1

Value Proposition

Date March 2012

Price GBP: 16.5p AUD: 24.5c

Market Cap GBP: £69.5m AUD $103m

Code ASX: CCC, LON: COOL

Listing ASX, LON

Shares in issue 421m

Continental Coal (ASX-CCC) Front-line exposure to “the great coal opportunity!”

During his 1909-1913 term of office, William Howard Taft, 27th President of the United States said: “As a people, we have the problem of making our forests outlast this generation, or iron outlast this century, and our coal the next; not merely as a matter of convenience or comfort, but as a matter of stern necessity.”

Fast forward one hundred years, and we know more much about available resources around the world and evidence would indicate some depth still remains to global coal reserves, with estimates suggesting around 120 years of potential supply from proven reserves, compared to just 40-60 years for oil & gas.

However, such statistics should not be viewed in isolation, as energy demands from emerging economies (particularly the in the BRIC nations with their combined almost 3 billion – or 40% of global population) are set to soar over the coming decades, pushing global energy demands to unprecedented and potentially unsustainable levels.

With oil production running at peak levels, and despite the evident “carbon-lite” advantages of nuclear power or renewable energy (notably wind and solar), these technologies have not been developed or utilised at a rapid enough pace to allow emerging economies to grow without rapid construction of coal fired power plant. In addition, following the Japanese tsunami in March 2011 the impetus for nuclear development in the Far East (outside China) has been lost.

Continental Coal Ltd

Introduction

Overview

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Introduction

Over the past three years, Continental Coal has been putting together a portfolio of coal mining interests in South Africa, which is targeted to expand output from zero in 2009 to some 7m tpa by 2013.

Listed on the Australian Stock Exchange since 1996 the company, first named Continental Goldfields and, later, Continental Capital Ltd, remained a relatively small seeker of resources projects (buying and selling interests along the way in gold and diamond projects in the Philippines and Australia, and a vanadium-iron ore project in South Africa which is about to be sold) until, in October 2008, it agreed to acquire a controlling stake in South Africa based Continental Coal Ltd.

The company has embarked on its new direction to take advantage of what it sees as opportunities in the burgeoning coal mining industry in one of South Africa’s major coalfields. The industry is among the world’s largest, and South Africa is the 2nd largest coal exporter after Australia, greatly helped by its low operating costs. Much output is used for local power generation for which there is strongly rising demand, but a rising proportion of exports are going to India and China where demand for power station coal is on the rise.Most of Continental’s projects are located in the Witbank coalfield, which extends over some 300 kms North East of Johannesburg and are well placed for exports from the recently enlarged Richards Bay terminal.

Major companies already operating some 60 coal mines there, underground and open-cast, include AngloCoal, BHP Billiton, and Xstrata, so there is well developed infrastructure and a transport network. Some of the older mines are becoming mined out, presenting CCC with opportunities to re-use existing equipment (such as wash plant and rail sidings) saving both money and time.

As a starting point, investors should review the Company’s February 2012 presentation given to the Indaba mining conference in Cape Town and the most recent full report on the company by Independent Investment Research produced in October 2011.

Introduction“the great coal opportunity!” cont...

So at least for the medium term, generating electricity from coal offers a quick and relatively problem-free solution. Of course the traditional issue with coal has been the relative “dirtiness” of this fossil fuel. But with environmental issues to the fore, clean coal technologies are starting to gain recognition, improving the acceptability of coal as a major source for energy generation.

And those companies with a coal focus, particularly those able to export to India, China and the Far East, are well positioned to take advantage.

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Cont...

Jason Brewer, Don Turvey and Peter Landau are the leading lights driving the company forward: to get a feel for the management style you may also want to watch our video interview with Jason Brewer. The board is diverse and has depth across the key disciplines needed to initiate, develop and grow a material coal business. On the corporate development side it is jointly headed by Jason Brewer and Peter Landau, two high-energy Australian entrepreneurs and the CEO is Don Turvey, a veteran manager on the South African Coalfields with around 30 years’ experience.

