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Newmont MiningAhafo: 10.6 Moz

2004 ANNUAL REPORT

BCE Place, Canada Trust Tower27th Floor

161 Bay StreetToronto, Canada M5J 2S1Main Phone: 416-572-2252

Fax: 416-572-4107www.africangoldgroup.com

TSXV: AGG

Printed in Canada

OUR FOCUS

EXPLORATION“The Greatest Wealth Creation Opportunity in Mining!”

Mr. Ben Adoo ACSM, (Camborne); M. Eng. (McGill); C. Eng.ChairmanFormer Managing Director, Ghana Bauxite Co. Ltd., a subsidiary of AlcanInc. Former General Manager of Prestea, Tarkwa and Dunkwa Goldfieldsin Ghana. Past President and Honorary Member of Council of the GhanaChamber of Mines.

Mr. Michael A. J. NikiforukPresident Former Vice President, Corporate Development and a Director of BanroResource Corporation. Represented Banro in three rounds of equityfinancings that totalled approximately $30,000,000.

Mr. T. Greg Hawkins P. GeoChief Executive Officer & DirectorFounder of CME & Company. Mr. Hawkins holds a B. Sc. (Geology) anda M. Sc. (Mineral Economics). Through CME & Company, he has consultedfor: Anglo American, Barrick Gold Corp., Nevsun Resources Ltd., BanroResource Corporation, Cypress Amax and Gold Fields Ltd. Mr. Hawkinshas resided in Accra, Ghana over the past 12 years.

Mr. Stephen H. DulmageChief Financial OfficerFormer CFO and Director of both RBC Dominion Securities and TBM NTCorporation, a sponsored company of the Bank of Montreal. Mr. Dulmagebrings a vast degree of Audit and Corporate Governance experience toAfrican Gold Group, Inc.

Mr. Marco J. DuranteVice President & DirectorAn independent consultant focused on providing early stage growthcompanies with Investor Relations strategies and financing initiatives.Past experience with mining companies includes Banro ResourceCorporation and Lyndex Explorations.

Mr. Simon J. LawrenceDirectorVice President, Corporate Development, of Gabriel Resources Ltd.Mr. Lawrence holds a B.Eng. (mining engineering) from the CamborneSchool of Mines, U.K. and a MBA in International Finance from BradfordUniversity, U.K.

Mr. David S. Brown, LL.BDirectorA partner in the Corporate Department of Toronto based WeirFoulds LLP.He is a founder and past Chairman and presently serves as a Director ofthe Toronto Venture Group and a member of the Executive Committeeof the Toronto Angel Group.

Officers & Directors

Mr. Henry (Hank) Reimer P. EngA veteran mining analyst, former Manager of Mining Research,Richardson Securities and senior mining analyst and Director of LoewenOndaatje McCutcheon. Former directorships include Orvana Minerals,Golden Star Resources, Morrison Petroleum and currently QGX Ltd.

Mr. W. Durand (Randy) EpplerFormer Vice President of Corporate Planning for Newmont MiningCorporation and former President of Newmont Indonesia. Prior to joiningNewmont, Mr. Eppler was managing Director of Chemical Securities Inc.an affiliate of Chemical Bank. Mr. Eppler holds a Master’s Degree inMineral Economics from the Colorado School of Mines.

Corporate Information

Capital StructureTicker Symbol: TSXV: AGGIssued & Outstanding: 19,020,845 common sharesWarrants: 2,885,714 *Options: 1,694,075Fully Diluted: 23,600,634Insider Ownership: 45% **Cash Position: C$4 millionDebt: zero* Exercise Price $1.17, March 18, 2005 & $3.60, October 18, 2005** Tier 2 Escrow (3 year release)

Corporate OfficeBCE Place, Canada Trust Tower, 27th Floor161 Bay StreetToronto, Canada M5J 2S1Main Phone: 416-572-2252Fax: 416-572-4107www.africangoldgroup.com

Operations OfficeNo. 10, Soula LoopNorth LaboneAccra, GhanaPhone: +233 (21) 773033Fax: +233 (21) 760543

BankerCIBCToronto, Canada

AuditorBDO Dunwoody LLPToronto, Canada

The 2005 Annual Meeting of ShareholdersThe 2005 Annual Meeting of Shareholders will be held at:The Offices of WeirFoulds LLPExchange Tower130 King Street West, Suite 1600Toronto, Ontario, Canada M5X 1J5Wednesday May 25, 2005 at 10:00 a.m.

Legal CounselWeirFoulds LLPToronto, Canada

Tranfer AgentEquity Transfer Services Inc.Toronto, Canada

Advisory Board

Copies of the Financial Statements for the Year Ended December 31, 2004 are availablethrough the Internet on the Electronic Data Gathering Analysis and Retrieval (EDGAR)system, which can be accessed at www.sec.gov/edgarhp.htm for U.S. shareholders, andon the System for Electronic Document Analysis and Retrieval (SEDAR), which can beaccessed at www.sedar.com for Canadian shareholders. The Report on Form 10-K, Form10-Qs, Form 8-Ks and other required securities filings can also be found on EDGAR andSEDAR.

SEFWI GOLD BELTMankranho Gold Concession (108 sq km)“The Jewel In The Crown”■ On strike and contiguous with Newmont’s US$425 million,

10.6 million ounce Ahafo Project■ Surrounds the northern extension of Ahafo on 3 sides■ 8 kilometres of mineralized strike length

■ Gold mineralization encountered in 22 of 24 initial holes■ Mankranho Drill Highlights: 16.48 meters at 2.82 g/t gold;

including 1.50 metres at 43.40 g/t gold; and 1.48 metresat 26.60 g/t gold

■ Exploration potential: open at depth and along strike

ASHANTI REGIONNyankumasi Gold Concession(71 sq km)■ 30 kilometres south-south

west of Newmont’s5.4 million ounce Akyem Project

■ 72 RC drill holes indicates several promising zones of gold mineralization

■ Nyankumasi RC Drill Highlights: SRC 62 – 10.0 metres at 2.96 g/t gold.NRC 23 – 5.0 metres at2.18 g/t gold and 5.0 metresat 3.51 g/t gold


ASANKRANGWA GOLD BELTMoseaso & Twedee Gold Concessions (304 sq km)■ 9 km of strike length, 3 parallel gold in soil anomalies■ US$15 million historical data base compiled■ Significant > 5 g/t gold zones in trenches, diamond drill

& RC drill holes■ 957,000 tons at 1.34 g/t gold inferred resource at Topey

deposit■ Moseaso trench results: Trench TR2, measuring 94 metres

in length, to a maximum depth of 3 metres – 31 metres at 2.02 g/t gold; including 7 metres at 7.15 g/t gold


Mankranho Gold Concession Moseaso and Twedee Gold Concessions

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HIGHLIGHTS

2002

October – African Gold Group, Inc. (“AGG”) incorporated as a private Ontario corporation

2003

May – AGG Secures control of Mankranho & Moseaso Licenses

September – AGG secures control of Twedee License

October – AGG and Koda Resources Ltd. announce RTO plans

December – Closing of Cdn$1,200,000 private placement

2004

February – Koda Resources Ltd. shareholders approve acquisition of 100% of AGG

March – Koda / AGG complete RTO, AGG commences trading on TSX-V

April – Closing of Cdn$10,000,000 “Bought Deal”

May – AGG commences Phase 1 Exploration at Mankranho

September – AGG appoints Ben Adoo Managing Director, AGG (Ghana) Ltd.

