colombian coking coal acquisition

Continental Coal in option deal to take 50 pct of Colombian coking coal mine

Thursday, May 17, 2012 by Andre Lamberti

Taking the option would enable Continental to operate, develop and expand an existing business, which consists of five mining concessions and an underground mine that has been in operation for 24 years

Continental Coal (ASX:CCC, LON:COOL) said it has entered into an exclusive option for the potential acquisition of a 50 per cent joint venture interest in a producing hard coking coal mine in Colombia.

The move is in line with the company’s strategic objective to diversify its coal mining operations geographically and into the higher margin coking coal market, and it will complement its existing thermal coal mining, development and exploration projects in South Africa.

The potential cost of this acquisition is US$15 million.

Taking the option would enable Continental to operate, develop and expand an existing business, which consists of five mining concessions/contracts covering over 1,500 hectares, including the existing underground mine that has been in operation for 24 years and adjacent exploration ground.

Continental has received an indicative proposal for a new debt and commodity linked facility to fund the approximate US$15 million potential acquisition cost. Further details will be provided once terms are finalised and the company exercises the option.

The mine is located in eastern Colombia and has a workforce of more than 140 employees.

Current underground production and access is through a series of declines to mine 2 seams with a total economic thickness of 1.7 metres.

Mining is by a modified room and pillar mining method and given the high quality nature of the coal, no wash plant is currently required.

Sales of hard coking coal are made at mine gate with current margins of approximately 75 per cent. Sales directly to the export market are planned in 2013.

The mine has a current mine plan in excess of 50 years, although currently it has no JORC compliant reserves or resources.

An independent technical review in 2010 determined that mine production can be increased significantly from its current levels through the introduction of mechanisation, improvements to the mine infrastructure, a modified mine layout and an additional production shift.

Based on historic reports and its current due diligence, Continental believes annual production of 500,000 tonnes can be achieved in the medium term.

The company also announced it has finalised a convertible note facility with US based Bergen Global Opportunity Fund LP for up to A$5 million.

The facility will be made available to the company in three tranches, with the first tranche of A$2.5 million already drawn and two subsequent tranches each of A$1.25 million after 30 and 60 days.

The facility will be used for general corporate purposes and working capital and to assist in the evaluation of advanced and producing opportunities both in and outside of South Africa.

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