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PROGRESS REPORT AND ACCOUNTS OF AFRICAN EAGLE RESOURCES plc
TO 31st DECEMBER 2004

News Report
1 June 2005

Chairman's statement

During the past few years we have seen a trend for the big mining companies to acquire new reserves more by merger and acquisition than by exploration. Acquisition budgets have grown at the expense of exploration budgets and in no case has the exploration budget of a new consolidated entity exceeded the sum of its parts. This strategy presupposes that specialist exploration companies will refill the pool of new assets.

At the same time we have seen a major resurgence in demand and prices for mineral products, coupled with declining discovery rates and decreasing size of new discoveries. The price of copper, for example, has doubled over the last two years and most analysts expect prices to remain high.

These factors have greatly increased the importance of junior exploration companies in the discovery of mineral assets and have led in the last two years to a major revival of junior exploration investment and activity, particularly in areas considered to offer long term operational security, better than average mineral potential and favourable investment regimes.

African Eagle's focus on gold and copper, our substantial portfolio of projects in Tanzania, Zambia and Mozambique, and our combination of expertise, experience and local knowledge position us extremely well to succeed under these conditions.

Mkushi in Zambia is a particularly attractive target in the current market and African Eagle has prioritised the project, with core drilling and surface surveys now underway to confirm and if possible increase a resource of 30 million tonnes of 1.25% copper reported there by earlier explorers.

At the Eagle Eye iron oxide copper gold (IOCG) project in eastern Zambia, the year's mapping and first phase drilling revealed that copper mineralisation extends over a strike length of at least 25km, confirmed that the mineralisation reaches potentially economic grades and widths, and identified a new priority target at Ndomba. As I write, geophysical and other surveys are underway which will help the Company's geologists to finalise this year's drill targets.

The gold price remains high, and in Tanzania's Lake Victoria Goldfields, our discovery of the Faida zone transformed the Miyabi project from pure exploration to a resource drilling project, leading to a new independent gold resource estimate of 400,000 ounces. Drilling to increase this resource restarted at Miyabi in early 2005 and the Company looks forward to the results of the programme over the coming months.

Our discovery cost to date of the 400,000 ounce Miyabi resource has been just US$6.25 per ounce, and we expect this to fall as drilling continues and more resources are added. This is a great tribute to the cost effectiveness and expertise of our Tanzanian exploration team, as, the average discovery cost of gold resources worldwide over the past 10 years has been of the order of US$25 to $30 per ounce.

Also in Tanzania, early shallow drilling at the Igurubi gold project revealed narrow but high-grade gold veins of considerable promise and further drilling will follow a programme of surface surveys, including ground magnetics, induced polarisation and geochemistry.

We are very much an "ideas" company and our teams have come up with some extremely promising new ventures for the future. One particularly exciting development has been our application for ca. 800 square kilometres of ground in western Mozambique containing rocks and mineralisation similar to those at Eagle Eye. Thanks to our growing understanding of the geological setting of Iron Oxide Copper Gold (IOCG) mineralisation in southwest Zambia, we now hold a substantial IOCG portfolio on both sides of the border, covering large areas of little-explored ground containing many reported copper and gold occurrences.

Clearly, in seeking to add value to what we believe to be our most important projects, we cannot prioritize everything in the African Eagle portfolio and the Company is actively seeking partners for both new and existing ventures. The signing of participation agreements with MSA over the Lunga licence in Zambia and with Resolute over the Kakumbi licence in Tanzania, which we have recently announced, are products of this strategy. Discussions are also underway with potential partners for other projects in the Company's portfolio.

The availability of cash is always a high priority for an exploration company and as I write, African Eagle is well funded, with £2.7 million in the bank, more than sufficient to cover its planned exploration programmes through 2005. The exercise of warrants during 2004 and early 2005 brought almost £2 million into the treasury, while a placing in December 2004 added another £1 million.

I am very pleased to report that in 2004, 80 pence of every £1 spent went into exploration, despite the one-off costs of establishing our London office, after the costs of our AIM admission in 2003 drove overheads during that year somewhat higher than our target.

In conclusion I'd say that an additional effect of high metals prices has been the increase in the number of exploration companies entering the market. There are now more than 100 quoted on AIM alone and we are noticing more competition for licences in Africa.

African Eagle, with funding available, a portfolio of both advanced and grassroots projects, its sound knowledge of the region and its skilled, cost-effective exploration teams, is far better placed than most to maximise benefits from current market conditions.

John Park
Chairman
African Eagle Resources plc

AFRICAN EAGLE RESOURCES plc - AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR FROM 1 JANUARY 2004 TO 31 DECEMBER 2004

Notes

1. The increase in intangible assets represents exploration expenditure in the period
2. See the Company's Annual Report of 1 June 2005 for a full set of notes to these accounts, including details of accounting policies. The report can be downloaded at www.africaneagle.co.uk/downloads.html
3. The financial information set out above does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The consolidated profit and loss account and balance sheet have been extracted from the Group's 2004 statutory financial statements upon which the auditors' opinion is unqualified
4. The calculation of basic loss per share is based on the loss attributable to ordinary shareholders £490,271 (2003: £365,084) divided by the weighted average number of shares in issue during the year 78,243,027 (2003: 41,069,155). There is no dilutive effect of share options on the basic loss per share.