Aviva Corporation (ASX:AVA; BSE:AVIVA) has inked a deal to sell its 1.3 billion tonne resource Mmamantswe Coal project in Botswana for $3.5 million to African Energy (ASX:AFR, BSE:AFR).
Under the deal, African Energy, would acquire Aviva's wholly-owned subsidiary Botswana Energy Solutions, which in turn owns Mmamantswe Coal project, that has Aviva's rights to the project.
The deal is subject to certain conditions precedent including a satisfactory due diligence by African Energy by May 3 and approval of the transaction by Aviva shareholders in an EGM likely to be held in June.
The deal also rests on Mmamantswe Coal being the registered holder of 100% of the licence of the project. Currently, Mmamantswe Coal owns the right to earn a 90% joint venture interest under an agreement with Mawana Minerals but is in talks to up the interest.
The other condition is subject to African Energy being able to raise capital to finance the acquisition. It has carried out a binding share subscription deed with Sentient Executive GP IV under which Sentient will subscribe up to $8.5 million in African Energy shares at $0.12 per share.
Aviva became involved in the Mmamantswe project in 2007 and identified a 1.3 billion tonne coal resource including a probable reserve of 895 million tonnes. It has completed several studies on the Project and has carried out a significant water drilling program. An Environmental Impact Statement for the Project was issued last October.
Meanwhile, a shareholders' meeting would be convened to consider a recent capital placement and restructuring proposal from a private investment company Arredo.
Under the offer, Aviva will issue 15 million shares priced at A$0.11 each to Arredo to raise A$1.65 million before costs and 10 million options exercisable at $0.175 and expiring four years after the issue date.
Ian Middlemas, who is associated with Arredo, will be appointed as the company's new chairman while Mark Pearce will join as a non-executive director.
The shareholders' meeting would also be asked to consider the removal of Geoffrey Loftus-Hills, Lindsay Reed, Rob Kirtlan and Pieter Britz as directors of the company and the appointment of directors nominated by Aviva's main shareholder, Sentient Executive GP IV Limited.
The Mmamantswe project became non-core to Aviva after a South African power procurement program was cancelled in 2010 and Aviva wrote down its investment. Aviva believes that the coal sector in Botswana will be driven forward through a combination of smaller power plants and access to export coal markets for which sector consolidation is essential to progress infrastructure investments.
The sale will boost Aviva's cash position, which at the end of the December 2012 quarter stood at $19.6 million. The company shares, currently at $0.13, are trading close its then cash backing of $0.118 per share.
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