REG - Contango HoldingsPLC - Oversubscribed Placing of £7,500,000

Contango HoldingsAnnouncement

31/10/2022 07:00

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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 £7,500,000 to fund production and growth strategy

 

Highlights

 

-     Oversubscribed Placing of £7,500,000 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 £7,500,000 ("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 £41,666. 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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