an expenditure of approximately $2,500,000 for our annual plan of exploration work and $1.5 million for our general and administration expenses. After reviewing our planned budgets, we decided to reduce our general and administration expenditure budget to $250,000 and exploration budget to $100,000 for our fourth fiscal quarter ending May 31, 2013. Our actual expenditures may exceed our estimations.

At February 28, 2013, we had working capital of $432,000, of which $429,000 was cash. During the nine months ended February 28, 2013, we had spent approximately $613,000 in exploration and approximately $753,000 in consulting, general and administration, professional and other operating expenses.

On December 7, 2012, the Company entered into a facility agreement with IPP Ltd., a private company controlled by the chairman of Handeni Gold Inc. The facility agreement ensures that the Company will have sufficient funding for its key exploration activities up to June 2013. The funding will be in the form of an interest free unsecured loan to the Company of up to $720,000 by way of monthly drawdowns of a maximum amount of US$100,000 per calendar month up to and including June 2013. As of the date of this report, we received a total of $395,683 from IPP Ltd. pursuant to this facility agreement.

We will continue our planned $2.5 million exploration and drilling program through the end of our next fiscal year ending May 31, 2014. As such, we estimated that we will need approximately $1.8 million in order to pursue our exploration and drilling program through the end of our next fiscal year ending May 31, 2014. We anticipate that we will not generate any revenue during this fiscal year. Accordingly, we will be required to obtain additional financing in order to pursue our plan of operations. We believe that external debt financing will not be an alternative for funding additional phases of our exploration as we do not have significant tangible assets to secure any debt financing.

We anticipate that additional funding will be in the form of equity financing from the sale of our common stock. We cannot provide investors with any assurance that we will be able to raise sufficient funding from the sale of our common stock to fund our acquisition and exploration program going forward. In the absence of such financing, we will not be able to continue acquisition and exploration of mineral claims and our business plan will fail. Even if we are successful in obtaining equity financing to fund our acquisition and exploration program, there is no assurance that we will obtain the funding necessary to pursue any advanced exploration of any mineral claims. If we do not continue to obtain additional financing, we will be forced to abandon our mineral claims and our plan of operations.

Results of Operations

We have had no operating revenues since our inception (January 5, 2004) to February 28, 2013. We anticipate that we will not generate any revenues for so long as we are an exploration stage company.

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The following table sets out our loss for the periods indicated:

Three Months Ended February 28, 2013 Compared to Three Months Ended February 29, 2012

Our expenses for the three months ended February 28, 2013 decreased by $2,144,000 to $564,000 from $2,708,000 for the three months ended February 29, 2012, as follows:

• Our consulting, general and administrative fees decreased approximately by $767,000 to $216,000 during the three months ended February 28, 2013 (2012 - $983,000), primarily due to decreases in stock-based compensation and cash expenditures. During the three months ended February 28, 2013, there was $Nil (2012 - $695,000) of the fair value of the stock-based compensation included in consulting, general and administrative fees. Excluding the stock-based compensation, our other consulting, general and administrative fees decreased approximately by $72,000 to $216,000 during the three months ended February 28, 2013 (2012 - $288,000), primarily due to cost management; At February 28, 2013, approximately $179,000 (2012 - $Nil) of consulting, general and administrative fees remained as payables due to the related parties.

• Our exploration expenses decreased by $1,193,000 to $206,000 during the three months ended February 28, 2013 (2012 - $1,399,000) due to our decreased exploration activities during the period;

• Our professional fees decreased by $148,000 to $42,000 during the three months ended February 28, 2013 (2012 - $190,000) primarily due to decreased legal and accounting service fees as a result of more work performed in-house by management and significant changes in the management during fiscal year 2012.

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• Our travel and investor relations expenses decreased by $36,000 to $30,000 during the three months ended February 28, 2013 (2012 - $66,000) primarily due to less travel expenses and cost management.

Nine Months Ended February 28, 2013 Compared to Nine Months Ended February 29, 2012

Our expenses for the nine months ended February 28, 2013 decreased by $5,851,000 to $2,252,000 from $8,103,000 for the nine months ended February 29, 2012, as follows:

• Our consulting, general and administrative fees decreased approximately by $1,075,000 to $1,172,000 during the nine months ended February 28, 2013 (2012 - $2,247,000), primarily due to decreases in stock-based compensation and cash expenditures. Included in consulting, general and administrative fees was $489,000 of the fair value of the stock-based compensation during the nine months ended February 28, 2013 (2012 - $1,295,000). Excluding the stock-based compensation, our other consulting, general and administrative fees decreased approximately by $269,000 to $683,000 during the nine months ended February 28, 2013 (2012 - $952,000), primarily due to cost management;

• Our depreciation fees increased by $43,000 to $150,000 during the nine months ended February 28, 2013 (2012 - $107,000) mainly due to our increased expenditures on camp and equipment;

• Our exploration expenses decreased by $4,088,000 to $613,000 during the nine months ended February 28, 2013 (2012 - $4,700,000) due to our significant drilling program during the fiscal year 2012 and decreased exploration activities during the fiscal year 2013;

• Our professional fees decreased by $532,000 to $154,000 during the nine months ended February 28, 2013 (2012 - $686,000) primarily due to decreased legal and accounting service fees as a result of more work performed in-house by management and significant changes in the management during the fiscal year 2012.

