Under the deal FQM can earn a 75% interest in Sese by investing $A20 million and arranging finance as a loan carry for AER’s 25% interest in the project.

Of the funds FQM invests in the project, $8 million will be returned to AER as loan repayments.

FQM has also agreed to subscribe to 69 million AER shares through a private placement at A5.5c a share to raise about $3.8 million.

Through this placement FQM will have about 12.6% of AER and will be entitled to appoint a representative to AER’s board.

The placement also includes 13.8 million options – one option for every five shares held – exercisable at 10c within three years. Those options will be issued subject to shareholder approval at a general meeting to be held next month.

AER’s board has also resolved to undertake a non-renounceable rights issue to all eligible shareholders aiming to raise another $A3.75 million. The rights issue will also be priced at 5.5c a share.

If the rights issue comes off AER will be left debt free and with about $10 million in working capital with a 25% carried interest in the Sese project.

AER has a 2.5 billion tonne coal deposit at Sese in Botswana.

SIPP will have the potential to supply power to Botswana, Zambia, South Africa and Namibia.

There are two key conditions attached to the heads of agreement and they need to be satisfied within 30 days.

The first is FQM completing due diligence on AER and the second is the execution of the shareholder agreement.

So far AER has completed phase one of the definitive feasibility study to evaluate the coal mine to provide fuel for an initial 300 megawatt power station. No further technical studies are needed until a boiler manufacturer has been chosen.

An environmental impact assessment for the first 300MW integrated power project and coal mine at Sese was approved by the Botswana Department of Environmental Affairs on September 1. That is valid for project initiation within five years.

A water allocation of up to 2.8 gigalitres per annum from the nearby Shashe Dam has been approved for project use. That amount of water is sufficient for about 750MW of power generation and associated coal mining.

Additional water resources can be secured from Shashe Dam for further projects.

Surface rights have been approved over an area covering enough coal to fuel five 300MW power projects along with access to the main highway, rail and power transmission lines.