November – • W. Durand Eppler & Henry Reimer join AGG Advisory Board• AGG commences Phase I Exploration program at Moseaso• AGG options Nyankumasi concession

December – AGG to earn 85% direct interest in Mankranho

41061_AR 4/25/05 4:07 PM Page 1

Chairman’s Message

2

I have dedicated the past three decades of my life to operating mines in my home country ofGhana, located on the coast of West Africa. Throughout my career I have served as General Managerof the underground operations at both Prestea and Tarkwa Goldfields. At Dunkwa Goldfields, I managedthat company’s dredging operations and for the past five years, ending September, 2004, I was theManaging Director of Ghana Bauxite Co. Ltd., an open pit mining operation, 80% owned byMontreal based Alcan, Inc. I have also had the recent privilege of serving a full two year term asPresident of Ghana’s Chamber of Mines, an opportunity that has provided me with a political perspectiveof the African continent’s landscape, in addition to my engineer’s viewpoint.

I am very proud of my Ghanaian heritage and exceptionally pleased to have the honor of serving as both Chairman of The Boardof Directors of your Company, and Managing Director of our local, 100% owned subsidiary, AGG (Ghana) Ltd.

Ghana was formerly known as “The Gold Coast” and it has produced and exported gold for centuries. Gold mining is a part of ourculture and perhaps that explains why three of the world’s largest gold mining companies have each committed approximatelyUS$1 billion in capital expenditure, to further develop their respective Ghana operations, over the balance of this decade.

Ghana is home to Newmont Mining Corporation’s largest development project in the world, the US$425 million Ahafo Project.Interestingly, Ahafo was completely undiscovered ground only 14 years ago. Newmont acquired Ahafo through the acquisition ofAustralian based Normandy Mining Ltd. in February, 2002. Of equal interest is that reported reserves have increased from 4.9 millionounces to the current 10.6 million ounces, in just three years.

Goldfield’s of South Africa has its most profitable operation in the world at Tarkwa, as stated above, a mine I used to operate asGeneral Manager of the entire underground operation for the Government of Ghana, several years ago.

South Africa’s AngloGold recently acquired Ashanti Goldfields of Ghana for US$1.3 billion, creating AngloGold Ashanti in theprocess and taking control of one of the world’s largest gold deposits ever discovered, the 50 million ounce Obuasi mine, whichhas been in commercial production for over 100 years and is currently being mined at depths exceeding 1,500 metres.

Our name, African Gold Group, Inc., is intended to clearly depict our focus – the African continent. The launch of our initiativesfrom within Ghana represents both a logical and prudent, strategic decision. First, approximately 115 million ounces of gold havebeen discovered within a 120 km radius of our four concessions and second, the sheer magnitude of existing mine infrastructure,relative to the proximity of our gold concessions, is unparalleled when compared to all other jurisidictions on the African continent,possibly the world.

AFRICAN GOLD GROUP, INC. – 2004 ANNUAL REPORT

Ben AdooChairman, DirectorAfrican Gold Group, Inc.Managing Director, AGG (Ghana) Ltd.

41061_AR 4/25/05 4:07 PM Page 2

3

Our four concessions - Mankranho, Twedee, Moseaso and Nyankumasi are technically equivalent, from a geological perspective. Historicaland current exploration activity has demonstrated the presence of gold mineralization at each concession. However, our Mankranho concessioncaptures the attention of the investment community for the simple reason that it is contiguous and on strike with Newmont’s biggest developmentproject in the world. Our drill bits have proven, beyond any doubt, that Mankranho represents the mineralized, northern extension ofNewmont’s Ahafo project. Our proximity to this massive infrastructure has an enormous impact on the economic potential of any ounces ofgold discovered at Mankranho.

I intend to deploy all of the resources at my disposal, be they financial, political or technical, to build our Company into a premiere “player”in the region. One of my primary objectives will be to oversee an ongoing acquisition strategy, both within Ghana and beyond, into the WestAfrican region, in the near term. Simultaneously, I will be overseeing the technical progress of our development efforts at our existing concessions.I intend to work closely with our senior management team on future financings and as our land portfolio grows, I intend to leverage my reputationand experience to explore the potential of joint venturing the development of certain projects with major mining companies operating in theregion. We will leave no stone unturned.

Regardless of where we operate, we will conduct ourselves in a socially responsible manner, intent on building solid and lasting relationshipswith the local residents, who we intend, will be positively impacted by our presence.

On behalf of the Board of Directors, we would like to thank our valued shareholders for the confidence they continue to place in African GoldGroup, Inc. We would also like to thank our employees and those contractors that work on our behalf towards realizing our Company’s goals.

Ben Adoo,ACSM, (Camborne); M.Eng,(McGill); MIMM; C.Eng.Chairman, DirectorAfrican Gold Group, Inc.Managing Director, AGG (Ghana) Ltd.

41061_AR 4/25/05 4:07 PM Page 3

President’s Message

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On March 18, 2005, African Gold Group, Inc. celebrated its first anniversary as a public corporation.Much has been accomplished in this past year and it is our pleasure to provide our valued shareholderswith the first annual corporate review in the Company’s history.

The period preceding the trading of the Company’s shares as a public entity was focused on buildinga high quality portfolio of gold exploration concessions in Ghana, West Africa, which your managementconsiders to be the premier mining jurisdiction on the African continent.

Immediately following the transition to public company status, in March of 2004, your managementteam entered into an agreement with Sprott Securities Inc., on behalf of a syndicate of underwriters,including GMP Securities Corp. and Octagon Capital Corporation with respect to an underwrittenprivate placement of 3,571,429 units at a price of $2.80 per unit, for aggregate gross proceeds ofCdn$10,000,000. The financing closed on April 14, 2004, and precipitated the launch of a Phase Iexploration program at your Company’s prized Mankranho concession.

The Company initially controlled its interest in Mankranho through its 68.84% equity interest in its subsidiary, Columbia RiverResources Inc. Subsequently, African Gold Group entered into an “Earn-In Agreement” with Columbia River that has resulted inyour Company controlling a direct, 51% interest in the Mankranho concession, through the expenditure of US$1,253,000.On December 17th, 2004, management elected to earn an additional 34% direct interest in the concession through the expenditureof an additional US$1,000,000 in exploration funds. Upon concluding this exercise, AGG will have earned an 85% direct interest inMankranho.

The Mankranho concession is located at the north-eastern end of the Sefwi Gold Belt in Ghana and lies on strike and contiguousto Newmont Mining Corporation’s 10.6 million ounce Ahafo gold project. Ahafo represents Newmont’s largest development projectin the world, where a US$425 million plant is under construction, in anticipation of 500,000 ounces of annual gold production,scheduled to commence in the second half of 2006.

The Phase I exploration program at the 108 sq km Mankranho concession commenced in May 2004 and comprised 6,445 metersof core drilling in 24 holes within a 2,500 metre x 1,500 metre region of Area I. The program was designed to test the down dippotential and strike extensions of mineralization encountered in trenches located throughout the region. The diamond drill holeswere drilled to vertical depths ranging from 100 to 150 metres from surface and represent the first diamond drill core retrievedfrom the Mankranho concession. These initial drill-hole locations were selected in order to gain a better understanding of:

■ The geological signature of the region encompassed by Area I;■ The orientation of the geological structure;■ The geological features that control mineralization in the region.

The program also included establishing a survey grid and the collection of approximately 7,400 soil samples along 185 line kilometersthroughout Areas II, III & IV of the concession. Selected targets within the four regional areas were also the subject of ground geo-physical surveys.

The Company’s original plan was to have all samples assayed in Ghana. Significant delays were experienced due to the excessivebacklog and workload at the lab, created by a dramatic increase in exploration activity in Ghana. The ongoing situation precipitatedmanagement’s decision to move all current and future lab work from Ghana to Canada.

Michael A. J. NikiforukPresident, DirectorAfrican Gold Group, Inc.


41061_AR 4/25/05 4:07 PM Page 4

Upon receipt of Phase I assay results our technical team has reported that they are extremely encouraged by the continuity of mineralizedsections along strike and to depth and that the results support the notion of fold and fault controlled gold. Much work remains to be doneto fully understand what controls economic concentrations, but the broad widths of mineralization, the isolated high-grade gold veins andnumerous occurrences of visible gold, collectively support the expectation of developing the broad economic grades encountered in the samegeologic environments by Newmont at their Ahafo project, to our immediate south.

