African Eagle Resources plc

PROGRESS REPORT AND ACCOUNTS OF AFRICAN EAGLE RESOURCES plc TO 31st DECEMBER 2005

News Report
1 June 2006

Chairman's statement

Dear Shareholder,

For African Eagle, 2005 saw considerable advances at our key projects, especially Mkushi in Zambia and Miyabi in Tanzania. It was also a year of consolidation which culminated in a comprehensive review of our projects and the evolution of our strategy for the future.

Since our AIM listing, the Group's focus has been firmly on these two advanced projects and a small number of other headline projects, notably Eagle Eye and Ndola. At the same time we have continued to build a broad asset base of projects considered highly prospective. In this way we have leveraged our skills and local networks to build up a significant portfolio which represents the best of the many projects we've evaluated over the period and offers considerable upside potential.

By the end of 2005, the results of this strategy of "acquire and evaluate" allowed the Board to conduct a full and well-informed review of all our assets, with the aim of identifying those which are nearest to commercial production and could be taken forward fastest to generate cash flow. This review identified Mkushi as the project nearest to market and we will now advance it to a production decision as rapidly as possible.

The Mkushi Copper Mines, near Kapiri Mposhi in central Zambia, are former open pit and underground mines with remaining resources reported to be 30Mt at a grade of 1.23% copper, or some 370,000 tonnes of contained metal. To date we have conducted surface geological and geophysical surveys and a programme of diamond and percussion drilling for a total of almost 8000 metres. The drill programme yielded some excellent intersections, including 84m at 1.8% copper and 57m at 2.0% copper.

We are now rapidly approaching a first JORC-compliant resource at Mkushi. The deposit compares favourably with others in the region which have been or are being brought into production, and together with the excellent infrastructure and other advantages of Mkushi, these results convinced us of the need to proceed rapidly to a feasibility study.

In second place in our list of priority projects is the Miyabi Gold project in Tanzania. Here, we recently announced a 30% increase in the indicated and inferred gold resource, to 520,000 ounces of gold, of which 71% is in the Indicated category. Our Miyabi team has conducted extensive geophysical surveys which flagged up many exploration targets to be tested, offering the potential for a deposit of 1 million ounces or more. We have also begun pre-feasibility studies at Miyabi and metallurgical testing has confirmed that the gold is readily extractable by conventional leaching.

The numerous other projects we have acquired and evaluated provide a solid foundation to the portfolio, with the Eagle Eye, Ndola and Mokambo projects especially offering considerable future upside. Whilst our emphasis going forward will be strongly on securing a return from Mkushi, we recognise that we cannot on our own do full justice to all of the numerous other projects of merit in the Group's portfolio. We have therefore been actively seeking farm-in partners to participate in their exploration and development. The excellent results reported from our Lunga licence by our farm-in partner MinEx Projects (formerly MSA) shows how well this strategy can perform and on 3 May 2006 the Group signed an option agreement with MDN Northern Mining over the Msasa gold project in Tanzania. MDN holds a 30% interest in the Tulawaka Gold Mine which is located just 15km northwest of Msasa.

Our large Eagle Eye iron-oxide-copper-gold (IOCG) system in southeast Zambia entered a new phase of exploration in 2005, with the completion of an extensive induced polarisation (IP) survey followed by diamond drilling. The sheer size of this mineralised system means that although potentially huge, the project is much further from production than is Mkushi.

We will continue to use our skills and contacts to acquire promising new ventures, with an eye to developing them in partnership with other operators. For example, in August 2005, we were granted the 480 km2 Ndola licence and in February of this year the 30 km2 Mokambo licence. These two areas lie in the heart of the Zambian Copperbelt and hold two copper deposits which have been estimated to contain 1 million tonnes of copper metal on a combined pre-JORC basis. We are very excited to have the chance to become part of the resurgence of the Zambian Copperbelt as a major copper producing area.

Other promising acquisitions during the year include two large diamond reconnaissance licences in central Tanzania and the Fingoe licences in Mozambique, which have similar geology and IOCG mineralisation to Eagle Eye in neighbouring Zambia.

On the corporate front, 2005 saw the exercise of almost all of the Company's outstanding warrants, raising £2.2 million. Only 1.1 million warrants and 9.6 million employee options remained outstanding at the year end. Other than the warrant exercises, the Company issued no new shares during 2005, although we have since raised £4.3 million by way of placings.

The Company's shares continued to trade with relatively high liquidity, with average daily volume over the year of more than 650,000. Gold Fields sold out its position in the autumn, trading 12 million shares through the market and to institutions with relatively little impact on the price.

