Continental Coal buying into Colombian coking coal mine

Continental Coal Ltd. (ASX: CCC and AIM: COOL), a South African thermal coal company, said May 17 that it has entered into an exclusive agreement to acquire a 50% joint venture interest in an operating hard coking coal mine in Colombia.

Subject to completion of satisfactory due diligence it is proposed that Continental will acquire a 50% joint venture in five mining concessions/contracts covering over 1,500 hectares and including the existing underground mine that has been in operation for 24 years and adjacent exploration ground.

The mine, located in eastern Colombia, is an established hard coking coal producer with a workforce of more than 140 employees. Current underground production and access is through a series of declines to mine two coal seams with a total economic thickness of 1.7 meters. This is a room-and-pillar mine, with no wash plant needed to the high quality of the raw coal, Continental noted.

Sales of hard coking coal are made at the mine gate with current margins of about 75%. Sales directly to the export market are planned in 2013. The mine has a current mine plan in excess of 50 years, although currently has no Joint Ore Reserves Committee-compliant reserves or resources.

An independent technical review in 2010 determined that mine production can be increased significantly from its current levels through the introduction of mechanization, improvements to the mine infrastructure, a modified mine layout and an extra production shift. Continental believes annual production of 500,000 tonnes can be achieved in the medium term. The coal is considered a very high-quality, high-vol coking coal.

Met coal development a growing trend in Colombia

Colombia is looking to expand its production of both met and thermal coals, with the U.S. traditionally one of its major coal markets.

For example on the met coal side, Colombia Energy Resources (OTCBB: CERX), a U.S.-based company operating in Colombia, on April 5 released the initial independent resource report on its Ruku Mining Complex.

“The completion of our first compliant resource report is a major milestone for CERX,” said company CEO Ronald Stovash at the time. “In addition to providing our shareholders with more information on our coal qualities and quantities, it also represents a critical step toward a dual listing in Canada later this year.”

Ruku is located near the village of San Pedro in the municipality of Socota, a provincial department of Boyaca, Colombia. Coal produced from Ruku is a high-quality, low-vol coal with typical specs of about 19% volatile matter, 6.5% ash, 4% moisture, less than 1% sulfur and 14,000 Btu/lb. The company said in a May 15 Form 10-Q filing at the SEC that it resumed production at Ruku on April 17 after it was temporarily halted in February due to vandalism.

On the board of directors of Colombia Energy Resources is Pete Lilly, a former top executive at coal producers like CONSOL Energy (NYSE: CNX) and Peabody Energy (NYSE: BTU). Barry Markowitz, Chairman of the Board, has past coal experience at DTE Energy (NYSE: DTE). Stovash is a veteran of CONSOL Energy and PinnOak Resources.

Said the company’s May 15 Form 10-Q about the Colombian government’s coal mining priorities: “Colombian coal is recognized worldwide for its high-heat-value, low-ash and low-sulfur contents. Investment and development of sustainable coal mining is an important priority for the Colombian government; coal is the nation’s second largest export item after oil. In Colombia, the state owns all hydrocarbon reserves. Private companies operate coal mines under concession contracts with the state. Colombia is the world’s tenth largest producer and fourth largest exporter of coal, with an estimated 7 billion metric tons (‘MT’) of recoverable reserves and 17 billion MT of potential reserves.”

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.