In October, 2004, we commenced a Phase I exploration program at our 9.3 sq km Moseaso concession, located nearly contiguous to our 295sq km Twedee concession. Both concessions are located at the northern section of the Asankrangwa gold belt, which lies mid-way betweenand running parallel to the Ashanti and Sefwi gold belts, in Ghana. A total of 2,156 metres of NQ core drilling was completed in 12 holes,drilled from 6 pads that covered a strike length of 380 metres and tested to a maximum vertical depth of approximately 185 metres belowsurface. A total of 786 samples were collected during the program and analyzed in Canada.

The results of the drill program confirmed that the style and controls of mineralization are consistent with the ore mined at the Nkran Hilldeposit to the south where 34.5 million tonnes grading 2.22 g/t Au were identified and in part, mined in the 1990’s. The results also confirmthat additional resources remain to be discovered in the district and within the current holdings of African Gold Group.

The Board of Directors determination to continue to create incremental shareholder value going forward is best illustrated by the establishmentof our physical presence in Ghana, followed by the immediate appointments of Mr. Ben Adoo, first as Managing Director of our wholly ownedsubsidiary, AGG (Ghana) Ltd. and subsequently as Chairman of The Board of Directors of your Company. Mr. Adoo, a former President ofThe Ghana Chamber of Mines, is a three decade, career mining man, who enjoys one of the highest industry profiles, not only in Ghana, butthroughout the African continent.

Ben’s appointments were subsequently complimented by the creation of an Advisory Board and the appointments of W. Durand (Randy)Eppler, former President of Newmont Indonesia and former Vice President of both Newmont Mining and Newmont Capital Corporation(s)and Mr. Henry (Hank) Reimer, the “Dean” of Canadian mining analysts with approximately 50 years of continuous service as an industry analyst.We shall continue to grow the quality and depth of our management and advisory team in our pursuit of growing the value of your Company.

Going forward, your management team intends to continue to develop its current portfolio of land as well as remain in pursuit of additionalprospective ground in Ghana and throughout the West African region. Our recent optioning of the 71 sq km Nyankumasi concession, locatedapproximately 30 kilometres south-southwest of Newmont Mining Corporation’s 5.4 million ounce Akyem project, is proof this objective isunderway.

We wish to thank the many people in the field whose dedication to fulfilling our corporate goals is evidenced through their daily work regimes.We look forward to an exciting future and have every confidence that our vision and the daily execution of our plans will continue to createincremental growth in the value of your Company.

Michael A. J. NikiforukPresident, DirectorAfrican Gold Group, Inc.

5AFRICAN GOLD GROUP, INC. – 2004 ANNUAL REPORT

41061_AR 4/25/05 4:07 PM Page 5

Prepared as of April 22, 2005

Management’s Discussion and Analysis of African Gold Group, Inc. (the “Company”) provides analysis of the Company’s financial resultsfor the twelve months ended December 31, 2004. The following information should be read in conjunction with the audited financial statementsand accompanying notes.

Nature of Business and Overall PerformanceAfrican Gold Group, Inc. (the "Company" or “AGG”) was originally incorporated under the laws of Ontario in October, 2002, and is involvedin the identification, acquisition and exploration of prospective gold projects situated along significant gold trends in Ghana, West Africa.

As at December 31, 2004, the Company’s principal assets included its 68.84% interest in Columbia River Resources Inc., (“CRR”), a U.S. publiccompany that owns the 108 square kilometre Mankranho License, located in the north-eastern end of the Sefwi gold belt and contiguous withNewmont Mining Corporation’s multimillion ounce Ahafo project.

On December 8, 2004, the Company announced, pursuant to a May 6, 2004, earn-in agreement (the “Agreement”) made with CRR, that theCompany has, under the terms of the Agreement, complied with the requirements to earn a 51% direct interest in the Mankranho Licencethrough the expenditure of $1,253,000. Furthermore, under the terms of the Agreement, the Company has elected to earn an additional 34%direct interest (for a total interest of up to 85%) by expending an additional $1,000,000 on the Mankranho License.

In addition, the Company holds 100% of Arziki Mining Ltd., which owns the 295 square kilometer Twedee License, located in the northernsection of the Asankrangwa gold belt in Ghana.

The Company also holds an option under an agreement with Moseaso Mining Co. Ltd., to acquire the 9.3 square kilometre Moseaso License,located near contiguous to the Twedee license in the northern section of the Asankrangwa gold belt in Ghana.

On November 4, 2004, the Company announced that CME Ghana Ltd. had optioned the 71 square kilometer Nyankumasi concession fromJelgom Mining Company Limited, on behalf of AGG. Under the terms of the agreement AGG will make staged cash payments, over 5 years,for a 100% interest in the concession, subject to a 10% royalty interest to the Government of Ghana and a 3% net smelter royalty to JelgomMining Company.

Exploration UpdateOn May 19, 2004, the Company reported the commencement of a $2,425,000 Phase I exploration program on the Mankranho concession.A total of 24 holes measuring 6,445 metres were diamond drilled in a 2,500 metre x 1,500 metre section, within Area I of the concession.Final assay results were reported on November 18, 2004, with all results representing analysis performed by Eco-Tech Labs of Kamloops, Canada.

In October, 2004, the Company commenced a Phase I exploration Program at its Moseaso concession which included 2,156 meters of diamonddrilling. Final assay results were reported in January, 2005 with all results representing analysis performed by Eco-Tech Labs of Kamloops,Canada.

CorporateOn September 30, 2004, the Company announced the appointment of Benjamin Adoo as Managing Director of its newly created and 100%owned Ghana subsidiary, AGG (Ghana) Ltd. On January 20, 2005, Mr. Adoo was appointed a Director and Chairman of the Board of Directors

Management’s Discussion and Analysis

6 AFRICAN GOLD GROUP, INC. – 2004 ANNUAL REPORT

41061_AR 4/25/05 4:07 PM Page 6

of AGG. In addition, on this same date, Mr. Michael Nikiforuk and Mr. T. Gregory Hawkins, both founders of the Company, were appointedPresident and (interim) Chief Executive Officer, respectively.

Mr. Adoo received an Associateship of the Camborne School of Mines, U.K. in 1971 and a Master of Engineering Degree in Mineral Economics& Production Management from McGill University, Canada, in 1987. Mr. Adoo has over three decades of mining experience in Ghana and isrecognized as one of the country’s most senior mining executives. He is a Chartered Engineer and a Member of both the British and GhanaianInstitutes of Engineers. He served as General Manager of the underground operations of Prestea and Tarkwa Goldfields and DredgingManager for Dunkwa Goldfields in Ghana. For the 5 years ended September, 2004, Mr. Adoo served as Managing Director of Ghana BauxiteCo. Ltd., a 80% owned subsidiary of Alcan, Inc.

Mr. Adoo is a recent past President of the Ghana Chamber of Mines, having served a full two year term. In September, 2004, Mr. Adoo wasmade an Honorary Member of the Council of the Ghana Chamber of Mines.

Based in Accra, Ghana, Mr. Adoo will primarily be responsible for the development of AGG’s growing operations in Ghana and the establishmentof strong relationships with mining and related entities operating in Ghana and the West African sub-region. In addition, Mr. Adoo will devoteconsiderable time to the identification and acquisition of additional precious metal properties within Ghana and greater West Africa on behalfof AGG.

On November 10, 2004, the Company announced that Mr. W. Durand (Randy) Eppler and Mr. Henry (Hank) Reimer have accepted appointmentsto AGG’s newly created Advisory Board.

The Company established the Advisory Board in order to draw on the knowledge and unique expertise of mining industry veterans whoseappointments further enhance the depth of knowledge and range of skills that currently exist within the Company. Both of the new appointeeshave built their respective international reputations and industry profiles through decades of service and achievements in the mining sector.

