For electronic distribution 12 th May 2014 Highlights PREFEASIBILITY STUDY COMPLETED FOR MMAMABULA WEST A Prefeasibility Study for an underground coal mine based on a 200Mt portion of the A Seam within the Mmamabula West Indicated Resource has been completed. The study evaluated a 4.4Mtpa ROM operation producing up to 3Mtpa of 6,200kcal/kg (26 MJ/kg air dried basis), low ash, low sulphur, export quality thermal coal over a 20 year mine life. The mining study evaluated industry standard bord and pillar extraction of the best quality selection of the A Seam using a fleet of up to five continuous miner sections. ROM coal from underground mining will be crushed, screened and processed using a conventional dense media separation drum and spirals plant. Initial capital cost estimate of U$113M for an owner operated mine and coal handling and processing plant. Estimated ROM operating cost of U$17/t. Estimated Product operating cost of U$25/t at the mine gate. Room for reductions in capital cost and operating cost through optimisation of mining fleet, continuous miner performance and pillar extraction. A formal request for a further two year extension to the prospecting licence was submitted in late March. 1. BACKGROUND African Energy Resources Limited (African Energy) acquired the Mmamabula West project in December 2013 (Diagram 1). The project was acquired due to its relatively high in situ coal quality and perceived potential as a source of export coal. A prefeasibility study (PFS) commenced in January 2014 to evaluate an underground mine producing export quality coal from and trucking this to a rail siding and loading facility 60km to the east.
The PFS was undertaken by the following consultants: Geology and Resource Modelling by Coenraad van Niekerk (Gemecs Pty Ltd) Mine design, reporting and project management by Eugene de Villiers (ECMA Consulting Pty Ltd) Mine Layout and Production Schedules by Hein Fourie (Gemecs Pty Ltd) Process/Process Plant Design by engineers and process specialists at Scorpion Mineral Processing General surface infrastructure by David Edwards (DEA Consultants) 2. PROJECT DESCRIPTION 2.1 Resource The coal at Mmamabula West occurs in three seams, with the majority occurring the K Seam and A Seam. These two seams are 4m to 6m thick and occur at depths of between 50m and 210m. The K Seam average depth is 105m, and the deeper A Seam averages 130m to the top of the seam. A global resource of 2,433Mt has been estimated for the project (Table 1) Resource Category Seam Thickness (m) Table 1; Global Resource for Mmamabula West TTIS* (Mt) Raw Coal Quality (adb) CV CV ASH IM VM TS (MJ/kg) Kcal/kg (%) (%) (%) (%) Seam K 5.43 405 19.8 4,730 27.3 5.7 28.0 1.78 Seam A 4.97 486 20.6 4,925 24.0 6.3 24.3 1.34 Seam E 1.10 1 24.1 5,760 13.6 5.9 29.9 2.51 Total Indicated 892 20.2 4,825 25.5 6.0 26.0 1.54 Seam K 5.13 758 19.7 4,700 27.4 5.4 27.8 1.90 Seam A 4.23 752 20.2 4,825 23.8 6.0 23.9 1.40 Seam E 1.84 31 20.7 4,950 22.0 5.7 25.7 1.38 Total Inferred 1,541 20.0 4,775 25.5 5.7 25.9 1.65 Total Resource 2,433Mt * Total tonnes in situ are derived by applying a geological loss factor of 10% (inferred) to 15% (indicated) to the estimated gross tonnes in situ. The resource estimates presented in the table above were extracted from a Competent Persons Report (CPR) prepared for Asenjo Energy by Gemecs (Pty) Ltd in February 2013. The report was prepared using the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC Code 2004 edition) as a guide as well as the Australian Guidelines for Estimating and Reporting of Inventory Coal, Coal Resources and Coal Reserves (2003 edition). There has been no further drilling or resource estimation modelling undertaken since that time, and thus no material changes to the resource statement. ASX RELEASE PAGE 2
