Continental Coal (ASX: CCC) has secured a competitive committed offer of finance for the construction and working capital requirements of its Penumbra Coal Project in South Africa, enabling development to commence in June 2011.
The credit approved and committed financing offer will provide debt and related coal and foreign exchange risk management facilities for the project, which will be Continental's third mine.
In conjunction with other existing unsecured debt facilities, proceeds from the previously announced sale of its shareholding in Vanadium and Magnetite Exploration and Development Co (SA) (Pty) Limited, and available funds, the facility is sufficient for the company to commit to the project.
The facility comprises a 4 year, US$25 million secured project loan facility, repayable on a quarterly basis following first production, and associated risk management facilities to hedge the company’s US$:ZAR exposure and the risk of a sustained fall in thermal coal prices.
Jason Brewer, Continental’s executive director, said “Continental has secured a highly competitive and attractive committed offer of finance. The competitive nature of the financing and the substantial level of interest from international investment banks has resulted in the company having received this committed offer of finance on considerably better terms and covenants than it had been offered late last year.”
Continental will not require to drawdown on the secured debt funding until the September 2011 quarter as its initial funding requirements will be met first from existing unsecured debt facilities and available cash funds.
Drawdown of the facility will be subject to satisfactory loan documentation and conditions precedent that are standard for a facility of this nature.
Agreements have been reached with key landowners securing access to the site and construction of all related surface infrastructure, and mobilisation of key contractors to complete the surface site construction, civils and earth works and the initial excavation of the decline shaft will commence shortly.
The Penumbra Coal Project is forecast to produce 500,000 tonnes per annum (tpa) of a primary export thermal coal product and 120,000tpa of a secondary domestic quality thermal coal product.
Significantly, export thermal coal will be railed from the company’s existing rail siding, through to RBCT under existing rail contracts with Transnet Freight Rail and sold to EDF Trading under the Company’s existing coal off take agreement.
Average total FOB costs, for the primary export coal product, of about US$61/t in real 2009 terms are forecast over the mine life.
The company now expects first coal production from Penumbra in early 2012, ramping up to reach full production in the third quarter of 2012.
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.
Today's news is in addition to yesterday's announcement that Continental Coal's initial exploration drilling program for its Serowe and Kweneng thermal coal projects in Botswana has been finalised following receipt of a report from the company’s independent South African consulting geologists.
Tender documents have also been received from the Kenyan Ministry of Energy for 4 coal concession blocks in the Mui Coal Basin with submissions due in July 2011.
Continental last traded at $0.052, but the company's recent news is likely to add to the company's valuation in coming months.
US Investment Bank Madison Williams placed a $0.09 twelve month price target on May 16, indicating significant longer-term upside.