Operationally, we continued to be highly cost-effective, putting 88 pence of every pound spent into exploration, an improvement of almost 8 pence in the pound from 2004, and I congratulate all staff on keeping overhead costs to a minimum.

Following the change in our strategic emphasis, Board responsibilities were realigned with Managing Director Mark Parker concentrating on strategy and business development and Operations Director Chris Davies responsible for all aspects of exploration and evaluation. Also during the course of the year we welcomed John Arthurs to the African Eagle team. John is a structural geologist with extensive worldwide experience in both the public and private sectors. As geological adviser to the Group, John will help evaluate the exploration potential of our projects.

The period from the beginning of 2005 to date has seen our key projects mature sufficiently for us to begin the process of turning them to account through the commencement of feasibility studies. It saw increases in the potential of a number of other projects through the application of our exploration skills, a restructuring of the way in which we will operate in the future, the appointment of Seymour Pierce as our Broker and Nomad and the formation of a clearly focussed strategy which will take us forward.

African Eagle is now in an excellent position to take advantage of the Mkushi copper project in Zambia and the Miyabi gold project in Tanzania particularly and with the continuing strength of metal markets I believe the outlook for the business is excellent.

John Park

Chairman
African Eagle Resources plc
1 June 2006

AFRICAN EAGLE RESOURCES plc - AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR FROM 1 JANUARY 2005 TO 31 DECEMBER 2005

PROFIT AND LOSS ACCOUNT
	Year to 31 Dec 2005 £	Year to 31 Dec 2004 £
Administrative expenses	(655,147)	(524,814)
Exchange gains/(losses)	473,436	(44,361)
Operating loss	(181,711)	(569,175)
Interest receivable and similar income	89,593	78,904
Loss on ordinary activities before taxation	(92,118)	(490,271)
Tax on loss on ordinary activities	-	-
Loss for the financial year	(92,118)	(490,271)
Loss per share (pence)	(0.1p)	(0.6p)

STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
	Year to 31 Dec 2005 £	Year to 31 Dec 2004 £
Loss for the financial year	(92,118)	(490,271)
Currency differences on foreign currency net investments	701,379	(103,143)
Total recognised gains and (losses)	609,261	(593,414)

BALANCE SHEET
	At 31 Dec 2005 £	At 31 Dec 2004 £
Fixed assets
Intangible assets Note 1	7,275,475	3,224,310
Tangible assets	250,362	85,522
Investments	18,372	13,591
	7,544,209	3,323,423

Current assets
Debtors	176,039	149,293
Cash at bank and in hand	1,097,881	2,296,217
	1,273,920	2,445,510
Creditors - amounts falling due within one year	(418,939)	(171,201)
Net current assets	854,981	2,274,309
Total assets less current liabilities	8,399,190	5,597,732

Capital and reserves
Called up share capital	1,129,550	928,747
Share premium account	7,953,968	5,962,574
Other reserves	705,723	705,723
Profit and loss account	(1,390,051)	(1,999,312)
Shareholders' funds	8,399,190	5,597,732

CASH FLOW STATEMENT	At 31 Dec 2005 £	At 31 Dec 2004 £
Net cash outflow from operating activities	(38,855)	(448,159)
Returns on investments and servicing of finance - interest received	89,593	78,904
Net cash outflow from capital expenditure and financial investment	(3,460,081)	(1,498,641)
Management of liquid resources	(190,315)	1,319,899
Net cash inflow from financing	2,192,197	1,740,578
(Decrease)/Increase in cash Note 5	(1,407,461)	1,192,581

Notes

The increase in intangible assets represents exploration expenditure in the year.
The Company's Annual Report and Accounts for the year ended 31 December 2005 can be downloaded at www.africaneagle.co.uk/downloads.html.
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 2005 statutory financial statements upon which the auditors' opinion is unqualified.
The loss per share was calculated from the loss for the period attributable to ordinary shareholders of £92,118 (2004: £490,271) divided by the time-weighted average number of shares in issue during the year 104,105,259 (2004: 78,243,027). There is no dilutive effect of share options or warrants on the basic loss per share.
Analysis of changes in net funds

	At 1 January 2005	Cash flow	Exchange ifference	At 31 December 2005
	£	£	£	£
Liquid resources	687,927	190,315	-	878,242
Cash	1,608,290	(1,407,461)	18,810	219,639

	2,296,217	(1,217,146)	18,810	1,097,881