14th Aug 2020 13:04
(Alliance News) - Contango Holdings PLC on Friday said it has signed a letter of intent with South Mining Pvt Ltd relating to an offtake agreement for coal products produced at Lubu coalfield project in Zimbabwe.
The coal project developer said South Mining is a coke producer in Zimbabwe and is committed to producing 420,000 tonnes of coke from its new battery oven located in the Hwange district.
Subject to contract and appropriate standard and quality coal testing, South Mining has in principle agreed to purchase an anticipated minimum of 30,000 metric tonnes of raw coal per month from Lubu.
Pricing of the offtake remains subject to contract, negotiation and prevailing market conditions at the time, Contango said. On present assumptions, however, a sale price of between USD45 and USD55 per metric tonne of raw coal, and between USD70 and USD80 per metric tonne of washed coal, is anticipated. That would mean a minimum payment of USD1.4 million per month.
Contango said it expects to enter into a formal offtake agreement ahead of the anticipated commissioning of Lubu in the final quarter of 2020.
"This letter of intent with South Mining is highly encouraging and an important demonstration of the significant demand for high quality coking coal in Southern Africa," said Contango Executive Director Carl Esprey.
"I am confident that we are well positioned to finalise commercial negotiations with South Mining and commence mine construction in earnest as travel and work restrictions ease across the country over the coming weeks. Moreover, the company continues to receive additional interest in its suite of coal products and we remain optimistic of further offtakes in due course to further boost profitability," added Esprey.
Contango shares were trading 4.7% higher in London on Friday at 4.45 pence each.
By Evelina Grecenko; [email protected]
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