Continental Coal Ltd: Where supply meets demand

The demand for energy supply around the world continues to grow, while South Africa’s need for coal remains great; all of which makes coal mining an attractive and viable proposition given the right mining conditions and a long-term supply of this commodity.SAM_0117

Continental Coal Limited (CCC) provides a good yardstick for how quickly the right business can grow, with the company’s third mine at Penumbra set to almost double its export volumes. 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.

Prevailing robust coal mining conditions lead to the creation of the business towards the end of 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 thermal coal producer, with current listings on the Australian Securities Exchange (ASX) and London’s Alternative Investment Market (AIM), had sold a 74 per cent interest to an Australian listed entity in February 2009. In May of the following year, Don Turvey joined CCC as CEO; his arrival brought over 25 years of experience in mining with companies like BHP Billiton, knowledge which proved crucial given the situation the new business found itself in;

“At the time of the acquisition the company owned options over prospecting rights only and by the beginning of 2010 we had secured a mining right at the Vlakvarkfontein Project,” he describes. “By February of 2010, we had the contractors on board and we began production at our first mine in May of that year.”
The 850 hectare site located 100 kilometres east of Johannesburg is an open cast site and one of two such mines CCC now has in production following its 2010 acquisition of the Ferreira mine.

SAM_0117“After two years, we now have two mines in production and we are building our third mine (at Penumbra), while we develop other projects around South Africa,” Turvey states. “At present we are producing 1.2 million tonnes (per year) for the domestic market and around 600,000 tonnes for export but the latter figure will increase by a further 500,000 tonnes when Penumbra is online towards the end of this year. We have also completed a feasibility study on a fourth mine and are at the finalisation stages for the De Wittekrans Coal Project and hope to make a decision on its viability later this year or early next year.”
The company has strategically targeted mines and prospects in the well-established Ermelo and Witbank coal fields, which offers a number of advantages including good rail links, large coal reserves and importantly the right mining skills resources in an historic mining region.

“There is a skills shortage across the sector, especially at artisan, miner and management level:-” Turvey admits, “Training is an ongoing process and we support people who wish to study and provide opportunities for engineering students who are able to train on our mines; this gives them experiential training and gives us a chance to identify talent.

“We have ongoing training both with the OEMs and in-house and we actively encourage our supervisory staff to attend conferences and seminars. In South Africa we are privileged to have an excellent Colliery Managers and Engineering Associations and these also make provisions for training and exposure to best practices.”

Turvey says that CCC has forged links with local universities and he personally sits on the University of Pretoria Advisory Committee and has had similar associations for a good many years.

The current mines in operation form a platform for continuous production over the next decade and beyond; Vlakvarkfontein has a further ten years of production, and while Ferreira has perhaps eighteen months to run, Penumbra will have a life span in excess of ten years while Turvey believes that the fourth mine should run for at least thirty years.

“The Penumbra mine offers great potential due to the high quality coal in the resource. This mine will double our export capacity while the fourth mine is likely to serve the export and buoyant domestic markets,” he comments.

One of the areas Turvey has focussed operations on has been optimisation and he stresses that continuous improvement efforts are very much ongoing: “We want to get the mines operating at their maximum capacity and to do this we have taken a number of measures including replacing contractors when necessary and changing the equipment fleet where appropriate, to give us greater effectiveness. We have also brought in management changes and again we have had to look at hiring the right skills.”

With natural resource industries susceptible to price fluctuations, Turvey says that CCC regularly reviews each project and in particular is paying close scrutiny to the markets ahead of making any decisions on progression for the fourth mine; “The market outlook will play a key role when we consider the development of this project.

Don“Funding is another issue we have to factor into decisions and overall it has become a lot harder to secure than a year ago. That said I believe that viable projects are always likely to attract funding and current global demand for coal remains firm.

“All in all it is still a good business to be in and since 2010 we have been privileged to have a partnership with EDF, who market our coal globally. They have also funded part of the acquisitions we made in 2010 and their existing global infrastructure has very much helped us.”

Under the terms of the 20 year Coal Supply Agreement with EDF Trading, EDF Trading will purchase at the benchmark API4 Coal Price the company’s production of high quality export thermal coal delivered FOB at the Richards Bay Coal Terminal. At present this supply comes from the Ferreira Coal Mine but once Penumbra is on line this will nearly double volumes.

Forging partnerships has proven a fruitful exercise for CCC and in 2010 the company acquired a junior South African coal mining company called Mashala Resource, which included the Penumbra Project as part of the transaction.

Looking to the future, CCC puts a lot of faith in Penumbra; “Penumbra can boast high quality export coal and the potential to produce coal at attractive cost levels, even during low price periods it is expected to be a robust-enough site to create positive cash flows.”

At full production capacity Turvey expects the mine to produce up to 500,000 tonnes of export coal per year which will be transported to the Richards Bay Coal Terminal. The Penumbra Coal Mine is fully funded, CCC having secured finance from ABSA Bank.

Work on the shaft portal excavation, terracing and pollution control measures commenced in September last year and during 2011 and 2012 the mine saw the excavation of the box-cut, major civil works and environmental and pollution control measures put in place. Penumbra will see CCC’s employee numbers rise from approximately 400 workers to 600, with the majority being local sub-contractors.

Looking further afield the company has its sights set on international developments. CCC currently has three projects underway in Botswana where Turvey says that the first phase of drilling is complete. The results are due by the end of this month which should determine the next steps in the exploration programme. There is no lack of coal in Botswana – however access and lack of infrastructure remain challenges.

Turvey will also shortly be meeting with a group of delegates from Colombia as the company completes a due diligence on a potential partnership in South America that could be completed before the year is out.

Further proof of the enduring global appeal of coal, that keeps South Africa’s miners busy.