An area within A Seam in the Indicated Resource contains coal with higher CV s and lower ash than the rest of the deposit. This Project Area was the focus for the PFS (Diagram 2). Within this Project Area, a resource block was selected for evaluation where the A Seam was greater than 3.5m thick and the yield for a 26MJ/kg product was greater than 50%. An Indicated Resource subset for the Project Area was extracted from the global Indicated Resource using the industry standard Gemcom Minex TM modelling software (Table 2): Resource Category Seam Thickness (m) Table 2; Project Area Indicated Resource TTIS* (Mt) Raw Coal Quality (adb) CV CV ASH IM VM TS (MJ/kg) Kcal/kg (%) (%) (%) (%) Seam A 4.54 220 22.6 5,400 22.0 6.9 24.6 1.03 This Project Area Indicated Resource formed the basis on which the PFS was undertaken. 2.2 Mining and Mine Design The mine has been designed as an underground operation due to the depth of the A Seam. Access will be via a box cut with a twin decline system and ventilation provided by means of a 6.5m up cast ventilation shaft and intake through the declines. Bord and pillar mining with continuous miner machines has been selected as the most appropriate mining method for A Seam as this will not sterilise the overlying, lower quality K Seam. Each development section will have nine roads, and a road width of 6.5m has been selected as appropriate for this depth of mining. Coal cutting will be by continuous miners, and the Joy 12HM37 was used as the basis for the mine scheduling and cost estimation due to its ability to cut 3.2 to 5.2m high seams. A production rate of 880,000tpa per machine has been used as the basis for estimate. On this basis, five continuous miners operating in five production sections and supported by shuttle cars for coal extraction to the main decline conveyor will achieve full production of 4.4Mtpa ROM. A mine layout and production schedule has been designed on the basis of the above criteria (Diagram 3). After layout losses, geological losses of 10% and mining losses of 5% the available ROM tonnage within the Project Area is reduced to 169.8Mt (see Table 3 below). Table 3; Conversion of in situ resources to available ROM tonnage GTIS LAYOUT MTIS 1 GEO LOSS MIN LOSS CONTAM ROMT no layout LOSSES layout 10% 5% 0% layout TOTAL 220,000,000 21,440,017 198,559,983 19,855,998 8,935,199 169,769,000 DEV 82,262,089 8,226,209 3,701,794 70,334,000 PIL 116,297,894 11,629,789 5,233,405 99,435,000 MTIS 1 = In situ tonnage in Layout before any losses, cut-off at minimum PYL of 50% and 3.5m seam height ASX RELEASE PAGE 3
After accounting for coal that must remain in pillars, 70.3Mt of ROM coal can be extracted from this layout in the initial mining programme, and this is the basis for the life of mine production schedule. Extraction of up to 80% of the pillars may be possible in later years, adding a further 79.5Mt of ROM coal, but this has not be considered in this study. 2.3 Coal Handling and Processing Plant Scorpion Mineral Processing (SMP) were sub contracted to undertake a pre feasibility study of the coal handling and processing plant (CHPP) design and discard storage facilities. The process design for the CHPP was based on producing a 26MJ/kg (adb) clean coal. The plant capacity is 4.6Mtpa ROM feed from two modules with the second module coming on stream in the fifth mining year. With the ROM production planned at 4.4Mtpa the CHPP can accommodate improvements in mining productivity without significant capital spending. ROM coal will be supplied from the underground mining operations via the decline conveyor and stockpiled prior to crushing to a 40mm top size. Coal in the 1mm to 40mm fraction will be passed though a dense media separation plant (DMS), whereas the material under 1mm will be processed through spiral concentration. This is a well proven flowsheet used in many South African coal mines. A project implementation plan has estimated that the CHPP will take 21 months to complete from initial procurement to commissioning. The final product from the CHPP, over the life of the mine has the following average quality, with a 75% average theoretical product yield (Table 4): Table 4; Mmamabula West Washed Product Specifications (adb) RD CV (MJ/kg) CV (kcal/kg) ASH% VM% IM% FC% TS% Yld 1.52 26.00 6,210 13.10 25.95 7.89 52.65 0.41 74.57% 2.4 Water The three main areas of water consumption for the project are the coal handling and processing plant, the underground mining operations and general surface use. At full steady state production rates, the following annual consumptions figures are estimated: Underground Mine 238ML per annum Surface Use 45ML per annum Process Plant 320ML per annum TOTAL WATER REQUIREMENT 603ML per annum Water for the project will be sourced from the Company s Artesia Wellfield, approximately 50km to the east of the project (Diagram 4), where an annual capacity of 8,000ML per annum has been modelled. The capital cost estimates for the project include a provision for a 250mm diameter pipeline from the wellfield to the mine site. ASX RELEASE PAGE 4
