Review of Operations
Continental Coal Limited (ASX:CCC/AIM:COOL/US-OTCQX:CGFAY) is a South African thermal coal producer with a portfolio of producing and advanced coal projects located in South Africa's major coal fields.
Continental currently has two operating mines, Vlakvarkfontein and Ferreira, producing 2Mtpa of thermal coal for the export and domestic markets. In 2011/12 Continental is set to commence development of two further thermal coal mines. Continental is targeting a ROM production rate of 7Mtpa by the end of 2013.
The Company has concluded strategic off-take and funding agreements with EDF Trading for its export thermal coal production and recently signed a joint development agreement with KORES, Korea's state mining and exploration company.
Export Coal Off-take Agreements
Continental Coal has entered into a 20 year Coal Supply Agreement with EDF Trading under which EDF Trading will purchase at the benchmark API4 Coal Price the company's production of a high quality export thermal coal delivered FOB at the Richards Bay Coal Terminal. The company is currently selling its production of export thermal coal from the Ferreira Coal Mine to EDF Trading and future production from the Penumbra Coal Mine is also planned to be sold to them.
Under the terms of the Heads of Agreement EDF Trading also agreed to provide the Group with a US$20 million coal loan through an advance purchase of forecast thermal coal exports.
EDF Trading is a leader in the international wholesale energy markets. It is a wholly-owned subsidiary of EDF S.A., and with its own portfolio of assets, combined with those of the EDF Group businesses, it has the ability to source, supply, transport, store, blend and convert physical commodities across the wholesale energy markets.
Future Developments, Prospects and Business Strategies
To further improve the group's profit and maximise shareholders' wealth, the following developments are intended to be implemented in the near future;
- The Group will continue to expand its coal interests in South Africa. It has established its first operating coal mine, namely Vlakvarkfontein; acquired and successfully operated the Ferreira Coal Mine since November 2010; commenced construction of the Penumbra Coal Mine in September 2011 (targeting first export coal production in 2H 2012); and has entered into a binding heads of agreement to acquire 100% of the shares in unlisted South African mining and export coal producing group Mashala Resources; and
- The Group will develop these assets to production through its South African subsidiary Continental Coal Ltd.
These development opportunities, together with the current strategy of continuous improvement and an adherence to quality control in existing markets, are expected to assist in the achievement of the group's medium-term goal of developing highly prospective coal resources in South Africa, with early cash flow to fund its ongoing financial requirements and minimum equity dilution.
- Strong operating and financial performance set to continue following maiden profit and record earnings achieved in 1H 2011/2012
- 1.2Mtpa of domestic sales from Vlakvarkfontein and 600,000tpa of high quality exports from Ferreira Coal Mine through the Richards Bay Coal Terminal
- Ferreira Coal Mine extension to mine life with acquisition of adjacent resources
- First coal production and sales of 500,000tpa from Penumbra Coal Mine of high quality export thermal coal from Richards Bay Coal Terminal in 2H 2012
- Finalisation of optimised BFS for De Wittekrans Coal Project and decision to proceed with development decision in 2H 2012
- Completion of pre-feasibility study, upgrade of JORC resource and commencement of BFS for Vlakplaats Coal Project
- Results from 60 hole exploration program and potential for strategic joint venture for Botswana thermal coal leases
- Further consolidation and expansion into Southern Africa and other major global coal producing regions, including Colombian coking coal