African Energy Resources Ltd (ASX: AFR) is a mining and energy development company with offices in Botswana, Zambia, Perth and Guernsey. The Company has coal projects in Botswana and Zambia, including the flagship Sese Coal & Power Project that contains over 2.6 billion tonnes of thermal coal.
African Energy Resources (ASX: AFR) has completed a milestone rail delivery of coal from its Sese Thermal Coal Project in Botswana to Maputo in Mozambique.
The significance of this is that the company has demonstrated that the transport of Sese coal via rail to the east coast of Africa is possible using existing infrastructure.
A 25 tonne parcel of Sese coal was loaded into a Botswana Railways freight wagon at the Francistown railway station on 3 April, and dispatched to Maputo via Bulawayo and southern Zimbabwe.
The coal wagon arrived at Grindrod’s Matola coal terminal in Maputo on Saturday, 7 April.
Minister of Transport and Communications, Nonofo Molefhi said that it was the first consignment of coal to be transported from a local mine in Botswana and exported to the Mozambican port where other opportunities are available.
Markets for Botswana coal
Importantly, the east coast of Africa is considered an ideal location from which Botswana’s coal may be ultimately exported to Asian markets.
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.
Highlighting the rapid progress African Energy is making towards the development of Sese, the company has already appointed Industrial Coal Africa (ICA) as coal marketing manager to oversee the marketing, sales and logistics services for the project.
ICA has previously serviced Riversdale Mining, which owned and operated the Zululand Anthracite Colliery prior to the company being taken over by Rio Tinto (ASX: RIO) last year.
The colliery produces high quality anthracite with an annual saleable tonnage of around 750,000 tonnes.
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 Bankable Feasibility Study is evaluating a mining operation of up to 5 million tonnes per annum of coal, with the option for an associated mine‐mouth power station of up to 600 megawatts.
The Sese Coal Project 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.
With an initial 1-2Mtpa Stage 1 coal production operation planned in 2013, today's news is significant in Sese's and African Energy's evolution. While it may not get the market attention it deserves, it is a milestone nonetheless and a pathway for product to be railed to the coast with infrastructure already in place.
With the market valuation re-tracing to current $88 million of late, this is very light for a company with the size of resource of Sese; with near term initial coal production and upside from next stages that incorporate higher production levels. In fact, we see Sese as a "must do" imperative if power shortages in southern Africa are not to worsen.
Current prices on offer for AFR provide a cheap entry level for medium to long term investors.