At Magambazi, Magambazi North and Magambazi Central, the Company has initially identified a gold mineral system
through preliminary exploration (including research of artisanal mining, data compilation, mapping, grab and chip
sampling, soil sampling, and associated interpretation) and is presently engaged in systematically diamond drill testing
these three key mineralized zones. Drilling is set up on 40m grid lines and is systematically testing downdip and along
strike extension to established mineralization.
The Magambazi area of interest straddles the boundary of the Kilindi Prospecting Licence and the Magambazi Primary
Mining Licences. Diamond drilling to date has defined the two significant mineralized horizons; Magambazi and
Magambazi North. A third area of mineralization is potentially materializing in the Magambazi Central area with the
recent release of significant gold mineralization intersected from diamond drilling in this location. The Magambazi zone
is characterized as a shallow, NW-trending, NW-plunging Au mineralized horizon. A key intercept of 56.2m of 6.39 g/t
Au (true thickness estimated at 70-90%) in MGZD0012 defines the core area discovered to date and expansion on this
zone is continuing. Gold is spatially related to quartz veins associated with silica and garnet altered amphibolite.
The Magambazi North Zone has a similar host rock and mineralization profile as Magambazi and appears to contain
more variable arsenopyrite, with a peak high grade intercept of 8.0m of 5.68 g/t Au (true thickness estimated at 90-
100%). This zone also trends NNW, although mineralization dips to the ENE and plunges SE. As of March 31, 2010,
the Company has drilled and reported on 36 diamond drill holes for a total of 7,999 m in the Magambazi and Magambazi
North areas. Drilling continues on the project and has recently identified new significant mineralization between
Magambazi and Magambazi North (Magambazi Central) grading 21.7m of 6.79 g/t Au (true thickness estimated at 80-
100%).
Handeni has significant potential to expand the Magambazi area mineralized zones, as the area is presently being
diamond drill tested. Continued drilling is recommended to extend and potentially connect known mineralized areas.
In addition, RC drill results from Semwaliko and trench results from Majiri Bomba have identified source bedrock gold
in the target areas of soil anomalies and existing workings. Addition geophysical targeting; potentially incorporating low
level magnetic surveying and Induced Polarization and Electro Magnetic surveys, would complement existing targeting
on anomalous soils and existing surface workings and are recommended to assist in refining additional targets. This
work would assist in identifying high sulphide zones, magnetic pyrrhotite and graphite associated with faults and
potentially mineralization. This information would also support the continued development of the structural and
lithological interpretation for the area. For benchmarking, a geophysical program designed to identify the key
geophysical characteristics of mineralization at Magambazi is recommended, followed by line-based geophysical testing
CANACO RESOURCES INC. - 3 - Year ended June 30, 2010CAN MD&Aof key target areas as defined on the entire property. Defined targets would be tested by drilling. The budget for this
program would be US$2,950,000.
PROPERTY AGREEMENTS – HANDENI PROJECTOn July 26, 2007, the Company entered an Option Agreement (the “Agreement”) with local miners and Magambazi
Mines Company Ltd. (“MMCL”) to acquire a 100% interest in the Magambazi gold mining licences over a two year
period. Additionally, the Agreement included a provision whereby the rights to explore could be extended for an
additional year.
Under the terms of the Agreement, the Company paid a total of US$256,000 for the right to explore the Magambazi
licences over a three year period (July 26, 2010). At any time prior to the third anniversary date, the Company could
elect to make a cash payment of US$1,800,000 to acquire a 100% interest in the Magambazi primary mining licences
(“PMLs”), subject to a 2% net smelter return royalty.
On April 28, 2010, the Agreement was restructured whereby a Tanzanian private company was granted the right to
acquire the PMLs from MMCL for US$1,800,000. To facilitate the exercise of the option the Company loaned the funds
to the private company. Concurrently, the Company entered into an agreement with the private company whereby the
Company was granted an option to acquire all of the issued and outstanding shares of the private company for
US$40,000, which has not yet been exercised.
Concomitantly, MMCL and the private company entered into a Royalty Agreement governing the calculation and
payment terms of the 2% net smelter return royalty. Additionally, the Royalty Agreement provides that MMCL has the
right to request advance payments of the royalty up to a ceiling of US$900,000 prior to commencement of commercial
production. To June 30, 2010 advance royalty payments of CAD$146,121 (US$140,000) have been made to MMCL.
Measurement Uncertainty
The Kilindi property is 100% owned by the Company and is subject to a Prospecting Licence (“PL). Subsequent to year
end, the Company was informed of the existence of competing rights within the Company’s Kilindi PL. The Company
intends to vigorously defend its existing property rights through all legal and regulatory channels. Management is unable
to predict the outcome of the legal and regulatory process at this time and no amounts related to it have been accrued in
these financial statements. In the event the matter is not settled in the Company’s favour, such an outcome might have a
negative impact on the Company’s financial position and/or result in an impairment in the carrying value of the
Company’s Tanzanian property costs and related loans receivable. Such impact or impairment could be material.
Subsequent to year end, the Company has acquired a 100% interest in three PLs located in the Kilindi District for
US$120,000 covering an area of approximately 53.5 square kilometres.