Local coal producer IchorCoal has inked a deal to acquire stricken Continental Coal’s key 1.2-million-ton-a-year Vlakvarkfontein and stalled Penumbra mines, both in Mpumalanga, for R128-million.

Citing the driver of the purchase agreement as IchorCoal’s strategy to participate “meaningfully” in the South African coal sector, CEO Nonkululeko Nyembezi-Heita describes the acquisitions as another step toward the group’s transition to a leading local midtier thermal coal producer.

Particularly noteworthy is the proximity of Penumbra to IchorCoal’s existing Vunene operation and the subsequent potential to extract material synergies, which will lower the group’s overall operating cost.

“Further, our existing, indirect, shareholding in Vlakvarkfontein makes us the logical acquirer of this asset and clearly demonstrates IchorCoal’s strategy to actively participate in the consolidation of the South African junior coal sector,” she says.

Under the terms of the deal, IchorCoal will pay R55-million for Continental Coal South Africa’s 100% interest in Penumbra, which has a resource of 14-million tons in situ and has produced 500 000 t/y of coal since 2012.

The Penumbra acquisition also includes a rail siding and a yearly export allocation of 18 000 t at the Richards Bay Coal Terminal, in KwaZulu-Natal.

In addition, IchorCoal will pay R73-million for Continental Coal South Africa’s 50% shareholding – and 60% economic interest – in Ntshovelo Mining Resources, which owns the opencast Vlakvarkfontein mine.

IchorCoal intends to fund the acquisitions through a combination of internal funds and third-party funding.

Continental Coal South Africa and its wholly owned subsidiary companies, Mashala Resources and Penumbra Coal Mining, entered into business rescue proceedings in November 2014, after which court-appointed business rescue practitioners initiated a sales process on the Penumbra asset in February.

IchorCoal was, thereafter, selected as the preferred bidder for Penumbra following approval of the business rescue plan at a meeting of creditors in April.