Full details of the management team can be found on the company website.

Other videos from the CCC website are available here.

Over time mining rights lapse and corporate plans change: so there are opportunities to acquire or sell projects at all stages of exploration or production in the central basin coalfield which has still not been fully developed even after decades of production. CCC has been both a buyer and seller of mines and prospects in recent years

With two projects already earning revenues, a third fully financed and under construction and a fourth with a Bankable Feasibility Study completed, the company can look forward to substantial and growing revenue streams. With 26% of Continental Coal Ltd held a South African Black Economic Empowerment organisation (BEE) it is well placed and correctly structured to develop further in South Africa. The early income generated will facilitate Continental’s ambitions to drive consolidation in the industry, not only in South Africa but also other African states including Botswana and Kenya.

Below is a summary and links to assist you in your initial research on a Company which, we believe offers an excellent front line exposure to “the great coal opportunity”.

Introduction

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In the last twenty four months Continental Coal has transformed itself from a start-up operation into a fast expanding soon-to-be significant player in the South African coal market. Its achievement of rapid cashflow positivity from its two producing mines is a major achievement and adds credibility to its ambitious aims.

Based on this recent performance it is highly likely that Penumbra, the third mine, will be successfully developed during the first part of 2012 and commence production by Q4. Should this be achieved then the financing negotiations for De Wittekrans (the fourth mine) should be much easier and CCC shareholders should be looking at the stated aim of 7Mt run-of-mine ore in a couple of years.

As a central tenet with explorers and early stage producers, we tend to focus on projects, management and financing. For Continental the projects offer a diverse mix of producing assets, development opportunities and significant exploration upside; in the case of the latter, pretty much across the board.The Management team, at board and operational levels, is diverse and looks to be well qualified to manage a growing coal operations business.

With regarding to finance, the company has been able to secure significant equity finance and loans to undertake necessary operations. Financial input from ABSA and EDF strengthens the financing base, offering excellent third party endorsement of the company’s projections.

So our trio of minimal requirements has been met. Furthermore whilst we all look for stability (and South African operations as they develop critical mass should provide that), we also need the excitement kicker. In this regard the potential resource upside through the Botswana Licences is significant and will help assuage the more adventurous amongst us.

Summing up, to investors wanting exposure to coal, CCC offers a rapidly expanding business managed by dynamic, driven individuals and with a considerable upside in Botswana.Results for the six months to 31st December 2011, released on 29th February showed the following financial highlights:

• Revenue of A$49.9m increased by A$37.0m on the previous corresponding period

• Gross profit of A$14.1m up from A$0.4m in the previous corresponding period

• EBITDA of A$3.0m, a A$31.5m turnaround on previous EBITDA of (A$28.5m)

• Maiden net profit after tax reported, and a 100% improvement from a net loss after tax of (A$30.8m) in the previous corresponding period

• Improved liquidity with debt funding secured from ABSA Capital

• Cash as at 31 December 2011 of A$11.3m

• Forward coal sales of 664,550t established at an average price of ZAR1,057/t, a +50% premium to the average 3 and 5 year historical export thermal coal prices

A constructive development has been the planned replacement of the original BEE partner, Masawu Investments, by Sishen Iron Ore Community Development Trust. The significance of this is that Masawu does not and did not have the cash to fund its share of the developments. CCC had to finance projects 100% by loaning Masawu its share of the money to invest back into the South African operating subsidiary, Continental Coal Limited (CCL).

Value Proposition

Mines, Camera, Action!Check out Continental

Coal video interviewwww.miningmaven.com

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Cont...

Sishen is one of the most successful of the BEE businesses and will not only fund its share in the future but also immediately pay off an initial ZAR140m (about US$20m) of the debt due from Masawu, which Sishen has taken over. This completion of the transaction is expected in the March 2012 quarter.