On November 19, 2004, the Company announced its Company Information will be made available via Standard & Poor's Market AccessProgram. As part of the program, a full description of African Gold Group will also be published in the Daily News section of StandardCorporation Records, a recognized securities manual for secondary trading in approximately 37 states under the Blue Sky Laws.

Standard & Poor's Market Access Program is an information distribution service that enables subscribing publicly traded companies to havetheir company information disseminated to users of Standard & Poor's Advisor Insight. Information about companies is available via S&P'sStock Guide database, which is distributed electronically to virtually all major quote vendors.

Business Acquisition and FinancingOn September 30, 2003, and subsequently amended on December 16, 2003, the private company African Gold Group, Inc. entered into anarm’s length agreement with Koda Resources Ltd., (“Koda”), pursuant to which Koda agreed to purchase 100% of the issued and outstand-ing shares of the private company from its shareholders, in consideration for the issuance of 48,900,000 common shares of Koda. The shareexchange was completed effective March 10, 2004, resulting in a change of control of Koda. Immediately following the RTO, effective March10, 2004, the Company was formed by the amalgamation of Koda with the private company African Gold Group, Inc., and continued underthe name African Gold Group, Inc. Subsequent to the RTO, on April 14, the Company raised CDN$10,000,000 in an equity financing in orderto fund its exploration and development programs on its African properties (see Completed RTO Transaction and Liquidity and CapitalResources for more detail).

7AFRICAN GOLD GROUP, INC. – 2004 ANNUAL REPORT

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Change of Year EndThe Company received approval from the relevant provincial regulators to change its fiscal year end from October 31st to December 31st inorder that the Company and its subsidiaries have the same fiscal year ends, and to reflect the fiscal year end of the private company AfricanGold Group, Inc. prior to the amalgamation forming the Company. Accordingly these financial statements reflect the twelve months endedDecember 31, 2004.

Results of Operations For 2004, the Company operated as a gold exploration and development company, focused on the identification, acquisition and explorationof meritorious gold concessions and did not generate revenues in either 2004 or the prior period of 2003.

As of December 31, 2004, the Company had an accumulated deficit of $2,240,369 primarily from stock based compensation, wages and benefits,consulting and professional fees as well as investor relations expenses.

For 2004 the Company incurred a loss of $1,967,477 or $0.11 per share, compared to a loss of $133,081 or $0.01 per share for 2003.Administration and General expenses of $1,313,910 ($162,528 – ’03) and Stock-based compensation of $1,205,188 ($0-’03) were the largestexpenses. All expenses were up substantially over 2003, a start up year.

Selected Annual Financial InformationThe Company was formed effective March 10, 2004, by amalgamation of the private company African Gold Group, Inc. with the public companyKoda Resources Ltd. The following information is for the private company African Gold Group, Inc. for 2002 and 2003, and the public companyfor 2004.

2004 2003 2002Revenue $ - $ - $ -Loss $ (1,967,477) $ (133,081) $ (3,075)Basic and diluted loss per share $ (0.11) $ (0.01) $ -Total assets $ 8,397,148 $ 1,380,562 $ 1Total long term liabilities $ - $ - $ -Cash dividend $ - $ - $ -

Selected Quarterly Financial Information2004

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Full YearRevenue $ - $ - $ - $ - $ -(Loss) $ (983,957) $ (491,046) $ (295,332) $ (197,142) $ (1,967,477)Basic and diluted (loss) per share $ (0.05) $ (0.03) $ (0.02) $ (0.1) $ (0.11)

20031st Quarter 2nd Quarter 3rd Quarter 4th Quarter Full Year

Revenue $ - $ - $ - $ - $ -(Loss) $ (4,274) $ (6,706) $ (56,608) $ (65,493) $ (133,081)Basic and diluted (loss) per share $ - $ - $ - $ (0.01) $ (0.01)


41061_AR 4/25/05 4:07 PM Page 8

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Liquidity and Capital ResourcesOn December 31, 2004, the Company had working capital of $3,881,077 and a cash balance of $4,096,257. The Company completed aCAD$10 million equity financing on April 14, 2004, and has sufficient funds to carry out its exploration program on its gold properties inGhana, West Africa, and for general and administrative expenses.

For 2004 the Company had a positive cash flow of $3,754,071 resulting from the issue of common shares for $6,908,810, plus stock basedcompensation of $1,205,188 less mineral property expenditures of $2,769,786, loss for the period of $1,967,477 and exploration contractadvances of $960,501.

Completed RTO TransactionPursuant to a Share Exchange Agreement made September 30, 2003 and subsequently amended on December 16, 2003, Koda ResourcesLtd. agreed to acquire 100% of the issued and outstanding shares of the private company African Gold Group, Inc. from its shareholders inexchange for 48,900,000 common shares of Koda. As a result of the transaction, the shareholders of the private company African GoldGroup, Inc. acquired control of Koda, and the transaction is treated as a reverse takeover (“RTO”).

Off-Balance Sheet ArrangementsOn December 31, 2004 the Company had no material off-balance sheet arrangement such as guarantee contracts, contingent interest inassets transferred to an entity, derivative instrument obligations and any obligations that trigger financing, liquidity, market or credit risk tothe Company.

Contractual Obligations and CommitmentsAs at December 31, 2004, the Company did not have any long-term debt, capital lease obligations, operating leases, purchase obligations orcontractual obligations and commitments.

Related Party TransactionsThe Company paid salaries to 2 directors and 2 officers aggregating $273,913.

The Company paid project management fees of $385,947 ($13,575-2003) to CME Ghana Ltd., a company that is wholly-owned by a directorof the Company. Management fees incurred on the mineral properties have been recorded as exploration expenditures and managementfees incurred on potential mineral properties have been expensed as consulting fees.

Legal fees of $327,851 (2003 – $33,454) were paid to a legal firm in which one of the partners is a director of the Company. Unpaid legalfees of $36,926 (2003 – $33,454) are included in accounts payable.

Outstanding shares at December 31. 2004.The Company had 19,020,845 common shares outstanding. Of the issued and outstanding common shares, 7,915,835 common shares wereheld in escrow when the Company completed the reverse take-over. The common shares held in escrow are released every 6 months inequal tranches of 1,333,612 to September 18, 2005. and 1,305,000 to March 18, 2007, respectively.

Financial instruments and Risk FactorsThe Company is not exposed to any financial instrument risks since their fair value approximates their carrying values because of the short-termmaturity of those instruments.

OutlookFollowing completion of the RTO and the equity financing, the Company is focused on advancing the development of its gold projects inGhana, West Africa.


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Management’s Responsibility for Financial ReportingTo the Shareholders and Directors of African Gold Group, Inc.

The accompanying financial statements, their presentation and the information contained in the annual report are the responsibility of management.The financial statements have been prepared in accordance with accounting principles generally accepted in Canada. The financial informationon the Company presented elsewhere in the annual report is consistent with that in the financial statements.

The integrity of the financial report process is the responsibility of management. Management maintains systems of internal controls designedto provide reasonable assurance that transactions are authorized, assets are safeguarded, and reliable financial information is produced.Management selects accounting principles and methods that are appropriate to the Company’s circumstances, and makes certain determinationsof amounts reported in which estimates or judgements are required.

The Board of Directors is responsible for ensuring that the management fulfills its responsibility for financial reporting. The Board carries outthis responsibility principally through its Audit Committee. The Audit Committee consists of three directors of which two are outside directors.The Committee meets periodically with management and the external auditors to discuss internal controls, auditing matters and financialreporting issues. The Committee satisfies itself that each party is properly discharging its responsibilities; reviews the quarterly and annualfinancial statements and any reports by the external auditors; and recommends the appointment of the external auditors for review by theBoard and approval by the shareholders.

