African Energy Resources hits 2.5 billion tonnes Indicated coal Resource in Botswana

African Energy Resources' (ASX: AFR) latest resource upgrade provides further potential for a 30 million tonne per annum thermal coal production operation for over 100 years, starting in 2013.

The project now hosts over 2.5 billion tonnes of coal at the project in the Indicated category, after more than 95% of the in-situ resource was classified.

Part of the resource is now targeted to be moved into the higher confidence Measured category in the June 2012 quarter, which will be from Blocks B and C.


Coal product options

Currently the Lower Main Seam accounts for 61% of the total 2,626 million tonne resource, importantly containing coal which is suitable for washing to create an export quality product (up to 5,550 Kcal/kg).

Providing options for African Energy, the Upper Main Seam coal can be washed, or blended with the Lower Main Seam middlings to make a product which is suitable for use as power station fuel. Full Seam raw coal is also suitable as a power station fuel.

The coal occurs in one main seam which averages 14 metres thickness, is close to surface and which is expected to be amenable to low strip-ratio open pit mining.


Milestones on the path to production

The path to production timeline has African Energy focused on completing a Bankable Feasibility study by the end of 2012, along with mining licence approvals and financing
negotiations. The next step will then be the commencement of coal sales from stage one in mid-2013.

The defining factor for Sese is that the entire deposit is amenable to open-cut strip mining, with low risk and low costs, and mining blocks are around 500 metres by 200 metres.

The layout of exploration box-cut for the bulk sample has been designed to be the first access ramp for Stage one coal-mine, which reduces the development timeframe for the project construction.


Markets for Botswana coal

The market for Sese coal includes domestically with existing industrial customers and nearby markets, with this demand set to grow as new customers enter the market as new mines and businesses develop.

There is also a growing regional market in Southern Africa, with the Power Pool facing net regional electricity generating deficit as Eskom exports scale back.

Then there are the export markets where demand remains high, especially in India, with few undeveloped coal provinces capable of meeting this demand.


Analysis

With the latest resource upgrade, AFR is valued on an EV/Resource tonnes well under its peer averages. Recent pull-back in market valuation provides an opportunity for savvy investors to re-load on AFR. Sese is potentially in the vanguard to become the largest coal project in Botswana and also one of lowest unit cost coal projects in Africa, once developed.