The corporate structure has been complicated by the limited (64.1%) shareholding CCL initially held in Mashala Resources, which limited CCLs ability to attribute cashflow to the parent company. Steps are underway to increase this shareholding to 100%: As at 31st December it is already up to 83% with settlement expected in the March 2012 quarter.

The corporate structure currently looks like this:

Value Proposition

CONTINENTAL COAL plcASX:CCC AIM:COOL

SISHEN /MASAWUBEE partner

CONTINENTAL COAL LIMITEDSouth African operating company

Mashala Resources

74% 26%

83% and rising

100% 100% 100% 100% 100% 70%75%50% + 10% Management

Fee

50% JVwith

KORES

Ferreira Penumbra OtherPotential

Mines- Leiden

- Mooifontein- Wesselton II

De Wittekrans Knapdaar Project X Vaalbank Vlakvarkfontein Vlakplaats

“The De Wittekrans Complex”

Source: company press releases, presentations and website

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Continental Coal’s operations

The acquisition of 64.1% of Mashala Resources in September 2010 (now 83% owned, and rising to 100% shortly) transformed the company, bringing in multiple further coal interests, some both larger and capable of development more speedily than prior existing projects, a 300tph wash plant and significant Transnet (rail freight) and Richard Bay (coal export facility) contracts, crucial in allowing CCL access to the lucrative export market. CCL is engaged in buying out the remaining minority shareholders in Mashala with more purchases pending and completion scheduled in Q2 2012.

Offtake contracts were signed in July 2010 with major international coal trader EDF for the next twenty years of CCL’s planned output, bringing in funding in the form of loans in advance of deliveries. Exports have been continuous through the Richards Bay Coal Terminal since inception in January 2011. Pricing for export quality thermal coal (CCL mines do not produce coking coal) has held up at over US$100/t throughout the period while cash costs run in the region of US$45-US$60/t, generating exceptional margins. The domestic element of the coal output is primarily of power station quality and sold to Eskom with whom a new Coal Supply Agreement was announced on 6th March, for the supply of 720,000 tpa from the Vlakvarkfontein Coal Mine over an initial 3 year period commencing 1 March 2012.

Moreover, the November 2010 Joint Development Agreement signed with Korea Resources Corporation to fast track the Vlakplaats coal project to BFS on a 50:37:13 basis (being CCL:KORES:BEE partner) further underpins the quality and depth of the company asset base.

Operations

For more information on

Continental Coal www.miningmaven.com

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South African Projects; Continental’s principal projects include:

Vlakvarkfontein: In production

Vlakvarkfontein is situated some 100km east of Johannesburg. The project is situated less than 5km from main RBCT rail line and 13km from Eskom’s Kendal power station.

It is currently mining some 100,000 tonnes per month of domestic quality thermal coal from two seams each 5m wide. The run-of-mine coal is not washed or beneficiated. Reported sales in the last six months of 2011 were US$14m and EBITDA of $4m. A new Coal Supply Agreement with Eskom for 720,000 tpa over 3 years was also recently announced.

The project is a conventional open cast contract mining operation with 17 Mt of resource sufficient for 10+ year mine life. Targeted ROM production is 1.2Mtpa.

Projects

Ferreira: In production

Ferreira is a conventional opencast contract mining operation which commenced production in August 2008. CCL’s management doubled production within three months over taking over following the acquisition of Mashala Resources.

The mine now has about 1.7Mt of resources remaining with a life of 1-2 years. ROM production for the six months to December 2011 was 357,668 tonnes.

Export production for the period was 290,760 tonnes plus 12,730 tonnes sold to Eskom (the monopoly SA electricity provider), output which will gradually be replaced in 2012/13 by underground operations at the nearby Penumbra mine.

The project encompasses extensive infrastructure including a 300 tonnes per hour wash plant, Fraser Alexander “BOOM” plant (completed in 2009) and a 1.2million tonnes per annum rail siding. (BOOM is short for ‘Build, Own, Operate and Manage’ – in other words the cutting and processing of the coal is completely outsourced by CCL, in this case to Fraser Alexander. A major benefit to CCL is the capex saving).