• Our travel and investor relations expenses decreased by $162,000 to $95,000 during the nine months ended February 28, 2013 (2012 - $257,000) primarily due to less travel expenses and cost management.

• Our rent expenses decreased by $37,000 to $69,000 during the nine months ended February 28, 2013 (2012 - $106,000).

Liquidity and Capital Resources

The Company has been reviewing its budgets for its current business needs and its further exploration plan. We estimated a total of approximately $4 million in expenditures for our fiscal year ending May 31, 2013, of which $2.5 million was for our annual plan of exploration work and $1.5 million was for our general and administration expenses. After reviewing our planned budgets, we decided to reduce our general and administration expenditure budget to $250,000 and exploration budget to $100,000 for our fourth fiscal quarter ending May 31, 2013. We will continue our planned exploration and drilling program through the end of our next fiscal year ending May 31, 2014.

During the nine months ended February 28, 2013, we had spent approximately $613,000 in exploration and $753,000 cash in consulting, general and administration, professional and other operating expenses. At February 28, 2013, we had working capital of $432,000, of which $429,000 was cash.

In January 2013, we completed private placements related to the Company’s Tanzanian and East African fund raising for a total of $650,000 subscription proceeds, of which $500,000 was received during the nine months ended February 28, 2013 and $150,000 was received during the fiscal year ended May 31, 2012.

On December 7, 2012, the Company entered into a facility agreement with IPP Ltd., a private company controlled by the chairman of Handeni Gold Inc. The facility agreement ensures that the Company will have sufficient funding for its key exploration activities up to June 2013. The funding will be in the form of an interest free unsecured loan to the Company of up to $720,000 by way of monthly drawdowns of a maximum amount of US$100,000 per calendar month from December 2012 up to and including June 2013. As of the date of this report, the Company received a total of $395,683 from IPP Ltd. pursuant to this facility agreement.

We have not generated revenues since the date of inception on January 5, 2004, and our cash has been generated primarily from the sale of our securities. During our fiscal year ending May 31, 2013, we anticipate that we will not generate any revenue. We believe that external debt financing will not be an alternative for funding additional phases of our exploration as we do not have significant tangible assets to secure any debt financing.

We will continue our planned $2.5 million exploration and drilling program through the end of our next fiscal year ending May 31, 2014. As such, we estimated that we will need approximately $1.8 million in order to pursue our exploration and drilling program through the end of our next fiscal year ending May 31, 2014. We will also need additional funding for general and administration through the end of our next fiscal year ending May 31, 2014. Post May 31, 2013, we anticipate that additional funding will be required in the form of equity financing from the sale of our common stock. We cannot provide investors with any assurance that we will be able to raise sufficient funding from the sale of our common stock to fund our acquisition and exploration program going forward. In the absence of such financing, we will not be able to continue acquisition and exploration of mineral claims and our business plan will fail. Even if we are successful in obtaining equity financing to fund our acquisition and exploration program, there is no assurance that we will obtain the funding necessary to pursue any advanced exploration of any mineral claims. If we do not continue to obtain additional funding, we will be forced to abandon our mineral claims and our plan of operations.

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Net Cash Used in Operating Activities

During the nine months ended February 28, 2013, net cash used in operating activities was $1,366,000, of which $264,000 was used during the three months ended February 28, 2013. During the nine months ended February 29, 2012, net cash used in operating activities was $4,515,000, of which $2,496,000 was used during the three months ended February 29, 2012. The lower cash expenditure during the three and nine months ended February 28, 2013 was mainly due to the Company’s lower exploration and operating expenses during the period. Net cash used in operating activities from our inception on January 5, 2004 to February 28, 2013 was $18,816,000.

Net Cash Used in Investing Activities

During the nine months ended February 28, 2013, net cash used in the purchase of equipment was $9,000 and cash received from disposal of equipment was $22,000. Net cash used in the purchase of equipment was $333,000 during the nine months ended February 29, 2012 for exploration activities in Tanzania, of which $189,000 was used during the three months ended February 29, 2012. Net cash used in investing activities from our inception on January 5, 2004 to February 28, 2013 was $864,000.

