Contango Hdg Regulatory News (CGO)

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: