Harry: Hello this is Harry Norman for Proactive Investors. And welcome to another Proactive audio interview. Today is the 24th November 2010 and I’m talking with Jeremy Metcalfe, Communications Director of Strategic Natural Resources. Listed on the AIM market mining sector. Stock ticker SNRP, share price 15 pence. Market cap 15.59 million pounds sterling. Web address www.snrplc.co.uk.
Jeremy thank you very much for joining us for this interview.
Jeremy: Yes I’m looking forward to it Harry.
Please give investors a brief introduction to Strategic Natural Resources. And tell us how confident we can be that the company’s coal assets in the Eastern Cape coal fields of South Africa are world class.
The company went on the London Stock Exchange on AIM in August 2007 with the objective of finding a great deal of coal. And in the intervening period we have drilled an awful lot of holes. And we have found a tremendous amount of coal. Yet we’ve only drilled something like 3% of the total area that we have under our control.
Fairly early on we raised our game from a mere 15 million tonnes. We now stand at about 155 million tonnes. And by extrapolation it shows that we could be looking at something in the order of 3 billion tonnes of coal.
Now clearly we’re not going to get all of that out of the ground. But we may well get a billion tonnes of coal out of the ground in the future. And I would say that anyone with a 1 billion tonne extractable coal asset has to have a world class asset in their hands. And I think this is how we’re going to turn out to be.
On July 21st a resource update was announced for Elitheni Coal which is also the first phase of a bankable export feasibility study. Please talk us through this resource update and what it means for Strategic Natural Resources.
Well as I said in my earlier answer. We now have about 150 million tonnes of coal. Of that 150 million tonnes at least 30 million tonnes is considered to be entirely the right type of coal for export.
And so from that point of view it gives us considerable confidence that the export feasibility study that has been completed does show that we will be able to sell our coal overseas.
What are the local markets for Elitheni’s Coal and how accessible are these markets Jeremy?
Well a number of markets come to light. Clearly the biggest market of course is to provide coal to independent power companies so that they can make and sell electricity. South Africa is extremely short of electricity and will remain short over the coming years. So that is clearly a very big market for us.
We’ve also indentified a number of industrial users who, not being confident that they can always have access to electricity, have established their own burners and boilers to convert coal into electricity and heat and power. These are targets of ours and we will be supplying a number of those businesses over the coming years with considerable quantities of our coal.
And we have joined forces with one of the largest boiler makers in the world, Thermax and we will be announcing some fairly major contract details fairly soon.
On 30th September the logistics study on the transporting of coal from Elitheni Coal Mine to the port infrastructure in the Eastern Cape was published. Which was the second phase of Elitheni Coal’s export feasibility study. What did this study conclude Jeremy?
Well in order to export you’ve got to have a mining plan that works. And the mining plan is a very, very complicated business plan involving a huge number of calculations and , a huge number of safety factors. We have to be absolutely certain that we can get the coal out of the ground at an economic price so that it is then possible to put it on wagons and ship it down to East London where it will be put on to ships and eventually to the ultimate end user. We will be shipping mainly to countries like India, South Korea and, to some lesser extent, to China.
What are the conclusions of the third and final phase of the Elitheni Coal Export Feasibility Study which focused on washability and market applications? And what conclusions do you draw from this study?
Professor Falcon who is a renowned coal expert has given her conclusions. And we’re very pleased to note that our coal quite clearly is not only exportable but it has high metallurgical properties. In other words it can be used very successfully in the smelting process as a reductant. It is also suitable for export to countries like Turkey where they use this type of coal for heating purposes.
And of course it is entirely suitable for burning in fluidised bed boilers. These are the beasts that create massive electricity. So yes lots of good uses.
What are Strategic Natural Resource’s Black Empowerment arrangements Jeremy?
We have just concluded a phenomenally interesting and very, very good deal with Mr Stone Sizani and his company. Under South African law every mining company has to have a Black Empowerment partner. They have to have, in total, 26% of the share capital.
Mr Stone Sizani is currently a member of parliament in the South African government. He’s a highly respected man. He’s spent time on Robben Island at the same time as Mr Nelson Mandela. And what’s more, his organisation has put money in to our company.
Not only have we got a man who is highly respected. But he’s made a very substantial investment. There aren’t many small AIM companies that can boast such a good result.
What is Strategic Natural Resource’s cash burn? And what is the company’s financial situation going forward Jeremy?
Well, we are very economic with the money we spend. It’s running at about £100,000 per month. I suppose if you break that down, 80% of that is expended in South Africa and 20% here in the United Kingdom. We have a good runway, of probably just over a year at the moment on the existing money that we have in the treasury. As the Black Empowerment cash comes in then of course that will increase our runway considerably.
Cash is not a problem at the moment although eventually we will need to raise further money. But mostly by way of a bankable feasibility study ie we’ll raise money through bank debt. But at the moment we are well funded and we’re going forward as fast as we possibly can.
What can investors expect from Strategic Natural Resources over the next 12 to 18 months?
I suppose the one thing that most people are looking for and indeed we are keen to announce are offtake agreements. Offtake agreements of a substantial nature for our coal. For example in a power station an offtake agreement could amount to something in the region of 2 million tonnes of coal a year over a 25 year period.
We will be announcing export offtake agreements ranging from half a million tonnes rising to 2.5 million tonnes per year. Offtake agreements to supply large factories using commercial boilers using our coal. from 400 to 500 maybe 5,000 tonnes of coal per month for some of them. And offtake agreements to supply the domestic market generally.
So there’ll be a lot of announcements coming out. At the moment I think it’s fair to say that our company is very undervalued for what we have. And I suspect that as these announcements are made people will begin to realise that Strategic Natural Resources really is a company to be reckoned with.
Who are Strategic Natural Resources’ major shareholders and how are your relationships with them?
Our major shareholder I suppose at the moment is Coal of Africa and it’s very good to have a good commercial coal operator as a share holder with us. We work together on a number of fronts.
The next biggest shareholders of course are the family of Nel, Barry Nel and his son David through their company Southern Cape Corridor, they’ve got about 15%.
And then really the rest of the shareholders that aren’t directors are held by a lot of nominee companies. And it’s sometimes quite difficult to know who they are. But I think most of them are there, I hope, for the long term.
Do you anticipate any mine reclamation issues or community issues at Elitheni Jeremy?
None at all is the short answer to that. We are very well supported by the local community. The local community I’d like to point out have got an unemployment level, of approximately 98.9%,.This is an absolutely huge level of unemployment.
So, by bringing this mine in to life and by employing maybe 1,000 to 2,000 people those 2,000 people will generate something like 15,000 other jobs in the local area.
So the support we are getting from the municipality is absolutely terrific. And bear in mind this is an adit mine, ie we go in at the side of this mountain and extract the coal straight out on to conveyors into lorries or directly into the power station or into rail trucks, there’s very little reclamation that will be required.
Bear in mind this mine will be active probably for the next 50 to 100 years. It’s a big mine and it’s going to provide a huge number of benefits for the local people.