penumbra

$35m, seven-year project loan facility to fund the Penumbra

16th March 2012 Mining Weekly

Africa-focused coal mining investment and production company Continental Coal Limited (CCL) has confirmed that its South African subsidiary has executed binding loan documentation with Absa Capital, a division of financial services group Absa Bank Limited, and a subsidiary of Barclays Bank PLC for the previously announced approximate $65-million of aggregate debt funding for its Penumbra coal mine situated north-west of Ermelo.

CCL has announced that satisfaction of the remaining conditions precedent to draw down the $35-million, seven-year project loan facility to fund the Penumbra coal mine development, is ongoing and scheduled to be completed later this quarter. This allows draw down of the debt funds to meet the development cost of the Penumbra coal mine.

“We are very pleased to have completed the loan documentation of our facilities with Continental Coal and to provide funding for the Penumbra coal mine development. It is testament to Absa’s dedication, its continuous support of the mining industry and the key and emerging players within it, such as Continental Coal,” says Absa Capital cohead of natural resources Neil Naidoo on the execution of the loan financing agreements.


Absa Capital Debt Facilities

As part of the debt funding with Absa Capital, CCL has implemented a coal and foreign exchange hedging programme to mitigate its exposure to a sustained fall in dollar coal prices or an appreciation of the rand to the dollar.

CCL has hedged about 664 550 t of coal over the life of the term loan facility at an average price of R1 057/t. The hedging has been achieved at a 23 % premium to the current spot price of about R860/t and at a 54% and 53% premium to the average three and five year prices of R685/t and R692/t respectively.

The average hedged coal price is at a premium to the highest coal price of R983/t seen over the past three years. Importantly the coal hedging implemented represents only 12% of the Joint Ore Reserves Committee-compliant reserves at the Penumbra coal mine and provides significant upside to any significant rise in thermal coal prices, as well as providing operating flexibility.

The hedge programme does not have any impact on the existing offtake agreements in place. On the implementation of the coal and foreign exchange hedging programme, CCL were advised by Noah’s Rule, a risk advisory firm, with offices in Australia and Europe, specialising in advising on the structuring and execution of project finance and the associated commodity hedging.

On the execution of the financing agreements and implementation of the coal hedging, CCL CEO, Don Turvey says, “the finalisation of the loan financing agreements with Absa Capital, under the current volatile capital markets is a milestone in the growth of our company and a further sign of support for our coal mining strategy in South Africa.

“To have already satisfied a number of the key conditions precedent and have agreed to the draw down schedule of the $35-million project loan facility is also a major step forward in the development of the Penumbra coal mine.

Further, the establishment of the coal hedging programme for Penumbra, at average coal prices of R1 057/t, provides us with extremely robust margins to the forecast total free-on-board costs of about R490/t that were reported in the recent SRK competent persons report on the Penumbra coal mine,” Turvey notes.

Penumbra Coal Mine - First Decline Development Blast

Development activities at the Penumbra coal mine have accelerated significantly in 2012 following the mobilisation of Murray & Roberts (M&R), a South African engineering, contracting and construction services company, in December 2011 to complete the development of the twin declines.

M&R completed the mobilisation of all the major decline development equipment to Penumbra on January 16.

Further, M&R has completed construction of the site office laydown area with the necessary concrete slabs, offices, change house and workshops established ahead of the commencement of the development of the twin declines.

The temporary power supply, in the form of a diesel generator and compressor, has also been installed ready for the decline development.

Preparation of the twin declines, being the belt and the travelling roads, by M&R, through the installation of spilling bolts into the perimeter of the excavations was completed in late January and early February this year.

Drilling of the first rounds for blasting the initial 2 m of advance was completed on February 4, with the first blasts in the decline completed on February 6.

Development of the declines will now continue with blasting in the declines allowing about 2.2 m of advance to be completed every second day in each decline with the associated ground support completed.

The declines and support pillar between the declines will be covered with shotcrete over the initial 10 m of the decline to ensure stability of the area for the life of the mine.

Once this has been completed decline development will accelerate, with blasting activities completed daily to ensure that the project will be completed on schedule.

The Penumbra coal mine is forecast to produce a yearly run-of-mine production of 750 000 t. The ROM coal produced at Penumbra will be beneficiated through the existing Delta Processing Operations which comprise a 1.8-million-ton-a-year coal processing plant and the 1.2-million-ton-a-year Anthra rail siding.

Production of 500 000 t/y of a primary export thermal coal product is forecasted. The export thermal coal product will be transported through to the Richards Bay Coal Terminal in Kwazulu Natal, under existing rail contracts and sold to the European Development Fund and into other export off take agreements.


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