The external auditors audit the financial statements annually on behalf of the shareholders. The external auditors have full and free access tomanagement and the Audit Committee.

Stephen H. DulmageChief Financial Officer


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Auditors' ReportTo the Shareholders ofAfrican Gold Group, Inc

We have audited the consolidated balance sheets of African Gold Group, Inc. as at December 31, 2004 and 2003 and the consolidated statementsof operations and deficit and cash flows for each of the years in the two year period ended December 31, 2004. These financial statementsare the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and performan audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, ona test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as atDecember 31, 2004 and 2003 and the results of its operations and its cash flows for each of the years in the two year period ended December 31,2004 in accordance with Canadian generally accepted accounting principles.

BDO Dunwoody LLP

Chartered AccountantsToronto, OntarioFebruary 25, 2005


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CONSOLIDATED BALANCE SHEETS (Expressed in U.S. dollars)

December 31, 2004 2003

AssetsCurrent

Cash $ 4,096,257 $ 342,186Accounts receivable 30,863 -Due from director 23,727 7,335Exploration contract advances (Note 10) 960,501 -Prepaid expenses 115,885 -

5,227,233 349,521

Proceeds on issue of Special Warrants held in escrow - 451,909Advances to Koda Resources Ltd. - 48,376Mineral Properties (Note 3) 3,156,837 387,051Capital Assets (Note 5) 13,078 9,051Deferred Costs

- 134,654

$ 8,397,148 $ 1,380,562

LiabilitiesCurrent

Accounts payable and accrued liabilities $ 1,346,156 $ 166,598

Non-controlling interest 2,918 11,676

Shareholders' EquityCapital stock (Note 6(b)) 8,006,861 542,156Contributed surplus 1,281,582 -Special warrants - 796,288Deficit (2,240,369) (136,156)

7,048,074 1,202,288

$ 8,397,148 $ 1,380,562

The accompanying summary of significant accounting policies and notes are an integral part of these financial statements.

On behalf of the Board:

Director Director


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CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT (Expressed in U.S. dollars)

For the years ended December 31, 2004 2003

Expenses

Administration and general $ 1,313,910 $ 162,528Amortization 3,509 1,502Foreign exchange gain (473,490) (30,949)Interest income (72,882) -Stock-based compensation (Note 6(c)) 1,205,188 -

1,976,235 133,081

Loss before non-controlling interest (1,976,235) (133,081)Non-controlling interest (8,758) -

Loss for the year (1,967,477) (133,081)Deficit, beginning of year (136,156) (3,075)Deficit of Koda upon RTO (Note 2) (136,736) -

Deficit, end of year $ (2,240,369) $ (136,156)

Weighted average shares outstanding 17,707,024 13,971,429

Basic and diluted loss per share (Note 8) $ (0.11) $ (0.01)



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CONSOLIDATED STATEMENTS OF CASH FLOWS(Expressed in U.S. dollars)

For the years ended December 31, 2004 2003

CASH (USED IN) PROVIDED BYOPERATING ACTIVITIESLoss for the year $ (1,967,477) $ (133,081)Adjustment required to reconcile loss with net

cash provided by (used in) operating activities:Foreign exchange loss (gain) (473,490) (30,949)Settlement of a shareholders' dispute with issuance of shares - 42,857Expenses settled by the issuance of shares - 5,370Amortization 3,509 1,502Stock-based compensation 1,205,188 -Non-controlling interest (8,758) -

Net change in non-cash operating working capitalAccounts receivable and prepaid expenses (140,688) -Due from director (13,556) (7,335)Accounts payable and accrued liabilities 937,831 175,199

(457,441) 53,563

INVESTING ACTIVITIESMineral properties (2,769,786) (387,051)Advance to Koda Resources Ltd. 48,376 (48,376)Purchase of capital assets (7,536) (10,547)Exploration contract advances (960,501) -Cash acquired on RTO (Note 2) 6,161 -

(3,683,286) (445,974)

FINANCING ACTIVITIESIssue of common shares, net of costs 6,908,810 493,928Exercise of Special Warrants - 903,817Exercise of Warrants 18,629 -Special Warrant proceeds held in escrow 451,909 (451,909)Special Warrants issue costs (182,628) (107,529)Deferred financing costs 134,654 (134,654)

7,331,374 703,653

Effect of foreign currency translation on cash balances 563,424 30,943

CHANGE IN CASH 3,754,071 342,185

CASH, beginning of year 342,186 1

CASH, end of year $ 4,096,257 $ 342,186



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Expressed in U.S. dollars)

December 31, 2004

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of BusinessAfrican Gold Group, Inc. (the “Company” or “AGG”) was formed by Articles of Incorporation in Ontario, Canada on October 2, 2002. The Companyis engaged in the acquisition, exploration and development of properties for the purpose of producing precious metals. The Company's principalassets are mineral properties licences located in Ghana, Africa. Substantially, all of the Company's efforts are devoted to financing and exploringthese properties.

Principles of ConsolidationThe consolidated financial statements include the accounts of the Company, its 100% owned subsidiaries, AGG Ghana Ltd. and Arziki MiningLtd. (“Arziki”) (both incorporated in Ghana, Africa) and its 68.84% owned subsidary, Columbia River Resources Inc. (“CRR”) (incorporatedin Nevada, United States of America) from the date of acquistion, May 2, 2003 (Note 1). All inter-company accounts and transactions havebeen eliminated.

Cash and Cash EquivalentsCash and cash equivalents consist of cash on hand, bank balances and highly liquid investments with maturity dates not extending over ninetydays and do not include bank overdrafts.

Mineral PropertiesMineral properties are recorded at cost, including costs associated with the acquistion, exploration and development of exploration projects.

The recoverability of amounts shown for mineral properies is dependent upon the existence of economically recoverable reserves, the abilityof the Company to obtain the necessary financing to complete the exploration and development of the property and upon future profitableproduction or, alternatively, upon the Company's ability to dispose of its interests on an advantageous basis, all of which are uncertain.

Deferred CostsDeferred costs include the costs related to fees incurred in connection with the reverse takeover (“RTO”) and financing transactions. Deferredcosts were written off against share capital upon completion of the RTO and financing transactions.

Capital AssetsCapital assets are recorded at cost less accumulated amortization. Amortization based on the estimated useful life of the assets is providedas follows:

Computer equipment - 30% diminishing balance

Use of EstimatesThe preparation of these consolidated financial statements in conformity with Canadian generally accepted accounting principles requiresmanagement to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assetsand liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period.By their nature, these estimates are subject to measurement uncertainty and the effect on the consolidated financial statements of changesin such estimates in future periods could be material.


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Income taxesThe Company follows the liability method of tax allocation in accounting for income taxes. Under this method, future tax assets and liabilitiesare determined based on differences between the financial reporting and tax bases of assets and liabilities, and measured using the substantivelyenacted tax rates and laws expected to be in effect when the differences are realized.

Stock-based CompensationThe Company follows the recommendations of the Canadian Institute of Chartered Accountants ("CICA") handbook Section 3870 withrespect to stock-based compensation awards. This Section establishes standards for the recognition, measurement and disclosure of stock-basedcompensation and other stock-based payments made in exchange for goods and services. These recommendations require that compensationfor all awards including employees be measured and recorded in the financial statements at fair value and accordingly the amount has beenexpensed in the financial statements.

Foreign Currency TranslationThe Company’s functional and reporting currency is the U.S. dollar. The parent company's assets, liabilities, shareholders' equity and resultsof operations and deficit denominated in Canadian dollars are translated into U.S. dollars as follows:

At the transaction date, each asset, liability, revenue and expense is translated into U.S. dollars by the use of the exchange rate in effect atthat date. At the period end date, monetary assets and liabilities are translated into U.S. dollars by using the exchange rate in effect at thatdate. Exchange gains and losses arising from these transactions are reflected in income or expense in the period.

Financial InstrumentsUnless otherwise noted, it is management's opinion that the Company is not exposed to significant interest rate, currency or credit risks arisingfrom its financial instruments. The fair value of the financial instruments approximates their carrying amount, unless otherwise noted.

Asset ImpairmentThe Company monitors events and changes in circumstances which may require an assessment of the recoverability of its long lived assets.If required, the Company would assess recoverability using estimated undiscounted future operating cash flows. If the carrying amount of anasset is not recoverable, an impairment loss is recognized in operations, measured by comparing the carrying amount of the asset to its fair value.

1. ACQUISTION OF COLUMBIA RIVER RESOURCES INC.

Pursuant to a Purchase of Debt, Conversion and Loan Agreement ("the Agreement") dated May 2, 2003 amongst the Company, CRR(“the Debtor”) and CME & Company (“CME”) (“the Creditor”), the Company agreed to purchase from CME $612,000 of indebtednessowed by CRR to CME for $150,000 cash. As part of the agreement, CRR agreed to issue to the Company 30,600,000 common sharesin exchange for the cancellation of the purchased indebtedness. The agreement further provided that the Company agree to loan CRR$20,000 which was converted into 1,000,000 common shares of CRR

As a result of the transactions, the Company holds 68.84% of the issued and outstanding common shares of CRR. CRR is a companyincorporated in the State of Nevada that has been inactive since 2000 and whose only interest is the Ayaco (Mankranho) Licence inGhana, Africa.

The Company has accounted for the transaction as a purchase of the Ayaco Mankranho mineral property on May 2, 2003 since CRRhas not carried on business in Ghana, Africa since 2000, has no employees, no revenue and whose only business focus was maintainingthe Ayaco Mankranho Licence.


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2. REVERSE TAKE-OVER TRANSACTION

On March 10, 2004, Koda Resources Ltd. (“Koda”) acquired all of the 16.3 million issued and outstanding Common shares, the 1 millionCommon Share purchase warrants exercisable at Cdn.$1.00 and 100,000 Agent's compensation warrants exercisable at Cdn.$0.60 perunit of the Company in exchange for 48.9 million common shares, 3 million common share purchase warrants exercisable at Cdn.$0.33and 300,000 compensation warrants exercisable at Cdn. $0.20 per unit of Koda (the “Acquisition”). The purchase by Koda of 100% ofthe outstanding Common Shares, purchase warrants and Agent's compensation warrants resulted in the former shareholders of AGGowning 91% of African Gold Group, Inc. In accordance with CICA EIC-10, the substance of the transaction was a capital transaction andwas accounted for as a reverse takeover since African Gold Group, Inc. is identified as the acquirer. (“RTO”) The comparative figures thatare presented in the consolidated financial statements after the reverse takeover are those of the legal subsidiary African Gold Group, Inc.In accordance with reverse takeover accounting, the consolidated balance sheet is a continuation of African Gold Group, Inc. The capitalstructure reflects the number of shares of Koda Resource Ltd and the stated value of the share capital is that of African Gold Group, Inc.After the acquisition, the Company and Koda amalgamated and continued under the name of African Gold Group, Inc. Upon amalgamation,the Company consolidated its issued share capital on a 1 Common Share for 3.5 Common Share basis.

Based on the balance sheet of Koda Resources Ltd. at the time of the transaction, the net asset deficiency at estimated fair market valuewhich approximates its book value were combined with African Gold Group, Inc. as follows:

Net asset deficiency assumedCash $ 6,161Receivables 2,696

8,857Liabilities assumed 145,593Net asset deficiency assumed $ 136,736

On March 18, 2004 (the "Listing Date"), the Company was listed on the TSX Venture Exchange under the symbol “AGG”. The Companywas assisted in its listing on the TSX Venture Exchange by Sprott Securities Inc., who acted as sponsor for the transaction.

3. MINERAL PROPERTIES

The Company holds interest in the following mineral properties in Ghana:

Ayaco Licence (“the Ayaco Licence”) (also known as the Mankranho Licence)The Company owns 68.84% of the issued shares of Columbia River Resources Inc.(“CRR”). CRR owns a 100% interest in the AyacoLicence subject to a 10% interest by the Government of Ghana. The Ayaco Licence is held for CRR by CME Ghana Ltd., a company thatis wholly-owned by a director of the Company, pursuant to a trust agreement. On May 6, 2004 the Company entered into an earn-inagreement with CRR. Under the terms of the earn-in agreement, the Company earned 51% of the Ayaco Licence by incurring US$1,253,000 exploration expenditures prior to December 31, 2004. Upon incurring an additional US $1,000,000 of exploration expenditures,the Company has the right to earn a direct interest of up to 85% of the Ayaco Licence.

Twedee Licence (“the Twedee Licence”) (also known as the Arziki Licence)On December 22, 2004, the Company acquired 100% of the issued shares of Arziki for $25,000. Arziki owns a 100% interest in theTwedee Licence subject to a 10% interest by the Government of Ghana and has no other assets and liabilities. The Company is responsiblefor 100% of the funds expended on the Twedee Licence.


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Moseaso Licence (“the Moseaso Licence”)Pursuant to an Option Agreement dated May 30, 2003 entered into by the Company and Moseaso Mining Company Limited (“MMC”),the Company has the right to acquire a 100% interest in the Moseaso Licence for a period up to May 30, 2008 subject to a 10% interestby the Government of Ghana and a 15% net profit interest by MMC with the option to pay $250,000 at the time of production anddecrease the net profit interest due to MMC to 10% for the following consideration:

Payment of a signing fee of $12,500 cash on or before May 30,2003 (which amount has been paid);Payment of a one time semi-annual fee of $12,500 cash on or before November 30, 2003 (which amount has been paid), andAn annual payment starting from the anniversary of the option agreement in cash or shares of the Company as follows:

$25,000 on or before May 30, 2004, (which amount has been paid)$35,000 on or before May 30, 2005,$45,000 on or before May 30, 2006,$55,000 on or before May 30, 2007,$65,000 on or before May 30, 2008.

Nyankumasi ConcessionOn October 1, 2004, CME Ghana Ltd., entered into an option agreement to acquire 100% of the “Nyankumasi” concession from Jelgom MiningCompany Limited on behalf of the company for a total consideration of $200,000. Under the terms of the agreement, CME Ghana Ltd.paid $5,000 on the signing of the agreement. In addition, the CME Ghana Ltd. paid a one time fee of $15,000 during December 2004.In January 2005 CME Ghana Ltd. assigned the option agreement to AGG Ghana Ltd. under the same terms and conditions. Annual paymentsare required to be made over a period of 5 years or until production commences as follows:

$20,000 on or before April 1, 2005$40,000 on or before April 1, 2006$40,000 on or before April 1, 2007$40,000 on or before April 1, 2008$40,000 on or before April 1, 2009

The interest in the concession is subject to a 10% royalty interest to the Governement of Ghana and a 3% net smelter royalty to JelgomMining Company.

The “Nyankumasi” concession covers approximately 71 square kilometres and is situated in the northeastern section of the Ashanti goldbelt, approximately 48 kilometres east of Anglo Gold Ashanti's Obuasi mine and approximately 30 kilometres south-southwest ofNewmont Mining Corporation’s Akyem Project.