2.5 Product Logistics Product coal will be initially trucked (via a contract operation) from the mine stockpiles to a storage and rail loading facility at the nearest rail siding, some 60km to the east of the project (Diagram 4). Provisions have been made in the capital cost estimate for the necessary 60km haul road and rail siding, stockpile and loading facilities. Coal will be loaded into trains at the siding for transport to market. The two principal markets that have been identified for Mmamabula West coal are Eskom s power station fleet in South Africa (where a lower CV, higher yield, lower cost product would be suitable), and the seaborne market bound for Asia. Existing rail (and port) infrastructure provides access to both markets. Transnet Freight Rail have also announced they will build a new heavy haul rail link between the Waterberg coalfields and their heavy haul coal network which would improve logistics and lower rail tariffs (Diagram 5). At current coal prices, the current rail tariffs are marginally too high for profitable export operations from Mmamabula West. 3. OPERATING COST SUMMARY Benchmark figures from 35 different monitored continuous miner sections at different mines in South Africa were used to determine the all in mining operating cost for Mmamabula West. Process plant operating costs were calculated from first principles by the consultant (SMP). The operating cost estimates (Table 5) show an average ROM cost of $17/t and an average product cost of $25/t at the mine gate. Transport and loading costs add a further $8/t to load the coal into a train at the siding. Table 5; Operating Cost Estimate for Mmamabula West BWP USD All Inclusive Mining Cost Per ROM BWP/t ROM 123.00 13.90 Accommodation and People Logistics BWP/t ROM 4.00 0.45 CHPP cost per tonne ROM BWP/t ROM 18.17 2.05 TSF cost per tonne ROM BWP/t ROM 1.71 0.20 Coarse discard handling BWP/t ROM 4.00 0.45 Total On Mine Cost Per ROM Tonne BWP/t ROM 150.88 17.05 Total On Mine Cost Per Product Tonne (FOM) BWP/t Product 226.42 25.08 Handling of Product x 3 BWP/t Product 9.00 1.02 Transport Cost to siding/ Product Tonne BWP/t Product 60.00 6.78 Total Cost Loaded on Train (FOR) BWP/t Product 295.42 33.38 ASX RELEASE PAGE 5
4. CAPITAL COST SUMMARY Table 6 contains a summary of the capital cost estimate for the project. It does not include contingency or provisions for escalation. Costs for major pieces of equipment and plant were derived from actual quotes received from suppliers, or actual costs for recently built coal mines in South Africa. Costs were received in South African Rand and have been converted to Botswana Pula (BWP) and US Dollars (USD) using exchange rates of 1.2 and 10.67 respectively. The costs are considered to be accurate to +20% and 15%. Total initial capital costs are approximately $113M, incurred in the two years of construction. The mining schedule assumes a conservative ramp up to full production over 7 years. This defers capital expenditure of $64M until years 5 to 7 of the project. This is largely allocated to the purchase of the third, fourth and fifth continuous miner section equipment, expansion of the tailing storage facilities, and the construction of the second module of the CHPP. Sustaining capital of approximately $8M per annum is required in years 6 20 to rebuild/refurbish mining and support equipment. Deferred capital and sustaining capital costs may be reduced if Continuous Miner performance exceeds that used as the basis for this estimate. Table 6; Capital Cost Estimate for Mmamabula West Initial Capital (Years 1 and 2) Deferred Capital (years 5 7) BWP (M) USD $(M) BWP (M) USD (M) Surface infrastructure 239.05 27.0 Box Cut, Declines and decline conveyor 185.76 21.0 Ventilation shafts and fans 18.60 2.1 9.85 (yr 7) 1.1 Processing Plant (CHPP), EPCM, spares 249.21 28.2 58.56 (yr 5/6) 6.6 Rail siding and loading facility 22.60 2.6 Tailings storage facility 50.53 5.7 202.12 (yr 7 10) 22.8 Mining Equipment 197.55 22.3 250.83 (yr 5 7) 28.3 Supplementary equipment, conveyors 33.78 3.8 50.68 (yr 5 7) 5.7 TOTAL BWP 997.1M $112.7M 567.1M (yr 5 10) $64.1M Sustaining Capital 70.27 pa (yr 6 20) $7.95 pa ASX RELEASE PAGE 6
