African Energy Resources Guernsey : September Quarterly Activities and Cashflow Report

30 October 2017

QUARTERLY ACTIVITIES REPORT FOR THE PERIOD ENDED 30 SEPTEMBER 2017 HIGHLIGHTS

• First Quantum Minerals Ltd ("FQM") increased its shareholding in African Energy to 13.8% via an equity placement of A$1.38 million at 7.8 cents per share.

• The period for FQM to invest a further A$5M and earn a 75% interest in the Sese JV was extended to 8 July 2018 at which time if firm arrangements for wheeling power are not in place the commitment date may be extended by a further 12 months.

• 5,985,886 shares in ASX‐listed Caravel Minerals (ASX:CVV) ("Caravel") were transferred from FQM to African Energy in part consideration of the 12‐month extension. Caravel shares are currently worth A$0.33M.

• The Sese JV earn‐in period extension was requested by FQM in order to negotiate suitable transmission agreements with the relevant southern African power utilities and to secure a Generation and Export licence from the authorities in Botswana.

• An application for a Generation and Export Licence was submitted to the Botswana Energy Regulation Authority (BERA) for first review.

• An extension of the Mmamabula West prospecting licence to 30 September 2019 was granted.

• At 30 September 2017, the Company had cash reserves of AU$4.5M.

  OUTLOOK FOR NEXT QUARTER Sese JV (39% AFR)

• Advice regarding the application for a Generation and Export Licence is expected from BERA.

• Update to the Measured Resource in Block‐C at Sese.

• Amendments will be made to the approved Environmental Impact Assessment to accommodate 500MW of power generation

• Continue engagement with regional power utilities to finalise commercial agreements for power wheeling and transmission into Zambia

  Mmamabula West Project (100% AFR)

• Ongoing hydrogeological observations for the ESIA baseline study.

• Submit updates to the Environmental and Social Impact Assessment to the Department of Environmental Affairs in Botswana

• 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 a portion of the coal resource to JORC 2012 Measured Resource category.

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

• Commence detailed power station design studies.

  Corporate

• The Company is seeking shareholder approval for an on‐market share buyback at the annual general meeting to be held on 23 November 2017.

• The sale of African Energy's Zambian uranium projects to TSX‐V listed GoviEx Uranium Inc. (Goviex) awaits consent by the Zambian Minister of Mines as the only outstanding condition precedent. African Energy will receive 3.0M GoviEx shares and 1.6M common share purchase warrants upon completion of the sale.

PROJECT 1 Sese JV (AFR 39%, FQM 61%)

1. Overview

   • FQM spent A$0.25M in the quarter and has now spent A$5.3M since their initial A$8M investment and have earned a 61% interest in Sese JV.

   • FQM have agreed to invest a further A$4.75 million to reach a 75% interest, after which AFR's ongoing 25% interest in all projects undertaken in the Sese JV will be loan carried through to commercial operation.

     1.2 Sese (ML 2016/42ML, PL96/2005)

   • The independent resource consultant has integrated data from recent technical programmes into the existing resource model and will prepare an update to the Measured Resource in the next quarter. This update includes more detailed drilling than previous Measured Resource estimates, and will be to JORC 2012 standard. The revised resource estimate will provide the basis for a mining reserve statement in due course.

   • Technical studies for the Sese coal and power project have largely been completed to prefeasibility standard.

   • Detailed engineering studies and completion of a formal mine plan will be completed once commercial aspects of power wheeling and transmission have been finalised.

   • African Energy is assisting FQM on the commercial aspects of power wheeling and transmission, including engagement with the regional power utilities, the Southern African Power Pool and SADC Energy Regulator.

1. Permitting:

   • A fully detailed application for an electricity Generation and Export License was submitted to the Botswana Energy Regulation Authority (BERA) in July. Follow up meetings have been held with BERA, with more expected in the next quarter.

   • A Water Supply Agreement was executed on 1st August 2017, securing water supply to the Sese project for a 30‐year term.

   • The Ministry of Finance and Economic Development has 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.

   • Sese Power will formalize this approval through a Tax Agreement to be approved by Botswana's National Assembly, following which the Tax Agreement will become a Statutory Instrument that will form part of the Subsidiary Legislation under the Income Tax Act.

   • An application for a Transmission Connection and Use of System agreement was made to Botswana Power Corporation.

   • Preliminary discussions on the transmission/wheeling of power from Botswana through Zimbabwe and into Zambia have been heldo with Botswana Power Corporation and the Southern African Power Pool.

   • The approved 300MW Environmental and Social Impact Assessment for the Sese Integrated Power Project is being updated to seek supplementary approvals for up to 500MW of power generation (staged development of 2 x 225MW units) and the associated minor increase in volumes of coal mining and processing and airborne emissions.

2. Sese West (PL197/2007)

   • Resource modelling and estimation calculations completed to upgrade the north eastern corner of the prospecting licence to measured resource status. Documentation of the measured resource update is being finalised.

3. Foley North (PL004/2013)

   • No field programs were undertaken during the quarter.

1. Mmamabula West Project, Botswana (AFR 100%)

   • The Mmamabula West project contains two ~5m thick coal seams (K‐Seam, A‐Seam) and is being developed as an integrated underground coal mine and 600MW power station for submission into the South African cross‐border IPP procurement program.

   • A two‐year extension to the term of Mmamabula West Prospecting Licence PL56/2005 was granted by the Botswana Department of Mines. The licence is valid until 30 September 2019.

   • Ongoing hydrogeological baseline studies were recorded during the quarter.

   • In August, information was provided to the Department of Environmental Affairs (DEA) covering; coal, fuel and ash material movement between the proposed mine, coal processing facilities and the power station.

   • In September a revised drafting of the EIA was shared with the DEA for review.

2. Mmamantswe Integrated Power Project, Botswana (AFR 100%)

   • The Mmamantswe project is 20km from the border with South Africa and has been previously evaluated by Eskom for integration into the South African grid.

   • In December 2015, the Company executed a binding Share Sale Agreement under which it will sell the Mmamantswe Coal and Power project to TM Consulting (TMC) for US$20 million, subject to certain conditions being met, principally the financial close of a 600MW integrated power project.

   • A joint development agreement between TMC, OEM, EPC contractor and funding parties is close to finalisation.

   • Once finalised, further drilling will be undertaken at Mmamantswe to upgrade a portion of the measured resource (JORC 2005) to JORC 2012 and SAMREC 2012 standard.

   • The Mmamantswe Prospecting Licence PL69/2007 is valid until 31st December 2018.

   • An application for Land Rights over the project area, project access corridor and grid connection corridor has been submitted.