Modern Mining February 2021

COKING COAL

that were recently completed. At the time of writ- ing, a meeting with the Binga District Council (BDC) had been scheduled for early February 2021 to outline the two pit locations at Lubu ahead of pit development. “Our Lubu project is advancing well ahead of the unveiling of the first open pit this February. I must commend the hard work and dedication of our on-site team in Zimbabwe who have persevered through pandemic adversity with relatively modest disruption to the planned development schedule. “Our offtake negotiations continue to progress well and the opening of the pit this month will allow these discussions to be finalised. Conversion of the existing signed letters of intent (LOIs) into for- mal offtake contracts is expected to generate over US$1‑million of EBIT per month. Clearly any addi- tional contracts, either for coking coal or coke, would further boost this figure. “In recent weeks we have seen a significant uplift in global coking coal prices. Given the size and nature of Lubu, we believe Contango is well posi- tioned to benefit from this demand, while elevated pricing should further improve the robust economics at Lubu. I look forward to reporting on our progress in due course.” Offtake agreements Contango Holdings late last year announced the signing of two LOIs with two major companies. The two LOIs, both secured in August 2020, demonstrate the strong demand for the high quality coal products to be produced at Lubu. The first LOI was signed with South Mining, and the second LOI – signed within 10 days of the first agreement – was signed with CoalZim Marketing. The LOIs establish the framework for formal offtake documentation to be advanced between Monaf Investments, Contango’s subsidiary company and South Mining and CoalZim. South Mining is a prominent coke producer in Zimbabwe and is committed to producing 420 000 tonnes of coke from its new battery oven located in the Hwange district, while CoalZim is a coal sales and trading company based in the capital Harare. Subject to contract and appropriate standard and quality coal testing, South Mining has in principle agreed to purchase an anticipated minimum of 30 000 tonnes of raw coal per month from Monaf, while CoalZim has in principle agreed to buy an anticipated 2 000 tonnes of 28CV metallurgical coal per month. Pricing of the offtake remains subject to con- tract, negotiation and prevailing market conditions. However, on present assumptions a sale price of between US$45 and US$55 per tonne of raw coal, and between US$70 and US$80 per metric tonne of washed coal, is anticipated. Upon entering a formal offtake contract, Contango expects to enter into a contract mining arrangement to minimise CAPEX – based on discussions the company envisages the

proposed offtake with South Mining would provide significant cashflow to Contango. Several multi-national companies have requested significant bulk samples, which also provide short- term revenue to the company to enable them to assess the viability of constructing coke plants at Lubu. The manufacture of coke at Lubu, says Esprey, would command a significantly higher price than the company’s coking coal, which is already considered to be highly economic. Quick route to production Contango Holdings will initially prioritise mining a small area dubbed the B2 Block. With the deposit

The on-site team in Zimbabwe persevered through pandemic adversity with relatively modest

disruption to the planned development schedule.

The manufacture of coke at site would provide a significant boost to the value of the product generated at Lubu, which is already considered to be highly valuable.

February 2021  MODERN MINING  17