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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 and production risk

The Company’s business operations are subject to risks and hazards inherent to the mining industry. The exploration for and the development of mineral deposits involves significant risks which even a combination of careful evaluation, experience and knowledge may not eliminate. While the discovery of an ore body may result in substantial rewards, few properties that are explored are ultimately developed into producing mines. It is impossible to ensure that the Company’s current exploration programmes will result in a profitable commercial mining operation. However, the Company is de-risking its main project, the Dutwa Nickel Project, as it progresses through pre-feasibility by undertaking a variety of studies and tests including an ESIA, a logistics study and metallurgical tests in order to determine the viability of the project and subject to positive results will commence the DFS by the end of 2011 with the aim of production by 2015.

Development licensing and permitting

In some cases, African Eagle’s mineral property licences and/or permits do not currently provide for the development of a mine. Consequently, the Company will be required to obtain further licences and/or permits (mining, environmental and otherwise) from the respective government departments in the applicable countries of operation. While African Eagle currently expects that such licences/permits will be able to be obtained, when required, there can be no assurance that these licences/permits will ultimately be obtained. The ESIA for Dutwa will commence during Q2 2011 and will cover all requirements necessary to obtain the environmental permitting for the project.

Title to mineral properties

While African Eagle has undertaken all the customary due diligence in the verification of title to its material mineral properties, this should not be construed as a guarantee of title. The Company’s team in Tanzania has been there for over 10 years and is very experienced in managing the title to its properties. It maintains professional relationships with the relevant government bodies responsible for the issue and renewal of licences but if there was an indication of an issue over the title to any of its properties it would seek advice from the Company’s lawyers.

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 and copper. During 2010 the price of copper and nickel performed strongly. The impact of the price of copper and nickel on the economics of African Eagle’s two advanced projects, Mkushi and Dutwa, are kept under close review.

Liquidity risk

Is the risk of running out of working and investment capital. The Group relies on the issue of share capital and to a lesser extent joint venture agreements to finance its activities. The Company’s partner on the Dutwa project, SAFINA, has elected under the joint venture agreement to pro-rata funds its share of the expenditure. African Eagle has no borrowing and maintains tight financial and budgetary control to keep its operations cost effective. There can be no assurance that adequate funding will be available when required to finance the Group’s activities, however, the Directors have a reasonable expectation that they will secure additional funding when required to.

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. In 2011 the Company will have exposure to Australian dollars as the pre-feasibility metallurgical testwork will be undertaken in Perth, Western Australia. The Group maintains the majority of its cash in pounds sterling and normally buys its foreign currency requirements at spot although from time to time the Company will hold a proportion of its cash and cash equivalents in US dollars.

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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