5. COMMENT The results of the prefeasibility study have demonstrated that underground mining of the A Seam at Mmamabula West could produce an export quality coal (6,200kcal/kg adb) at a ROM cost of $17/t and a product cost of approximately $25/t at the mine gate. Initial capital expenditure of $113M, plus a further $64M of deferred capital could develop the mine for a 20 year period at a steady state of 4.4Mtpa ROM production. Improvements may be possible across all operating and capital costs with further optimisation. Whilst export markets for the product exist in South Africa and Asia, at current coal prices the cost to transport the coal to market would not sustain a profitable operation. An increase in the coal price, and/or a reduction in freight costs would have a positive impact on the project economics. The Company is thus continuing to discuss rail and port tariffs with regional operators. For any further information, please contact the Company directly on +61 8 6465 5500. For and on behalf of the board. The Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC Code ) sets out minimum standards, recommendations and guidelines for Public Reporting in Australasia of Exploration Results, Mineral Resources and Ore Reserves. The information contained in this announcement has been presented in accordance with the JORC Code (2004 edition) and references to Measured, Indicated and Inferred Resources are to those terms as defined in the JORC Code (2004 edition). The information in this report that relates to Coal Resources for the Mmamabula West Coal Deposit is based on a estimate completed in February 2013 by Mr Coenraad Daniël van Niekerk, a full time employee of Gemecs (Pty) Ltd. This Coal Resource was estimated in accordance with the JORC Code (2004 edition) and there have been no material changes since. Mr van Niekerk is a member of the South African Council for Natural Scientific Professions (SACNASP No. 400066/98) as well as a Member and Fellow of the Geological Society of South Africa. He has more than 38 years experience in the Southern African Coal and Minerals industries. Mr van Niekerk has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined by the 2004 Edition of the Australasian Code of Reporting of Exploration Results, Mineral Resources and the Ore reserves. Mr van Niekerk consents to the inclusion in the ASX release of the matters based on his information in the form and context in which it appears. The mine design, mining method, mine layout, mine scheduling (Life of Mine Plan) and equipment selection in this report is done by Mr Eugène de Villiers of ECMA Consulting (Pty) Ltd as an associate of Gemecs (Pty) Ltd. Mr de Villiers is a qualified Mining Engineer and professionally registered with the Engineering Council of South Africa (ECSA Pr.Eng 20080066. He is also a member of the South African Institute of Mining and Metallurgy (SAIMM 700348) and the South African Coal Managers Association (SACMA 1742). He has more than 20 years experience in the Southern African Coal and Minerals industries. Mr de Villiers has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person. Mr de Villiers consents to the inclusion in the ASX release of the matters based on his information in the form and context in which it appears. ASX RELEASE PAGE 7
Diagram 1 Location Map showing the location of the Mmamabulaa West Project t and the Company s Sese and Mmamantswe coal deposits. ASX RELEASEE PAGE 8
Diagram 2 Mining Area on A Seam within the total resource area Diagram 3 Underground mine scheduling and panel layout ASX RELEASE PAGE 9
Diagram 4 Regional layout of the mining area, haul road and rail siding and existing infrastructure Diagram 5 Regional Rail logistics map showing existing and a proposed rail routes ASX RELEASEE PAGE 10