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), 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.
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 metric tons per month (mt/m) of washed coking coal produced at Lubu, at the prevailing MMCZ market price, currently $120 per mt. 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 said it would expect to benefit from margins of circa $70-80 per mt for its washed coal production under this contract, giving potential to generate up to $10 million of earnings per year. Also, given the current macro-outlook and global coking coal price environment, the company said 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.
The company commenced production of coking coal at Lubu at the end of the first quarter of 2022, with coking coal being stockpiled. The company expects to be able to deliver on its first sales at a rate of 10,000 mt of washed coal per month to AtoZ in the fourth quarter of 2022. The company anticipates funding the expansion of its processing facilities to 300,000 mt per year in the first half of 2023 from internal cash flow.
“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,” Contango CEO Carl Esprey said. “We are pleased that Contango will now begin to produce sales and cashflow and mature into a mining company.”