African Energy Resources Guernsey : March Quarterly Activities and Cashflow Report

27th April 2017

• Botswana's Ministry of Mineral Resources, Green Technology and Energy Security granted a 25‐year Mining License (ML) to the Sese Joint Venture. The ML covers an area of 51.47km2 and contains 650Mt of raw coal in Measured and Indicated resources.

• The Ministry of Finance and Economic Development approved several fiscal incentives for the project as requested under a Manufacturing Development Approval Order. The principal incentives are that the power generation business will be granted a five‐year tax holiday from its first year of commercial operation, followed by a preferential 15% tax rate for the life of the project.

• Technical programs continued under First Quantum Minerals Ltd management at the Sese Joint Venture Project during the quarter:

  • WSP Parsons Brinckerhoff issued a report detailing preliminary design and layout plans for a 450MW power station and prepared a Minimum Functional Specification document to be used to obtain quotes from Original Equipment Manufacturers (OEM's) and Engineering, Procurement and Construction companies (EPC's).

  • Test‐work on Sese coal has determined that it is suitable for use in both circulating fluidized bed (CFB) and pulverized coal (PC) boiler technology. Fuel specifications have been derived for each boiler technology.

  • Assays of the limestone from Foley North have shown that it can be used to reduce sulphur emissions from CFB boilers, but is not of a sufficient quality to be used in PC boilers.

• Project development programs continued at the wholly owned Mmamabula West coal project:

  • Fuel specifications for both the A‐Seam and K‐Seam have been finalised and confirm that Mmamabula West can produce power station fuel suitable for use in either CFB or PC boilers.

  • Results of coal quality analyses from the infill drilling completed in December 2016 have been received and will be used to upgrade a portion of the indicated resource to the Measured Resource category.

  • An application for Land Rights over the SE corner of the prospecting licence was submitted. This contains most the existing Indicated Resource and will form the basis for a Mining Licence application in due course.

• AFR continued to assist TM Consulting (TMC) with work programs for the Mmamantswe Project to ultimately deliver a formal submission into South Africa's cross‐border IPP procurement program.

  • Land Rights application for Mmamantswe was submitted during the quarter.

• AFR executed a binding agreement to sell its Zambian uranium portfolio to TSX‐V listed GoviEx Uranium Inc. for consideration of 3.0M GoviEx shares and 1.6M common share purchase warrants.

• The sale of African Energy's uranium projects to GoviEx is subject to various regulatory approvals and is expected to close before the second half of July 2017

• At 31 March 2017, the Company had cash reserves of AU$3.9M.

• Finalise work programs to advance the Sese Project including;

  • An update to the Block‐C measured resource will be undertaken in Q2 2017.

  • Update the Environmental Approvals to allow up to 450MW of power generation.

  • Update the mining study to meet the requirements of a 450MW power project.

• Finalise documentation to apply for a Generation and Export License.

• Commence documentation of formal Tax Agreement with the Government of Botswana to recognise the fiscal incentives granted under the Manufacturing Development Approval Order.

• FQM are required to commit a further A$7.5M by 12 July 2017 to acquire an additional 20% interest in the project.

  Mmamabula West Project (100% AFR)

• Ongoing hydrogeological observations for the ESIA baseline study.

• Evaluate the results of the infill drilling and establish a measured resource in the proposed mining area for an initial 600MW power station fuel supply.

  Mmamantswe Power Project (100% AFR, operated by TM Consulting)

• Infill core drilling to upgrade central part of the resource to JORC 2012/SAMREC Measured Resource category.

• Continue Phase 2 of the feasibility study for the proposed coal mine and CHPP.

• Commence detailed power station design studies.

  Corporate

• Complete sale of Zambian uranium portfolio to GoviEx Uranium Inc.

1. Sese JV, Botswana (AFR 45%, FQM 55%)
2. Overview

   • FQM acquired a 51% interest in the Sese Project in January 2015 and can increase their interest in to 75% by investing a further A$7.52M by 12 July 2017.

   • Once FQM has reached a 75% project interest, AFR's ongoing 25% interest in all projects undertaken in the Sese JV will be loan carried through to commercial operation.

   • FQM spent A$0.96M in the quarter and has spent A$4.48M to date since their initial investment on January 2015 and currently own 55% interest in the Sese Project.

3. Technical Programs

   The following activities were undertaken during the quarter:

   Sese (PL96/2005)

   • Results from previously completed large diameter drilling and a thirteen‐hole infill core drilling program in the proposed mining area have now all been received (see Figure below for location of drilling programs).

• Analyses of the results from the large diameter core drilling have been used to prepare detailed fuel specifications for both CFB and PC boilers.

• These results plus the washing test work from the infill drilling have been used in a prefeasibility study to evaluate a coal processing and handling plant (CHPP) by JHDA. This study will be concluded in the next quarter and will provide capital costs estimates, operating cost estimates, process flowsheet and preliminary engineering drawings for a ~550tph CHPP.

• Selected samples from the large diameter core were sent to an Eskom facility in South Africa for combustion testing to evaluate how this coal will perform in a pulverised coal boiler. Results from this test work were highly encouraging, indicating the Sese coal is suitable for PC boilers.

• WSP Parsons Brinckerhoff completed an evaluation on the preliminary design and layout plans for a 450MW power station, including a comparative assessment of CFB vs PC boiler technology. Both technologies are suitable for consideration for Sese coal, and both produce power at a similar cost (within error), indicating that final technology selection will be down to best availability and pricing from individual original equipment manufacturers (OEM's)

• WSP Parsons Brinckerhoff completed preparation of a minimum functional specification to be used to obtain EPC quotes on costing for major project components from OEM's (e.g. boilers, steam turbines, generators, transformers).

  Sese West (PL197/2007)

• Analytical data from infill core drilling has been used to commence an updated resource estimate for a small proportion of the Sese West Inferred Resource. This work will be completed in Q2 2017.

  Foley North (PL004/2013)

• No field programs were undertaken during the quarter.

• Analyses from carbonate samples collected from drilling completed in 2016 have indicated that the local dolomitic marbles at Foley North may be suitable for sulphur emissions mitigation if used in CFB boilers, but that the quality of the marble is not suitable for use in a PC boiler.