TIDMCGO
RNS Number : 5723E
Contango Holdings PLC
31 October 2022
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Contango Holdings Plc / Index: LSE / Epic: CGO / Sector: Natural
Resources
31 October 2022
Contango Holdings Plc
("Contango" or the "Company")
Oversubscribed Placing of GBP7,500,000 to fund production and
growth strategy
Highlights
- Oversubscribed Placing of GBP7,500,000 at 6p with new and existing shareholders
- Capital raise to fund final capital expenditure ("capex") and enable further expansion
- Company now fully funded to first revenue from sale of coking coal under existing offtake
- Company targeting additional offtakes for coking coal, thermal coal and coke product
Contango Holdings Plc, the London listed natural resource
company developing the Lubu Coal Project in Zimbabwe ("Lubu
Project") is pleased to announce a placing of 125,000,000 new
ordinary shares ("Placing Shares") at 6 pence per share to raise
Gross Proceeds of GBP7,500,000 ("Placing") from existing and new
shareholders. The Placing Shares represent 26.4% of the Enlarged
Share Capital of the Company. The placees will receive 1 warrant
per 2 Placing Shares, exercisable at 9p for 3 years from admission
("Investor Warrants"). The Placing was undertaken by Tavira
Financial Limited ("Tavira"), the broker to the Company.
Use of Proceeds
The funds will be used to finalise mine development, complete
the installation of the wash plant, acquire further mining
equipment and expand operations at the Lubu Project. The Placing
will also enable the Company to finalise the agreed relocation of
additional households from the mine site, thereby providing a
larger footprint for the mine and operations to meet heightened
demand. Finally, the Placing will enable the Company to settle all
outstanding borrowings incurred by the Company with respect to its
capital expenditure on developing the mine since Q2 2022.
The capital raise also provides the Company with financial
flexibility to pursue its growth plans with regard to coke product
and thermal coal.
Coking Coal
Contango is now fully funded to achieve positive cash flows from
the sale of coking coal in the near term under its current offtake
arrangement and to fund future growth.
The current offtake agreement for the sale of 10,000 tonnes per
month of washed coal, at the prevailing MMCZ market price of US$120
per tonne, is expected to provide an estimated margin of circa
US$80 per tonne. The wash plant being installed this quarter at the
Lubu Project has the capacity to wash 20,000 tonnes per month of
coal (double the existing contracted coal production under offtake
of 10,000 tonnes per month). Therefore, in the current quarter, the
Company expects to enter additional offtake arrangements for washed
coking coal to utilise this spare capacity.
Any further offtake agreements for coking coal above the 20,000
tonne per month capacity of the wash plant would require the
installation of further similar wash plants on site which cost
US$1.5-2m each. The Company can fund any future capex from
internally generated cash flow from the sales anticipated to begin
shortly.
The Directors want to capitalise on the strong coal pricing and
demand environment and given the material coal resource of 2.6
billion tonnes at Lubu, with a significant weighting of coking
coal, there is clearly scalability in both production capacity and
sales.
Coking Product
As previously reported the Company intends to produce coke by
installing coke batteries that process coking coal into coke for
the industrial and ferro alloy industries. The capex related to the
installation of the coke batteries is circa US$5m. The Company has
received heightened interest from a number of potential partners
and off takers with respect to the manufacture of coke at Lubu.
The Company is looking to actively accelerate this plan,
especially given current market prices and ongoing discussions have
outlined the margins on the manufacture of coke are as much as four
times those achieved on coking coal production at Lubu.
For the avoidance of doubt, the Company does not intend to raise
any additional equity to fund the capex on the installation of coke
batteries. This capital will be sourced from a combination of
pre-payment of coke product via offtake, project level debt and the
Company's own cash resources.
Thermal Coal
The Company recently announced a potential thermal coal strategy
given the favourable thermal coal pricing and demand dynamics,
which has seen thermal coal prices rise more than threefold to
all-time highs of circa US$450 per tonne this year,.
