In a heavy bottomed saucepan, combine coconut, condensed milk and vanilla. Cook, stirring constantly over medium heat, for 15 minutes.

To make caramel, combine sugar and water and cook over low heat for about 10 minutes, until it starts to change color. Leave to cool for 5 minutes.

As soon as the coconut mixture is cool enough to handle, form into 18 balls. When it starts to stick to your hands, wet your hands.

Dip balls in the caramel sauce and leave to set.