Coal is hot, and UK’s Contango is raising US$8.6m in London to speed up development of its new Zimbabwe mine

Coal future: Contango's Lubu Coal project

UK’s Contango Holdings, which is developing the Lubu coal project in Hwange, is raising US$8.6 million via a share placement on the London Stock Exchange to speed up mine development, eager to take advantage of rising coal prices.  

The company wants to ride on strong coal demand to develop its resource at Lubu, estimated to hold 2.6 billion tonnes of coal. The new mine expects the first coal output by year-end.

“The funds will be used to finalise mine development, complete the installation of the wash plant, acquire further mining equipment and expand operations at the Lubu Project,” the company said Monday.

It will also use the money to relocate people from the mine site, “providing a larger footprint for the mine and operations to meet heightened demand”.

Thermal coal prices are up more than threefold to around US$450 per tonne this year, as demand for coal rises due to the energy crisis in Europe.

“Demand for our coking coal, thermal coal and coke products is as strong as we have ever seen,” says Contango CEO Carl Esprey.

Earnings estimates

Contango estimates that its current offtake agreement for the sale of 10,000 tonnes per month of washed coal, at the prevailing MMCZ market price of US$120 per tonne, will give it an estimated margin of around US$80 per tonne.

The wash plant being installed this quarter at the Lubu Project has the capacity to wash 20,000 tonnes per month of coal, double the existing contracted coal production. Contango expects to strike more offtake deals this quarter to use this spare capacity.

Demand for coal is high, but Zimbabwean companies face problems taking it to market because of the country’s poor rail network.

Says Contango: “The Company has received a number of requests for the regular delivery of thermal coal from a variety of international markets and is currently looking to finalise logistics to enable an export solution. The Company expects that thermal coal could generate margins of over US$100 per tonne. This could be further improved in the event the Company is successful in its current efforts to secure a rail transport solution rather than trucking to port.”

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