REG - Contango HoldingsPLC - Coking Coal Offtake Signed

Contango HoldingsAnnouncement

14/06/2022 07:00

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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 £1.5 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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