News & Analysis

Strategic Natural Resources Plc (SNRP: AIM) review and analysis

By PSQ Analytics

Strategic Natural Resources Plc (Strategic) was founded in 2004 as a vehicle to develop, own and manage natural resource extraction enterprises in South Africa. The company is headquartered in London, UK and was admitted to AIM on 7 August 2007.

The company currently engages in mining and exploration of coal in South Africa through its subsidiary, Elitheni Coal (Pty) Limited (Elitheni). Elitheni holds prospecting rights over approximately 185,000 hectares (ha) area in the Eastern Cape coalfield in South Africa, demarcated into Phases 1, 2, 3, 4 and 5. The current total prospective rights area is a notable increase from the initial 9,238 hectares granted in 2005 under Phases 1 and 2. Phase 5 prospecting rights area (named “Project Indlovu”) of 119,374 ha have been awarded in November 2009.

Elitheni holds full and exclusive new order mining rights on Phases 1 and 2 and full and exclusive new order prospecting rights on the remaining Phases 3, 4 and 5 areas. The full mining licence authorizes Elitheni to access all the coal in its Phase 1 and 2 prospecting rights area which was initially estimated to contain approximately 15 Mt of coal, but further drilling has raised the resource to approximately 92.7 Mt (only 5.0% of the area under license has been drilled so far). Of this, extractable coal is conservatively estimated at 52 Mt.

In October 2008, Elitheni signed a coal supply contract with Indwe Power (Pty) Ltd, a subsidiary of IPSA Group PLC, to supply one million tonnes of coal per annum for 25 years to Indwe Power’s 250MW electrical power plant to be located at the mine mouth of Elitheni’s coal deposit at Indwe. The plant is due to be commissioned in 2011. In the meantime, Elitheni is targeting brickyards, metallurgical markets and the local heating market for supply of coal locally. Towards this, Elitheni has established 20 small depots in the local area to sell coal and is planning to set up a further 80 depots.

Strategic is also making inroads into the industrial boiler market, having entered into strategic partnerships with contractors and designers to convert existing boilers into fluidised bed boilers that can use Elitheni’s coal. Strategic reckons there are around 300 boilers in the Western and Eastern Cape regions that could save up to 20% per annum in fuel costs by making the switch.

Key recent news

8 February 2010: Announced the appointment of David Nel as the company's Chief Executive Officer, in succession to Jeremy Metcalfe who would remain on the Board of Strategic and serve as Communications Director.

25 November 2009: Announced that its 74%-owned subsidiary, Elitheni, has been awarded an additional 119,374 ha of exclusive new order prospecting rights in the Eastern Cape coalfield (under Phase 5 named “Project Indlovu”), taking the total prospecting rights area to approximately 185,000 ha. These additional rights were granted in response to the heightened local market coal demand in the region besides increasing demand for export coal in South Africa.