Risk Review

The risks inherent in an exploration business are kept under constant review by the Board and the Executive Committee. The principal risks for an exploration company 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 risk and few properties that are explored are ultimately developed into producing 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. Priorities are set by the Board and the Executive Committee based on advice from the Exploration Committee.

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 uneconomical to extract them from the ground. The two principal metals in African Eagle's portfolio are gold and copper. The price of both these metals has increased significantly during the past few years. The economics of all African Eagle's projects are kept under close review especially our two nearest to market projects, Mkushi (copper) and Miyabi (gold).

The two main types of financial risk faced by the Group are liquidity risk and currency risk. Liquidity risk is the risk of running out of working and investment capital. African Eagle's goal is to finance its exploration activities from cash flow from operations but in the absence of such cash flow the Group relies on the issue of equity share capital, joint venture and option agreements to finance its activities. Currently there is no borrowing and therefore interest rate exposure is restricted to deposits.

The Group finances its overseas operations by transferring US dollars to meet local operating costs. The Group does not hedge its exposure and is therefore exposed to currency fluctuations in the US dollar and local currencies.

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.

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