News releases

 

5 May 2009

 

African Eagle Resources plc ("African Eagle" or "the Company", ticker AIM: AFE, AltX: AEA) today announces its preliminary results for the year ended 31 December 2008. The Company's annual consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. The information in this preliminary announcement has been extracted from the audited financial statements for the year ended 31 December 2008 and as such, does not contain all of the information required to be disclosed in the financial statements prepared in accordance with IFRS. The Company will publish its full Annual Report and Financial Statements to shareholders later this month.

 

 

Dear Shareholder

 

When I was writing to you a year ago, copper was trading at US$4/lb and nickel was US$13/lb.  I was looking forward to a positive feasibility study from Mkushi and a resource statement from Mokambo. Dutwa was a gold exploration project in the eastern Lake Victoria Goldfields and barely got a mention!

 

Today, copper is just starting to claw its way back from January's low of $1.30/lb and nickel from $4/lb. Mkushi is on hold while we seek additional resources within the highly prospective zone surrounding the central area on which we based the feasibility study, and Mokambo is no longer a priority although we have increased our interest in the licence area in anticipation of a future recognition of value. At Dutwa, however, we have made one of the most significant base metal discoveries in East Africa in the last 50 years.

 

The cataclysmic period that resulted in the dramatic changes that we experienced through 2008, in which metal prices and project viabilities plunged as a function of markets that recoiled from risk, actual or perceived, was for the most part, a crisis generated by factors and actions outside of the resources world but one with major consequences for it as demand for metals and the values placed on almost all resource companies were slashed.  

 

As the crisis resolves itself, and it will, with the implementation of the G20 agenda and an eventual return to growth with the consequent pressure that will bring to bear on the supply of resources, sanity will return to a sector that needs explorers to provide for the future. There are going to be troughs and peaks in market sentiment and metal prices but I believe that the first signs of a recovery are already apparent and that we are in a better position than many of our peers to both survive and emerge stronger into that future, with cash in the bank, four JORC-compliant resources (and two pre-JORC resource estimates), and the importance of the Dutwa discovery much clearer now.

 

 

Because of the dramatic changes in our market, and because we did not know for how long the hard times would last, we conducted a thorough review of our priorities and strategy in the second half of 2008 and implemented a number of outcomes of that review in the period prior to January 2009 when we announced the most significant elements of the strategy we are now pursuing.

 

We also introduced a number of cost-cutting measures, including a reduction in directors' remuneration, renegotiation of all active contracts and cuts in general operating costs.  For operational reasons we have not retrenched any of our senior exploration staff, but we have placed our Mozambique operations and most of our advanced projects of merit on care and maintenance. We are also relinquishing many of our earliest stage projects.

 

Since the publication of our strategic review the board and I have been asked why we opted for a course of action that placed a relatively new nickel project discovery ahead of our other projects, some more advanced than Dutwa. In brief, our review showed us that, for each dollar spent, Dutwa would give us the greatest added value, and we therefore made the project our top priority.

 

In the 9 months since our discovery of the Dutwa nickel laterite we have explored and drilled out a 31Mt  nickel resource in Tanzania containing some $3.5 billion dollars in gross nickel value with significant cobalt credits of the order of $400M in value at current prices. We have conducted metallurgical and mineralogical testing at Mintek's South African laboratories to establish that this resource is unique and likely to be able to be developed using atmospheric leaching techniques. We have commissioned GRD Minproc to conduct a scoping study to be completed in June 2009, to evaluate the economics and potential processing methods to be used at Dutwa. As I write this we have just concluded and signed an option and joint venture agreement over the adjacent Ngasamo deposit which we anticipate will increase the global resource in the Dutwa project area to some 50Mt.

 

We believe that the Dutwa project has advantages which are likely to make it viable even at the current low nickel price.

By June we will know the likelihood that the Dutwa project will go ahead and the timeframe in which that can happen and that will place us in a strong position to be able to develop a nickel project that can take advantage of the expected upturn in demand and metal prices. We believe that we are fortunate to be developing the project during a downturn, as it will force us to keep capital and operating costs to a minimum, and to use realistic or pessimistic projections of revenue. A project which can survive such stress-testing will be highly profitable when prices recover.

