Continental Coal has secured USD 65 million (AUD 60.2 million) in total debt funding with ABSA Capital and a subsidiary of Barclays Bank to fund the Penumbra coal mine development in South Africa.
As part of the debt funding with ABSA Capital, Continental has implemented a coal and foreign exchange hedging programme to mitigate its exposure to a sustained fall in US$ coal prices or an appreciation of the ZAR:US$.
Importantly, the coal hedging represents only 12 per cent 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, the firm said.
Continental has hedged about 664,550 tonnes of coal over the life of the loan facility at an average price of ZAR1,057 (A$129.32) per tonne.
The hedging has been achieved at a 23% premium to the current spot price of around ZAR 860 per tonne and at a 54% and 53% premium to the average three and five year prices of ZAR 685 per tonne and ZAR 692 per tonne respectively.
Continental is in the process of satisfying the remaining conditions precedent to the first draw down of the US$35 million, seven year project loan facility to fund the Penumbra mine, scheduled to be completed later this quarter.
Drawdown of the funding will begin upon Continental funding, up front, the balance of the project’s development costs not met from the USD 35 million tranche from its existing cashflow and once it has satisfied the few remaining conditions precedent.
Mr Don Turvey CEO of Continental Coal said that finalising the loan agreements under "the current volatile capital markets was a key milestone in the growth of the company and a further sign of support for its coal mining strategy in South Africa. He said that “To have already satisfied a number of the key conditions precedent and have agreed the draw down schedule of the USD 35 million project loan facility is also a major step forward in the development of the Penumbra coal mine. In addition the establishment of the coal hedging program for the Penumbra coal mine, at average coal prices of ZAR 1,057 per tonne, provides us with extremely robust margins to the forecast total FOB costs of approximately ZAR 490 per tonne that were reported in the recent SRK Competent Persons Report on the Penumbra Coal Mine.”
(Sourced from www.proactiveinvestors.com)
