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REVIEW OF PROGRESS AND RESULTS FOR THE HALF YEAR ENDED 30 JUNE 2006

News Report
25 September 2006

AIM quoted African Eagle Resources plc ("African Eagle" or "the Company", ticker AIM: AFE) today announces its interim results together with a project update.

HIGHLIGHTS

• Development Partnership on Mkushi Copper project, Zambia - Central Asia Gold Limited (CAGL) to fund and conduct a bankable feasibility study.
• JORC compliant Copper resource estimate at Mkushi expected shortly.
• Phelps Dodge Mining Zambia Limited (PDMZ) to invest a minimum US$2.27m in exploration at Ndola Copperbelt project, Zambia.
• A 30% increase in the JORC compliant gold resource at Miyabi, Tanzania to 520,000 ounces, with 71% in the Indicated category.
• Resolute Mining Limited (Resolute) completes drilling programme at Kakumbi, Tanzania and commits to the earn-in phase.
• Results awaited from MDN Northern Mining drilling programme at Msasa Gold project, Tanzania.
• £4.4m for exploration by placings, warrant and option exercises and cash at 30 June of £3.7m.

 

John Park, Chairman commented:

"Significant progress has been made during the first half of 2006 in line with the Company's strategic decision, taken early in the year, to focus on those projects which are closest to production and to bring in strategic development partners. We have vigorously pursued our drilling programme at the Mkushi Copper project and signed important farm-out agreements with strong partners over our Mkushi, Ndola and Msasa projects.

We expect to announce a copper resource estimate for Mkushi shortly. Farm-out deals already signed, including that with CAGL on Mkushi, commit our partners to exploration expenditures of a minimum of US$5m. Considerably more than this will be spent on the exploration and development of African Eagle's projects should our partners opt into the various earn-ins contemplated and the projects progress as hoped. We expect further deals currently under negotiation to bring this commitment to at least a minimum of US$6m with a commensurate increase in the ultimate total that could be committed."

 

PROJECT UPDATES AND FINANCIAL PERFORMANCE

Mkushi
Mkushi is African Eagle's project nearest to production and benefits from straightforward metallurgy, a brownfield site and good local infrastructure. Our 53 drill holes at Mkushi (for a total of 8,359m) have confirmed copper mineralisation over a strike length of 7km to a vertical depth of at least 150m. Metallurgical test work, undertaken by our development partner CAGL, yielded excellent indicative copper recoveries of more than 95% by simple flotation. Individual drill intercepts at Mkushi include 57m at 2% copper, 84m at 1.8% and 27m at 2.1% copper.

While CAGL conducts and fully funds a bankable feasibility study in the core area, African Eagle will continue to employ its exploration skills over the rest of the concession as manager of a programme jointly funded by CAGL.

Our own preliminary internal economic modelling indicates that Mkushi should be profitable at a wide range of copper prices. Under the terms of the agreement with CAGL African Eagle retains almost half of the upside of this promising development.

Ndola
Under a subscription and earn-in agreement signed in August this year, a US$2.27m share subscription by PDMZ will fund an aggressive 15-month exploration programme over our large 428 sq km Ndola licence in the heart of the Zambian Copper Belt. The licence is highly prospective, surrounding the historic Bwana Mkubwa Mine and lying midway between First Quantum Minerals' Frontier project (161Mt grading 1.17% copper) and Lonshi Mine (5.9Mt grading 4.6% copper), both in the DRC. Past explorers reported a deposit in the northwest of our Ndola licence, estimated to contain 40Mt at 0.75% copper (not JORC compliant). If early exploration is successful, PDMZ will be able to earn up to 70% of the project by completing a bankable feasibility study.

Miyabi
Early in the year, we achieved a 30% uplift on our independently audited gold resource at Miyabi in Tanzania to 520,000 ounces of contained gold (of which 71% lies in the Indicated category). This resource now forms a firm foundation to the project and we plan to follow up the many other targets within and outside the Miyabi Gold Corridor with a view to bringing in a partner to carry the project forward to development.

Eagle Eye
The geochemical data base for Eagle Eye, Zambia has recently been reviewed by The Mineral Corporation. The review confirms the importance, as targets, of the granite-metavolcanic contact and a number of NW trending anomalous copper-in-soil "corridors" underlain by granite. The reinterpretation of the data provides a new dimension to the Eagle Eye Project by identifying the structures which may have provided fluid conduits for the development of the copper mineralisation in the area. A hole drilled at the contact zone in 2005 intersected 3m at 2% copper, demonstrating the potential of these targets.

