Contango Holdings eye thermal coal market

LONDON-listed resource firm Contango Holdings Plc, which is implementing the Matabeleland North-based Lubu Coking Coal Project in Zimbabwe is exploring avenues to export thermal coal leveraging on increased demand and rising prices on the global market.

Contango has a 70% interest in the Lubu Coal Project in Zimbabwe, with the remaining 30% held by supportive local partners. The project covers 19,236 hectares of the highly prospective Karroo Mid-Zambezi coal basin, located in the Hwange mining district. 

Contango announced in a statement that it is currently receiving requests from across the world for thermal coal.

“The company has in recent months received a number of unsolicited approaches from buyers of thermal coal (ranging from trading houses to industrial consumers) from Africa, Europe and Asia. In the last 12 months, it is well documented that thermal coal prices have increased dramatically from approximately US$125 per tonne to US$450 per tonne due to the increased demand from energy displacement and severe shortage of supply due to closure of thermal coal mines,” Contango said.

The company, which has been on a development trajectory, is now exploring ways to tap into export markets and this week the mining firm  announced progress on its discussions with various groups on the financing of coke batteries from pre-pay offtake agreements.

“The coke batteries will enable the company to generate a higher value product and potential long-term margins of US$350 per tonne. In the event that the company does not secure financing for the coke batteries from these discussions, the cash flow from the sale of coking coal (and now potentially thermal coal) is expected to be sufficient to fund any capital requirements.

“The company’s dynamic and evolving plans, which in part are driven by swelling global demand for thermal coal, will be pivoted on exporting the by-product,” Contango said.

In the same statement, the company’s chief executive, Carl Esprey underscored that Contango would maximise on emerging opportunities, spun by the unfolding “global energy crisis”.

“The global energy crisis has seen the demand for thermal coal dramatically increase, which in turn has been reflected in the thermal coal price, which has nearly tripled over the last year. What was initially a by-product in our coking coal and coke development plan, is now a highly profitable and complementary product. Whilst no one can be certain how long the market imbalance and demand for thermal coal will remain at these levels, or potentially higher, given the synergies with ongoing operations and limited additional costs, the ability to initially generate over US$10 million of additional earnings per annum by selling our thermal coal makes clear financial sense,” Esprey said.

With the Lubu project boasting of an estimated one billion tonnes of coal reserves, Esprey underscored that Contango was in a strong position to expand its operations.

Owing to the prevailing market conditions, characterised by an upswing in global prices, Contango was poised to commence thermal coal production during the first half of next year, the statement further noted.

“While no one can be certain how long the market imbalance and demand for thermal coal will remain at these levels, or potentially higher, given the synergies with ongoing operations and limited additional costs, the ability to initially generate over US$10 million of additional earnings per annum by selling our thermal coal makes clear financial sense.

"At over a billion tonnes of coal, the Lubu Project is vast. The company always intended to expand its production capacity of coking coal and coke given the size of the deposit and highly attractive economics. The foreseeable market conditions will also now enable thermal coal to be brought into the development scenario during H1 2023.”

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