Do the numbers on Contango
“…look at what we are building. Look at the cashflow. Coke transforms the profitability of the Company. We’re also speaking to a spectrum of offtakers…”
To fully appreciate the opportunity that Contango Holdings has at its Lubu Coking Coal project, investors need to get their tongues and heads round the alliterative coal, coking coal and the higher value coke.
They are all present at the company’s project in Zimbabwe dependent on what seam is targeted and how the products are washed. All have different properties, multiple markets and several interested parties.
Some readers may remember the shift from burning coal to burning coke on open fires in the last century. It was an early hat tip to climate change and air quality, and the shift was coincidental to UK miner’s strikes in the mid 1980’s. Forty years on, the decades-old derogation of coal as ‘dirty’ is fading because its properties and derivatives are valuable.
To summarise the chemistry and the economic value of coal – coking coal is a grade of coal used to produce good quality coke essential as a fuel and reactant in the blast furnace for steelmaking.
To further summarise the economics, there is a supply deficit with EU sanctions on Russia constraining Russia’s coal reserves reportedly the second largest in the world. So what Contango has at Lubu is precious. All two billion tonnes of it. “We are being reached out to by offtakers as far away as Europe for our washed coking coal,” says CEO Carl Esprey who says the prices would be “multiples of what we’re getting at the moment.”
Production started at Lubu, recently renamed Muchesu Coal, in March and the company’s first offtake agreement was signed three months later with Esprey confident more offtake agreements will come as the full potential of Lubu and its constituent properties attracts more interested parties.
Interested parties come at the highest level with federal government interest in Contango’s approach particularly as the UK-listed business is discussing the value of rail infrastructure that would benefit not just its project, but help unlock other coal districts in the region.
As for Contango’s Garalo-Ntiela Gold Project in Mali, the current trading temperament means that what the asset has is unable to be realised. It too, according to Esprey will be value accretive to shareholders, but the focus, quite rightly is on the earner that is Lubu and the multiple offtakes to come.
Listen to Carl talk to Sarah Lowther about the potential and development strategy for Lubu.
Follow the company on Twitter @ContangoPlc
Access the company corporate presentation
The author was remunerated but does not hold shares in the company