Sese Coal Project

Sese Coal Project

Summary

The Sese coal project in eastern Botswana is wholly owned by African Energy Resources Ltd. The project is 50km to the south of the mining hub of Francistown, and is immediately west of the existing rail, road and power corridor which runs the length of eastern Botswana, and which connects through into neighbouring Zimbabwe and South Africa and on into nearby Zambia and Mozambique.

The coal deposit occurs within Prospecting Licence PL96/2005 which has been recently granted its second extension until 30th September 2012. African Energy has also made additional tenement applications to secure the majority of the up‐dip and down‐dip extensions to the known coal seams.

A drilling campaign on the project is currently in progress to delineate a JORC compliant inferred resource. It is expected that the resource will be announced in April 2011, and that this resource may exceed the Exploration Target* of 1.5 billion tonnes of thermal coal.

Drilling

Systematic resource delineation drilling commenced in October. Diamond drilling to collect core samples of the coal seams is being undertaken on a nominal 2km by 2km grid, with infill RC percussion drilling (to assist defining continuity) on a nominal 1km by 1km grid. Downhole geophysical logging is being undertaken on all holes.

Drilling has been completed in Block‐A and Block‐C, and will commence in Block‐B in late January 2011 (subject to favourable weather). Down‐hole logging has been completed in Block‐A and Block‐C. Core samples have been submitted to ALS Witlab in South Africa for proximate analysis and washing tests, and further tests will be conducted as necessary.

The density of drilling and the geophysical logging, coupled with proximate analyses will permit the classification of an Inferred Resource estimate to JORC standard in April 2011. More detailed drilling to a Measured and Indicated resource category will commence mid‐2011.

The drilling results to date have exceeded original expectations, both in terms of coal seam thickness and coal seam extent. The continuity of the coal has also proven to be extremely good, with a basal seam present in almost all holes.

On the basis of the results to date the Company is confident that the original Exploration Target will prove to have been a conservative estimate. Additional tenements have been pegged to capture the up‐dip and down‐dip extensions of the known coal.

Block A Results

Block‐A drilling has confirmed the presence of an extensive, thick seam of coal which dips at a very low angle (1‐3 degrees) to the southwest. The coal seam occurs in all holes except those in the far northwest of Block‐A where the basement is exposed at surface.

Throughout the remainder of Block‐A the coal averages 16m true thickness from an average depth of 45m. The entire block is thus amenable to very low strip ratio open pit mining. In the northern part of Block‐A the coal extends up to, and in some cases above the base of weathering. In these places, only non‐weathered coal has been included in the thickness assumptions used for resource modeling. The shallow depth to the top of the coal in these areas will permit extremely low strip ratio open pit mining, with strip ratios as low as 1.5:1.

Dolerite dykes and sills have been noted in some of the holes drilled into Block‐A. The sills are typically 20‐30m thick, with coal occurring either above or below the sill. With the exception of localised loss of volatiles, the intrusions do not appear to have had a marked effect on the coal quality.

Block‐C Results

Block‐C drilling was completed on the 16th December. Drilling data gained from Block‐C drilling has confirmed that a thick basal seam of coal extends over approximately 70 square kilometres from the basement contact along the eastern side of the block.

Within this area, the basal coal seam has an average thickness of 11m, with an average depth to the top of the seam being 52m. The lower part of the basal coal seam appears to contain a higher proportion of bright material than the upper portion of this seam. The basal seam contains very few partings.

In most holes, additional thinner seams of coal also occur in the roof position, with between one and three thin seams present in many holes, each of 1 to 3m thickness, separated by shale and sandstone partings. This coal is duller in appearance than the basal coal seam, but may be included in the resource estimate if the coal quality is of a commercial standard.

Coal Quality Assessments

Very limited test work has been undertaken to date to assess the coal quality. The data in the table below reflects proximate analyses (on an air dried basis) for four core holes drilled by African Energy, along with two holes drilled in 1976 by Shell Coal Botswana Pty Ltd. The latter also have washing data.

Based on the very limited data below, the coal quality appears to be similar to most other Botswana coal projects and the washing characteristics indicate the coal can be readily washed to produce an export grade product.

Significantly more proximate analyses and washing tests will be undertaken as part of the resource delineation programme which is currently in progress, and data will be released once available.

The Company is finalising the terms of reference for a conceptual study to evaluate two potential project options for Sese. The first option is a 3‐5 Mtpa start‐up operation utilising existing infrastructure and which could commence within two years. The second option is a larger 20 Mtpa export operation requiring new rail/port infrastructure to be provided by third parties. The conceptual study is expected to take three months to complete and a successful outcome would lead to a formal feasibility study.

3‐5 Mtpa Start-Up Operation

Cash flow from late 2012:

• Initial mining in Block‐A would allow very low stripping ratio (less than 2:1) and therefore very low mining costs (estimate <$5/t raw coal).

• Washing plant to be built to provide products for the following markets:

• 1‐2 Mtpa domestic power station fuel. There is potential for discussions with Botswana Power Corporation to consider building new capacity (300‐450MW) at site, plus potential to supplement supply to existing Morupule power station.

• 1 Mtpa export to Zambia via existing infrastructure to supplement local supply. African Energy is currently discussing this with the Zambian Development Agency, who have introduced AFR to a number of companies.

• 2‐3 Mtpa export of thermal coal to India/China via existing infrastructure through Zimbabwe/ Mozambique. Note existing railway 20km to east of Sese coal deposit with a 13t axle loading capacity. Port capacity and rail freight capacity to be confirmed as part of the concept study.

Larger Scale Export Operation

This longer term option is viewed as the ultimate scale of operation that the deposit size warrants. Key parameters to assess/develop include:

• This option envisages a larger scale operation involving mining, washing and exporting coal at >5,300 kcal/kg (may be possible to get >5,800kcal/kg in places).

• Very low strip ratios (initially <2:1 increasing to 5:1 over 50‐100 year life).

• Potentially one of Africa’s largest coal mine developments, and a key driver of Botswana’s future GDP growth.

• Requires new rail/port infrastructure to be built – either the Trans‐Kalahari or Ponto Techobanine infrastructure corridors. Total cost for each of these corridors is approximately $10 billion, similar to proposals to develop Queensland’s Galilee Basin. Both existing transport consortia have indicated plans to be operational by 2016.

• Recent entry of Indian interests into Botswana’s coalfields suggests infrastructure issues will be resolved.

*Disclaimer: The Exploration Target is conceptual in nature and it is uncertain if further exploration will result in the determination of a Mineral Resource. There is currently insufficient data to define a JORC compliant mineral resource for the coal Exploration Target at Sese.