(MENAFN- ProactiveInvestors - Australia) Continental Coal (ASX: CCC) has received positive preliminary results from optimisation work completed on the De Wittekrans Coal Project in South Africa that shows its potential to become the company's flagship project and generate strong returns.
The results propose exports of 2.4 million tonnes per annum of a thermal coal product, ideally suited for the Asian coal market, over an initial 30 year mine life.
Annual forecast thermal coal exports are planned to increase from 800,000 tonnes per annum to 2.4 million tonnes per annum, with total annual sales revenue forecast to increase by over 35% to up to US$145 million.
As a result annual forecast free cashflow after tax increases by around 30% to up to US$30 million.
The indicative equity project NPV10 is in excess of US$110 million and the internal rate of return is over 20%.
Capital costs and funding requirements are forecast to reduce through the utilisation of existing coal wash plants and rail sidings and/or construction of the wash plant under a BOOM contract.
These capital costs can be reduced by up to US$50 million, with reductions from the wash plant and from surface and off site infrastructure costs.
Total capital costs to first production are expected to be 53% lower at around US$14 million.
Continental will now appoint independent technical consultants to update the 2011 Feasibility Study ahead of a planned development decision in the second half of 2013.
Higher value coal product
Coal product analyses have indicated that a potential optimal coal product could be achieved when the run of mine coal is washed for a single 5,000 kilocalorie primary product.
The 5,000 kilocalorie thermal export coal product has become increasingly in demand in the Asian market and in India in particular over the past decade.
Indicative opencast and underground primary wash plant yields of 75% and 78% have been determined for a 5,000 kilocalorie export coal product compared to 29% and 26% for the 6,000 kilocalorie export coal product used in the 2011 Feasibility Study.
The value per tonne of coal product sold under the preliminary results of the optimisation work completed increases by up to 40% to US$63 per tonne from the US$45 per tonne determined previously.
Strategic partner/offtake talks
Continental is in discussions with several parties for funding of the project through a strategic joint venture and/or long-term coal offtake agreement and commercial bank finance.
The company has already submitted letters of intent to secure additional port and rail capacity to match the proposed export volumes from the De Wittekrans Coal Project.
Continental is well advanced in its application for the New Order Mining Right, submitted in 2010, and anticipates it being granted by the Department of Minerals and Resources in the coming months.
Saleable reserves
The De Wittekrans Project currently has total gross saleable Proven and Probable reserves of 43.8 million tonnes and gross insitu Measured, Indicated and Inferred resource tonnes of 251.1 million tonnes.
Analysis
Today's positive optimisation results have the potential to materially improve Continental's ability to secure the necessary funding to develop the De Wittekrans Coal Project.
They indicate potential for good returns, propelling the project to the status of the company's "flagship" project.
Importantly, Continental is already in discussions with several parties for funding of the project through a strategic joint venture and/or long-term coal offtake agreement and commercial bank finance.
This paves the way for a development decision to be made in the second half of 2013, once Continental has updated the 2011 Feasibility Study and received the necessary regulatory approvals.
The addition of another coal mine operation in South Africa will build further on Continental's record run of mine coal production in the region.
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