The following is a summary of the carrying amount of the mineral properties as at December 31, 2004 and 2003:

2004 2003

Ayaco Licence $ 2,332,365 $ 284,009Twedee Licence 148,311 32,531Moseaso Licence 656,161 70,511Nyamkumasi Concession 20,000 -

$ 3,156,837 $ 387,051


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5. CAPITAL ASSETS

Accumulated Net Book ValueCost Amortization 2004 2003

Computer equipment $ 18,087 $ 5,009 $ 13,078 $ 9,051

6. CAPITAL STOCK

(a) AUTHORIZEDUnlimited number of common shares

(b) (i) Issued Common shares

SHARES AMOUNT

(i) Issued Common Shares of AGG pre RTOIssued for cash upon incorporation (October 2, 2002)

and balance, December 31, 2002) 1 $ 1Issued to founding shareholders for cash 9,999,999 6Issued for cash 3,902,857 493,922Issued pursuant to the settlement of dispute 300,000 42,857Issued in settlement of expenses 97,143 5,370

Balance, December 31, 2003 14,300,000 542,156Exercise of special warrants 2,000,000 903,817Issue costs - (117,697)Organizational costs - (182,628)

Balance, March 10, 2004 16,300,000 $1,145,648

(ii) Issued Common Shares of KODA pre RTOBalance, October 2002 & 2003 5,847,961 $1,183,625Cancellation of shares (750,000) -

Balance, March 10, 2004 5,097,961 $1,183,625

(iii) Issued Common SharesShare capital is comprised of the number of issued and outstanding

Common shares of Koda and the stated capital of AGG 5,097,961 $1,145,648Common shares issued on RTO (Note 2) 48,900,000 -Consolidation of Common Shares 1 for 3.5 basis (38,569,974) -Private placement 3,571,429 7,440,476Exercise of warrants 21,429 18,629Cost of issue - (531,667)Underwriter's Compensation Warrants - (66,225)

Balance, December 31, 2004 19,020,845 $8,006,861


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Private Placement On April 14, 2004, the Company completed a private placement of 3,571,429 units at a price of Cdn $2.80 per unit for aggregategross proceeds of $7,440,476 (Cdn.$10,000,000). Each unit consists of one Common Share and one-half of one Common Sharepurchase warrant. Each whole Common Share purchase warrant entitles the holder to purchase one Common Share at a price ofCdn.$3.60 for a period of eighteen months from April 14, 2004.

In connection with the financing, the Company paid legal fees of $84,705 and a cash commission of $446,961 (Cdn.$600,000) andissued underwriters compensation warrants entitling the underwriters to purchase 178,571 Units (5% of the number of Units soldpursuant to the financing). The underwriters' compensation warrants are exercisable at Cdn.$2.80 for a period of eighteen monthsfollowing the Closing Date.

Underwriter's compensation costs of $ 66,225 for the 178,571 underwriter's compensation warrants were charged to the capitalstock and credited to contributed surplus. The fair value of the underwriter's compensation warrants was estimated using the Black-Scholesoption pricing model with the following assumptions: Dividend yield - 0%; expected volatility - 43%; Risked free interest rate - 2.25%and an expected life of 18 months.

Shares held in escrowAt the year end there were 6,525,001 common shares held in escrow.

(c) STOCK OPTIONSThe Company has a stock option plan (the “Plan”) for its directors, officers, consultants and key employees under which theCompany may grant options to acquire a maximum number of common shares equal to 10% of the total issued and outstandingcommon shares of the Company. These options are non-transferable and are valid for a maximum of 5 years from the date ofissue. Vesting terms and conditions are determined by the Board of Directors at the time of the grant. The exercise price of theoptions is fixed by the Board of Directors of the Company at the time of the grant at the market price of the common shares, subjectto all regulatory requirements.

As at December 31, 2004, the Company had stock options outstanding as follows:

Date of Grant Stock Options (#) Exercise Price (Cdn.$) Expiry Date

March 12, 2004 1,100,000 2.56 March 12, 2009May 1, 2004 150,000 2.05 May 1, 2009July 9, 2004 57,075 2.00 July 9, 2009August 16, 2004 150,000 2.00 July 19, 2009September 1, 2004 37,000 2.00 September 1, 2009September 30, 2004 125,000 2.00 September 30,2009December 17, 2004 75,000 2.00 December 17, 2007

1,694,075

(1) 75,000 options vest on completion of performance objectives by the employee.


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A summary of the Company's stock option activity during the year is as follows:

Share Purchase Weighted AverageOptions Exercise Price (Cdn.$)

Outstanding - January 1, 2004 - -Granted during the year 1,694,075 2.37

Outstanding - December 31, 2004 1,694,075 2.37

Exercisable - December 31, 2004 1,619,075 2.36

The average fair value of the stock options granted during the period was valued at $1,205,188 using the Black-Scholes model forpricing options. The following assumptions were used: dividend yield of 0%, expected volatility of 43 - 81%, risk-free interest rateof 4.00 - 4.50% and an expected life of 3 - 5 years.

(d) WARRANTSA summary of the Company's outstanding warrants, as at December 31, 2004 and changes during the period is presented below:

Warrants issued on exercise of special warrants prior to RTO 857,143Agent's Compensation warrants 85,714

Balance - March 10, 2004 942,857Warrants granted in connection with private placement (Note 6(b)) 1,785,715Underwriter's Compensation warrants issued 178,571Exercise of warrants (21,429)

Outstanding - December 31, 2004 2,885,714

The exercise price, expiry date and the warrants outstanding at December 31, 2004 are as follows:

Warrants Exercise Price Cdn.($) Expiry Date

835,714 1.17 March 18, 20051,785,715 3.60 October 14, 200585,714* 0.70 March 18, 2005178,571* 2.80 October 14, 2005

2,885,714

* Compensation warrants


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7. INCOME TAXES

(a) Provision for income taxes The reconciliation of income taxes attributable to operations computed at the statutory tax rates to income tax recovery, using astatutory tax rate of 36.12% (2003 - 36.62%) is as follows:

2004 2003

Loss before provision for income tax $ (1,976,235) $ (133,081)

Income tax recoverable at statutory rate (713,816) (48,730)Non-deductible items 284,730 18,810Losses of foreign subsidiaries 12,381 -Valuation allowance 416,705 29,920

Recovery of income taxes $ - $ -

(b) Future income tax assets and liabilities

2004 2003

Capital assets $ 995 $ -Share issue costs 163,232Non-capital losses 423,503 31,120Foreign exchange (171,025) -

416,705 31,120Valuation allowance (416,705) (31,120)

$ - $ -

The Company has provided a full valuation allowance against future tax assets as at December 31, 2004 due to uncertainties in theCompany's ability to utilize these future tax benefits.

(c) Tax loss carry-forwardsThe Company has approximately $1,172,000 of non-capital losses (which expire in 2015) carried forward to reduce future taxableincome. Due to the change in control of the company during the year no non-capital losses are carried forward from prior years.

8. BASIC AND FULLY DILUTED LOSS PER SHARE

The basic loss per share is computed by dividing the loss for the period by the weighted average number of common shares outstandingduring the period. Fully diluted loss per share, which reflects the maximum possible dilution from the potential exercise of outstandingstock options and warrants is the same as basic loss per share. For both periods presented, the conversion of warrants and stock optionswas not included in the calculation because the calculation would be anti-dilutive.


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9. RELATED PARTY TRANSACTIONS

The Company paid project management fees of $ 385,947 (2003 - $13,575) to CME, a company that is wholly-owned by a director ofthe Company. Unpaid management fees of $151,288 (2003 - $nil) at December 31, 2004 have been included in accounts payable.

Included in accounts payable are amounts due to CME for exploration expenditure of $1,017,367 (2003 - $17,030). The amount forexploration contract advances of $960,501 (2003 -$nil) has been advanced to CME.

Legal fees of $327,851 (2003 - $33,454) were incurred from a legal firm in which one of the partners is a director of the Company.Unpaid legal fees of $39,926 (2003 - $33,454) at December 31, 2004 are included in accounts payable.

These transactions were in the normal course of business and have been recorded at the exchange amount.

10. COMMITMENTS

Project Management AgreementEffective June 30, 2003, the Company entered into a Project Management Agreement (“the Agreement”) with CME. Pursuant to theterms of the Agreement, the Company has appointed CME as project manager for its mineral properties. The Agreement contains termsas to how the parties to the Agreement shall act and provides for the payment of fees and expenditures plus an administrative fee of 15%of the expenditures incurred.

