REG - Contango HoldingsPLC - Thermal Coal Strategy

Contango HoldingsAnnouncement

16/09/2022 07:00

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RNS Number : 6778Z  Contango Holdings PLC  16 September 2022

Contango Holdings Plc / Index: LSE / Epic: CGO / Sector: Natural Resources

16 September 2022

Contango Holdings Plc

("Contango" or the "Company")

 

Thermal Coal Strategy

 

Contango Holdings Plc, the London listed natural resource company developing
the Lubu Coking Coal Project in Zimbabwe ("Lubu Project") is pleased to
provide an update with respect to developments regarding the thermal coal at
Lubu.

 

Thermal Coal Strategy

 

The Company has in recent months received a number of unsolicited approaches
from buyers of thermal coal (ranging from trading houses to industrial
consumers) from Africa, Europe and Asia. In the last 12 months, it is well
documented that thermal coal prices have increased dramatically from
approximately US$125 per tonne to US$450 per tonne due to the increased demand
from energy displacement and severe shortage of supply due to closure of
thermal coal mines.

 

The Lubu deposit contains significant quantities of both coking and thermal
coal and has a current NI 43-101 resource totalling more than 1 billion tonnes
of coal. The Company has initially focused on extraction of coking coal from
Block 2, given the seams have strong coking coal characteristics and thermal
coal was historically seen as a by-product.  At Block 2, it is expected that
approximately 60% of coal extracted will be thermal coal, whilst 40% will be
coking coal.

 

The Company continues to focus on delivering the coking coal and coke
development strategy outlined below, however, it believes it can create
substantial additional shareholder value by also selling thermal coal
internationally. The Company believes the development of thermal coal sales
would only require modest capital costs, funded from internal cash flow, to
increase the scale of operations and infrastructure whilst the cost of mining
is negligible as the thermal coal is effectively a by-product of the coking
coal mined. Given the thermal coal price movements and current interest
expressed in the product, the Company is now exploring the feasibility of
exporting thermal coal internationally via ports outside of South Africa
(which no longer has export capacity).

 

The Company anticipates that it will be able to deliver 10,000t of coking coal
and 10,000t of thermal coal per month based on current capacity. Also, the
Company believes it can expect to benefit from margins of US$100-150 per tonne
on sales of thermal coal based on recent offtake discussions and in the
current thermal coal pricing environment. The Company anticipates it can begin
delivering thermal coal in H1 2023 subject to finalising transport and export
routes.

 

Coking Coal & Coke Development Scenario

 

The Company expects to commence first sales of washed coking coal under its
existing initial 10,000 tonnes per month offtake agreement with AtoZ
Investments (Pty) Ltd ("AtoZ") by year end.  Margins on this contract are
expected to be at a base level of $70-80 per tonne, based on the Minerals
Marketing Corporation of Zimbabwe ("MMCZ") market price of $120 per tonne,
which itself has the potential for further uplift given current global
benchmark pricing of circa US$340 per tonne.

 

The Company is continuing to progress discussions with groups on the financing
of coke batteries from pre-pay offtake agreements. The coke batteries will
enable the Company to generate a higher value product and potential long-term
margins of $350 per tonne (for further information please see RNS 14 June
2022).  In the event that the Company does not secure financing for the coke
batteries from these discussions, the cash flow from the sale of coking coal
(and now potentially thermal coal) is expected to be sufficient to fund any
capital requirements.

 

Carl Esprey, CEO of Contango, commented:

 

"The global energy crisis has seen the demand for thermal coal dramatically
increase, which in turn has been reflected in the thermal coal price, which
has nearly tripled over the last year. What was initially a by-product in our
coking coal and coke development plan, is now a highly profitable and
complementary product.

 

"Whilst no one can be certain how long the market imbalance and demand for
thermal coal will remain at these levels, or potentially higher, given the
synergies with ongoing operations and limited additional costs, the ability to
initially generate over $10M of additional earnings per annum by selling our
thermal coal makes clear financial sense.

 

"At over a billion tonnes of coal, the Lubu Project is vast. The Company
always intended to expand its production capacity of coking coal and coke
given the size of the deposit and highly attractive economics. The foreseeable
market conditions will also now enable thermal coal to be brought into the
development scenario during H1 2023.

 

"I look forward to providing further updates as we approach the last quarter
of 2022 and near our inaugural sale of coking coal to AtoZ."

 

**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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