At a briefing to mining journalists in Perth, Continental director Jason Brewer told ILN that Macquarie analysts at company presentations often raised the mooted point of when it could “end”
In response, Continental chief executive officer Don Turvey would always ask why he would want to sell the company, with Brewer explaining it just wasn’t the South African way.
Turvey only took the reins of Continental three months ago after a 25-year career with BHP Billiton in South Africa, and he is already putting his extensive contacts to good use.
He worked with a senior figure in EDF Trading in his BHP days and the French energy group entered into a handy 20-year offtake agreement with Continental in July.
Brewer said EDF takes about 30% of South Africa’s coal and had previously only made long-term deals with the major producers in the country.
Importantly, EDF will also provide a $US20 million advance payment to Continental under the deal to take all the export quality thermal coal production from its existing Vlakvarkfontein mine and its forthcoming Vaalbank and Project X mines.
The extra funds will go a long way as Brewer said the Vaalbank development is expected to cost only $18 million while Project X is estimated to cost $13 million.
Turvey has also worked in project development for BHP and consequently has a good grasp of the undeveloped assets and their owners in South Africa’s long established Central Basin coalfields.
Just weeks later, Continental entered into a binding heads of agreement to acquire 64.1% of private South African coal producer Mashala Resources for $US35 million.
The deal is still subject to regulatory approvals with Brewer expecting these to be received within the next 20 days.
The remaining stake is expected to be acquired in the next 12 months either through cash or a move by Continental to list on the Johannesburg stock exchange to raise more funds.
Once complete, the acquisition will give Continental full ownership of the Ferreira open cut mine plus another six projects, along with a Quattro port allocation at Richards Bay.
Future exploration should not be as expensive either as Mashala owns a fleet of six rigs.
Brewer said Mashala had eight individual shareholders who were set back after an offtake partner pulled out of funding during the global financial crisis.
“Clearly in South Africa, they haven’t got the risk capital which Australia has or which Toronto has,” he said.
“Our strategy has always been let’s pick up some assets that we know we can get into development, where there is the infrastructure, [and] where you have got a community that has benefitted for the best part of eight generations of mining activity.”
Hinting that there were other opportunities to pounce, Brewer added that it was a great country to mop up some small assets which will bolt on to its current project portfolio.
While the major producers like BHP and Anglo American own the tier one assets in the country, they were forced to relinquish their tier two assets in the 1990s to Black Economic Empowerment groups and other small parties.
But with thermal coal in ever growing demand, Continental is well placed to take advantage of the opportunities, especially given its success in raising money.
Brewer estimated that Continental has raised $38 million in equity in the past month and another $65 million is expected to come in from EDF and other project financing.
Continental also plans to list on London’s Alternative Investment Market in the first half of 2011.
Mines and projects
Continental owns 60% of the Vlakvarkfontein open cut mine which kicked off production in May.
The mine hit 100,000 tonnes per month of run-of-mine output for the domestic thermal coal market and is expected to maintain a rate of 1.2 million tonnes per annum for its 10-15 year mine life.
The company uses mining contractor TMS and intends to continue with the contractor model for all of its future operations.
Through the Mashala acquisition, Continental will pick up the Ferreira open cut mine which is expected to produce up to 700,000tpa of ROM coal for another 2-3 years.
About 3km away lies the Penumbra underground project which Continental will gain from the acquisition.
Bord and pillar mining at depths of 50m to 115m is expected to start up in 9-12 months to produce 900,000tpa ROM for a mine life of 10-20 years.
The bankable feasibility study is complete and the project is fully permitted to go ahead, while Mashala has already built a 300 tonnes per hour wash plant plus rail siding to transport the coal to domestic and export customers.
Development is scheduled to start in the December quarter.
Continental’s 75%-owned Vaalbank project is another bord and pillar project targeting a 2.44m seam at depths of 60m to 160m to potentially produce 2.4Mtpa ROM, with first coal in 2011.
With 54Mt of measured resources, this mine is expected to continue for more than 20 years.
Continental owns 70% of Project X, which is looking at a small open cut followed by the development of a bord and pillar operation off the highwall, at depths of up to 160m.
The seam width averages 2m and Continental is aiming for 1.8Mtpa ROM for a mine life of 15-20 years.
To the southeast, Continental will pick up the De Wittekrans and Knapdaar projects through the Mashala acquisition.
Both projects are targeting 3.6Mtpa ROM for a mine life of 30 years.
The open cut and underground De Wittekrans project is subject to a bankable feasibility study in the first half of 2011 with production slated for 2012.
The Knapdaar project is contiguous to both Wittekrans and Vaalbank, and is expected to start up in 2013 with the 139Mt of inferred resources ranging from 30m to 180m from the surface.
The Wesselton II project was less advanced by Mashala with only a small area under consideration for mining due to the low volatility of the resource, but production of up to 1.2Mtpa is expected if it goes ahead.
The Leiden project to be acquired by Continental is targeting 700,000tpa ROM for 15-20 years from 2013 while the Mooifontein project could produce 600,000tpa for 3-5 years from 2014.
Continental shares last traded at 6.2c.