JOHANNESBURG (miningweekly.com) – Aim-listed Strategic Natural Resources (SNR) says it will, by early July, have sufficient volumes of coal from its 74%-owned Eastern Cape-based Elitheni mine to honour an existing offtake agreement.

The company reported in March that key delivery targets at the mine had been missed, which resulted in a failure to meet planned coal shipments to offtake partner Trasteel International South Africa for late January and early February.

However, CEO Gabriel Ruhan said on Friday that an operational review of the mine that had since been undertaken had dealt with the start-up and commissioning challenges, adding that mining production levels had now increased.

“The review, which involves both internal and external experts, is ongoing, but the initial recommendations have and are being implemented and mine site productivity benefits are already being seen,” he commented.

In line with the initial recommendations of the review, mining operations were reduced during the latter half of April, while corrective interventions and modifications were made to the wash plant.

The company is currently mining with a single continuous miner section and is planning to start two additional drill and blast sections prior to the end of the calendar year.

SNR has, thus far, drilled some 6% of the Elitheni licence area and will continue with its drilling programme over the next 12 months with a view to increasing future production.

“Our desire to increase future production is balanced by the current low price of coal, which we expect will recover over the next 18 to 24 months,” said Ruhan.

The company’s business structure and future mine planning are designed to facilitate the acceleration of production as coal prices improve.

“While our profit is marginal at current price levels, it is worth producing coal to prove up our logistics and establish our position as an emerging coal miner with exciting potential, given our significant geographical and logistics advantage in South Africa,” he noted.

He believed that the Elitheni mine now provided a strong business case to allow for the construction of a coal-fired power station to help tackle the power shortages in the region.

“The South African government has demonstrated its commitment to the long-term development programme in the Eastern Cape, as evidenced by the recent construction of the nearby $2-billion port at Coega.

“We believe that a coal-fired power station is a logical and essential continuation of this development programme to bring the infrastructural capacity of the Eastern Cape up to the same standard as other parts of the country,” he said.

As the sole coal-producing mine in the Eastern Cape, SNR would look to advance a coal power strategy partnership in 2014.

In the shorter term, the company remained focused on raising further finance to aid it in the implementation of its development strategy, enable it to repay its existing finance facility with funder Land Consultants. and meet ongoing working capital requirements.

The company said in May that it had been approached by, and had held discussions with, a number of parties  – including international coal companies – who had expressed an interest in developing its coal resources in the Eastern Cape.

“Discussions with several potential strategic investors are progressing well and we remain confident that an investment deal will be concluded with the right partner before the end of July," Ruhan said.

SNR made a loss of £2.53-million for the year ended February 28, as a result of the additional corporate overhead required to fund increased business and operational activities, the company said in an interim results statement on Friday.

Long-term assets increased by between £13.2-million and £20.45-million, attributable to the capitalisation of development costs, related capital equipment and the capitalisation of the containers.

All associated development costs would be amortised over the anticipated life expectancy of the Elitheni mine and the underlying mining resources.