UK firm Contango in talks with Chinese steel giant for Hwange coal deal

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Contango, the London-listed resources company, is in talks with Afrochine for the supply of coking coal to be produced at Contango’s Lubu project in Hwange.  

A statement by Contango says it is in discussions with the “Zimbabwean subsidiary of a major Chinese industrial company and one the world’s largest stainless steel producers”.

According to the coal company, the potential offtake partner “has a sizeable footprint in Zimbabwe and is planning to construct a US$1 billion carbon steel plant in the country, with capacity of two million tonnes of steel per annum”.

World number one stainless firm Tsingshan, through its local arm Afrochine, plans to set up an iron ore mine and steel plant near Mvuma, a long-delayed project that government is desperate to kick off midyear. Afrochine, which runs a nickel smelter at Selous, is building coke batteries in Hwange to prepare for production.

“Given the Lubu Coking Coal Project’s proximity to Hwange, the Company and the Potential Offtake Partner have entered into discussions with the view to Contango supplying the coking coal for the coke batteries on a long-term offtake,” Contango says in an announcement to the London Stock Exchange on Friday.

Coking coal is a key component in steel manufacturing.

Contango: supply targets

The company said given the “potential significance of an agreement”, it would halt mining operations at Lubu until these talks are done. Contango expects discussions to be completed by April. A site visit is planned in April and Contango will open a trial pit and a bulk sample will be sent to Afrochine so it can conduct a burn test, needed to assess the quality of the coal.

Carl Esprey, Contango CEO, said: “The potential offtake partner, together with its global conglomerate parent company, are investing heavily in Zimbabwe as they look to establish an industrial steel and coke hub in-country, capitalising on the significant demand for construction materials both in the region and overseas.”

In June, Contango started trading on the London Stock Exchange after completing the acquisition of Consolidation Growth Holdings’ interest Lubu. Contango now has a 70% interest in the Lubu project, said to hold some of the largest coal reserves in the region.

Last year, Contango began supply talks with two local companies, CoalZim Marketing and South Mining. The two agreements, when in play, would see Lubu supplying a minimum of 32,000 tonnes a month, which would potentially earn the company at least US$1million per month.