Emerging South African focused coal company Continental Coal (ASX: CCC) has signed its second off-take agreement to be entered into with EDF Trading - a leader in the international wholesale energy markets and a wholly-owned subsidiary of EDF S.A., the world’s largest energy utility.

An option has been granted for EDF Trading to provide up to an additional US$20M of funding for the Vlakplaats Coal Mine which will be repaid from coal production.

With the latest arrangement, EDF Trading has agreed in principle to an off-take agreement with Continental that will see them secure thermal coal production from the Vlakplaats mine for an initial period of 20 years, at a market API4 benchmark price FOB Richards Bay.

The funding package and off-take agreement with EDF Trading is in addition to the US$20M funding and off-take arrangements previously announced on 30 March 2010. This deal was facilitated through an advance purchase of thermal coal from the Vaalbank, Project X and Vlakvarkfontein coal mines.

The off-take arrangements for Vlakplaats marks another key milestone for Continental and follows the off-take arrangements previously announced with EDF Trading on its Vaalbank and Project X Coal Projects and the execution of documentation that has secured Continental the necessary key infrastructure to rail its planned 300,000t per month of coal to port for export.

Based on the current API4 price, the Vlaplaats offtake agreement is worth approximately US$155M a year in revenue to Continental and is valued at more than US$3.0 billion over the initial 20 year term of the off-take contract.

The off-take arrangements will cover 100% of Vlakplaat’s sales of export thermal coal forecast to be 2.4Mtpa with first production to commence in the second half of 2011 and continue over an initial 20 year mine life.

The completion of off-take discussions and funding arrangements now allows Continental to complete acquisition and aggressively fund development of its portfolio of coal mines into production over the next 12 months. 

Continental Coal managing director, Bruce Buthelezi said, “EDF Trading has proven itself to be a partner committed to the development of key Continental Coal projects in South Africa, and we look forward to working and successfully bringing our projects into production over the coming year.”

Continental has also entered into an additional funding arrangement of US$27M (ZAR200M) with a South African resources focussed investment consortium. The financing provides Continental with the necessary funding to allow it to complete the acquisition of the Vlakplaats Coal Mine and provide additional development funding.

Continental has over 395 million tonnes of resources of coal on its South African properties. It expects production at its predominantly export thermal coal mines at Vaalbank, Project X and Vlakplaats to commence in 2011, at the rate of over 300,000 tonnes per month of export coal.

First coal sales will also commence at the company's First Continental coal mine, Vlarkvarkfontein in May 2010.

• [Editor:editor]