Daily Digest:
w/c 15 July - Financials earnings reports kick off the week, then we get Netflix results Thursday. US Retail Sales is the standout macro data this week on Tuesday. We also get the latest ECB interest rate decision on Thursday.

Contango Holdings: will the Lubu project be sold off soon?

Contango Holdings

Contango’s Lubu Coal Project in Zimbabwe has commenced first production and sent off a coke sample to a ‘multi-national company.’ Time to connect the dots.

Contango Holdings (LON: CGO) is the typical FTSE small-cap rollercoaster stock. At 5.42p, CGO shares are both down by 19% over the past year and up by 20% over the past five. And as a collector of undervalued London-listed mining companies with operation in Africa, CGO looks like it might have a spot in my gauntlet.

Contango Holdings Plc

Contango Holdings projects

CGO has two key projects for investors to consider.

First up is the combined Garalo-Ntiela project, which occupies 161.5 square kilometres in Southern Mali. The project is surrounded by several multi-million-ounce proven gold reserves, with the area hosting multiple leading producers — including AngloGold Ashanti, IAMGOLD, Barrick, B2 Gold, Endeavour Mining and Hummingbird Resources.

Garalo-Ntiela has a non-independent resource estimate of 320Koz AU at an average grade of 1.5g/t across three of its dominant structural trends. However, the company believes there are higher grades to be found elsewhere within the project, and advises that ‘Garalo-Ntiela represents an exceptional asset with large scale commercial value.’

However, a strategic investor will be needed to bring it to production — and given the location this should not be too difficult to achieve. A buyout of this asset is a realistic possible outcome, though it is early days.

Second — and currently more important in my view — is the Lubu Coal project, in which CGO holds a 70% economic interest, with the remainder held by local partners. The project covers some 19,236 hectares within the Karroo Mid Zambezi coal basin, located inside the Hwange mining district within north-western Zimbabwe. 

Previous owners of the project have already spent $20 million identifying a resource in excess of 1.3 billion tonnes under the NI 43-101 standard. CGO is focused on developing block B2, where coal seams are located from the surface to a maximum depth of 47m — ensuring that the block can be mined using low capital expenditure.

Encouragingly, Contango has already entered into an offtake agreement with South African coal supplier AtoZ Investments. AtoZ has committed to purchasing 10,000 tonnes of washed coking coal per month, at the prevailing MMCZ market price (a standardised minimum pricing set by the Zimbabwean state). Importantly, AtoZ is taking delivery at site, reducing current transportation costs to zero.


Contango has indicated to investors that circa 60% of coal extracted from block 2 will be thermal coal and the remaining 40% coking coal — and expects to deliver 10,000 tonnes of coking coal and 10,000 tonnes of thermal coal per month based on current capacity by the end of H1 2023.

It also plans to install coke batteries, to produce coke to be sold to an as yet undetermined buyer — which would improve overall profitability of the project by some margin.

Recent updates

On 24 February, Contango released interim results to 30 November 2022. Financially, it’s in a solid position having raised £7.5 million at 6p in October, and also having seen a £1 million convertible loan converted at 6p in early July for circa 17 million shares.

For context, investors were happy to commit to Contango roughly 0.5p above the current share price at a time when it wasn’t even close to first production. And the company has now installed a 1tph test plant and has used this confirm the presence of high-quality coal at Lubu — making it likely that additional offtake agreements will be signed soon.

It’s also worth noting that Contango’s operating subsidiary in Zimbabwe was declared the winner of the 2022 Excellence in Community, Empowerment & Social Impact Award for its developments at Lubu — and has even been granted an Environmental Impact Assessment certificate, recognising the highest environmental standards imposed by Contango at the mine.

CGO has also signed a MoU with a ‘leading Multi-National Company…for collaboration across coking coal and manufacture of coke at Lubu.’ This is often the first step before a resource buyout, especially when the senior company does not want to reveal its name.

Lubu saw its wash plant — with a capacity of 20,000 tonnes per month — delivered in early February, and commissioning is set to commence in March 2023, any day now. It’s also taken delivery of a Wirtgen 2200SM surface miner, which has a cutting width of 2200mm ideal for selective mining, and which can mine up to 500tph of hard rock and up to 1,000tph of coking coal.

Finally, CGO’s promised laboratory was delivered to site in February representing ‘the last of the significant capital items ahead of first production and sales.’

CEO Carl Espre
CEO Carl Espre

CEO Carl Espre expects ‘Contango to transition into cash flow towards the end of the current quarter with first sales…the wash plant is expected to be able to produce 20,000 tonnes of washed coking coal per month which will satisfy its first offtake partner, AtoZ Investments, and also provide sufficient supply to secure further offtakes for our coking coal.’

Then on 1 March, the company announced that the ‘construction of a small-scale coke battery has been completed at the Lubu… (and that) the ultimate coke batteries to be installed at Lubu for future production and sales will be considerably larger and a different specification.’

However, it noted that ‘the ability to now manufacture coke on site is a significant step, providing accurate in the field results, a crucial step in securing partners in the Company’s coke manufacturing strategy.’

The company has already produced 4 tonnes of coke from a sample of washed coking coal from Lubu. Most of this production is to be sent to the aforementioned ‘Multi-National Company,’ part of the ‘ongoing due diligence process to confirm suitability for their requirements ahead of a potential transaction.’

Esprey comments that ‘we have already completed numerous small-scale tests remotely to assess the coke characteristics from Lubu, with highly encouraging results… the completion of the pilot coke plant will now enable us to generate larger coke production for testing, something required to enable us to conclude discussions under our MOU and, as required, provide additional samples to other parties who have expressed interest in coke produced from Lubu.’

In my view — not advice and definitely not certain — positive results will see Lubu sold fairly soon for a sum far in excess of the current share price, with the cash to be ploughed back into developing Garalo-Ntiela. The effect on the share price would be similarly positive, and therefore a speculative position could yield a decent return.

Of course, unexpectedly poor test results will have the opposite effect.

This article has been prepared for information purposes only by Charles Archer. It does not constitute advice, and no party accepts any liability for either accuracy or for investing decisions made using the information provided.

Further, it is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.


Charles Archer is an experienced financial writer specialising in monetary law. With a background in stock market and private equity analysis, he’s worked for many years as a freelance investment au... Continued

Please comment below

Your email address will not be published. Required fields are marked *