Net Cash from Financing Activities

During the nine months ended February 28, 2013, we received $896,000 net cash from financing activities ($500,000 receipt of stock subscriptions and $396,000 loan from related party), of which $396,000 was received during the three months ended February 28, 2013. During the nine months ended February 29, 2012, we received $114,000 net cash from stock subscriptions, of which $100,000 was received during the three months ended February 29, 2012. From our inception on January 5, 2004 to February 28, 2013, net cash provided by financing activities was $20,109,000.

We have funded our business to date primarily from sales of our common stock. There are no assurances that we will be able to achieve further sales of our common stock or any other form of additional financing. If we are unable to achieve the financing necessary to continue our plan of operations, then we will not be able to continue our exploration of the property underlying our mineral claim interest and our venture will fail.

Going Concern

We have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive exploration activities. For these reasons our auditors stated in their report on our audited financial statements for the year ended May 31, 2012 that they have substantial doubt we will be able to continue as a going concern.

Future Financings

We anticipate continuing to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to our existing shareholders. There is no assurance that we will achieve any additional sales of our equity securities or arrange for debt or other financing to fund our planned exploration activities.

Off-Balance Sheet Arrangements

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

Related Party Transactions

The details of related party transactions are disclosed in footnote 9 of our company’s interim unaudited consolidated financial statements for the fiscal quarter ended February 28, 2013 (Item 1, above).

Segment Disclosures

The Company operates in one reportable segment, located in Tanzania Africa, being the acquisition and exploration of mineral properties. The details of segment disclosures are disclosed in footnote 17 of our company’s interim unaudited consolidated financial statements for the fiscal quarter ended February 28, 2013 (Item 1, above).

Inflation

We do not believe that inflation has had a significant impact on our consolidated results of operations or financial condition.

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Contractual Obligations

Critical Accounting Policies

Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. In general, management’s estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.

We believe the following critical accounting policies require us to make significant judgments and estimates in the preparation of our consolidated financial statements.

Basis of Presentation

The Company’s consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States, and are expressed in U.S. dollars. The Company’s consolidated financial statements include the accounts of the Company and its subsidiaries described as follows. In June 2011, the Company incorporated in Tanzania a new wholly-owned subsidiary, DLM Tanzania Limited (now known as HG Limited), which undertakes mineral property exploration activities in Tanzania. The Company also has a wholly-owned non-operating Tanzanian subsidiary (Douglas Lake Tanzania Limited).

All significant intercompany transactions and balances have been eliminated. The Company’s fiscal year-end is May 31.

Use of Estimates

The preparation of consolidated financial statements in accordance with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses in the reporting period. The Company regularly evaluates estimates and assumptions related to the recoverability and useful life of long-lived assets, mineral prospecting licenses, stock-based compensation, deferred income tax asset valuation allowances and contingent liabilities. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

Basic and Diluted Net Income (Loss) Per Share

The Company computes net income (loss) per share in accordance with ASC 260, Earnings per Share which requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.

Comprehensive Income (Loss)

ASC 220, Comprehensive Income establishes standards for the reporting and display of comprehensive loss and its components in the financial statements. As at February 28, 2013, the Company’s components of other comprehensive income (loss) and accumulated other comprehensive income (loss) are an unrealized fair value loss on available for sale marketable securities.

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Cash and Cash Equivalents

Cash and cash equivalents are carried at fair value and they comprise cash on hand, deposits held with banks and other highly liquid investments. Highly liquid investments are readily convertible to cash and generally have maturities of three months or less from the time acquired. The Company places its cash and cash equivalents with high quality financial institutions which the Company believes limits credit risk.

Marketable Securities

The Company reports investments in marketable equity securities at fair value based on quoted market prices. All investment securities are designated as available for sale with unrealized gains and losses included in stockholders’ equity. Unrealized losses that are other than temporary are recognized in earnings. Realized gains and losses are accounted for on the specific identification method.

The Company periodically reviews these investments for other-than-temporary declines in fair value based on the specific identification method and writes down investments to their fair value when an other-than- temporary decline has occurred. When determining whether a decline is other-than-temporary, the Company examines (i) the length of time and the extent to which the fair value of an investment has been lower than its carrying value: (ii) the financial condition and near-term prospects of the investee, including any specific events that may influence the operations of the investee such as changes in technology that may impair the earnings potential of the investee: and (iii) the Company’s intent and ability to retain its investment in the investee for a sufficient period of time to allow for any anticipated recovery in market value. The Company generally believes that an other-than-temporary decline has occurred when the fair value of the investment is below the carrying value for one year, absent of evidence to the contrary.