Contango major shareholder plans thermal power plants, mine acquisition

CONTANGO Holdings’ new majority shareholder plans to establish two coal thermal power plants on-site and potentially acquire full ownership of the mine, chief executive officer, Mr Carl Esprey, has indicated.

In recent months, Contango has been receiving numerous inquiries from investors interested in joint ventures or acquiring the mine and the company was open to exploring opportunities that would be mutually beneficial for the company and its stakeholders.

Recently, Contango announced that it had agreed to sell a 51 percent share of Muchesu Coal Mine in Binga to a Chinese investor, Mr Wencai Huo. The United Kingdom firm will maintain a 24 percent stake in the coal project.

Mr Huo is expected to invest US$20 million into the 2,6 billion-tonne colliery project in which Contango holds its direct interest in Muchesu through a 70 percent controlling stake in Monaf Investments (Pvt) Limited.

An additional 4,76 percent interest in Monaf is expected to be transferred to Contango shortly, increasing Contango’s shareholding to 74,75 percent.

In an interview with Total Market Solutions, Mr Esprey noted that the investors “can really exploit the resource much quicker than we feasibly could have done”.

He added that the investor is looking to build two thermal coal plants, with Contango receiving a royalty of US$2 a tonne for every tonne of thermal coal that goes through that plant(s) increasing to US$8 a tonne depending on what is being processed.

“We are very confident that the investor is doing all the right things at the moment. Equipment has already been sent to the site, drilling has been undertaken and it has been about a week since we signed the purchase agreement,” said Mr Esprey.

“The investor is a Chinese individual who has been in Zimbabwe for decades now, a very prominent investor with interests in other mining areas and more interests that need power through coke and coal.

“He will mine coal for sale and internal consumption and his goal is to build a power station on site. We are giving him access to a large thermal coal resource.

“He gets six months royalty-free to put infrastructure in place and post that period the minimum royalty he has to pay us per year is US$1 million for six months, and then that steps up to a minimum of US$2 million a year. Further to that the royalty payments have the potential to increase to £14 million a year and “there’ll be no cost to us, because it’ll be his cost.

“We have converted (ourselves) into a royalty-receiving company from an investor that can exploit the resources much quicker than we could have done.”

According to Mr Esprey, there is a possibility of eventually selling the entire firm in future. “We will consider selling further ownership in the coming years as and when needed. We would need to adjust royalties as a result, but there is no reason for us to stay a minority shareholder in the company.”

Muchesu Coal Mine is a significant investment project in the Second Republic anticipated to bring substantial benefits to both locals and the broader economy.

In July of last year, President Mnangagwa inaugurated the project, spanning 19 236 hectares. Matabeleland North province plays a vital role in mining activities, contributing significantly to the province’s development and Zimbabwe’s overall progress.

The region is a focal point for investments in the coal-to-energy value chain, poised to unlock potential investments totalling US$1 billion in coal and hydrocarbons.

Furthermore, coal was designated by the Government as a crucial mineral a few years ago, to drive the growth of the country’s mining economy towards a US$12 billion industry.

The mining sector, overall, holds strategic importance in Zimbabwe, as it accounts for 75 percent of the country’s export earnings and provides employment to thousands.-chronicle