Australia-based Continental Coal plans to divest a 19.9% strategic cornerstone interest in the company to South African diversified mining company Village Main Reef.

The two companies entered into binding financing agreements to conclude the transaction through a private placement; purchasing shares with a market value of less than A$500 ($520); and subsequent market share purchases

As per the agreed terms, Continental will offer 100m shares to Village Main at an issue price of A$0.08 per share, subject to a shareholder approval as well as the approval of the South African Reserve Bank.

Continental plans to employ the proceeds to debt reduction, working capital requirements and overall strengthening of the company’s balance sheet.

Commenting on the developments Continental CEO Don Turvey remarked that the private placement will have a significant impact on the company’s business over the short term.

"The introduction of such a strategic and cornerstone investor to our share register, demonstrates the value proposition of our operating coal mining business and our coal project development opportunities," said Turvey.

Village Main Reef joint CEO Marius Saaiman added, "Our investment in Continental reflects VMR’s continued diversification strategy while maintaining our requirement to invest in strong, cash generating assets. We think Continental is at an inflection point in terms of its development."

A further 25m unlisted options will also be offered to Village Main with an exercise price of A$0.10 per option and an expiry date of 31 March 2016.