Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

African Energy Resources Defines Sese Thermal Coal Measured Resource, At Odds With Valuation

African Energy Resources (ASX: AFR) has defined an initial Measured Resource for its Sese Thermal Coal Project in Botswana of 651 million tonnes following resource modelling by the company's consultants.

Importantly, this means around 94% of the Sese Project's total 2,517 million tonne Resource is now in the higher confidence Measured and Indicated categories.

The Measured Resource is contained in two blocks - Block-B and Block-C.

Coal in the Block‐B Measured Resource is of interest for the Sese Export Project due to its potential for low strip ratio, higher in‐situ calorific value and higher washing yields than other parts of the deposit.

Block-C coal is favoured as the source of fuel for the Sese Integrated Power Project due to its proximity to existing infrastructure and proximity to solid basement for the power station footings.

This coal can be used as a raw coal feedstock for a power station, or can be washed to produce an export product and a middling for use in power stations.

The Sese coal deposit was discovered in mid‐2010, since which time African Energy has completed three campaigns of drilling to delineate a series of coal resources.

To date a total of 435 drill holes have been completed, of which 278 are diamond core holes, and the remaining 157 are reverse circulation percussion holes.

Sese development plan

The Sese Coal & Power Project, located about 60 kilometres south of Francistown in eastern Botswana has been sub‐divided into two key focus areas:

1. The Sese Integrated Power Project: an initial 300 megawatt power station and 'captive' 1.5 million tonne per annum coal mine to be pursued as a stand‐alone project.

Feasibility studies and environmental and social impact studies are underway for this project and its potential expansion.

2. The Sese Export Project which is planned to export coal to regional markets and to Asia.

Marketing studies and an assessment of rail and port options are currently underway for this project.

Importantly, the prospecting licence in which the Sese deposit is located has also been renewed by the Botswana Government.

Offtake discussions in the pipeline

In June African Energy inked a memorandum of understanding with a potential offtaker for the electrical output of the company's proposed 300 megawatt coal‐fired power station.

The agreement, while non-binding in nature, provides an opportunity for the credit‐rated national electrical utility, which importantly is a member of the Southern African Power Pool, to make a full assessment of the Sese Power Project which could lead to binding agreements to jointly develop and finance the project.

Part of the assessment process will involve the negotiation of key commercial terms for a Power Purchase Agreement, Joint Development Agreement and other project contracts.

African Energy expects to reach a binding Joint Development Agreement in the last quarter of 2012 and a Power Purchase Agreement in early 2013.

Frazer Tabeart, managing director, told Proactive Investors in June that African Energy was also in discussions with other potential off-takers, which could lead to similar agreements in the future.

Coal Mine Bankable Feasibility Study (NYSE:BFS)

- Work on the mine feasibility study continued during the quarter.
- The feasibility study to date has concentrated on a series of trade‐off studies to evaluate the optimum configuration and location of mining, coal processing facilities and mine infrastructure required to deliver to the Sese Integrated Power Project and/or the Sese Export Project.

A BFS is now being scoped for the 1.5Mtpa captive coal mine, to be completed by the end of the year.

Analysis

With the market valuation of AFR re-tracing to the current circa $58 million of late, this could be prove in hindsight to be a very attractive opportunity for investors for a company with the size of resource of Sese; with near term initial coal production possible and upside from next stages that incorporate higher production levels.

There is also news flow that will act as catalysts to re-rate the AFR valuation in the next 6-12 months. Recently, the XstrataCEO pointed to "a recovery in thermal coal prices with recovery in the markets."

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 African Energy provide a cheap entry level for medium to long term investors.

Proactive Investors is a market leader in the investment news space, providing ASX "Small and Mid-cap" company news, research reports, StockTube videos and One2One Investor Forums.