colombia expansion

Article from Wall St Journal

Continental Coal is looking beyond southern Africa—just as other mining companies are stepping in.

The ASX-listed miner expects to strike a deal for a coking coal asset in Colombia this year as part of a strategy to diversify its portfolio and boost its share price, which has been weighed down by a political debate in South Africa about nationalizing mines.

Continental Coal has focused on thermal coal up to now, bringing the Vlakvarkfontein and Ferreira mines in South Africa into production and with two more in development in the country. The biggest of these new projects, the De Wittekrans Complex, could produce up to 10 million tons of run-of-mine coal annually within a couple of years.

“Getting into coking coal and getting into production very quickly [in Colombia] is on the cards for Continental Coal,” Executive Director Jason Brewer told Deal Journal Australia. He says a move is very likely this year.

The company has been approached by companies willing to back the move in exchange for securing output, Mr. Brewer says. He declined to name the companies that Continental has been holding talks with, but did say it wouldn’t partner with EDF SA, which helped underpin its development in South Africa with an agreement to buy exported thermal coal.

Like South Africa, Colombia has established infrastructure for transporting coal. However, coal operations in Colombia are mainly small or family-owned and lack the mechanization needed to produce higher volumes, Mr. Brewer says.

“South Africa is a great cash generating environment,” he says, though the risk premium attached with operating there means only a fraction of the money earned from producing coal in the country is reflected in Continental’s share price.

Continental shares on the Australian Securities Exchange ended trading Tuesday at 24.5 Australian cents. The company, which has its Australian headquarters in Perth, is also listed on the Alternative Investment Market in London.

“We have cash flow…we are in a very fortunate position,” Mr. Brewer says.

Continental will continue to develop its assets in South Africa, where the Vlakvarkfontein and Ferreira mines produce about 2 million tons a year for the domestic and export markets, a third mine in development and has completed a bankable feasibility study on a fourth, Mr. Brewer says.

Last month, Continental said it was set for run-of-mine production in South Africa of 7 million tons a year in 2013, and 10 million tons by 2015.

Continental has an agreement to sell its export coal to a unit of EDF for 20 years at a market benchmark price, and sells coal for the domestic market to state utility Eskom Holdings.

It struck a deal in late 2010 to bring in South Korea’s state-owned Korea Resources, or Kores, as a minority partner to help develop its Vlakplaats project in exchange for coal that will be exported through Richards Bay Coal Terminal when production begins.