🕐21.11.12 - 09:27 Uhr

INVESTEC: CONTINENTAL COAL - IMPROVED DWC ECONOMICS SHOULD FACILITATE FINANCING - BUY




Continental Coal · COOL has been conducting optimisation studies on its key De Wittekrans Complex (DWC) project, following the late 2011 bankable feasibility study (BFS).

It has also recently been in discussion with parties interested in participation in its projects.

These two processes now appear to be coming together, with the company announcing an update on DWC that could see it producing 2.4mtpa of mid-grade export coal at reduced capital requirements. * Instead of a mixed domestic-export operation, COOL is assessing the potential of producing only a mid-grade (5,000kcal) export coal, suitable for the Asian market, particularly India.

This would result in significantly improved yields for the export product (from 26-29% to 75-78%).

While COOL would expect to receive a 30% discount to API4 pricing for the product, it states that the value per tonne of overall product sold would still improve by up to 40% from the BFS.

COOL has meanwhile identified potential capital savings of 29% through utilising third party infrastructure or through BOOM (build-own-operate-maintain) contracts.

* The potentially improved cash flows and reduced capital should improve the project’s ability to secure financing.

COOL reports that it is in discussions with several parties for funding the project through strategic JV and/or off-take and financing arrangements.

* COOL is now appointing an independent technical consultant to update the BFS, with a development decision to be made in the 2H13.

* DWC is a significant component of our valuation for COOL, making up 31% of our risked NPV of 10p, which corresponds with our target price.

COOL’s key issue, in our view, is not the intrinsic value of its assets, but ensuring that it has the financial support to enable their development.
To access the full note please click here Analysts: Europe: Hunter Hillcoat +44 (0)20 7597 5182 South Africa: Albert Minassian +27 21 416 1454 Australia: Tim Gerrard +61 2 9293 2168
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