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 executes US$65m coal hedged debt agreement with ABSA Capital
Continental Coal’s (ASX: CCC) South African subsidiary has secured US$65 million (A$60.2 million) in aggregate debt funding with ABSA Capital and a subsidiary of Barclays Bank to fund the Penumbra Coal Mine development.
As part of the debt funding with ABSA Capital, Continental has implemented a coal and foreign exchange hedging program to mitigate its exposure to a sustained fall in US$ coal prices or an appreciation of the ZAR:US$.
Importantly, the coal hedging represents only 12% of the JORC Reserves at the Penumbra Coal Mine and provides upside to any rise in thermal coal prices, as well as providing operating flexibility.
Continental has hedged about 664,550 tonnes of coal over the life of the term loan facility at an average price of ZAR1,057 (A$129.32) per tonne.
The hedging has been achieved at a 23% premium to the current spot price of around ZAR860 per tonne and at a 54% and 53% premium to the average three and five year prices of ZAR685 per tonne and ZAR692 per tonne respectively.
Continental is in the process of satisfying the remaining conditions precedent to the first draw down of the US$35 million, seven year project loan facility to fund the Penumbra Coal Mine development, scheduled to be completed later this quarter.
Drawdown of the funding will begin upon Continental funding up-front the balance of the project’s development costs not met from the US$35 million tranche from its existing cashflow and once it has satisfied the few remaining conditions precedent.
Continental Coal chief executive Don Turvey said, “The finalisation of the loan financing agreements with ABSA Capital, a division of ABSA Bank Limited, one of South Africa’s largest financial service providers, under the current volatile capital markets is a key milestone in the growth of our company and a further sign of support for our coal mining strategy in South Africa.
“To have already satisfied a number of the key conditions precedent and have agreed the draw down schedule of the US$35 million project loan facility is also a major step forward in the development of the Penumbra Coal Mine.
“In addition the establishment of the coal hedging program for the Penumbra Coal Mine, at average coal prices of ZAR1,057 per tonne, provides us with extremely robust margins to the forecast total FOB costs of approximately ZAR490 per tonne that were reported in the recent SRK Competent Persons Report on the Penumbra Coal Mine.”
Penumbra Development
Continental is accelerating development of the Penumbra Coal Mine in South Africa.
The first decline development blasts have been successfully completed with the development of the twin declines continuing at a rate of about 2.2 metres of advance every second day in each decline.
The Penumbra Coal Mine, which is on schedule and on budget, is forecast to produce annual run of mine production of 750,000 tonnes.
Coal produced from Penumbra will be beneficiated through the existing Delta Processing Operations which comprise a 1.8 million tonne per annum coal processing plant and the 1.2 million tonne per annum Anthra Rail Siding.
Continental is forecasting production of 500,000 tonnes per annum of a primary export thermal coal product.
Importantly for Continental, Penumbra is forecast to double export thermal coal sales and group earnings in 2012.
The company has a current run of mine production of 2 million tonnes per annum of thermal coal with sales to the international export and domestic markets.
Continental’s goal is to achieve 7 million tonnes per annum of run of mine coal production in 2013.
