London-listed Contango Holdings has signed a letter of intent (LoI) with South Mining relating to an offtake agreement for coal products produced at the company’s Lubu coalfield project, in Zimbabwe.

The LoI establishes the framework for formal offtake documentation to be advanced between Contango subsidiary Monaf Investments and South Mining.

South Mining is a prominent coking coal producer in Zimbabwe and is committed to producing 420 000 t of coking coal from its new battery oven located in the Hwange district.

South Mining has, in principle, agreed to buy at least 30 000 t of raw coal a month from Monaf.

Pricing of the offtake remains subject to contract, negotiation and prevailing market conditions; however, on present assumptions, a sale price of between $45/t and $55/t of raw coal, and between $70/t and $80/t of washed coal, is anticipated.

Contango says a formal offtake contract will secure enough cash flow for the company to enter into a contract mining agreement, to minimise capital expenditure, on the Lubu project.

Contango plans to commission the Lubu project during the last quarter of the year.

“This LoI with South Mining is highly encouraging and an important demonstration of the significant demand for high-quality coking coal in Southern Africa.

“The LoI has been entered into despite a period of lockdown in Zimbabwe and follows work undertaken by Contango in 2019 and 2020 to clearly identify the characteristics of Lubu coal,” comments Contango executive director Carl Esprey.

He adds that he is confident that the company is well positioned to finalise commercial negotiations with South Mining and start mine construction in earnest as soon 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 remains optimistic of further offtakers in due course to further boost profitability.