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Continental Coal’s JV Partner Nabs Landmark Coal Supply Agreement With South African Major Eskom

Continental Coal's (ASX: CCC) joint venture partner and operator of the Vlakvarkfontein Coal Mine, Ntshovelo Mining Resources, has executed a coal supply agreement with South Africa's state utility company Eskom.

The agreement is for the supply of 720,000 tonnes per annum of thermal coal over an initial three year period.

Importantly, this is a landmark agreement that positions the Vlakvarkfontein Coal Mine as one of only 25 direct suppliers of coal to Eskom in South Africa.

Eskom is one of the top 20 utilities in the world by power generation capacity, generating around 95% of the electricity used in South Africa and about 45% of the electricity used in Africa.

Power demands in the region will grow significantly in the next 10 years, with substantial coal supplies set to be transported by rail to Eskom's power stations.

Commenting on the agreement, Continental Coal chief executive officer Don Turvey said: "We congratulate both the Eskom and Ntshovelo teams for having reached this milestone, and look forward to forging a harmonious supply relationship with Eskom."

Milestones at pace

Continental is strengthening its team and securing substantial financing to realise its goal of doubling thermal coal export growth in 2012 by bringing a third mine into production, which is currently in development.

Importantly, the company is also strengthening its relationship with broad based Black Economic Empowerment partner Sishen Iron Ore Company Community Development Trust (SIOC-cdt) with the appointment of SIOC-cdt chairperson Connie Molusi as non-executive director of Continental.

SIOC-cdt is Continental's 26% partner in the company's South African subsidiary after committing a A$17.4 million (ZAR140 million) initial investment to further fund the growth and development of Continental's thermal coal mining business in South Africa.

Continental has also added a number of new faces to its board, including former Exxaro Resources executive director and chief operating officer Mike Kilbride as independent non-executive chairman, and 41 year mining veteran Johan Bloemsma as a non-executive director.

The new additions build on the company's expertise as it targets organic growth in South Africa.

Continental also recently secured a US$65 million coal hedged debt agreement with ABSA Capital and a subsidiary of Barclays Bank to fund the Penumbra Coal Mine development.

Continental has hedged about 664,550 tonnes of coal over the life of the term loan facility at an average price of ZAR1,057 (A$131.44) per tonne.

Importantly, the coal hedging represents only 12% of the JORC Reserves at the Penumbra Coal Mine and provides upside to any rise in thermal coal prices, as well as providing operating flexibility.

Continental shares have been on an upwards trajectory since early January, with shares trading as high as $0.285 recently, a 72% increase over the $0.165 closing price on 3 January.