Penumbra: under construction

Penumbra is an underground operation located 3km from Ferreira opencast mine, wash plant and rail siding. This is being developed into a conventional underground room and pillar mining operation, which is fully permitted and financed with a US$35m facility provided by ABSA, backed by Barclays.

Initial works were started in September 2011 and the development of the decline ramp has now started. First coal is scheduled for H2 2012 and the mine will be fully mechanised.

500k tonnes of a high quality export thermal coal product are forecast which is expected to generate annual free cashflow of A$22m at current coal prices and exchange rates. Targeted ROM production is 0.84Mtpa.The Feasibility study undertaken was considered very conservative and there is an opportunity to extend mine life to +20 years.

First production is forecast to commence in Q3 2012 with full production rate targeted within in 6 months.

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ProjectsSouth African principal projects cont...

De Wittekrans: BFS completed

The De Wittekrans Complex comprises 4 projects - De Wittekrans, Knapdaar, Vaalbank and Project X De Wittekrans is a conventional opencast and underground mining operation mining three seams with a Bankable Feasibility Study completed in September 2011.

The open pit operations are planned to produce 1.2Mtpa for 5 years, to be followed from year 2 by an underground mine for the 30+ years. Total production will be 3.6Mtpa which will be processed through a new dense medium separation plant to produce 1.7Mtpa of domestic coal and 0.8Mtpa of export thermal coal.

Capex is forecast at US$209m: but this is capable of being reduced by US$40-60m by using a BOOM contractor (see note under Ferreira mine) and existing rail sidings. External project finance will be required to develop this mine, but the potential average annual cash flows of US$34m after tax (at current exchange rates and coal prices) make this viable.

Subject to financing, first coal from the open pit is due in 2013.

Other South African projects

Vlakplaats: (50% JV with KORES): a pre-feasibility study has been completed on this. Potential for 3-5Mtpa ROM for 20+ years.

Wolvenfontein: Potential for 1-3Mtpa ROM for 10+ years.

Ermelo Projects: Potential for 0.6-1.2Mtpa ROM for 10+ years.

There are also several other projects further away from fruition.

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Botswana

Continental Coal owns three prospecting licenses in Botswana: PLs 339/2008 and 340/2008 cover 694km² and together are known as Sorowe, and PL341/2008 in Kweneng covering area of 270km². The licenses are over areas which are essentially an extension of the Waterburg coalfield in South Africa, being developed by companies such as Resource Generation (ASX:RES).

An exploration target of 6-7billion tons of coal has been set by independent geologists of which 2.7Bt is at shallow to moderate depths.

On 15th November 2011 CCC announced that it had intersected major coal bearing mineralisation at Serowe over a strike length of around 20km, confirming previous historical drill data. Coal horizons were at variable depths, starting at a minimum of 27m in one hole and ending at a maximum of 147m in another. Horizon thickness varied from 9m to 84m. Assay results on these horizons are not yet available.

Kwaneng is also being drilled in the current round: ten holes were scheduled for Dec 2011 and the results now expected in the March 2012 quarter.

Clearly the strike lengths and thicknesses indicated, if they were to be shown to be the bituminous coal expected, could be of major economic significance to CCC. Some beneficiation of this low quality coal could be anticipated. Note that Serowe is located immediately north of Botswana’s only producing coal mine, Moropule.

Transport will be a major issue in exploiting coalfields in Botswana. Parts of Serowe are 2km from the main north-south railway line and Kweneng 5km at its closest point. But this is not a likely export route: a trans-Kalahari rail line is planned to link the coalfields to the Namibian deep water ports (such as Walvis Bay) on the Atlantic coast. The idea is supported by the Botswanan government and construction work may start in the next year or so.Of interest PL 341/2008 in Kweneng is situated 25kms west of CIC Energy’s Mmamabula coal project, for which CIC received a bid offer from an undisclosed Indian coal mining and power generation company valuing CIC at approximately $450 million. CIC has no other significant assets. This demonstrates the value of the Botswana licenses’, providing substantial exploration upside for Continental.

