TIDMCGO
RNS Number : 7240O
Contango Holdings PLC
14 June 2022
Contango Holdings Plc / Index: LSE / Epic: CGO / Sector: Natural
Resources
14 June 2022
Contango Holdings Plc
('Contango' or the 'Company')
Coking Coal Offtake Signed
Contango Holdings Plc, the London listed natural resource
company developing the Lubu Coking Coal Project in Zimbabwe
('Lubu') and the Garalo-Ntiela Gold Project in Mali
('Garalo-Ntiela'), is pleased to advise it has entered into an
offtake agreement with AtoZ Investments (Pty) Ltd ("AtoZ"), a
specialist coal trading company based in South Africa, for
Contango's initial coking coal production.
Coking Coal Offtake Contract
Following a detailed recent review of the composition and
quality of the coking coal at Lubu, AtoZ has entered into an
agreement to purchase 10,000 tonnes per month of washed coking coal
produced at Lubu, at the prevailing MMCZ market price, currently
US$120 per tonne. The MMCZ market price is a minimum price
prescribed by the Minerals Marketing Corporation of Zimbabwe
(MMCZ).
AtoZ has agreed to take delivery of the washed coking coal at
the mine gate and handle all subsequent logistics and marketing,
thereby removing associated marketing and transport costs for
Contango.
At prevailing market prices Contango would expect to benefit
from margins of circa US$70-80 per tonne for its washed coal
production under this contract, giving potential to generate up to
US$10 million of earnings per annum. Also, given the current
macro-outlook and global coking coal price environment, the Company
believes there is a strong likelihood for further uplift in the
MMCZ coking coal price from its current levels, which remain
significantly below global benchmark prices. This in turn would
provide even greater margin to the Company's operations and washed
coking coal sales under the contract.
About AtoZ
AtoZ commenced trading on 1 August 2017 following a management
buyout from prominent commodities trading house Traxys. AtoZ
partners with leading producers and other traders to establish a
suitable raw material supply for its clients. AtoZ provides
significant input into the operational development of suppliers by
providing pre-production funding, raw material management and
supply, logistics solutions and indirect market intelligence via
depiction of products to be produced in order to arrive at the most
advantageous value proposition for the supplier as well as
AtoZ.
AtoZ already has a number of offtake contracts in place for
coking coal and coke in South Africa and Zimbabwe for a value of
US$70 million per annum combined tonnage of 960,000 tonnes per
annum
Operational Update
As reported on 30 March 2022, the Company commenced production
of coking coal at Lubu at the end of Q1 2022, with coking coal
being stockpiled. The current quarter has focused on upgrading
surface infrastructure and the installation of a wash plant and
will shortly commence the relocation of affected households as per
existing arrangements. Once installed these processing facilities
will have an initial capacity of 120,000 tonnes of washed coal per
annum. The Company expects to be able to deliver on its first sales
at a rate of 10,000 tonnes of washed coal per month to AtoZ in Q4
2022. The Company anticipates funding the expansion of its
processing facilities to 300,000 tonnes per annum in H1 2023 from
internal cash flow.
The Company has raised GBP1.5 million, principally from a number
of existing shareholders, through an unsecured, non-convertible
loan to accelerate the roll out of production at Lubu, given the
establishment of an offtake contract to secure sales and cash
flow.
Coke Battery Update
The Company's primary objective is to produce and sell coke for
the Southern African ferro alloy and industrial markets that
require coke in their furnaces. Coke is an upgraded product derived
from coking coal and commands a significant price premium to coking
coal. The Company has been in discussions in recent weeks with a
number of potential offtakers for its coke product, including AtoZ,
existing coke producers in Zimbabwe and international commodity
trading houses. At current pricing the Company believes a long-term
margin of over US$350 per tonne would be achievable on coke
produced at Lubu. Contango intends to enter into a long-term
offtake agreement on Lubu's coke product later this year, once
washed coking coal is produced at Lubu.
Based on conversations with potential offtake partners, any
future offtake agreement for coke is likely to be accompanied by
the requisite funding to finance the associated infrastructure
required to produce coke, principally the installation of coke
batteries at Lubu. The Company expects to be cash generative by
year end, as a result of the offtake with AtoZ, which will further
strengthen its position in any discussions.
Carl Esprey, CEO of Contango, commented:
"I am delighted to announce our first offtake deal for coking
coal. AtoZ has established a significant presence in South Africa
and Zimbabwe and we are delighted to be working with AtoZ on what
we hope is the first of a number of future contracts. We are
pleased that Contango will now begin to produce sales and cashflow
and mature into a mining company.
Also, we are laser focused on executing the coke production
business plan as it is expected to transform our margins five-fold
in comparison to the sale of coking coal only, which already
provides a good margin of over US$70/tonne.
Given the scale of the Lubu asset, with a resource base of more
than 1 billion tonnes, we believe that we can sell both coking coal
and coke as two separate revenue streams moving forward. In
addition, with the infrastructure in place for the higher margin
coking coal and coke products, there is likely to be further
economic markets for its additional suite of thermal and industrial
coals. For now, we have reached a critical milestone and the
horizon looks very exciting indeed ."
**ENDS**
For further information, please visit
www.contango-holdings-plc.co.uk or contact:
Contango Holdings plc E: contango@stbridespartners.co.uk
Chief Executive Officer
Carl Esprey
Tavira Securities Limited T: +44 (0)20 7100 5100
Financial Adviser & Broker
Jonathan Evans
St Brides Partners Ltd T: +44 (0)20 7236 1177
Financial PR & Investor Relations
Susie Geliher / Charlotte Page
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