Our internal grade-shell modelling of the drill data from the Mweze prospect indicates that around 7.2Mt at an average grade of 1.2% copper may be present in this area. The estimate is not JORC compliant but does give an indication of the potential of the area. African Eagle is seeking a joint-venture partner to evaluate these areas through a major drilling programme.

Other exploration activities

Elsewhere, our exploration teams and those of our farm-in partners have also been busy. The status, technical summaries and graphics relating to the work to date for all of our projects can be seen on our web site www.africaneagle.co.uk.

• Zambia

At the Lunga project in Zambia, MinEx Projects has identified some very promising geochemical anomalies which it is currently following up. Lunga has potential for copper-gold deposits similar to First Quantum's Kansanshi deposit, and other types of mineralisation.

• Tanzania

Resolute, our partner on the Kakumbi project in the Lake Victoria Goldfield, successfully completed its initial option expenditure and will now go ahead with an earn-in expenditure of US$1m to earn a 51% interest in the project. During the option period, Resolute conducted geochemical and geophysical surveys and drilled 36 combined air-core and RC holes totalling over 1,600 metres which yielded intersections of gold mineralisation including 12.7 g/t over 4m and 1.78 g/t over 8m.

MDN Northern Mining has recently completed its phase one drilling at Msasa in western Tanzania, and we await their results eagerly.

Our own teams in Tanzania have completed preliminary evaluation of all our early stage projects and several of these, including Dutwa and Mabale Hills show good promise and will be the subject of follow-up programmes and discussions with prospective partners.

• Mozambique

In Mozambique, we have commenced geological mapping and stream sediment geochemical survey work in our Fingoe licences, a 910 square kilometre area with copper and gold mineralisation showing similarities to that at Eagle Eye. Work at Majele and Nickel Ridge (Muazua) will be starting later in the year.

Corporate and Financial
On the corporate front we have raised £4.4m for exploration activities since the start of the year through placings to institutional investors and from option and warrant exercises. In March, we appointed Seymour Pierce as our nominated adviser and broker.

The operating loss for the period was £671,742 compared to a loss of £224,452 for the 6 months to June 2005. The main reasons for the increase in the operating loss were project write-offs (£163,296), adoption of FRS 20 for share based payments (£105,066) and exchange losses (£52,124). Cash in hand at the 30 June 2006 was £3.7m compared to £1.1m at 31 December 2005 and shareholders funds increased from £8.4m to £11.7m over the same period.

Comments on strategy
Early in the year, we shifted our strategic emphasis from "acquire and evaluate" to "develop and realise value". We effected this shift by concentrating our efforts on the most advanced projects, especially Mkushi.

These efforts are bearing fruit with the announcement of the agreement with CAGL on 28 July and an announcement with respect to an independent resource estimate anticipated to be made shortly. CAGL has the skills, experience and finance to fast track the Mkushi project. I believe that the implementation of this agreement with CAGL will represent excellent value for African Eagle and its shareholders.

I also believe that the agreement with PDMZ will prove to be an excellent deal for African Eagle and its shareholders.

We have put a lot of effort so far this year into finding development partners to provide finance and to help take our projects through to production and cash generation as quickly as possible. We have been very successful in this, with a total of 7 projects now signed up with 5 partners.

As I noted above, we expect these deals and others under negotiation to contribute a minimum of US$6m to the exploration and evaluation of our projects. In the event that our partners opt into the various earn-ins significantly greater sums will be injected.

The increase in our resource base, the quality and scope of our partnering agreements and the promise inherent in our exploration portfolio confirm my belief in a great future for African Eagle.

 

John Park

Chairman
African Eagle Resources plc
25 September 2006

 

Qualified Person

Information in this announcement relating to the exploration results is based on data reviewed by Mr Christopher Davies, Operations Director for African Eagle Resources, who is a Fellow of the Australasian Institute of Mining and Metallurgy and qualifies as a Competent Person in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC Code, 2004). Mr Davies has in excess of 25 years experience in mineral exploration and consents to the inclusion of the information in the form and context in which it appears.

