Strategic Natural Resources

Strategic Natural Resources (SNRP) expects to start exporting coal next year from South Africa's Eastern Cape under a $200m (£125m) offtake deal. The AIM-quoted company, now headed by second generation South African coal trader David Nel, hopes to supply Luxembourg-based steel group Trasteel Holdings with an initial two million tonnes a year from mid-2012 to the end of 2014 at a margin of $20 to $30 a tonne, provided its Elitheni coal project can attract the $70m (non-equity) finance needed to take the project into production.

Nel, whose family is interested in a significant chunk of Strategic shares, suggests Elitheni's potential icould be far greater than the Trasteel contract alone implies. Not only is the coalfield well placed for rail and other infrastructure and eventual access to currently under-used ports, but the 150m tonnes of estimated resource there (45.6m tonnes measured with 45.5m tonnes indicated and 59.2m tonnes inferred) reflects drilling so far on only 3% of the whole prospect.

Strategic had originally planned to supply South Africa's fuel-starved domestic power generators, but says it switched to the export route when it became impossible to reach satisfactory deals with the local groups to which all parties would adhere. However, Nel does not rule out becoming involved with some ambitious domestic power schemes in years to come, if they look like coming to fruition.

Exporting coal under the Trasteel deal would represent a major milestone for Strategic, which lost £2.7m in the year to February but still has £2m in the bank. Floated at 30p in 2007, the shares now languish at 13.63p, where they could be with a high-risk medium-term punt if all goes well with Elitheni.