www.africanenergyresources.com
African Energy (ASX:AFR) owns 100% of the Sese Coal and Power Project in northerm Botswana which has a defined near-surface coal deposit containing indicated resources in excess of 2.5 billion tonnes. The entire resource is amenable to low-cost open pit mining and can produce large tonnages of both domestic power station fuel amd washed coal for regional and export sales.
African Energy Resources: Helmsec Global Securities places "Buy" recommendation
The following is an extract from a research report penned by Helmsec Global Securities on African Energy Resources (ASX: AFR). Helmsec has placed a "Speculative Buy" on the stock.
African Energy Resources discovered the Sese coal deposit in Botswana in mid 2010. Subsequent drilling has outlined a 2.7 billion tonne coal resource.
Company Data
Share Price: $0.82
Shares on Issue: 296 million
Options: 27 million
Market Cap: (fully diluted) $265 million
Cash: $44.6 million at end of March quarter
Debt: $5.0 million
RECOMMENDATION: Speculative Buy
The time to develop Botswana’s massive coal deposits appears to have arrived. The regional power network must be upgraded, coal qualities are no longer a barrier to export markets, and export demand volumes will soon justify the cost of rail and port if they have not already.
Sese, by virtue of its size, thick seam, and shallow depth, is likely to become a lead player in Botswana’s coal sector.
Sese’s path to full development has many challenges and uncontrollable risks– power station, rail and port developments are expensive and difficult to muster.
However the massive undeveloped coal resources of Botswana and the Waterberg Basin are relatively cheap and convenient for Indian buyers and international co-operation to get the infrastructure built makes obvious sense.
AFR is recommended on the premise that the market’s needs for Botswana coal will overcome the risks sooner rather than later. As such, Helmsec initiates coverage with a Speculative Buy recommendation.
KEY POINTS
- AFR’s 2.7 billion tonne coal resource at Sese consists of a singleseam up to 26 metres thick, all of it within 80 metres of thesurface. The Sese resource has been defined over 30 km of strikeand up to 10 km down dip.
- In the last few years power shortages in southern Africa and theemergence of India as a major importer of thermal coal have putBotswana in position to develop its massive coal resources for thefirst time.
- Sese is potentially the largest coal project in Botswana and also potentially the lowest unit cost coal project in Botswana.
- Initial wash tests indicate Sese can potentially produce a thermalcoal product suitable for export and a domestic power station coal product.
- Sese is next to existing infrastructure that could support a small to medium scale operation delivering coal to regional customers.
- The Botswana government, in partnership with neighbouring states, various private interests and development banks, has advanced two rail and port projects that would support Sese’s full scale development. Pending finance arrangements decisions to proceed with construction could be made in 2011.
Enterprise Comparison
The use of enterprise value comparisons to derive values is necessarily a broad brush method that takes no account of disparate yields, coal qualities or unit costs. In early 2011 the most commonly applied multiple was US$0.50 per tonne of resource for undeveloped projects, based on transactions occurring over the past year. For Sese such a multiple would imply a US$1.3 billion project value.
With an enterprise value of A$0.10 per resource tonne based on a resource of 2.7 billion tonnes, African Energy is valued far less than most of its peers:
African Energy (ASX: AFR) $0.10
Aspire Mining (ASX: AKM) A$1.83
Bandanna (ASX: BND) A$1.33
Nucoal Resources (ASX: NCR) A$0.45 and
Coal of Africa (ASX: CZA) $0.44
