Continental Coal (ASX: CCC) has received a further offer of financing that could potentially allow the development of the Penumbra Mine to be completed in a more capital efficient manner.
The Penumbra Coal Project in South Africa is the company’s third thermal coal mining operation. The proposed debt funding and related coal, foreign exchange and interest risk management facilities will be used for the development of the project.
On 2 June 2011, the company received a committed offer of a 4 year, US$25 million secured project loan facility to be used to fund the construction of the project and associated risk management facilities to hedge the company’s US$:ZAR exposure and the risk of a sustained fall in thermal coal prices.
The new offer of finance, offering more attractive terms for the company, has been received from ABSA Capital, a division of ABSA Bank Limited, one of South Africa’s largest financial service providers and a subsidiary of Barclays Bank PLC.
Significantly, the financing with ABSA Capital and the additional committed offer of debt funding underlines the technical fundamentals of Continental Coal and its Penumbra Mine development.
Jason Brewer, Continental Coal's executive director, said "the management team in South Africa has worked closely with ABSA Capital and continues to make good progress with all the material aspects of the financing having been agreed and approved.
"The loan documentation process is well advanced and we look forward to bringing this rigorous process to a close next month.”
Continental Coal said it will continue to look at ways to optimise its ongoing funding arrangements to meet the aggressive mine development schedule that it has set.
The offer of finance comprises:
- A secured 7 year term loan facility of US$35 million to be made available to fund the development of the Penumbra Mine.
- A secured 3 year term loan facility of US$15 million to be made available to refinance existing secured indebtedness under the EDF Trading Coal Prepayment.
- A secured annually renewable working capital facility of ZAR100 million (approx. US$15 million) to fund general corporate working capital requirements.
In addition ABSA Capital will provide risk management facilities to allow the company and its subsidiaries to hedge a portion of its exposure to thermal coal prices and interest rate fluctuations.
The facilities have received in-principle credit approval and drawdown of the facility is subject to completion of all necessary due diligences, conclusion of legal documentation and fulfilment of conditions precedent that are standard for facilities of this nature.
Legal documentation and satisfaction of the outstanding due diligence sign offs is advanced and scheduled for completion by 31 July 2011.
The facilities have been structured to reduce dilution to existing shareholders and importantly there no share or option equity participation rights under the facility terms.
Continental Coal is looking to finalise its debt funding arrangements for the Penumubra Mine with the final selection of its preferred financier and a drawdown of finance in the September 2011 quarter, following finalisation of documentation and satisfaction of all conditions precedent.
The Penumbra Coal Project is forecast to produce 500,000 tonnes per annum (tpa) of a primary export thermal coal product and 120,000tpa of a secondary domestic quality thermal coal product.
Significantly, export thermal coal will be railed from the company’s existing rail siding, through to RBCT under existing rail contracts with Transnet Freight Rail and sold to EDF Trading under the Company’s existing coal off take agreement.
Average total FOB costs, for the primary export coal product, of about US$61/t in real 2009 terms are forecast over the mine life.
The company now expects first coal production from Penumbra in early 2012, ramping up to reach full production in the third quarter of 2012.
The company has an impressive pipeline of robust, long life projects and within 18 months, Continental should have four mines in production with Penumbra next in line, followed closely by De Wittekrans.