African Eagle Resources plc

PROGRESS REPORT AND ACCOUNTS OF AFRICAN EAGLE RESOURCES plc TO 31st DECEMBER 2006

News Report
1 June 2007

African Eagle Resources plc ("African Eagle" or "the Company", ticker AIM: AFE) today announces its annual results for the year to 31 December 2006.

The Year in Brief

Our focus during the year has been on developing partnerships with companies that have the financial resources and technical expertise in developing mines to complement African Eagle's excellence in exploration. We have now signed up quality partners on three of our four main projects. Our goal is to realise value for our shareholders by bringing our nearest to market projects into production and cash flow generation as soon as possible. The foundations are now in place and African Eagle is well positioned to push ahead with this strategy.

Milestones

In 2006:

Gold resource at Miyabi, Tanzania increased by 30% to 520,000oz
MDN Northern Mining signed an option agreement over Msasa, Tanzania and has indicated it wants to earn-in
Australian based miner, CGA Mining signed Heads of Agreement to fast-track the Mkushi Copper Project, Zambia towards production
Phelps Dodge, one of the world's largest copper producers, signed an earn-in and funding agreement on the Ndola project, Zambia
First JORC compliant copper resource announced at Mkushi
Resolute elected to proceed with an earn-in arrangement on Kakumbi, Tanzania

To date in 2007:

Phelps Dodge subscribed for an initial tranche of shares in the Company, to the value of US$1.27M
Farm-out of the Fingoe Project in Mozambique to Pan African Mining Corp
An option and farm-in agreement on Miyabi was signed with Randgold Resources, one of Africa's most successful gold companies
A strategic alliance was announced with Troll Mining to explore their uranium, copper and gold licences in Tanzania
CGA signed a joint venture agreement and a Zambian joint venture company was established to develop and explore Mkushi

Chairman's statement

Dear Shareholder,

2006 saw further advances in the evolution of your Company's strategy which is based on maximising the benefits provided by the quality and experience of our exploration personnel by coupling them with the expertise of industry partners with skills in the development and exploitation of mining projects. We are justifiably proud of our people, their skills and their ability to find good projects in the countries in which we operate and to advance them to a stage where they become attractive to other parties.

Our Review of Operations this year expands more on the individual projects than in previous years, giving me the luxury of using my statement to elaborate on and illustrate that strategy by addressing some of the points which shareholders have raised during the year.

As you will see from the Review of Operations, we have made, and continue to make, excellent progress at Mkushi and Ndola. Despite the heaviest rains in decades we've completed airborne and geochemical surveys and undertaken additional drilling programmes enabling further resource definition, as well as securing development partners of high quality for three of our four key projects. Elsewhere, we have carried out a major review of the entire data base for Eagle Eye to identify new drill targets, we've conducted extensive surface surveys on several of our Lake Victoria properties and we've continued to evaluate new projects and potential partners in line with our strategy. Only at Miyabi has a combination of the weather and bureaucratic delays hindered progress during 2006. Our joint venture with Randgold signed on 2 May 2007 will now benefit the project enormously as Randgold commences work under that agreement.

Turning to some of those points I'm regularly asked about.

Why does African Eagle bring in partners to progress its projects?

African Eagle's expertise lies in exploration: the identification, acquisition and evaluation of good projects with clear development potential and a strong likelihood of value realisation. Mine development takes time, money, a different corporate culture and people with different skill sets. For these reasons, to take good projects through to production, we choose to work with high-quality industry partners who have the financial strength and the requisite development skills and experience.

This enables us to reach production decisions more quickly and to mitigate project risk through involvement in several shared projects. With development and exploration projects with several partners in three countries and in various commodities, we believe we are protected if any single project should not deliver - our eggs are not all in one basket!

Moreover, our partners' investments free up our own cash for the project generation and exploration activities which are African Eagle's core capabilities. If all our partners complete their full commitments under our various farm-in agreements, we expect that they will invest US$50M or more into African Eagle's projects.

We now have excellent partners at three of our four key projects: Miyabi, Ndola and Mkushi. Randgold, our partner at Miyabi, is arguably one of the most accomplished gold project developers operating in Africa. Phelps Dodge, with whom we are exploring Ndola, is one of the world's largest copper producers and the management team at CGA Mining, our Mkushi partner, was instrumental in the development of the first modern gold mines in Tanzania (at Golden Pride) and in Mongolia. We have also signed up good partners for some of our non-core projects, we are in negotiation with potential partners of similar quality for many of our other projects and we are looking at different deal structures, including royalty deals, to get the maximum benefit out of future partnerships on non-core projects.

