Johannesburg - South African investors will soon have a new coal play to invest in, one that its chief operating officer reckons has aspects that sets it apart from its peers.
In the current market environment junior exploration and development companies are battling to raise capital. It will no doubt be more so now that the extent of the sub-prime mortgage crisis has become more apparent, with Lehman Brothers filing for bankruptcy and the US Fed bailing out other large financial institutions.
SNR could list anywhere between the end of the year and end-March.
SNR's chief operating officer David Nel reckons the AIM-traded company offers a different prospect to other junior coal companies in South Africa, which have brought projects to the market to take advantage of high coal prices on the domestic and export markets.
It is also the only commercial miner with a project on the Eastern Cape coal fields, which were exploited from the mid-1800s into 1900 before the focus shifted to the thick, rich seams in Mpumalanga and elsewhere.
"We think we've got a unique story, tying in power and energy. We are coming to the market with coal and tied-markets, with experienced operators in those markets," Nel told Miningmx.
SNR, which listed on London's Alternative Investment Market (AIM) in August 2007, raised the equivalent of R45m to explore and begin limited production at the Elitheni coal prospect in South Africa's Eastern Cape province. It has also sold a 26% stake in the project to two empowerment partners for R55m.
An independent power company in South Africa called IPSA has struck an agreement with SNR to build a 500 megawatt (MW) power plant near the mine and has an agreement to source coal from the mine for another 500 MW of power generation elsewhere in the province, close to the cities of Port Elizabeth and East London.
The initial offtake from IPSA will be one million tonnes per annum (mtpa) from 2011 and tripling over five years. SNR is talking to rail utility Transnet about upgrading the line that run through the property and joins up to the main line feeding the port cities.
The improved rail line is important because SNR says it can supply coal to companies investigating the construction of ferro-manganese plants at the Coega harbour and industrial development zone near Port Elizabeth.
Not only that, but there are small industrial companies in the region that use steam in their business. These are either using expensive electricity powered boilers or are buying coal from the mines 1 000 km away in Mpumalanga province.
SNR could supply up to 500 000 tonnes/year of metallurgical coal and another 200 000 to 300 000 tonnes to small domestic users like brick makers. The steam market for domestic businesses could be a market starting at 300 000 tonnes/year.
The steam market figures are based on about five percent of the available domestic market, Nel said.
SNR expects to be awarded a mining right for the first block of land its explored covering 9 300 hectares before the end of 2008. It has started early mining for test work on about 500 tonnes of coal.
This block of land is expected to yield 100 million tonnes of measured resource.
There are a further 27 000 hectares for which it has prospecting rights and has explored for nine months. There are another 26 000 hectares for which it has submitted a prospecting application.
The coal seam there which is on average 1 to 1.3 metres thick and lies 100 metres below surface. SNR needs to construct horizontal adits to exploit the coal.
SNR has also submitted applications for coal fields 60 km way covering 190 000 hectares. This is also thought to be relatively narrow seamed deposits.
- Miningmx.com
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