Contango sells 51% stake in Muchesu coal project
CONTANGO Holdings, a London-listed natural resource development company, has disposed of its 51 percent stake to a prominent Chinese businessman based in Zimbabwe, Mr Wencai Huo, who is expected to pour an additional US$20 million in investment.
The financial boost will help the company accelerate its operations and fulfil larger contracts. The proposed sale agreement was signed by Mr Huo following extensive due diligence, several site visits and test work of the coal project at Muchesu.
Mr Huo, Contango and Monaf will now look to finalise, execute and enter into a suite of formal agreements to implement the transactions.
Once the Definitive Agreements have been entered into, a general meeting will be called for company shareholders to approve the proposed transaction.
According to the announcement, the Term Sheet indicates the purchase of a 51 percent stake in Muchesu by the investor who will enter into a subscription of 20 percent holding in the company.
Royalties would be granted to Contango for the life of the mine over gross production and a minimum of US$2 million per annum to be paid to Contango under a royalty arrangement.
Going forward, Contango expects to retain 24 percent of Muchesu.
Chief executive officer of Contango, Mr Carl Esprey, said the transaction will position the firm to subsequently benefit without requiring the shareholders of Contango to be diluted by further capital raises or to re-invest cash flow to fund expansion.
“I am delighted to announce we have entered into a Term Sheet with the investor, providing the framework for the final Definitive Agreements. Muchesu is a world-class coal deposit and we have focused our efforts on unlocking the value, whilst minimising dilution to shareholders.
“Mr Huo is highly experienced in mining and operating throughout southern Africa. His intention to become a major shareholder in Contango, as well as become the lead partner in the project, is a testament to the upside this agreement offers to shareholders.
“By investing a further US$20 million at Muchesu, we will be able to quickly ramp up operations and satisfy some of the larger contracts we have been reviewing or are aware of. Our intention has always been to develop our suite of coal products, as well as the manufacture of coke at the site.”
The firm noted that the Definitive Agreements are subject to completion of any outstanding due diligence by the investor, as well as legal, regulatory and shareholder approvals, which the company expects to co-ordinate in Q3 2024.
“The investor has substantial business operations and investments in Zimbabwe and, therefore, is well regarded in the country. Once the Definitive Agreements have been entered into, a general meeting will be called for company shareholders to approve the proposed transaction.”
Contango holds its direct interest in Muchesu through its 70 percent shareholding in Monaf. An additional 4,76 percent interest in Monaf is expected to be transferred to the Company in the near term, increasing Contango’s interest to 74,75 percent. Upon execution of the Definitive Agreement and the disposal of 51 percent, Contango will be awarded royalties on future gross production at Muchesu, for the life of the mine.
According to the royalties’ structure, it includes US$2 royalty per tonne in relation to thermal coal production, US$4 royalty per tonne for industrial coal production and US$8 royalty per tonne for coking coal production.
The Term Sheet also notes that following a six-month holiday from entering into the Definitive Agreements, going forward a minimum of US$2 million per annum will be owed to Contango, irrespective of the level of production.
The production royalties will be subject to separate industry-standard contractual documentation, with standard protections and will form part of the definitive agreements.
Following the completion of the Monaf disposal, Contango will have enshrined rights to maintain the appointment of two directors to the board of Monaf.-chronicle