How far are African Eagle's projects from starting production?

A decision to develop a mining operation can be made as soon as we (or one of our partners) can demonstrate that a project is economically feasible, that is, as soon as we have identified a mineral reserve of sufficient size, grade and character to be mined and processed at a profit. With our most advanced projects, this decision could be as little as 12 months away. We are always looking for opportunities to get production started quickly.

Has African Eagle got a balanced property portfolio?

We believe so. As an exploration and project generation company, we are always evaluating our current project portfolio and considering new properties that meet our criteria for economic potential. We have been able to take forward key projects like Mkushi and Miyabi to resources status and to make them attractive to partners. In both cases it was our partner who initiated the approach.

We believe that the current buoyant metals market is a good time to be project rich, as mining companies are very keen to acquire new projects to replenish their depleting reserves. Their investment leverages our expertise and skills in target generation and the quality of our exploration teams in the field. We know that not all good ideas bear fruit, however, and we relinquish properties whose commercial value we have assessed and determined to be minimal, or where laying off the risk has proved impossible or too time consuming. For example, we recently dropped the Muazua project in Mozambique when the strong nickel geochemical anomalies turned out to be caused by localised surface enrichment and we have relinquished a number of Tanzanian gold licences which failed to meet our criteria.

How does African Eagle promote the Company through Investor Relations activities?

In the last 8 months, we have presented at seven major shows and conferences in London, Lusaka, Cape Town, Livingstone and Toronto, conducted a site visit to Mkushi for fund managers and analysts, participated twice on Stockmarket-TV, been the subject of two very bullish analysts' Buy Notes and talked with scores of analysts, investors and fund managers. The IR programme for the next 12 months promises to be just as busy.

In October 2006, we appointed Euan Worthington as our Deputy Chairman with specific responsibility for Investor Relations. Euan has more than 20 years' experience in the City of London as a mining analyst and corporate finance specialist.

As a service to our shareholders, African Eagle has consented to its shares being traded on PLUS Markets in London to supplement our primary listing on AIM and our trading facility on the Berlin-Bremen exchange in Germany. At a time when the number of minerals exploration and mining companies on AIM has grown to well over 300, we continue to investigate ways to differentiate ourselves from the herd.

Will African Eagle have to raise new funds in the market?

As soon as we have a positive feasibility study on one of our projects, we will have to raise our share of the capital costs and other development costs to bring the mine into production. As a rule, part of these costs will be met from equity and part by bank debt raised on the basis that a feasibility study is a detailed business plan which will include clear forecasts of revenue and profits. In the meantime, however, it is likely that we will need to raise more working capital to pursue our current exploration projects and to continue to generate new projects. A good deal of exploration, as I've said, is now being funded by our farm-in partners.

How can investors place a value on a company like African Eagle?

African Eagle's stage of development, the nature of our assets and the way we manage them makes it difficult to compare us directly with many of our peers. We do not have a producing mine, or a project with very near term production. We do, however, have two projects with JORC-compliant resources, both being taken forward by experienced mine operators and both capable of being valued objectively by the criteria used for any such resources.

We also have a suite of earlier stage projects, some wholly owned by us and others being explored by partners. We have the potential, and intention, to generate many more projects and we are looking to the means by which we structure our partnership agreements in order to add and realise value.

In his review of operations, our Managing Director Mark Parker sets out where we are now and our objectives for each of our projects. I believe that most commentators would agree that our current market capitalisation belies the value of our assets. As a substantial shareholder myself, I think that the current low share price represents a considerable opportunity, and I hope that this annual report will convince you of it.

John Park
Chairman

Managing Director's Review

African Eagle continues to implement the strategy which it adopted in early 2006:

To take the most advanced projects rapidly towards production and revenue generation
To prioritise other projects according to their fit to its business model
To sign up well-qualified industry partners
To maintain future upside by acquiring promising new projects

To this end, African Eagle has signed farm-out and joint venture agreements which will see development and exploration partners invest more than US$50M in African Eagle's projects, if feasibility studies are completed. With these partners and on its own, the Group has added substantial value to its assets since the start of 2006.

The mineral resources on the Group's two most advanced projects, defined to JORC standards, firmly underpin the portfolio's asset value. In contained metal value terms, the JORC copper resource already outlined at Mkushi is equivalent to a one million ounce gold deposit, and current drilling will almost certainly increase this significantly. The JORC resource at the Miyabi gold project is already more than 500,000 ounces and we are confident that this will also be increased substantially.