Kenyan Projects

In January 2011 CCC was informed by the Kenyan government that it’s Expressions of Interest submitted for exploration and feasibility work on 4 tenements in the Mui Basin has been successful. CCC then followed up with detailed technical and financial proposals. It has since learnt that Chinese company Fenxy Mining Industry had been successful in its tender for one of the four concession blocks, but responses on the other three remain outstanding.

A good summary of the company’s projects can be found on the Continental Coal website

Projects

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Company Funding

The acquisition of the Continental Coal business, Mashala Resources and the working capital required to bring the projects into production, has involved the raising of around $A220m of new share capital since June 2008 (when the company’s assets were only A$9m), plus debt and convertible note funding of around US$100m and A$16m respectively.

CCC had AU$11.3m of cash at 31/12/11, though the net current liabilities are $10m and demonstrate the cashflow difficulties of a fast-expanding business. Although money is tight, both mines are generating cash and CCC has around $20m coming from repayment of the intercompany loan with Masawu/Sishen and $35m of project financing debt with ABSA shortly to become available for the Penumbra development together with a $15m overdraft facility for working capital.

CCC is also expects to receive US$10m from the sale of an inherited subsidiary (“Vanmag” a vanadium & magnetite company) and expects to obtain the approvals necessary to complete settlement of the acquisition over the March 2012 Quarter.

It clearly believes that this is sufficient to open Penumbra and move its operating subsidiary, Continental Coal Limited, to a 100% holding in Mashala investments and thereby take 100% interest in its producing mines.

It is likely that the fourth and subsequent mines will also require significant project finance to develop: there is the possibility of further share issues if the equity component of the financing cannot be satisfied by the cash generation from the producing mines at that time.

At the current 17p (A$0.25) share price, the market capitalisation is now £69m (A$102m) and has suffered along with the rest of the mining sector over the last year or so. The most recent broker research target from Madison Williams in August 2011 was A$0.08 (now A$0.80 after the 1-for-10 share consolidation in Q3 2011).

Due to the fast-expanding and rapid-changing nature of the business, recent financial forecasts are thin on the ground. However, this note from Independent Investment Research does give some valuation comparatives with other coal businesses listed in the US, Australia and South Africa, all highly favourable to CCC.

It is also worth looking at a flashnote from Edison Investment Research and other brokers/analysts on the Investors Relations section of the company’s website.

Finances

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Some final thoughts

CCC is a fast-moving development operation operating in an established coalfield with good infrastructure and a very experienced coalfield manager, Don Turvey, at its helm. Inevitably at this stage of fast expansion it is cash hungry and profitability is limited.

CCC is targeting 7Mt of run-of-mine coal production in 2013, a figure includes a typically ambitious full year of production from De Wittekrans which is still in financing discussions, demonstrating the speed at which these pipeline prospects can be developed.Given the run of announcements and developments coming early in 2012, it promises to be an exciting year for all associated with Continental Coal!

Summary

© MiningMaven 2012All figures quoted have been obtained from the respective Company websites and publically available sources with links provided where available. Errors & omissions excepted.

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Upcoming announcements

There are several significant upcoming announcements including:

• Buying out the minorities in Mashala Investments (up to 83% now owned at the December 2011 half Year)

• Completion of the deal for Sishen to replace Masawu as the BEE investor;

• Satisfaction of the conditions precedent to enable the ABSA funding to be drawn down for the Penumbra mine development (one significant condition was passing 75% ownership of Mashala which has now been achieved, and CCC is working steadily to satisfy the other remaining conditions);

• Assay results on the Botswana drilling;

Announcements