Contango Holdings PLC

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Extraordinary numbers for Contango 

 

“…The £2.5 million raised is more than enough to advance the project into full production…”

 

Contango Holdings‘ recent placing sent out messages on multiple fronts.   It demonstrated to the market that a raise could be done at the same level as the current share price, so no discount.  And it sent a clear message to potential offtakers that they shouldn’t expect a discount on the coking coal the company is going to be producing within the year.

The funds ensure the company’s Lubu Coking Coal Project in Zimbabwe is now being fast-tracked at a time the ascendancy in the price of coal continues to be well supported by economic fundamentals.

Chief executive Carl Esprey says the coal resource the company has is “huge.”  Estimated at having over 2 billion tonnes of coal, the project has centuries of production.  With long life and high prices, Lubu was re-engineered to take advantage of the new pricing environment and the supply demand outlook of coke and coking coal used in the steel and ferrous alloy industry.

The commodity market’s least liked commodity is having a makeover particularly as it’s part of the clean, alternative energy sector. Coking coal is the key ingredient in a blast furnace.  Combine that with iron ore to produce steel, and as Esprey points out: “Without coking coal we aren’t producing the steel that’s used in wind turbines, the steel that’s used in solar plants.  All of that’s needed, so the world needs coking coal.”

The offtakers need it that’s for sure and Esprey isn’t gloating when he outlines the new business case. “With the price of coal going higher, that changes the dynamic of the discussion with the offtakers.  A year ago we were much more likely to do a deal with the offtaker that would have locked us in for a long term just in order to get cash flow to then expand the resource larger. As the coal price went higer and higher and the offtakers got more and more desperate, the power of the negotiation moves back towards us.”

It’s already known that Contango has had discussions with Chinese parties and local steel producers, and the conversation is playing out like a fine game of cash for commodity chess. “Now that we’ve done the raise, the offtakers know that we don’t need their money.  So maybe offtakers will be a little bit more keen to sign something that’s a bit more on economic terms rather than trying to squeeze us for every last cent.”

Esprey is keen for the money either earned or raised goes into the ground because he wants to build the whole package. “None of  the current Chinese in Zimbabwe have coal mines of their own, so we’re one step strategically ahead of them. We’re an integrated operation once we’re running.”

And Contango is on a sprint finish to first production thanks to the recent placing and the swift re-engineering of a project that elevates coal from being a dirty commodity to one that’s essentially clean.

Listen to Carl tell Sarah Lowther about how 150,000 tonnes of coke a year translates into $40 million dollars a year of cash flow to the company, and what the potential of a 2 million ounce gold deposit in Mali could do to the company’s market cap.

 

Watch Carl talk about the assets in Zimbabwe and Mali with Rob Tyson, the host of the Dig Deep The Mining Podcast, and CEO of Mining International.

 

 

Follow the company on Twitter@ContangoPlc

Read the latest TMS Reach article here

The author was remunerated but does not hold shares in the company

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