LONDON (Alliance News) - Strategic Natural Resources PLC, which indirectly owns 74% of Elitheni Coal (Pty) Ltd, Wednesday said it has agreed to take a 40% net revenue interest in the deeded mineral rights of the Torrance, California oilfield, as it looks to diversify its asset portfolio.
Strategic Natural is seeking shareholder approval to buy the ownership rights for GBP44.0 million, subject to a competent persons report delivering the expected reserves. It plans to pay for the acquisition by issuing a GBP40.0 million loan note, GBP1.0 million in cash and GBP3.0 million in shares at 5 pence each. It intends to repay the loan note from its share of production revenue.
Interest will accrue on the loan note at 8% on a yearly basis and will be capitalised so as to also be repaid from future production revenues.
The natural resources developer, which operates in South Africa, said the Torrance Petroleum Company, owned and run by Blair Merriam, who is becoming Strategic Natural Resources' chief operating officer, has a 520 acre oilfield site in Torrance, California with a proven and probable oil reserve. It said a 2009 report confirmed proven and probable reserves and in the coming weeks, a petroleum consultancy firm based in Houston, Texas will deliver to Torrance Petroleum a new and updated competent persons report.
Torrance Petroleum Company expects that the proven reserves with a 90% chance of retrieval and commercial viability will be in the region of 20 million barrels.
"It is anticipated that the CPR will demonstrate significant asset value and therefore, once in production, significant revenue streams and profits for SNR shareholders," Strategic Natural said in a statement.
"In the meantime, it is hoped that upon satisfactory conclusion, the asset will be seen by shareholders and investors as a significant investment opportunity. It is anticipated that the CPR will deliver similar asset value to SNR's existing coal mining interest in South Africa and therefore, majorly enhance the overall asset value of the company," Strategic Natural added.
Strategic Natural also said that adding a proven and probable oil and gas reserve ensures it will be less exposed than when it was a single asset company. It said it intends to pursue other assets to bring in, and that discussions are currently ongoing.
It said the proposed asset diversification is helping it in attracting inward investment into Elitheni/SNR. It said the the potential investment sums being discussed are significant.
"The board feels this is a strong early indication of appetite for potential investors to join forces with SNR and to see the company and its shareholders prosper. These investors are significant multi-billion pound investors on both the African continent and globally," Strategic Natural said.
Strategic Natural also disclosed that Director Gavin Bonnar has decided to resign, though he will continue to engage with the company on an "ongoing basis" through a consultancy agreement. Finance Director Michael Shore has now been appointed chairman of both Strategic Natural Resources and Elitheni Coal (Pty) Ltd. Mark Rosslee, who was Strategic Natural Resources' finance director between October 2012 and October 2013, is re-joining the board.
"Mark brings immense mining and finance knowledge generally and specifically in relation to Elitheni. This, together with his breadth of contacts and understanding of business in South Africa makes this a hugely positive step forward for the company," Strategic Natural Resources said.
The changes are in addition to Blair Merriam's appointment as the company's chief operating officer.
Strategic Natural shares were untraded at 2.875 pence on Wednesday.
By Samuel Agini; samagini@alliancenews.com; @samuelagini
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