The Company has received a number of requests for the regular
delivery of thermal coal from a variety of international markets
and is currently looking to finalise logistics to enable an export
solution. The Company expects that thermal coal could generate
margins of over US$100 per tonne. This could be further improved in
the event the Company is successful in its current efforts to
secure a rail transport solution rather than trucking to port.
Prospectus
The Placing is conditional on, inter alia, the publication of a
prospectus, as approved by the Financial Conduct Authority, (the
"Prospectus") which is expected to be issued on or around 4
November 2022. An updated corporate presentation will also be
released at this time.
Director Participation in the Placing
Carl Esprey, the CEO, has participated in the Placing and
acquired 694,437 Placing Shares at 6p for gross consideration of
GBP41,666. This subscription is deemed a related party transaction
as defined under DTR 7.3. The independent director, Roy Pitchford
(Non-Executive Chairman), considers the terms of the Director
participation in the Placing are fair and reasonable insofar as the
Company's shareholders are concerned.
Issue of Performance Shares
The Company announced on 9 April 2021 the issue of 21,390,000
performance share options ("Performance Options") to its board,
senior management and consultants in lieu of the modest salaries
and fees received to maintain a tight cost structure. The
Performance Options are exercisable for a nil exercise price.
Each holder to the Performance Options has agreed to the
Company's request to exercise their options at this time to
simplify the process and capital structure. Accordingly, the
Company will now issue the 21,390,000 Shares (the "Performance
Shares") as part of Admission. The Performance Shares will
represent 4.5% of the Enlarged Share Capital of the Company.
The Performance Shares remain subject to a hard lock up and will
be unable to be traded prior to 9 April 2023, as previously noted
in the RNS on 9 April 2021.
Admission
The Company will apply for admission of the Placing Shares and
Performance Shares to listing on the standard listing segment of
the Official List of the FCA and to trading on the main market for
listed securities of the London Stock Exchange ("Admission").
Subject to, inter alia, the publication of a Prospectus, as
approved by the Financial Conduct Authority, and the Placing
Agreement between the Company and Tavira not being terminated in
accordance with its terms, it is expected that Admission of the
Placing Shares and Performance Shares will occur at 8:00 am on or
around Monday 7 November 2022.
In accordance with the provision of the Disclosure Guidance and
Transparency Rules of the FCA ("DTRs"), the Company confirms that,
following Admission, and assuming issue of the Placing and
Performance Shares, its issued share capital will comprise
472,724,023 Ordinary Shares, each of which carries the right to
vote, with no Ordinary Shares held in treasury. This figure may be
used by Shareholders as the denominator for the calculations by
which they will determine if they are required to notify their
interest in, or a change to their interest in, the Company under
the DTRs.
Carl Esprey, CEO of Contango, commented:
"I am delighted to report the strong demand for this capital
raise, particularly in the context of difficult equity capital
market conditions for junior mining companies and we welcome the
support of a number of new shareholders to the register.
"I believe it is testament to the attractiveness of the Contango
investment proposition that significant funds were available to
ensure Contango is now fully capitalised to deliver on both the
current offtake and our expansion plans.
Whilst cost inflation and the strengthening US dollar pushed
higher our required capex to first sales and positive cashflow, the
Company will now benefit given our dollar denominated sales going
forward.
"Demand for our coking coal, thermal coal and coke products is
as strong as we have ever seen. We have an existing coking coal
offtake in place, utilising only half of our wash plant capacity
and I do not foresee any issues in entering another offtake and
doubling our earnings potential from our existing production
capacity.
"Most of the site preparation work has now been completed. We
are now in full construction mode and opening up the pit further.
Our focus remains on being in a position to deliver on first sales
by year end before rolling out our coking coal expansion, as well
as our thermal coal and coke products.
"I look forward to updating shareholders on our progress on what
is a truly exciting time for the Company."
**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 Financial 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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END
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