Continental Coal secures funding for Penumbra mine.

THE BOURSE WHISPERER: The board of Perth-based South Africa-focused coal mining company Continental Coal has received a credit approved and committed financing offer.

The offer will provide debt and related coal and foreign exchange risk management facilities that will be used for the development of the company’s Penumbra coal project.

The new facility, in conjunction with other existing unsecured debt facilities, stems from Continental’s sale of its shareholding in Vanadium and Magnetite Exploration and Development Co (SA) (Pty) Limited, and available funds.

The company is confident it will be sufficient for it to be able to commit to the development of its third mine, the Penumbra Coal Project.

“Continental has secured a highly competitive and attractive committed offer of finance,” Continental Coal executive director Jason Brewer said in an announcement.

“The competitive nature of the financing and the substantial level of interest from international investment banks has resulted in the Company having received this committed offer of finance on considerably better terms and covenants than it had been offered late last year.”

The facility comprises a four year, US$25 million secured project loan facility, repayable on a quarterly basis following first production, and associated risk management facilities to hedge the company’s US dollar to South African rand conversion exposure and the risk of a sustained fall in thermal coal prices.

Continental said it will not need to drawdown on the secured debt funding until the September quarter with initial funding requirements met first from existing unsecured debt facilities and available cash funds.

Any drawdown of the facility will be subject to satisfactory loan documentation and conditions that are standard for a facility of this nature.

The company also said development of the Penumbra coal project can now commence in June with committed funding offers secured and approvals in place.

It has agreements in place with key landowners securing access to the site enabling it to commence construction with the initial excavation of the decline shaft will begin soon.

The Penumbra coal project is forecast to produce 500,000 tonnes per annum of a primary export thermal coal product and 120,000tpa of a secondary domestic quality thermal coal product.

Export thermal coal will be railed from Continental’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 Freight On Board costs, for the primary export coal product, of approximately US$61/t in real 2009 terms are forecast over the mine life.

First coal production from Penumbra is now expected in early 2012, ramping up to reach full production in the third quarter of 2012.