Risk Review

The risks inherent in an exploration business are kept under constant review by the Board and the Executive Committee. The principal risks and the measures taken by African Eagle to mitigate them are detailed below.

Exploration risk

Is the risk of spending money and resources on projects which may not provide a return. Exploration involves a high degree of uncertainty and few properties that are explored are ultimately developed into mines. African Eagle addresses this risk by using its skills, experience and local knowledge to select only the most promising areas to explore. During the earlier stages of exploration, when the risk of failure is high, the Group prioritises those projects which are more likely to provide a return and relinquishes promptly any project which does not fulfil its early potential. It is impossible to guarantee that the Company's current exploration programmes will result in a profitable commercial mining operation in the future.

Political risk

Is the risk that assets will be lost through expropriation, unrest or war. African Eagle minimises political risk by operating in countries with relatively stable political systems, established fiscal and mining codes and a respect for the rule of law.

Commodity risk

Is the risk that the price earned for minerals will fall to a point where it becomes uneconomic to extract them from the ground. The principal metals in African Eagle's portfolio are nickel, gold and copper. During 2009 the price of commodities recovered from the low levels experienced in the second half of 2008. African Eagle is looking to sell or partner its gold and copper assets as it focuses on fast tracking its Dutwa Nickel project, so the recovery in the price of copper is extremely good news. The impact of commodity prices on the economics of African Eagle's advanced projects are kept under close review.

Liquidity risk

Is the risk of running out of working and investment capital. African Eagle's goal is to finance its exploration activities with cash flow from operations, but in the absence of such cash flow, the Group relies on the issue of share capital, joint venture agreements and the sale of assets to finance its activities. Currently, there is no borrowing and therefore interest rate exposure is restricted to deposits. African Eagle maintains tight financial and budgetary control to keep its operations cost effective. However, there can be no assurance that adequate funding will be available when required to finance the Group's activities.

Currency risk

Fluctuations in currency exchange risks can significantly impact cash flows. The Group finances its overseas operations by transferring US dollars from the UK to meet local operating costs. The Group maintains the majority of its cash in pounds sterling and normally buys its foreign currency requirements at spot. From time to time the Company will take out forward contracts to hedge part of its US dollar exposure.

UK Office & Registered Address : 2nd Floor, 6-7 Queen Street, London, EC4N 1SP, UK,
+44 20 72 48 60 59 Fax +44 20 76 91 77 45 e-mail info@africaneagle.co.uk
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