Continental Coal releases preliminary final report for year ending June

Continental Coal Limited, the South African thermal coal production, development and exploration company, has released its preliminary final report for the year ended 30 June 2013 in accordance with ASX listing rule 4.3A. The final annual report will be released on 30 September 2013.

According to the report, the total Run of Mine production from the three operating mines increased 15% to 2.3Mt year on year while production from the Vlakvarkfontein mine increased 23% year on year and contributed 1.5Mt to total ROM production.

Vlakvarkfontein mine exceeded planned production and also recorded free on truck (“FOT”) costs of R140 (US$14) per tonne, which was 6% below planned costs, comparing well with the R131 (US$13.1) per tonne recorded for the 2012 financial year. The company said the mine has demonstrated its ability to consistently deliver and exceed planned production and is forecasted to deliver 1.3Mtonnes at a FOT cost of R152 (US$15.2) per tonne during the 2014 financial year.

Continental said an initial delay during the year in obtaining regulatory approval to expand the Ferreira mine was mitigated by good production results in the latter part of the financial year. 559,105 ROM tonnes were produced at a yield of 70.4% during the year, a significant improvement on the 60.1% yield achieved in the prior year. Free on Board (“FOB”) costs of R662 (US$66.2) per tonne were recorded, below the South African inflation increase of 3% year on year. The Ferreira mine is nearing the end of its life and reserves are expected to be depleted by November 2013.

The company achieved the commissioning of its third thermal coal mine during the year when it successfully delivered the Penumbra mine with production of first coal in November 2012. Both the continuous miners were commissioned during the year while the key focus up to August 2013 remained on the development and commissioning of the primary ventilation shaft.

This project was completed during August 2013 and with the required ventilation now in place the focus has shifted to achieve the planned monthly production rate of 63,000 tonnes per month by October 2013. Notwithstanding the development activities during the year, the mine still managed to deliver 143,299 tonnes to the Delta processing facility. Penumbra is forecasting the delivery of 600,000 ROM tonnes during the 2014 financial year at a FOB cost of R530 (US$53) tonne.

Continental added that the optimisation work for the De Wittekrans project that was completed during the year has confirmed the potential to substantially improve the project economics and reduce the capital expenditure necessary to bring the De Wittekrans Coal Project into production.

“The work identified the opportunity to develop the De Wittekrans Coal Project to be a major opencast and underground thermal coal mining operation supplying domestic and international markets over an initial 30 year mine life. Annual production of 3.6 Mtpa is expected after the initial build-up phase.”


The group has already submitted applications and all accompanying documentation for a New Order Mining Right and Integrated Water Use License for the De Wittekrans Coal Project. The New Order Mining Right is expected to be granted during Q3 2013. The project economic model is being updated to account for the changes proposed by the optimization study and is planned for completion in Q4 2013.


During the period, sales of 1.8Mtonnes recorded for the year was only marginally lower than in the prior year, mainly as a result of over 250,000 tonnes of coal acquired from third parties included in the prior year sales.


“The decrease in global thermal coal prices as well as the impact of the devaluation of the South African Rand against the Australian (“A$”) and United States (“US$”) dollar impacted on the net revenue of A$62 million recorded. The Company’s continued drive to reduce costs is delivering results with administration costs reducing by 38% and other expenses by 68%,” Continental said.

Current depressed thermal coal prices and the medium term forecast for thermal coal prices required the Company to review the carrying value of its operating, development and exploration projects in its financial records. No impairment was required for its operating and development assets with only its exploration assets subjected to an impairment charge. Environmental studies during the year at the Vlakplaats project highlighted the risk to extract the coal through surface mining operations, mainly due to wetlands identified in the proposed project area.


The additional costs involved in building an underground mine as well as the forecasted return from saleable material impacts on the potential economic valuation of the project. The Group has therefore recognized an A$18 million impairment charge against this project to account for the potential decrease in value. A further A$8 million impairment charge was recognized against Project X and Wesselton II projects.


Continental Chief Executive Officer, Don Turvey said the company achieved the goals set for the 2013 financial year of increasing production and reducing our cost base.


“This trend is set to continue during 2014 with our Penumbra mine building up to its planned production. The results of the optimisation studies for the De Wittekrans project are encouraging and the planned phased development approach significantly reduces the development capital required 3  to commencement of production. Obtaining the mining right for De Wittekrans in the current quarter will allow the Board to review the planned development schedule.”

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