South African junior thermal coal miner Continental Coal announced Monday that diversified mining investment and production company Village Main Reef has agreed to acquire a 19.9% interest in the miner through a A$8 million ($8.3 million) private placement and the acquisition of minority parcels of shares.
Village Main Reef will acquire 100 million Continental shares held by minority members -- those who hold share parcels of less than A$500 in value and who do not elect to retain their shares -- at A0.08/share.
Continental said in a statement the transaction is subject to shareholder approval to be obtained at a general meeting on March 28, as well as approval from the South African Reserve Bank. The acquisition is expected to close April 29 with proceeds to be distributed to minority members as soon as possible.
Continental said that the sale would allow it to reduce administrative costs and improve efficiencies by having to manage a smaller shareholding base.
It added that the agreement positions Continental to advance its discussions on a strategic partnership and off-take agreements for the De Wittekrans coal project, its fourth mine development.
Specialist banking and asset management group Investec's Global Natural Resources research team said in a note Monday that the agreement with a metals producer, although "surprising," is positive for the junior miner because Village Main Reef receives good cash generation from gold production, has interests in platinum and antimony, and has a diversification strategy that could benefit Continental.
"We'd have expected an Indian strategic partner for Continental, but suspect that any offers may have been low-ball. Village Main Reef now provides Continental with an alternative option when it comes to developing its other projects, such as De Wittekrans, thereby forcing any other strategic partners in the project to be more commercial, i.e., realistic," Investec said in the note.
Continental Coal produced 468,469 mt of run-of-mine thermal coal from its Ferreira, Penumbra and Vlakvarkfontein mines in the quarter ended December 31, 2012. It also carried out optimization work on the De Wittekrans project, which established proposed exports of 2.4 million mt/year of thermal coal over a 30-year mine life.
Continental's three South African thermal coal mining operations have a combined run-of-mine production target of 2.8 million mt/year.
