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African Energy Resources Closer To Acquiring Mmamantswe Coal

African Energy Resources (ASX:AFR) has closed a formal share sale deed for the acquisition of the 1.3 billion tonne Mmamantswe Coal Project in south east Botswana from Aviva Corporation (ASX: AVA).

On completion of the sale and a capital raising, African Energy will have secured the rights to a total of 3.8 billion tonnes of coal in Botswana and increased working capital to around $6 million from capital raised.

Legal and technical due diligence was completed by African Energy on 24 May 2013 removing one of the conditions of the acquisition.

Tranche 1 of a A$5 million placement to Sentient Executive GP IV was ratified at a general meeting of African Energy shareholders yesterday.

A second tranche will raise $3.5 million via an issue of a further 29.16 million shares at A$0.12 which will occur concurrently with the completion of the acquisition of the project by African Energy.

The remaining conditions precedent to the complete the acquisition of the Project by African Energy are;

- Mmamantswe Coal (Pty) Ltd becoming the registered holder of 100% of PL69/2007 by no later than 26 July 2013.
- Approval of the transaction by Aviva's shareholders under the ASX Listing Rules at a General Meeting expected to be convened in July.

Benefits of the acquisition/placements

For a relatively minimal amount, AFR will gain significant benefits from the Sentient placement and the acquisition of the Mmamantswe Coal project:

- A cornerstone institutional investor with a large financial capability and project development focus. This is an acknowledgement of the shared management vision between the Company and Sentient.

- Sentient's partner SDIC is well placed to provide additional experience in integrated power project execution and operation which increases African Energy's credibility as a developer of reliable base load power projects.

- African Energy's coal inventory will increase to 3.8 billion tonnes of published Measured, Indicated and Inferred resources, providing a portfolio of strategic scale that is more attractive to development partners for large scale export operations.

- The addition of Mmamantswe to Sese provides African Energy with a diversity of location and multiple development opportunities for both power generation and coal export projects

- The addition of Mmamantswe to Sese provides African Energy a diversity of location and multiple development opportunities for both power generation and coal export projects.

Mmamantswe Coal Project

The Mmamantswe Coal Project is in south-eastern Botswana, and comprises a Measured and Indicated Resource of 1.3 billion tonnes of thermal coal, including 895 million tonnes of Probable Reserves.

A 2009 Scoping Study completed by SRK concluded that a 10 million tonnes per annum open-pit mining operation could produce 2.4 million tonnes per annum of washed export coal (22MJ/kg, <20% ash) and 2.1 million tonnes per annum of middlings suitable for power station fuel (15.3MJ/kg, 38% ash) at a ROM (run-of-mine) cash cost of $9.10 per tonne.

An EIA was approved for the project by the Government of Botswana in October 2012.

Advanced discussions with global strategic groups

AFR is known to be in advanced discussions with several global strategic groups to invest directly into Sese Power (Pty) Ltd (wholly owned special purpose vehicle for the Sese Integrated Power Project). A successful outcome would provide working capital to take theSese Integrated Power Project through to financial close without further equity dilution for African Energy shareholders.

Notably for investors, the Sese coal mine will be one of the largest and lowest cost coal producers in Africa with railway within 25 kilometres of the Sese deposit provides access to Indian Ocean ports.

Coal is still in short supply in many Asian markets to fuel power project developments holding Sese in good stead.

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