‘A unique story’
Coming to the market with coal and tied markets
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