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

The contract with TransOre, announced on July 10, is based on the existing washing capacity at the project. However, if Contango can increase the washing capacity, TransOre is open to expanding the contract size.

This new TransOre contract is expected to replace the previous nonexclusive contract with multinational company AtoZ Investments, as reported in June last year. It is intended to complement the expected offtake arrangements that are being finalized with the multinational company, which is currently conducting its due diligence.

The TransOre contract is priced according to the prevailing Minerals Marketing Corporation of Zimbabwe (MMCZ) coking coal price, which currently stands at $120 per tonne. TransOre will purchase the coal at the mine gate at the MMCZ price and handle all logistics and transport costs through its affiliate African Rail International, which already has rail access, locomotives, and port access for export in place.

TransOre currently holds an allocation for coal exports through the Dry Bulk Terminal at the Maputo Port in Mozambique. They have also expressed interest in acquiring any additional coal that becomes available, either through mine expansion or if the expected contract with the multinational company does not materialize.

Contango expects its operating costs to be around $45 per tonne of washed coal once steady-state production is achieved in the third quarter. The company aims to explore additional options to further reduce operating costs while anticipating improved economies of scale with larger volumes.

Production of washed coking coal at the Lubu project commenced on May 23, with a substantial stockpile of coking coal waiting for processing. In June, challenges were encountered with the mobile screen, leading Contango to replace it with a larger static screen in preparation for the larger offtake arrangement with TransOre. The installation is now complete, and coal washing will resume shortly. Contango expects to report first sales under the TransOre offtake arrangement in August.

To meet the additional capital requirements for a larger operation and with first sales anticipated in August, Contango raised £1.5 million through an unsecured and nonconvertible bridging loan from existing stakeholders.

Contango CEO Carl Esprey expressed enthusiasm for the new contract with TransOre, highlighting the doubling of their existing offtake and the replacement of the nonexclusive arrangement with AtoZ. He also mentioned ongoing discussions under a memorandum of understanding with a multinational company for a larger coke operation at the Lubu project.

TransOre CCO Alexander Schamber emphasized the company's active presence throughout Southern Africa and its ability to leverage existing infrastructure and logistics experience to ensure efficient coal delivery from the Muchesu project to customers. He sees this as the start of a long-term and larger working relationship, unlocking the value of the Muchesu coal project collaboratively.