 

AFRICAN EAGLE RESOURCES plc - CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS FROM 1 JANUARY 2006 TO 30 JUNE 2006 (UNAUDITED)

PROFIT AND LOSS ACCOUNT
	Six months to 30 June 2006 UNAUDITED £	Six months to 30 June 2005 UNAUDITED £	Year to 31 Dec 2005 RESTATED £
Administrative expenses	(541,181)	(312,371)	(655,147)
Share based payments	(105,066)	-	(92,871)
Exchange gains/(losses)	(52,124)	32,190	473,436
Operating loss	(698,371)	(280,181)	(274,582)
Interest receivable and similar income	26,629	55,729	89,593
Loss on ordinary activities before taxation	(671,742)	(224,452)	(184,989)
Tax on loss on ordinary activities	-	-	-
Loss for the financial period	(671,742)	(224,452)	(184,989)
Loss per share (pence)	(0.5p)	(0.2p)	(0.2p)
STATEMENT OF RECOGNISED GAINS AND LOSSES
	Six months to 30 June 2006 UNAUDITED £	Six months to 30 June 2005 UNAUDITED £	Year to 31 Dec 2005 RESTATED £
Loss for the financial period	(671,742)	(224,452)	(184,989)
Currency differences on foreign currency net investments	(308,581)	189,199	701,379
Total recognised gains and (losses)	(980,323)	(35,253)	516,390

 

BALANCE SHEET
	At 30 June 2006 UNAUDITED £	At 30 June 2005 UNAUDITED £	At 31 Dec 2005 RESTATED £
Fixed assets
Intangible assets	7,771,664	4,557,151	7,275,475
Tangible assets	204,933	169,485	250,362
Investments	18,229	18,262	18,372
	7,994,826	4,744,898	7,544,209
Current assets
Debtors	140,765	158,101	176,039
Cash at bank and in hand	3,717,063	2,228,827	1,097,881
	3,857,828	2,386,928	1,273,920
Creditors - amounts falling due within one year	(147,424)	(370,350)	(418,939)
Net current assets	3,710,404	2,016,578	854,981
Total assets less current liabilities	11,705,230	6,761,476	8,399,190
Capital and reserves
Called up share capital	1,475,358	1,039,350	1,129,550
Share premium account	11,789,457	7,050,968	7,953,968
Other reserves	705,723	705,723	705,723
Share based payments reserve	197,937	-	92,871
Profit and loss account	(2,463,245)	(2,034,565)	(1,482,922)
Shareholders' funds	11,705,230	6,761,476	8,399,190

 

CASH FLOW STATEMENT
		Six months to 30 June 2006 UNAUDITED £	Six months to 30 June 2005 UNAUDITED £	Year to 31 Dec 2005 RESTATED £
Net cash outflow from operating activities		(316,766)	(11,265)	(38,855)
Returns on investments and servicing of finance - interest received		26,629	37,367	89,593
Net cash outflow from capital expenditure and financial investment		(1,262,156)	(1,295,566)	(3,460,081)
Management of liquid resources		(2,701,575)	(1,448,497)	(190,315)
Net cash inflow from financing		4,181,297	1,198,997	2,192,197
Decrease in cash	6	(72,571)	(1,518,964)	(1,407,461)

 

Notes

1. The interim financial statements have been prepared on the basis of the accounting policies set out in the Company's statutory financial statements for 2005, which can be downloaded from www.africaneagle.co.uk, including the adoption of FRS 20 Share Based Payments as detailed in Note 3 below.
    
   
2. These financial statements have been approved by the Board of Directors but are un-audited. The financial information contained in these statements does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. The financial information for the year ended 31 December 2005 has been extracted from the statutory accounts for that year, as filed with the Registrar of Companies and on which the auditors issued an unqualified report.
    
   
3. In the period the Company adopted FRS 20 Share Based Payments, and an appropriate charge was recorded in the profit and loss account. The comparative figures have been restated to reflect the impact of FRS 20.
    
   
4. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements may differ from legislation in other jurisdictions.
    
   
5. The loss per share was calculated from the loss for the period attributable to ordinary shareholders of £671,742 (June 2005 = £224,452; Dec 2005 = £184,989) divided by the time-weighted average number of shares in issue during the period of 123,437,168 (June 2005 = 99,628,952; Dec 2005 =104,105,259). There is no diluted effect of share options or warrants on the basic loss per share.
    
   
6. ANALYSIS OF CHANGES IN NET FUNDS

 

	At 1 January 2006	Cash flow	Exchange difference	At 30 June 2006
	£	£	£	£
Liquid resources	878,242	2,701,575	-	3,579,817
Deposits included in cash	219,639	(72,571)	(9,822)	137,246
Net funds	1,097,881	2,629,004	(9,822)	3,717,063