malvernmugadzikwaBusiness Writer
Contango Holdings, a natural resources company listed on the London Stock Exchange, has announced the receipt of its first royalty payment from the Muchesu coal project in Zimbabwe.
This milestone marks a pivotal moment in the company’s journey to unlock the immense value of its 2 billion tonne plus coal resource.
The company confirmed a payment of US$200 000, with an additional US$800 000 expected later this month.
This will bring the total to US$1 million, aligning with the terms of the Mineral Royalty Agreement (MRA) signed with Huo Investments (Pvt) Limited, Contango’s strategic partner.
“Under the MRA, the company will be paid a minimum of US$2 million annually, with further payments tied to production levels,” Contango stated.
These royalties are linked to the production of coking coal at Muchesu, with an US$8 per tonne royalty on processed output.
Carl Esprey, the chief executive of Contango, hailed the achievement as a transformative development for the company.
“This milestone marks a significant step forward in unlocking the immense value of the Muchesu coal project,” Esprey said.
“The receipt of our first royalty payment not only underscores the confidence our partners have in the project’s potential but also reinforces our commitment to delivering consistent value for our shareholders. With the operational foundations now firmly in place, we are excited about the continued progress and growth opportunities ahead.”
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 2025, further enhancing production capacity.
The royalty payments come at a critical time for Contango, as the company seeks to bolster its working capital position. As reported in its financial statements for the year ended May 31, 2024, Contango’s investor loans amounting to £4,18 million (US$5,9 million) were due for repayment by November 30, 2024.
However, the company’s investors, many of whom are long-standing shareholders, have expressed continued support.
“The providers of the Investor Loans have reiterated their ongoing support of the company and its intention to repay these debts from both the proceeds of the subscription with the new strategic investor and forthcoming royalty income,” the company noted.
The anticipated US$3 million in near-term funds, derived from royalty payments and subscription proceeds, will primarily be allocated to repaying investor loans.
Contango’s board has also committed to applying additional income towards loan repayments and working capital before implementing a dividend policy. The company’s financial outlook is closely tied to the performance of the Muchesu project, with royalty income expected to increase as coal production ramps up.
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. Huo Investments is set to become the largest shareholder upon completion of a US$2 million subscription, aligning its interests with those of Contango’s existing shareholders.
The Muchesu project’s progress is a testament to Contango’s strategic vision and operational capabilities. With the receipt of its first royalty payment, the company has demonstrated its ability to convert its vast resource potential into tangible financial returns.
This achievement underscores the confidence of Contango’s partners and stakeholders in the project’s future.
Looking ahead, Contango remains focused on scaling operations at Muchesu, leveraging its enhanced processing capacity and robust partnerships. The company’s efforts to secure financial stability through strategic agreements and royalty income are expected to pave the way for long-term value creation for its shareholders.
Online Reporter