 

 

Dutwa is a landmark in African Eagle's history and for the cash we will spend to conclude a scoping study there is simply no better or comparable addition to internal value we could make by applying those funds to any of our other more advanced projects.

 

 

At Mkushi our partners, CGA, completed the feasibility study in October at a time that coincided with the bottom of the copper price and the peak of energy, construction steel and consumables prices. We had drilled out what 6 months previously would have been a viable open pit mining operation producing some 20,000 tonnes of contained copper per year for sale to local or regional smelters. Had we any idea that the copper price would fall as drastically as it did we would have delineated a larger resource, but at the time it would have been poor use of capital to drill out significantly more than we did.

 

Mkushi is secure for the future with a 25 year Mining Licence issued and we are working with CGA to modify the project's parameters and increase copper resources, which we have considerable scope to do, to bring the project back to viability which even a relatively modest increase in the copper price would assist.

 

We made excellent progress during 2008 at Ndola and Mokambo generating a number of drill ready targets at Ndola and receiving promising results including 2.44% copper over 15m and 2.47% copper over 12m from our 3,000m diamond drilling programme at Mokambo.  Parallel development of multiple exploration projects using our own funds, however, is no longer sustainable in today's climate. With Dutwa as our top priority for 2009, we are therefore seeking partners to earn interests in our more advanced copper projects at Mokambo, where we increased our interest to 87% at the end of 2008 and at Ndola where we retain a 100% interest in the property.

 

Since the implementation of our current strategy African Eagle's geologists and exploration teams have, particularly over recent months, focussed on reviewing in detail the great wealth of exploration data that has been generated from our gold projects in Tanzania.

 

This review enabled our geologists to identify a number of new targets at Miyabi where I still expect that we will be able to increase the resource to 1M oz or more from the current 520,000oz. In addition, we are currently estimating an internal, non JORC compliant gold resource, at Igurubi, which we will announce shortly.

 

Whist we have chosen not to direct our cash resources into our gold projects, we have received a number of approaches, especially with respect to Miyabi and Igurubi, to farm them out, vend them into new vehicles or even sell them outright.  We are currently examining several proposals.

 

 

To our longstanding, and I suspect long suffering, shareholders for whom the increasingly positive news from Dutwa has halted the decline in the share price, I would say that we really appreciate your support and that we are as confident as we can be in the quality of Dutwa and our other projects' ability to continue delivering good news. Our inherent belief in African Eagle's fundamentals - and it's almost a requirement in the resource business that you need to be an optimist - has manifested itself in our own directors and senior staff being significant buyers of African Eagle stock until the close period rules overtook us. The fall in our share price until February, as well as mirroring the junior mining sector as a whole, was amplified in our case by the ability to sell our stock in the market as over the last nine  months we have been in the top quartile of AIM minerals companies for liquidity. Generally, this is a good thing, but last year particularly, it allowed easy sales by distressed funds which needed to cover redemptions and debt repayments.  This was painful, but we have emerged stronger, with a bigger free float and a strong base of private investors with no dominant shareholders.

 

We perceive potentially good news for shareholders from a revival in interest in the AIM mining sector and the creation of new resource funds. We also believe that the fundamentals of metals supply and demand remain broadly positive and prices will improve in the longer term.  The future will belong to companies which survive the present downturn and that have sound assets with low production costs. We believe that Dutwa will place us in this category.

 

With many others in the resources business I've learned over time and particularly over the past 12 months that foresight is not one of my long suits so I'm not going to list what I think will be our achievements in 2009 as confidently as I did last year. I would emphasise, however, that I continue to look forward to a successful future for the Company, for Dutwa and for our other key projects.

 

John Park

Chairman

30 April 2009

 

Consolidated Income Statement For The Year Ended 31 December 2008

 

 

All operations are continuing.

