London-listed natural resource development company Contango Holdings has entered into a new offtake arrangement with mineral trader TransOre International for the sale of up to 20 000 t a month of washed coking coal from its flagship Lubu project, in Zimbabwe. The project is also known as the Muchesu project in country. 

The TransOre contract, announced on July 10, has been calculated with reference to the existing washing capacity at the project. However, if Contango can increase washing capacity further, TransOre has indicated its willingness to expand the size of the contract.  

The TransOre contract is expected to replace the nonexclusive contract with multinational company AtoZ Investments previously reported on June 14 last year and is intended to complement the expected offtake arrangements being finalised with the multinational company, which is expected to complete its due diligence shortly. 

The TransOre contract is priced at the prevailing Minerals Marketing Corporation of Zimbabwe (MMCZ) coking coal price, currently at $120/t.

TransOre will take the coal currently being produced from the upper seams at Lubu at mine gate at the MMCZ price and handle all logistics and transport costs through its affiliate African Rail International, which has rail access, locomotives and port access for export already in place.  

TransOre currently holds an allocation for exporting coal through the Dry Bulk Terminal at the Maputo Port, in Mozambique. TransOre has also expressed its interest in taking any additional coal that becomes available, either in the event of mine expansion or if the expected contract with the multinational company does not materialise. 

Once steady-state production is achieved in the third quarter, Contango expects its operating costs to be about $45/t of washed coal. However, the company intends to continue to explore additional options to reduce these operating costs further, while larger volumes are also expected to result in improved economies of scale.    

Production of washed coking coal at Lubu started on May 23, with a significant stockpile of coking coal having been mined by the on-site Wirtgen surface miner and awaiting processing.  

In June, challenges were encountered with the mobile screen, which was unable to achieve the efficiencies expected. With the expectation of entering into a larger offtake arrangement with TransOre, Contango elected to replace the mobile screen with a larger static screen.  

Installation has been completed and the washing of coal will restart soon. The Contango board has said it expects to report first sales under its offtake arrangement with TransOre in August. 

Given the additional capital requirements, which will enable a larger operation, as well as first sales now expected to be made in August, Contango has raised £1.5-million from several existing stakeholders through an unsecured and nonconvertible bridging loan. 

"This offtake contract with TransOre [is] doubling our existing offtake and replacing our nonexclusive offtake with AtoZ. We have been in discussion with TransOre for some time and have been impressed by their operations and network.

“They bring a sizeable logistics operation, which we believe is more aligned with Contango’s objectives moving forward as we develop . . . Muchesu,” Contango CEO Carl Esprey said. 

He noted that the new contract was in addition to ongoing discussions being held under the previously reported memorandum of understanding with a multinational company.  

“These discussions are centred around a larger coke operation at Lubu. We expect to deliver further samples of our washed coal to the multinational later this month as part of the final stages of due diligence on the coke qualities of our product,” Esprey said. 

TransOre CCO Alexander Schamber said TransOre and its affiliate companies were very active throughout Southern Africa and could, therefore, leverage its existing infrastructure and logistics experience to ensure efficient delivery of coal from the Muchesu project to customers.  

“We very much view this as the start of a long-term and larger working relationship as we unlock the value of the Muchesu coal project in a collaborative fashion,” he added.