Continental Coal Limited: Accentuating the allure of coal

In July of last year, The SA-Mag spoke to Don Turvey, CEO at Continental Coal Limited (CCC), about the fast-growing achievements of the thermal coal producer. Spinning forwards nine months, a lot has changed at the company, with production now ramping up at its newest live mine: Penumbra.

The company was formerly known as Continental Capital Limited and changed its name to Continental Coal Limited in July 2009 and is based in West Perth, Australia. The business only began life in 2008 and since then the company has commenced production, forged important strategic partnerships (that assist its bustling export market) and has made its mark through shrewd acquisitions.

The company has current listings on the Australian Securities Exchange (ASX) and London’s Alternative Investment Market (AIM), but more importantly, last winter had two mines in production at Ferreira and Vlakvarkfontein, which were producing 1.2 million tonnes (per year) for the domestic market and around 600,000 tonnes for export, with Penumbra due to commence production in the newly acquired resource towards the end of 2012.

“Since then we have made a lot of progress,” Turvey confirms, “our Vlakvarkfontein operation has exceeded its targets and we are now producing 1.4 million tonnes per annum. The operation is doing very well and providing steady growth, supplying Eskom and other local markets.”

At the time that we spoke with Turvey last winter, the Ferreira plant had around 3-4 months of operations left, however CCC managed to secure an extension with Government approvals and has operated a new block since last October.

“We have ramped up production pretty quickly and we are consistently producing 50-65,000 tonnes of coal a month at Ferreira, which is a very steady operation,” Turvey explains.

However, it is developments at Penumbra that have really kick-started the next phase of CCC’s growth plan:

“That is the very exciting news,” Turvey admits, “we have started production and the first coal was mined in the middle of November, after the shaft sinking operation was completed. Then in December we installed the first continuous mining section which included breakers and conveyors. In February we commissioned the second continuous mining sections and we are now ramping up production.

“We are currently producing around 30,000 tonnes of coal a month at Penumbra and we are targeting 63,000 tonnes at full capacity. We are still in the shaft development stage and we are aiming to reach our nameplate production rate during the second half of this year.

“There were a few labour delays and issues around geology, we have brought in new and experienced people on the machinery which all takes time but we are now where we want to be,” he continues.

To get Penumbra to its current state has taken an investment in the region of R330 million, most of which has already been spent, with Turvey indicating that the final outlay will be on the ventilation shaft which is currently under construction.

Of course investing in feasible projects one is always conscious of fluctuating market prices (and exchange rates when the intention is to export coal), every bit as much as the cost and ease of mining. Turvey says that Penumbra was originally projected to provide a return on that huge investment within 3-4 years, but that aim has now adapted:

“That timeframe has changed somewhat and coal prices have reduced; however the exchange rate has weakened and it is not a dramatic change. The Penumbra production all get beneficiated at our Delta plant and will ultimately be exported through the Richards Bay Coal Terminal.”

Last July Turvey also discussed CCC’s plans for a fourth mine: the De Wittekrans Coal Project. Back then a feasibility study had just been completed and he has further updates on this exciting opportunity:

“De Wittekrans has the potential for lots of coal – as much as 2-3 million tonnes per annum. This is a major operation and has a lifespan in excess of 30 years.

“We have been speaking to a number of prospective partners and once selected the feasibility study will be updated. We are just waiting for Government approvals on this project, everything has been submitted now. Undoubtedly De Wittekrans is a very exciting project for us.”

Of course with three mining projects already producing coal and the unquestionable potential of De Wittekrans, , making it an attractive investment proposition. When you also consider that the company’s “irons in the fire” in Botswana are providing hugely encouraging reports, it comes as little wonder that a major investment transaction is currently taking place, involving Village Main Reef:

“Our Botswana project have reported close to 2 billion tonnes of resource and there is a further 9 billion tonnes of exploration targeted. We will be looking to bring partners on board for those projects and we also have other projects in the pipeline.

“With the prevailing market prices we can afford to pick and choose which projects we go for and we will look for those that add value to our portfolio,” states Turvey.

“I am pleased to confirm that a deal has been completed with Village Main Reef, which was approved at our General Meeting on March 28th. We are now in the process of receiving regulatory approvals and final payment should occur around early May which will conclude one component of the transaction.

“At the end of April, Village Main Reef will buy the unmarketable parcels of shares and will secure a percentage by purchasing from our smaller shareholders. This will almost halve the number of shareholders in the business, making management much simpler. They are aiming to purchase up to 19.9 per cent which will have a major positive impact on our share price. We see the whole process completed by the end of May,” he continues.

Turvey says that the total value of the transaction may inject as much as US$8 million into the business, helping to settle debts and providing working capital for CCC:

“It will also really help us to manage our balance sheet and the key aspect is it will secure a long-term investor who will remain with the business and that in turn may attract other institutional investors,” he adds.

It has been a tumultuous nine months since we last spoke with Turvey and with investment in place, Penumbra on course to reach its optimum productivity and Ferreira rights secured for the future, it promises to be an exciting year ahead.

“We are always on the lookout for new opportunities and in the meantime we will be advancing the De Wittekrans project. Botswana is also going to be big for us in time, but for now our focus will be on securing the right partnerships – these are long-term projects and we want to position ourselves correctly to extract the best value from our assets,” he concludes.