Consolidated Balance Sheet For The Year Ended 31 December 2008

 

Consolidated Cash Flow For The Year Ended 31 December 2008

 

 

Notes to the Consolidated Statements For The Year Ended 31 December 2008

 

1.         LOSS PER SHARE

 

Basic loss per share

The calculation of basic loss per share is based on the loss for the period divided by the weighted average number of shares in issue during the year. In calculating the diluted loss per share potential ordinary shares such as share options and warrants have not been included as they would have the effect of decreasing the loss per share. Decreasing the loss per share would be antidilutive.

Headline loss per share

Headline loss per share has been calculated in accordance with the Institute of Investment Management and Research's ("IIMR") Statement of Investment Practice No. 1 entitled 'The Definition of Headline Earnings' and The South African Institute of Chartered Accountants Circular 8/2007 entitled 'Headline Earnings'. The calculation of headline loss per share is based on the loss for the period of £2,197,724 (2007: £1,028,443) divided by the weighted average number of shares in issue during the year. No diluted headline loss per share has been calculated as it would be antidilutive by reducing the headline loss per share.

 

2.         INTANGIBLES

 

The Group 2008

 

 

 

Goodwill on consolidation relates to the acquisition of Katanga Resources Ltd in 2002. The goodwill is linked to the recovery of the deferred exploration costs on the Katanga mineral licences. The licences existing at the time of the acquisition have been fully impaired in 2008. For this reason the directors have decided to fully impair the goodwill on consolidation.

3.         IMPAIRMENT OF DEFERRED EXPLORATION

 

During the year a number of projects were impaired on the grounds they were not economically feasible. The geographical location of these projects is shown below:

 

The projects written off in 2008 are detailed below. The Tanzania write-off in 2007 relates to the Mbeya project.

 

 

 

The current economic conditions provide particular challenges to the Board and it is their prime responsibility to ensure the Company remains a going concern. At the year ended December 31, 2008 the Company had cash and cash equivalents of £2.7M and no borrowings. The Board considers this is sufficient to maintain the Company as a going concern for a period of over twelve months from the date of signing the annual report and accounts. In the later part of 2008 and in quarter one 2009 the Company took measures to reduce its overheads. This resulted in some of its projects being placed on care and maintenance and overheads generally being reduced. However, the directors are aware that the Group will need additional working capital in the foreseeable future to support corporate overheads, exploration programmes and to finance the Dutwa nickel project's Feasibility Study. The Company has historically entered into joint venture agreements with partners to share the risks and costs of exploration. A partner also brings with it technical expertise in development and mining in addition to financial resources. The Company has been speaking to prospective partners about the Dutwa project but to date no deal has been concluded. Besides looking for the right joint venture partner the Company is considering other options to raise finance including the sale of an asset and the raising of finance on the equity markets. Although African Eagle has been successful in raising finance in the past, there is no assurance that it will be able to obtain adequate finance in the future. However, the directors have a reasonable expectation that they will secure additional funding when required to continue operating for the foreseeable future. For this reason, the directors continue to adopt the going concern basis in preparing the financial statements.

5.         Summary Accounts

The summary accounts set out above do not constitute statutory accounts as defined by Section 240 of the UK Companies Act 1985. The summarised consolidated balance sheet at 31 December 2008, together with the summarised consolidated income statement and the summarised consolidated cash flow statement for the year then ended have been extracted from the Group's 2008 audited statutory financial statements.  The auditor's report on the statutory financial statements for the two years ended 31 December 2008 were unqualified and did not contain any statement under Section 237(2) or (3) of the Companies Act 1985.

Copies of the Annual Report will be sent to shareholders that have elected to receive hardcopy documents later this month and will be available from the Company at 2nd Floor, 6-7 Queen Street, London, EC4N 1SP. The full financial statements will be made available on the Company's website www.africaneagle.co.uk at the same time they are mailed to shareholders.

 

For further information, see the Company's website www.africaneagle.co.uk or contact one of the following:

 

 

 

 

+44 20 7248 6059

 

Seymour Pierce Limited, London

+44 20 7107 8000

 

Russell & Associates, Johannesburg

+27 11 8803924

+27 82 8928052

 

Conduit PR, London

+44 20 7429 6607

+44 7733 363 501