conti marches towards thermal coal production

Continental Coal marches towards thermal coal production at Penumbra

Wednesday, May 16, 2012 by Angela Kean

Cashed up and well on the way to bringing its third thermal coal mine in South Africa into production, Continental Coal will definitely be on investors' radar. Achieving first production at Penumbra is forecast to double export thermal coal sales and group earnings in 2012.

Continental Coal (ASX: CCC) is set to increase cash flow in the short term with the advancement towards production at the Penumbra Mine in the second half of 2012.

Penumbra is set to become the company’s third thermal coal mining operation in South Africa.

Sales of 500,000 tonnes per annum of a high quality export thermal coal product are forecast, generating annual free cash flow of around US$23 million based on prevailing prices.

Continental already has up to 500,000 tonnes of coal sold under existing offtake agreements.

The twin declines at Penumbra advanced 58 metres to a combined total length of 135 metres in April. The twin declines will have a final length of about 390 metres.

One decline will be equipped with a conveyor, while the second will serve as a travel route for trackless equipment.

The conveyor road has advanced down 79 metres and the travelling road down 56 metres.

Other advancements made last month include the placing of orders for the medium volt and low voltage containerised substations and switchgear, with the adjudication of the tender of the upcast ventilation fan switchgear also completed.

Increasing thermal coal production

Production from Continental’s Ferreira and Vlakvarkfontein coal mines increased during April. At Vlakvarkfontein, Continental achieved run of mine coal production of 112,281, a 6% increase on the monthly average achieved in the March quarter.

Domestic thermal coal sales of 93,180 tonnes were slightly higher than the average 92,761 tonnes of monthly sales achieved in March 2012.

Year to date run of mine coal production of just over 1 million tonnes has been achieved with an unaudited net profit after tax of ZAR33.6 million (A$4.1 million) reported against a budget of ZAR22.4 million.

At Ferreira, run of mine coal production reached 55,263 tonnes in April, 25% above budget and 4% higher than the monthly average in the March 2012 quarter.

In addition, total production of 37,830 tonnes of a high quality export thermal coal product was achieved at the Delta Processing Operations.

Sales of 40,864 tonnes of high quality export thermal coal were achieved for the month.

Year to date run of mine coal production of 574,419 tonnes and export sales of 496,065 tonnes has been achieved at the Ferreira Coal Mine and the Delta Processing Operations with an unaudited net profit after tax of ZAR37.1 million reported against a budget of ZAR24.4 million.

Landmark coal supply agreement

Under a coal supply agreement announced in March between Continental’s joint venture partner Ntshovelo Mining Resources and South Africa’s state utility company Eskom, domestic thermal coal sales from Vlakvarkfontein are now being made directly to state utility company Eskom.

The agreement is for the supply of 720,000 tonnes per annum of thermal coal over an initial three year period.

Importantly, this is a landmark agreement that positions the Vlakvarkfontein Coal Mine as one of only 25 direct suppliers of coal to Eskom in South Africa.

Eskom is one of the top 20 utilities in the world by power generation capacity, generating around 95% of the electricity used in South Africa and about 45% of the electricity used in Africa.

Power demands in the region will grow significantly in the next 10 years, with substantial coal supplies set to be transported by rail to Eskom’s power stations.

Cash-backed

Continental recently increased its bank balance to further the development of the Penumbra, De Wittekrans and Vlakplaats Coal Projects with the financial settlement of its new partnership in South Africa.

The company has now received the total ZAR140 million (A$16.9 million) payment from Broad Based Black Economic Empowerment Company, Sishen Iron Ore Company Community Development Trust (SIOC-cdt).