Several other projects, while not holding resources defined to JORC standards, none the less contain significant deposits discovered by African Eagle or determined by previous explorers.

In Zambia, Ndola holds a reported 40Mt deposit grading 0.75% copper, the Lunga and Mokambo licences also host known copper deposits, the Group has intersected significant copper mineralisation at Eagle Eye and the Tandalwe Hill deposit at Kampumba could form the basis for a low-cost oxide copper operation. In Tanzania, the Group plans to drill promising geochemical gold targets at Kagulamu in the Geita area, Dutwa, Kiwasi Hills and elsewhere, and for the first time, has acquired base metal and uranium assets outside the Lake Victoria Gold Fields. After a review of its projects in Mozambique, the Group farmed out the Fingoe licences and made application for a number of new areas.

African Eagle is also currently packaging up its uranium prospecting rights into an energy metals division, which it may spin out or joint venture.

Overview

Zambia - inside and outside the Copperbelt

African Eagle's most advanced project is Mkushi in Zambia. The preliminary resource, based only on the drilling results to July 2006 (when African Eagle signed its partnership with CGA), has an estimated 80,000 tonnes of contained copper. CGA has been conducting a programme of resource definition drilling and there are strong indications that the resource will increase significantly when an update is carried out. Financial modelling indicates that a decision could be made to develop a mine as soon as a deposit with around 150,000 tonnes of copper has been defined.

Interestingly, the Mkushi copper deposits lie outside the hugely prolific Central African Copperbelt which is Zambia's traditional mining area. In the last few years, new geological models and improved exploration methods have sparked great interest in these non-traditional targets and some very significant discoveries are being made. African Eagle holds projects both inside and outside the Copperbelt.

African Eagle's largest asset within the Zambian Copperbelt is the Ndola project. When African Eagle acquired this project, it was known to hold a deposit which was estimated in the 1960s to contain 300,000 tonnes of copper, although at the relatively low grade of 0.76% copper. African Eagle's surface surveys and drilling, funded by Phelps Dodge have revealed several other targets within the licence and drilling at one of these has already intersected copper mineralisation.

Also inside the Copperbelt, the Mokambo project area is known to contain a significant copper deposit. A title dispute delayed operations at Mokambo but was resolved by African Eagle and Copperbelt Minerals Ltd agreeing to explore and develop the licence in partnership.

African Eagle's Lunga licence covers rocks of the same Katangan age as those of the Copperbelt, but lies outside the Copperbelt itself. Relatively little exploration has been carried out in the area since the 1950s, when several small copper deposits were evaluated. African Eagle and its partner MinEx Projects have conducted airborne geophysical and extensive geochemical surveys which have identified several promising targets including copper-gold and uranium anomalies.

Our Eagle Eye IOCG project is well outside the Copperbelt and lies in much older rocks is a very exciting major target. We have recently completed a thorough review of all exploration results, identifying a number of promising drill targets.

Tanzania - the Lake Victoria Goldfields and beyond

Following its announcement in March 2006 of a 520,000 ounce gold resource at the Miyabi Gold project in the Lake Victoria Goldfields, the Group's emphasis has shifted towards a pre-feasibility study, with a view to getting the project into production. To further this aim, African Eagle has recently signed an option and farm-in agreement with a wholly owned subsidiary of Randgold Resources ("Randgold"). Randgold is one of Africa's most successful gold companies and an excellent development partner for Miyabi.

African Eagle holds a number of other licences, both within and beyond the Lake Victoria Goldfields. One of the most promising projects in the Goldfields is Dutwa, where African Eagle will drill three soil geochemical anomalies in 2007, including one with values up to 7g/t gold.

Geochemical and geophysical surveys have also identified promising anomalies and drill targets on the Kagulamu, Kiwasi and Mabale licence areas.

Another recent highlight is the joint venture agreement with Troll Mining Ltd, a Tanzanian company with several large exploration licences with known uranium, copper and gold occurrences in the southwest of the country.

MDN Northern Mining entered an option agreement on the Msasa gold project and has indicated that it would like to earn-in to this project. Resolute Mining our partner at Kakumbi elected to exercise its option during the year and they have begun to earn-in to this gold project. African Eagle is also talking to several other potential farm-in partners on its Tanzanian assets.

