Continental Coal (ASX: CCC) is an established South African thermal coal producer, with a portfolio of producing and advanced coal projects located in South Africa's major coal fields. The company has two operating mines, Vlakvarkfontein and Ferreira, producing 2Mtpa of thermal coal for the export and domestic markets.
Continental Coal gets BUY recommendation from Old Park Lane Capital with $0.13 price target
The following is an extract from the London based Old Park Lane Capital research report on Continental Coal (ASX: CCC).
Continental Coal (ASX: CCC) represents an attractive investment opportunity as the company transitions from a junior to mid-tier thermal coal producer.
The transformational Mashala Resources acquisition provides immediate export production and access to rail and port infrastructure.
With an excellent project pipeline, the company should have four mines in production within the next 18 months and aims to produce at a rate of 7 Mtpa ROM coal by 2012.
The company is ideally placed to take advantage of the strong outlook for thermal coal prices and as Continental ramps up production, we would expect a significant re-rating of the stock.
The fractured nature of the junior coal sector in South Africa represents an opportunity for Continental in terms of access to infrastructure and consolidation through further acquisitions in the coal space.
Continental is also investigating diversification and expansion into other countries within Southern Africa with a focus on near term production assets.
The company has an impressive pipeline of robust, long life projects and within 18 months, Continental should have four mines in production with Penumbra next in line, followed closely by De Wittekrans.
The De Wittekrans Complex represents an unrivalled opportunity to develop a world-class mining camp which we believe is not reflected in the current share price.
In Botswana, a 6 to 7 Bt exploration target provides blue sky option value to which we currently assign no value but believe offers the potential for significant upside.
Continental has secured a pivotal financing and off-take arrangement with EDF Trading, the world’s largest power utility which covers 100% of export production from Ferreira, Penumbra, and De Wittekrans.
Key catalysts include: Penumbra mine development, completion of the De Wittekrans BFS, completion of the proposed AIM listing, and further strengthening of export thermal coal prices.
Based on our net asset valuation, we are initiating coverage on Continental Coal with a short term price target of A$0.13 per fully diluted share.
We have been highly conservative in both our valuation and coal price forecasts and we are confident that there will be significant upside throughout 2011.