The advances to CME are made in accordance with the Agreement for the purpose of expenditure by CME on behalf of the Companyon the mineral properties.

Leasing of Office SpaceThe Company has leased office space at a monthly amount of $2,989. The agreement expires on May 31, 2005. A new lease has beensigned after the year end from June 1, 2005 to November 30, 2006 at $3,321 per month.

11. CASH FLOW INFORMATION

Non-cash transactions for the year:2004 2003

Brokers compensation warrants issued $ 76,393 $ -Settlement of a shareholders' dispute with the issuance of 300,000 Common Shares - 42,857Expenses settled by the issuance of 97,143 Common Shares - 5,370Liabilities of CRR assumed at the acquisition date - 37,528Agent compensation costs charged to the stated capital of the special warrants - 10,168


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12. SEGMENTED INFORMATION

The Company has one operating segment: the acquisition, exploration and development of precious metal mineral resource propertieslocated in Ghana.

Geographic segmentation of capital assets and mineral property costs is as follows:2004 2003

Canada $ 6,297 $ 9,051Ghana 3,163,618 387,051

$ 3,169,915 $ 396,102

24 AFRICAN GOLD GROUP, INC. – 2004 ANNUAL REPORT

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Mr. Ben Adoo ACSM, (Camborne); M. Eng. (McGill); C. Eng.ChairmanFormer Managing Director, Ghana Bauxite Co. Ltd., a subsidiary of AlcanInc. Former General Manager of Prestea, Tarkwa and Dunkwa Goldfieldsin Ghana. Past President and Honorary Member of Council of the GhanaChamber of Mines.

Mr. Michael A. J. NikiforukPresident Former Vice President, Corporate Development and a Director of BanroResource Corporation. Represented Banro in three rounds of equityfinancings that totalled approximately $30,000,000.

Mr. T. Greg Hawkins P. GeoChief Executive Officer & DirectorFounder of CME & Company. Mr. Hawkins holds a B. Sc. (Geology) anda M. Sc. (Mineral Economics). Through CME & Company, he has consultedfor: Anglo American, Barrick Gold Corp., Nevsun Resources Ltd., BanroResource Corporation, Cypress Amax and Gold Fields Ltd. Mr. Hawkinshas resided in Accra, Ghana over the past 12 years.

Mr. Stephen H. DulmageChief Financial OfficerFormer CFO and Director of both RBC Dominion Securities and TBM NTCorporation, a sponsored company of the Bank of Montreal. Mr. Dulmagebrings a vast degree of Audit and Corporate Governance experience toAfrican Gold Group, Inc.

Mr. Marco J. DuranteVice President & DirectorAn independent consultant focused on providing early stage growthcompanies with Investor Relations strategies and financing initiatives.Past experience with mining companies includes Banro ResourceCorporation and Lyndex Explorations.

Mr. Simon J. LawrenceDirectorVice President, Corporate Development, of Gabriel Resources Ltd.Mr. Lawrence holds a B.Eng. (mining engineering) from the CamborneSchool of Mines, U.K. and a MBA in International Finance from BradfordUniversity, U.K.

Mr. David S. Brown, LL.BDirectorA partner in the Corporate Department of Toronto based WeirFoulds LLP.He is a founder and past Chairman and presently serves as a Director ofthe Toronto Venture Group and a member of the Executive Committeeof the Toronto Angel Group.

Officers & Directors

Mr. Henry (Hank) Reimer P. EngA veteran mining analyst, former Manager of Mining Research,Richardson Securities and senior mining analyst and Director of LoewenOndaatje McCutcheon. Former directorships include Orvana Minerals,Golden Star Resources, Morrison Petroleum and currently QGX Ltd.

Mr. W. Durand (Randy) EpplerFormer Vice President of Corporate Planning for Newmont MiningCorporation and former President of Newmont Indonesia. Prior to joiningNewmont, Mr. Eppler was managing Director of Chemical Securities Inc.an affiliate of Chemical Bank. Mr. Eppler holds a Master’s Degree inMineral Economics from the Colorado School of Mines.

Corporate Information

Capital StructureTicker Symbol: TSXV: AGGIssued & Outstanding: 19,020,845 common sharesWarrants: 2,885,714 *Options: 1,694,075Fully Diluted: 23,600,634Insider Ownership: 45% **Cash Position: C$4 millionDebt: zero* Exercise Price $1.17, March 18, 2005 & $3.60, October 18, 2005** Tier 2 Escrow (3 year release)

Corporate OfficeBCE Place, Canada Trust Tower, 27th Floor161 Bay StreetToronto, Canada M5J 2S1Main Phone: 416-572-2252Fax: 416-572-4107www.africangoldgroup.com

Operations OfficeNo. 10, Soula LoopNorth LaboneAccra, GhanaPhone: +233 (21) 773033Fax: +233 (21) 760543

BankerCIBCToronto, Canada

AuditorBDO Dunwoody LLPToronto, Canada

The 2005 Annual Meeting of ShareholdersThe 2005 Annual Meeting of Shareholders will be held at:The Offices of WeirFoulds LLPExchange Tower130 King Street West, Suite 1600Toronto, Ontario, Canada M5X 1J5Wednesday May 25, 2005 at 10:00 a.m.

Legal CounselWeirFoulds LLPToronto, Canada

Tranfer AgentEquity Transfer Services Inc.Toronto, Canada

Advisory Board

Copies of the Financial Statements for the Year Ended December 31, 2004 are availablethrough the Internet on the Electronic Data Gathering Analysis and Retrieval (EDGAR)system, which can be accessed at www.sec.gov/edgarhp.htm for U.S. shareholders, andon the System for Electronic Document Analysis and Retrieval (SEDAR), which can beaccessed at www.sedar.com for Canadian shareholders. The Report on Form 10-K, Form10-Qs, Form 8-Ks and other required securities filings can also be found on EDGAR andSEDAR.

SEFWI GOLD BELTMankranho Gold Concession (108 sq km)“The Jewel In The Crown”■ On strike and contiguous with Newmont’s US$425 million,

10.6 million ounce Ahafo Project■ Surrounds the northern extension of Ahafo on 3 sides■ 8 kilometres of mineralized strike length

■ Gold mineralization encountered in 22 of 24 initial holes■ Mankranho Drill Highlights: 16.48 meters at 2.82 g/t gold;

including 1.50 metres at 43.40 g/t gold; and 1.48 metresat 26.60 g/t gold


ASHANTI REGIONNyankumasi Gold Concession(71 sq km)■ 30 kilometres south-south

west of Newmont’s5.4 million ounce Akyem Project

■ 72 RC drill holes indicates several promising zones of gold mineralization

■ Nyankumasi RC Drill Highlights: SRC 62 – 10.0 metres at 2.96 g/t gold.NRC 23 – 5.0 metres at2.18 g/t gold and 5.0 metresat 3.51 g/t gold


ASANKRANGWA GOLD BELTMoseaso & Twedee Gold Concessions (304 sq km)■ 9 km of strike length, 3 parallel gold in soil anomalies■ US$15 million historical data base compiled■ Significant > 5 g/t gold zones in trenches, diamond drill

& RC drill holes■ 957,000 tons at 1.34 g/t gold inferred resource at Topey

deposit■ Moseaso trench results: Trench TR2, measuring 94 metres

in length, to a maximum depth of 3 metres – 31 metres at 2.02 g/t gold; including 7 metres at 7.15 g/t gold


Mankranho Gold Concession Moseaso and Twedee Gold Concessions

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Newmont MiningAkyem: 5.4 Moz

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Newmont MiningAhafo: 10.6 Moz

2004 ANNUAL REPORT

BCE Place, Canada Trust Tower27th Floor

161 Bay StreetToronto, Canada M5J 2S1Main Phone: 416-572-2252

Fax: 416-572-4107www.africangoldgroup.com

TSXV: AGG

Printed in Canada

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