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Continental Coal: Village Main Reef Acquires Cornerstone Shareholding

Continental Coal (ASX:CCC) has struck a strategic financing deal with Village Main Reef (VMR), that will see the South Africa-based diversified mining company take up to a 19.9% cornerstone interest in Continental Coal.

The buy-in places Continental in a position to advance its discussions on a strategic partnership and off-take funding agreement for its proposed 4th mine development, the De Wittekrans Coal project.

Continental's chief executive officer Don Turvey said, "I am pleased to welcome the strategic investment and partnership that we have now established with Village Main Reef. The private placement and purchase of small shareholdings, will have a significant impact on our business in the short term."

"The introduction of such a strategic and cornerstone investor to our share register, demonstrates the value proposition of our operating coal mining business and our coal project development opportunities," he added.

Deal terms

Under the private placement deal with VMR, Continental will place 100 million ordinary shares at an issue price of A$0.08 per share, raising a total of A$8 million.

The issue price represents a premium to Continental's last traded share price on the ASX and a 30% premium based on its 90-day volume weighted average price of A$0.061.

Village Main Reef has also agreed to acquire all the minority shareholding at a price per share that is equal to the minimum sale price of $0.0521. The minimum sale price is equal to the simple average of the last sale prices of Continental's shares quoted on ASX for each of the ten trading days prior to 11 March 2013, when VMR made the offer.

In addition, the company will issue a further 25 million unlisted options with an exercise price of A$0.10 per option that has an expiry date of 31 March 2016.

The funds raised will be applied for debt reduction, working capital and shoring up the company's balance sheet.

The deal is subject to shareholder approval at the general meeting scheduled for 28 March 2013.

Village Main Reef has already advanced A$2 million of the private placement as a secured interim loan, which will convert into shares upon shareholders approval.

De Wittekrans Coal project

The De Wittekrans Project currently has total gross saleable Proven and Probable reserves of 43.8 million tonnes and gross insitu Measured, Indicated and Inferred resource tonnes of 251.1 million tonnes.

It has the potential to become the company's "flagship" coal asset, generating strong returns, after Continental received positive preliminary results from optimisation work late last year.

The results proposed exports of 2.4 million tonnes per annum of a thermal coal product, ideally suited for the Asian coal market, over an initial 30 year mine life.

Annual forecast thermal coal exports are expected to increase from 800,000 tonnes per annum to 2.4 million tonnes per annum, with total annual sales revenue forecast to increase by over 35% to up to US$145 million.

Analysis

The inking of a transformational financing deal with Village Main Reef not only bolsters Continental's balance sheet, but also enhances its ability to secure funding for the De Wittekrans project via a strategic joint venture and/or long term coal off-take agreement and commercial bank finance.

Already, the project economics has been boosted based on the optimisation study, and the financing agreement only cements the prospects for which a development decision is likely in the second half of this year.

The addition of another mine will add to Continental's South African coal portfolio and its record run of mine coal production in the region.

The deal, which raised an initial $8 million, also adds to Continental's access to capital, with its cash position at the end of last quarter at about $4 million.

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