‘A unique story’

Com­ing to the mar­ket with coal and tied mar­kets

Finweek English Edition - - Companies & Markets - Al­lan Secco mbe

STRATE­GIC NAT­U­RAL RE­SOURCES (SNR) has, in its opin­ion, a unique coal in­vest­ment op­por­tu­nity for South African in­vestors when it lists be­tween now and end-March 2009. SNR is a Lon­don AIM-traded com­pany with a large land pack­age at Indwe in the East­ern Cape, 90km north-east of Queen­stown. It’s de­vel­op­ing a coal project where no other com­mer­cial com­pa­nies are op­er­at­ing and it has a tied mar­ket with in­de­pen­dent power com­pany IPSA Group (Ipsa), says SNR COO David Nel.

Ipsa will build a 250MW power plant near the first of SNR’s pro­posed mines and the two have an agree- ment to source coal from the mine for an­other 750MW of power gen­er­a­tion, both at the mine and else­where in the prov­ince close to the cities of Port El­iz­a­beth and East Lon­don.

SNR plans to se­cure off-take agree­ments with com­pa­nies in the East­ern Cape cur­rently sourc­ing coal at more ex­pen­sive rates from SA’s in­land coal­fields. Those are com­pa­nies that gen­er­ate steam or use coal to pro­duce other prod­ucts.

SNR isn’t looking at a JSE list­ing to raise a lot of cash.

In the cur­rent mar­ket en­vi­ron­ment ju­nior ex­plo­ration and de­vel­op­ment com­pa­nies are bat­tling to raise cap­i­tal. This will no doubt be more so now that the ex­tent of the sub-prime mort­gage credit cri­sis has be­come more ap­par­ent, with big-name ca­su­al­ties in the United States dam­ag­ing sen­ti­ment world­wide.

SNR listed on the AIM in Au­gust 2007 at 30p/share, giv­ing it a mar­ket cap­i­tal­i­sa­tion of £19,5m (around R288m). Like many ju­nior com­pa­nies its price has fallen: it’s now at 23p/share, giv­ing it a mar­ket cap of just be­low £15m (around R121m).

Says Nel: “SNR isn’t looking at a JSE list­ing to raise a lot of cash; it’s to give in­vestors an op­por­tu­nity to in­vest in the com­pany.” The list­ing would raise some cap­i­tal but “we’re talk­ing barely tens of mil­lions. We’re not com­ing to the mar­ket as an ex­plo­ration com­pany hop­ing to find coal to sell in a buoy­ant en­vi­ron­ment,” adding that due to the slow ram­pup to full pro­duc­tion, cap­i­tal ex­pen­di­ture should be “very low”.

“We think we’ve got a unique story – ty­ing in power and en­ergy. We’re com­ing to the mar­ket with coal and tied mar­kets, with ex­pe­ri­enced op­er­a­tors in those mar­kets. No other coal com­pany can com­pete with us in the East­ern Cape be­cause of the 1 000km be­tween there and other coal­fields,” Nel says.

SNR raised the equiv­a­lent of R45m on AIM to ex­plore and be­gin lim­ited pro­duc­tion at its Elitheni coal prospect. It’s also sold a 26% stake in the project to two empowerment part­ners for R70m (see story on p 29).

No com­pe­ti­tion. David Nel

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