African Energy Resources (ASX: AFR) has entered into a potentially long term partnership with ACWA Power International, for power generation in Botswana that could also see the JV tender for additional projects in Africa.
ACWA Power brings a pedigree and track record of completing multi-billion dollar transactions in delivering power solutions in numerous countries, and has paid-up capital of around US$1.4 billion. It is owned by eight Saudi conglomerates.
The companies have executed a joint development agreement for the development of a 300 MW power station and integrated coal mine at African Energy's Sese coal deposit in Botswana.
This project would be fuelled by coal from just a 50 million tonne block within the Sese deposit's 2,500 million tonnes of resources - thereby providing African Energy with enormous remaining resources to fuel other power projects.
ACWA will be the lead developer of the 300MW Botswana power project that the JV has tendered for; it will also bear the majority on ongoing project development costs up to the point of financial close.
African Energy will be the joint developer and its local team will be responsible for delivering all permits required for the project plus the mining solution - which are the core skills of the company's team.
ACWA Power will have a first right of refusal to partner with African Energy on any new power opportunities using Sese Coal.
African Energy is likely to be evaluating multiple power generation opportunities for similar or larger projects to supply power to key customers in the region - ACWA now provides the financial muscle to ultimately move beyond the evaluation phase.
ACWA Power's total contracted generation portfolio is 15,731 MW of power and 2.4 million m3/day of desalinated water with an investment value in excess of US$23 billion.
With ACWA as the lead developer of the initial 300MW project in Botswana - this frees up working capital within AFR for it to pursue additional power and coal export opportunities in the region.
This is the key to expansion opportunities for AFR in power starved Africa.
That, plus the massive 2.5 billion tonne coal resource base at Sese, owned by AFR which provides the resource base to supply and bid for additional power projects in Africa with ACWA.
Sese has enough coal for 8 x 300MW projects over 25 years from Block-C Measured, and is a low-cost fuel supply due to low strip ratio mining and minimal processing requirements.
Proactive Investors believes that these facts have been missed by the market at present, and on our estimates, we believe AFR is worth between $0.13 - $0.16 within 6 - 9 months.
The recent acquisition by AFR of the 2.4 billion tonne Mmamabula West Coal Project in south‐east Botswana which increases total in‐situ resources to 6.2 billion tonnes of thermal coal in Botswana, underpins the under-valuation (per tonne of coal) of AFR on a larger scale. The collaboration with ACWA could provide the fire to light up the AFR valuation.