Contango Holdings transitions to royalty model
CONTANGO Holdings Plc, a company dedicated to unlocking value from the estimated two billion-tonne Muchesu coal project in Binga, Matabeleland North, continues to make strong progress as it transitions into a cash-generative royalty company.
The strategic shift marks a defining period in the company’s history, significantly reducing previous risks associated with being the sole mine operator at Muchesu.
The move to a royalty-focused business model not only provides investors with substantial growth potential but also shields shareholders from uncertainties related to future operational costs, capital expenditure and working capital requirements.
Added to that, the company says it has resized its cost base, expecting to reap the benefits of a leaner structure in the upcoming financial year.
The partnership with Huo Investments, formalised through a series of agreements including the MRA and a US$20 million Revolving Facility Agreement, positions Contango for sustainable growth.
In its results for the six months to November 30, 2024, the firm said its strategic partnership formed with Huo Investments Ltd, the investment vehicle of a prominent Zimbabwe-based Chinese national, is progressing well and will drive significant progress at the Muchesu Mine.
The Investor has already committed significant funds to Muchesu to increase production capacity.
Contango chief executive officer, Mr Carl Esprey said investor support has been a key driver in the cash-generative royalty transition. For instance, in July 2024, an initial $1 million was advanced against a future equity subscription, demonstrating strong confidence in the Muchesu Project.
In January this year, the investor further contributed an additional US$1 million facilitating the successful closing of the planned US$2 million equity placing.
As a result, the investor has become Contango’s largest shareholder, now holding approximately 20 percent of the company’s equity.
“The decision to transition to a royalty-focused company has removed a number of previous risks associated with being the sole mine operator at Muchesu,” he said.
“This strategy not only offers our investors significant growth potential but also protects shareholders from changes to future operating, as well as capital expenditure and working capital funding requirements.
“Moreover, the Company has now resized its cost base and expects to see the benefits of a leaner organisation flow through in the next financial year,” said Mr Esprey.
He noted that in the period under review, the investors commenced significant material investment into Muchesu to expand operations and production capacity.
“Post period we received our first royalty payments under the proposed MRA, which provides for a minimum of US$2 million per annum, although the company envisages materially higher royalties as operations advance,” said Mr Esprey.
He said the partnership with the investor has proved to be highly collaborative, reinforcing confidence in their ability to drive a profitable and sustainable operation at Muchesu.
With a solid foundation now in place, Contango is well-positioned for continued growth and value creation in the coming years.
During the period under review, the Muchesu project has made substantial strides in recent months.
The Dense Media Separation (DMS) plant, capable of processing 3 000 tonnes of coking coal daily, is now operational and calibrated.
Additionally, a second DMS plant has been ordered and is expected to arrive in the first quarter of this year, further enhancing production capacity.chroncile
