minesite interview with jb

January 17, 2012

Continental Coal’s Third Mine Will Be In Production Later This Year, With A Fourth On Track For Development In 2013

By Alastair Ford

“We’ve got the full spectrum of development and exploration”, says Jason Brewer, of Continental Coal. It takes just a quick glance at a list of the company’s assets to confirm that statement. There are two producing coal mines, at Vlakvarkfontein and Ferreira, and two near-term development mines at Penumbra and Wittekrans. There are also four longer-term development projects at Vlakplaats, Mooifontein, Wesselton II, and Leiden. [What about Wolvenfontein, Vaalbank, Project X & Knapdaar?? M.] Students of linguistics will win no prizes for guessing that all these assets are in South Africa. But the company also has exploration in Botswana which has the potential to bring a further 6.5 billion tonnes of coal onto the books [2.7Bt targeted shallow resource M.].

Production at Vlakvarkfontein

Not surprising, then, that the chaps at “Conti”, as it’s affectionately known, are usually rushed off their feet. Jason is able to take the time, though, to talk Minesite through all that’s going on at the company, before rushing off to his next meeting. “The key things for Conti at the moment”, he says, “are the development of the third mine at Penumbra, and then the fourth at Witterkrans.” Once those mines are up and running that will make four from a standing start in 2010, when Vlakvarkfontein produced its first coal, and should take overall annual production comfortably over the six million tonnes per year mark.

And progress should be pretty rapid. Penumbra should produce its first coal this year, and work on completing the development is going well, says Jason. “We’re slightly ahead of schedule. The concrete work on the ramp down into the boxcut has started. Construction is moving to site.” Once up and running Penumbra will add around 750,000 tonnes of production per year [ROM].

But the big step change will come with Witterkrans. This project, explains Jason is expected to add around 3.6 million tonnes of production [ROM] to Conti’s output, and on the basis of the current resource boasts a mine life of at least 30 years. The development of Witterkrans is slightly further down the line than that at Penumbra, but then it is a bigger project. Barclays and ABSA have committed an aggregate debt facility of US$65 million to help with the development work at Penumbra, and there’s no reason to suppose that similar sorts of arrangements won’t be put in place for Witterkrans in due course.

“We will be using debt finance to get Witterkrans going”, says Jason. “But we need to do some optimisation work first. Do we need a new wash plant, or rail siding? – things like that. The target for Conti is to develop one new mine every twelve months. So construction at Witterkrans could be underway by the second half of this year, permits permitting.”

But what about infrastructure? The first thing to mention on that score is that these projects are located east of Johannesburg in a region that has a history of coal mining that dates back more than a hundred years. Not for Continental Coal the trailblazing entry into new South African regions that Coal of Africa has pioneered, sometimes to its cost. “You can get projects done quickly”, says Jason.

What’s more, he’s unequivocal in his praise of Transnet, the local South African rail company. “Transnet have really turned around the amount of tonnes they can ship”, he says. “They really are breaking a lot of records. They’ve become very efficient, which benefits us.”

So, no problems getting the export quotient of Conti’s production out to Richards Bay, the famous South African export terminal in KwaZulu Natal. But is the market there for the product? First, it’s worth stating that not all of Conti’s production goes overseas in any case. Some is kept back for use by power stations in the local market. But even if the price was a bit softer towards the end of last year, Jason’s in no doubt that the interest is still very much out there. “A number of Asian customers have looked at us”, he says, and he’s even prepared to hazard a guess about pricing: “The price should average around US$110 per tonne over the next six months”.

And that’s just fine by Conti. “We’re more than comfortable at US$110 or north of US$110”, says Jason, and he highlights costs at Penumbra as an example – these are likely to come in in the low US$70s. At Wittenkrans, moreover, the bankable feasibility study that was completed in September showed that costs should run at around US$55 per tonne for the export component, leaving plenty of room for manoeuvre as far as margins are concerned.

Whether the London market has fully woken up to the potential of Conti remains to be seen. But Jason’s in no hurry. “The London market for us is a long-term proposition. “We’re now in a position where we’re generating positive cashflow, and London has a clear understanding of resource projects in Africa.” So, interested parties should expect to hear more about Continental Coal, as cashflow continues, the number of projects in production rises, and output increases.

http://minesite.com/news/continental-coals-third-mine-will-be-in-production-later-this-year-with-a-fourth-on-track-for-development-in-2013

Some editing [], etc from Mihal

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Surely we are due some News this week on any one of these outstanding items:

* VanMag $10m LONG overdue - Calling Puntland Pete, how's the Chinese bank guarantee?

* SIOC-cdt funds - BBBEE partnership first announced 29/06/2011: "BBBEE to repay ZAR140 million (approx. US$20m) and the balance of ZAR75 million to be
vendor financed upon deal completion scheduled for August 2011"

* 100% Mashala Acquisition - was supposed to be done early November 2011. Funds were received via $20m Socius CG II Placement(s) in July/Aug 2011, expressly for this purpose

* ABSA/Barclays Funding - first announced 29/06/2011 - still no drawdown of funds, despite 4 months of progress at Penumbra

* Still no significant Institutional Investors or Funds buying on market - despite the share consolidation & AIM listing:

A consolidation of the Company’s share capital has been discussed with many of our shareholders and several international institutional investors and investment funds over the past 12 months. Indeed it was a discussion point at the Company’s AGM last year. Increasingly we have been approached by institutional investors and investment funds in Europe, North America, Asia and Australia regarding potential significant investments in the Company. The large majority of these institutions have made it very clear to the Company that, irrespective of our growth potential or current market capitalisation and value proposition, their investment mandates preclude them from investing in Continental with its shares trading at their current “penny-stock” price levels. Based on these discussions and after further feedback from our advisors, we are of the firm opinion that in order to attract significant investment into the Company from international institutional investors and investment funds, we need to create a more efficient capital structure and share price for a listed entity of Continental’s size and market capitalisation. The Company currently has more than 3.0 billion shares on issue due to historical equity based capital raisings and corporate transactions. This is disproportionate versus our peer group listed on the ASX and AIM. We believe that the proposed share consolidation will result in a far more appropriate and effective capital structure for the Company and a share price more appealing to a wider range and larger number of institutional investors globally. page 4 "Open Briefing" 21st June 2011 (closing price 21/6/11 was 3.7c = 37c) Still these feted instos & funds are not buying at 17c??? WTH!

http://www.conticoal.com/fileadmin/content/files/press_releases/ASX_Announcement_-_Lodgement_of_Open_Briefing_210611.pdf

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As Martis would say: "We Await" ...