buy rating

Investec places BUY rating on Continental Coal - Opportunity to meet Executive Director Jason Brewer in Hong Kong

Research Report

Key project Penumbra showing real promise

Continental Coal (ASX:CCC / AIM:COOL) today provided updates on both its operations and its corporate activities. The two operating mines are performing well, while the key development operation, Penumbra, is continuing to ramp up towards the June target rate of +60kt/month. Talks with parties interested in participating in the development of DWC are ongoing, with COOL reporting significant advancement in the past two months. Recent refinancing activities and resultant dilution has, however, lowered our TP.

Penumbra is continuing to ramp up with a second continuous miner to be operating underground from the end of this month. Current focus is on expanding underground infrastructure to support the planned increase in production levels. Outstanding mine development remains on target and within budget, with no cost overruns expected. All outstanding capital costs are being met from the existing ABSA debt facilities.
The US$10m sale of COOL’s interest in VanMag is nearing completion, with the balance of $6m on track for settlement at the end of this month. The proceeds are to be used to fund all the outstanding amounts due for the minority interests in Mashala Resources.
Additional equity that has been issued as a consequence of debt refinancing has been dilutive, reducing our valuation (and hence our target price) from 10p per share to 9p per share.
The company updates highlight COOL’s improving investment appeal, with Penumbra in particular a major catalyst in this regard. Securing a strategic partner for DWC would certainly be an additional positive catalyst. We note that almost 40% of our total project NPV is made up of the DWC project, which remains unfinanced and is therefore at risk.