African Energy Resources COAL a Botswana power player transpires Coal-focused company African Energy Resources (AFR), listed on the Australian and Botswana stock exchanges, has developed a strategy aimed at providing power to the energy-deprived southern African region. This means taking an integrated approach: developing mine-mouth power stations to feed off captive supply, which they will provide from the company’s three large-scale deposits in Botswana, writes Laura Cornish. IN SHORT Botswana will host more than just a single coal mine in the next few years as African Energy Resources focuses on getting its coal mines, and associated power stations, off the ground. “I f you are in coal, the reality is that your greatest opportunities (at least for the next two or three years) lie in power generation,” MD Frazer Tabeart starts. “Because our asset focus is in Botswana, where there are significant volumes of coal, we are well positioned to take advantage of the demand for energy in the region. In the longer term however, there is also substantial opportunity for export from our projects, when the current inhibiting factors relating to export are resolved.” It is common knowledge that the coal industry in Botswana is under- developed and as a result lacking in export volumes due to the long distance the coal needs to travel to reach the coast, the coal quality which in some cases is lower than typical South African deposits, current low coal prices and a rail system unused to handling bulk commodities. Taking these scenarios into account, AFR has taken ownership of some of the country’s best deposits, which between them comprise coal well suited for power generation as well as export. “If we believe what the analysts are saying, the coal price is expected to remain fairly static for the next 12 months, after which it will likely settle on a longer term price of about US$85 – 90/t. Nothing suggests this will be ‘wildly incorrect’. It is for this reason that we are predominantly focused on power generation. The cash returns from this are completely divorced from the international coal price. Ultimately, our plan is to be part of an integrated business where our power stations will each own their own coal mine. AFR will retain an equity position or gain a royalty return from the energy produced,” Tabeart outlines. “Because we don’t have a balance sheet to fund an $800 million power project, we will use the coal in lieu of equity with a partner (which we already have in place for our primary asset Sese) who can finance the project. Ultimately, this means we will generate a revenue stream from the coal without having to directly mine it ourselves,” he continues. “It has taken us two years to build a trusting relationship with the Botswana government, who we hope is pleased that we are contributing to the development of its coal industry. Admittedly, the sector is a long way from the market but not from electricity demand. We are stuck in a region of net energy deficiency. Botswana, Namibia, Zambia and South Africa are all short of energy – hence our decision to produce, sell and export electricity, not coal.” Sese – well on its power- generating way AFR discovered the large 2.5 Bt Sese thermal coal deposit (situated 50 km to the south of Francistown) in June 2010 and has since completed a series of 36 MINING REVIEW AFRICA ISSUE 5 2014