eBusiness Weekly
Tapiwanashe Mangwiro
Contango Holdings, the London-listed natural resource company, announced that it is now fast approaching the landmark transition into becoming a cash-generative mining company.
Contango’s operation at Lubu is nearing its final stages of maiden coking coal production with first sales now expected to occur in Q1 2023.
The London-listed natural resources company said Lubu is nearing final stages of maiden coking coal production and sales.
While the company had expected to reach the milestone first sales by the end of the year, delays in import clearance for certain key capital items had slightly extended the timetable.
The company said it continues to make good progress at the site in expectation of delivery of the wash plant and surface miner, and that it is fully capitalised and well-funded.
“Given the demand for Contango’s products the company will now also set about expanding the planned footprint of the pit to enable increased production capacity.
“This positive development is to be funded out of existing cash resources following our 7,5 million-pound (US$9 million) capital raise earlier this quarter,” Chief Executive Carl Esprey said.
He said Contango is fully funded to deliver its first two profit centres from coking coal and thermal coal. The chief executive said that looking at Phase 2, the miner remains focused on being able to capture the full value of their product by manufacturing coke for use in the steel and ferroalloy industries.
Coke is an upgraded product derived from coking coal and commands a significant price premium to coking coal.
The Contango management team is still engaged in active discussions with a number of potential off-takers for its proposed coke product, including the existing coking coal off-take partner, AtoZ, in addition to existing coke producers in Zimbabwe and international commodity trading houses.
“Guided by the conversations that we have had with potential offtake partners, we anticipate that any future offtake agreement for coke is likely to be accompanied by the requisite funding to finance the associated infrastructure, principally the installation of coke batteries.
“With this in mind, and whilst also recognising that Contango expects to be cash generative by the end of the calendar year through our coking coal sales to AtoZ, we believe that we are in a strong position to advance these discussions during Q4,” Esprey said.
The company also retains the option of funding the coke batteries through project-level debt, or self-funding from internal cash flow.
The London-listed miner this week also announced that it has entered into a non-binding Memorandum of Understanding (MOU) with a leading multi-national company (MNC).
The MOU outlines a framework for collaboration across not only coking coal, but also in the manufacture of coke and follows several site visits and a preliminary analysis of a 50kg sample of Muchesu washed coking-coal.
Esprey said, “The signing of this MOU is hugely material for Contango. The MNC is active in Zimbabwe and is a world leader in its field. I believe their interest in the Muchesu Coal Project is testament to its highly attractive characteristics, both in terms of scale and coal quality.”
The intention is to undertake a stage-gated due diligence exercise that will look at all aspects that would underpin either a coking-coal offtake agreement or the possibility of establishing a coking plant adjacent to the Muchesu Mine.
“The due diligence process is underway, and one of the first steps has been to deliver a 1 tonne coking-coal sample to the MNC for further testing. The ongoing discussions are focussed on the viability of a long-term offtake and the potential of a joint venture partnership in establishing coke batteries and developing an underground mine,” Esprey added.
Based on current timelines, the Company would aim to conclude the first phase (concept /pre-feasibility) of the due diligence exercise in the First Quarter 2023 after which a decision will be made if, and how best, to proceed to the subsequent phases.
Esprey said, “Given that Muchesu has a 2 billion tonne plus resource there is plenty of scope for multiple offtakes across our whole suite of coal products — the MOU does not focus on thermal coal for instance.”
The chief executive said he looks forward to updating the market on further progress.
