african business journal, page-2

Fergie, putting it up -

Existing reserves, infrastructure and export capability

As Peter Landau, Executive Chairman at Continental Coal, says, coal was by no means a standout commodity in South Africa up until the last three years. Continental, an Australia-headquartered junior explorer-come-producer active in South Africa, is one of those vehicles which embodies a big time of change and opportunity in South Africa; that moment when coal really became an option for the smaller players to take a crack at it.

"It was only with export coal prices rising significantly that there came the opportunity and, more importantly for those who know South Africa, the act came in where the big mining houses under the new, 'use it or lose it,' (act regulations) lost a lot of their good exploration projects," Landau recalls.

"Not just in coal-platinum, gold, chrome, vanadium - and they were awarded to historically disadvantaged persons in South Africa which predominantly meant BEE Black Economic Empowerment entities."

It was around this time that Landau, along with Andrew Macaulay, Executive Chairman and Bruce Buthelezi, Managing Director, were scouting out projects in South Africa.

"The guys in South Africa we're looking at doing a JC listing, this was back in 2008," Landau says.

"We raised around $5 million in seed out of Europe, then I said, let's do it on the ASX."

Landau, Macaulay and Buthelezi, then met head on by the global financial crisis, nevertheless managed to raise between $50 and $60 million for Continental.

"We've just announced another $20 million financing with EDF, the utility, and there's probably another $30 million dollar coal financing that we're about to complete this week," Landau says.

"That was the opportunity."

IRJ caught up with Landau on a visit to London to hear more about Continentals opportunity.

Locating Continental's stronghold

Landau says that while Continental does not have mass tonnage assets like those of Riversdale in Mozambique or coal of Africa in a newer region, they are enviably located in existing producing regions, which of course lends them great proximity to existing infrastructure.

"Getting to a rail line, in most cases, is a few hundred metres, and the rail and port allocation is there so that's the uniqueness about the Continental assets," he explains.

"The assets right now are in the Ermelo, Witbank and Mpumalanga areas, so all in existing (coal production areas)."

Continental's soul focuses today are four such mines.

"The first one is called Vlakvarkfontein. For that one, we have commenced production and it's a domestic Eskom coal, the local coal provider," Landau says.

"The second on is called Project X, then Vaalbank, which are almost next door to each other to which EDF have now financed and have the off-take too. Then we've got Vlakplaats, which is a large export coal."

On closer inspection it is not difficult to see why these four make up the company's core focus at this point in time. Landau explains that combined, these assets offer mineable exportable export coal at around 200 million tonnes, and local production coal of about 100 million tonnes.

"The focus is to get those four assets up and running with infrastructure, with rail and port. And we know that with those up and running in a run of mine operation our market cap can definitely be increased in an exponential anywhere from five to 10, based on the known coal that we've got," Landau continues.

"As a junior, the market edge for us is that our assets are all adjacent to existing mining operations, so we're mining the same coal seams as our peers."

The same seams, of course, also give Continental pleasing placement close to that all-important existing infrastructure, removing common concerns for economical logistics and exportation headaches.

Continental's port allocation

Landau says that for those who seek to compare Continental to its peers, one factor which can't be ignored is the company's standing ability to export any coal their mines produce.

"The key is that we have a rail and port allocation which allows you to proceed, because in South Africa it does get difficult getting the export coal out there (because the logistics functions are being handled by the majors)," he says.

"The uniqueness of what we've done is to put together very advanced brownfields assets. Geologically, there's no question about whether or not the coal's there, it's more about logistically 'can we get it out'.

Continental has a base allocation of 150,000 tonnes a month and 150,000 tonnes a month of port to work with, sitting there ready and waiting for the company to enjoy as and when it needs.

"We're not using it right now, but the plan is there is always someone with a need for rail so they can use it while our mines come on stream - and then we'll take it back," Landau says.

"That's quite common in South Africa: in terms of mixing and matching when you're trying to get things up and running."

Going forward, the company goal to bring these four mines into production begins with the recently completed deal with EDF and the other set for finalising as we go to press.

"Completion of that allows the company to achieve everything it needs to in the short term, then with raising done we'll look to bring four mines into production which we've already done with Vlakvarkfontein," Landau says.

Vlakvarkfontein will see first sales next month, followed by Vaalbank and Vlakplaats over the next two or three years.

"Then obviously along the way depending on how you're travelling, you're always going to look at other potential coal deals in South Africa and sub-Saharan Africa but again it's too early to tell," Landau says.

"The focus is capital raising then getting those four mines up and running."

Continental's unwavering focus on achieving production with these four mines, its highly experienced management at the help and unique advantages gained from existing mining, infrastructure and proven reserves cannot be ignored. The company has already proven what it is capable of with Vlakvarkfontein, the rest is just a matter of time.

"Then obviously along the way depending on how you're travelling, you're always going to look at other potential coal deals in South Africa and sub-Saharan Africa but again it's too early to tell," Landau says.

"The focus is capital raising then getting those four mines up and running."

Continental's unwavering focus on achieving production with these four mines, its highly experienced management at the help and unique advantages gained from existing mining, infrastructure and proven reserves cannot be ignored. The company has already proven what it is capable of with Vlakvarkfontein, the rest is just a matter of time.