Mozambique - going boldly

During 2006, African Eagle acquired the services of one of the top exploration geologists in Mozambique and conducted a target generation exercise and review of its existing holdings. As a result of this, African Eagle applied for a number of new licence areas with potential for precious and base metals, nickel, uranium and other commodities. In 2007 African Eagle signed an agreement with Pan African Mining Corporation over the Fingoe licences.

Mark Parker
Managing Director

AFRICAN EAGLE RESOURCES plc - EXTRACT FROM AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR FROM 1 JANUARY 2006 TO 31 DECEMBER 2006

PROFIT AND LOSS ACCOUNT		Restated
	Year to 31 Dec 2006 £	Year to 31 Dec 2005 £
Administrative expenses	(1,003,826)	(655,147)
Note 1 Share based payments	(199,584)	(92,871)
Exchange (losses)/gains	(263,378)	473,436
Operating loss	(1,466,788)	(274,582)
Interest receivable and similar income	101,266	89,593
Loss on ordinary activities before taxation	(1,365,522)	(184,989)
Tax on loss on ordinary activities	-	-
Loss for the financial year	(1,365,522)	(184,989)
Note 2 Loss per share (pence)	(1.0p)	(0.2p)

STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES		Restated
	Year to 31 Dec 2006 £	Year to 31 Dec 2005 £
Loss for the financial year	(1,365,522)	(184,989)
Currency differences on foreign currency net investments	(1,471,535)	701,379
Total recognised (losses) and gains	(2,837,057)	516,390

BALANCE SHEET		Restated
Fixed assets
Note3 Intangible assets	7,212,462	7,275,475
Tangible assets	153,495	250,362
Investments	18,046	18,372
	7,384,003	7,544,209
Current assets
Debtors	240,466	176,039
Cash at bank and in hand	2,516,712	1,097,881
	2,757,178	1,273,920
Creditors - amounts falling due within one year	(180,820)	(418,939)
Net current assets	2,576,358	854,981
Total assets less current liabilities	9,960,361	8,399,190
Capital and reserves
Called up share capital	1,478,249	1,129,550
Share premium account	11,803,913	7,953,968
Other reserves	705,723	705,723
Share based payments reserve	292,455	92,871
Profit and loss account	(4,319,979)	(1,482,922)
Shareholders' funds	9,960,361	8,399,190
CASH FLOW STATEMENT	Year to 31 Dec 2006 £	Year to 31 Dec 2005 £
Net cash outflow from operating activities	(998,297)	(38,855)
Returns on investments and servicing of finance - interest received	101,266	89,593
Net cash outflow from capital expenditure and financial investment	(1,853,912)	(3,460,081)
Management of liquid resources	(1,501,742)	(190,315)
Net cash inflow from financing	4,198,644	2,192,197
Decrease in cash	(54,041)	(1,407,461)

Notes

The requirements of Financial Reporting Standard ('FRS 20'), Share Based Payments were applied to the Group and Company results, in accordance with the transitional provisions, to all equity instruments granted after 7 November 2002 that had not vested as of 1 January 2006. As a result, the consolidated profit and loss account for 2005 has been restated to include a charge for share based payments of £92,871, increasing the loss for the year from £92,118 to £184,989.
The loss per share was calculated from the loss for the period attributable to ordinary shareholders of £1,365,522 (2005: £184,989) divided by the time-weighted average number of shares in issue during the year 135,728,466 (2005: 104,105,259). There is no dilutive effect of share options or warrants on the basic loss per share.
The increase in intangible assets represents exploration expenditure during the year (£1,633,299), off-set by project write-off costs (£215,201) and foreign currency exchange losses (£1,414,516).
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 2006 statutory financial statements upon which the auditors' opinion is unqualified.
Analysis of changes in net funds:

	At 1 January 2006	Cash flow	Exchange Difference	At 31 December 2006
	£	£	£	£
Liquid resources	878,242	1,501,742	-	2,379,984
Cash	219,639	(54,041)	(28,870)	136,728

	1,097,881	1,447,701	(28,870)	2,516,712

The Company's Annual Report and Accounts for the year ended 31 December 2006 can be downloaded at www.africaneagle.co.uk/african-eagle-investors-annual-reports.html.

Qualified Person

Information in this report relating to exploration results is based on data reviewed by Mr Christopher Davies BSc, MSc, DIC, Operations Director for African Eagle, who is a Fellow of the Australasian Institute of Mining and Metallurgy, has more than 25 years relevant experience in mineral exploration and is a Qualified Person under AIM rules. Mr Davies consents to the inclusion of the information in the form and context in which it appears.