Continental Coal (ASX: CCC) has fully repaid all its capital development costs for its Vlakvarkfontein Coal Mine in South Africa and will enjoy free cash flow as it achieves its third successive year of record ROM coal production.
ROM coal production for the 2013 financial year is expected to be 1.5 million tonnes, up 23% from the previous year while thermal coal sales are forecast to be up 5% to 1.3Mt.
This is expected to generate revenue of 244 million rand (A$26.67 million), up 10% over the previous year, and a 50% increase in gross operating profit to 80 million rand.
Chief executive officer Don Turvey said the project, a true greenfield project development, has been a real success story for the company with first production achieved 12 months after its acquisition.
"The operation has fully repaid all its capital development costs and is forecast to continue to generate free cashflow and dividends to its shareholders over the next 7 years," he added.
"To continue to report increased production and sales is very pleasing, and to be able to further report significantly increased earnings from the Vlakvarkfontein Coal Mine, demonstrates the value of our domestic thermal coal sales contracts with South African power utility Eskom, which ensures robust and secure margins even in the current environment of low export thermal coal prices and inflationary cost pressures."
Vlakvarkfontein is forecast to produce 1.32Mt of ROM coal in the 2014 financial year, achieving sales of 1.1Mt to generate about 242 million rand in revenue.
It continues to provide Continental with a strong and robust earnings platform for its South African thermal coal business.
Vlakvarkfontein
The Vlakvarkfontein Coal Mine is a conventional open cast contract mining operation located about 90 kilometres east of Johannesburg.
Continental holds a 60% interest in the Ntshovelo Mining Resources joint venture that operates the mine.
Conventional open cast mining of two coal seams, each about 5 metres width, at a strip ratio of 2:1 to produce 1.2 million tonnes per annum of ROM production has taken place since June 2010.
With about 11Mt of JORC Proven Reserves, the mine has a remaining mine life in excess of 7 years.
Production costs are about US$13.50 per tonne compared to current sales prices of about US$24 per tonne.
Analysis
Continental Coal's investment in the Vlakvarkfontein Coal Mine has paid off with all development costs now paid off and the project producing free cash flow to the company.
With a third straight year of record ROM production, thermal coal sales and earnings, Vlakvarkfontein also highlights the company's successes as coal project operator.
This comes as it advances discussions on a strategic partnership and offtake funding agreement for its proposed fourth mine development, the De Wittekrans Coal Project.
There are significant milestones ahead for Continental in coming months.
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