Contango Holdings (CGO) , a company focused on the development of the 2+ billion tonne Muchesu coal project in Zimbabwe, announced an agreement with individual investor Wencai Huo for a stake in Muchesu and acquisition of part interest in CGO.
Huo, described by CGO as a "prominent Zimbabwe-based Chinese national with extensive mining and business investments in Zimbabwe and the Southern African region", has agreed to purchase a 51% stake in Muchesu and enter a subscription for a 20% holding in CGO. Muchesu is currently held by CGO's 70%-owned subsidiary Monaf Investments.
The term sheet also specifies that Contango will be awarded a life-of-mine royalty, and that Huo will invest at least US$20m in Muchesu. Huo will also be given a right to appoint one director the CGO's board. A minimum of US$2m/year will be paid to Contango under the royalty arrangement.
Next, the two parties will finalise the agreement to implement the abovementioned transactions, subject to approvals expected by Q3 2024.
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Contango announces a major agreement with Zimbabwe-based investor Wencai Huo for the sale of 51% of CGO's flagship Muchesu coal project, alongside a cash subscription for a 20% interest in CGO. Furthermore, royalties will be granted to CGO for life of mine over gross production, with a minimum US$2m/year to be paid. Contango shares soared 25% on the news.
Muchesu is owned by Monaf, which is 70%-owned by Contango. Therefore, CGO expects to retain 24% of Muchesu going forward. Notably, Huo has agreed to match Contango's historical expenditure of c. US$20m into Muchesu, expected to significantly expand its production capacity and satisfy larger contracts CGO has been reviewing, without diluting shares.
Production royalties will be applicable on any contracts entered prior or post completion of the agreement, and are based on all future production. Specifically, Contango will receive US$2/tonne for thermal coal production, US$4/tonne for industrial coal production and US$8/tonne for coking coal production. As mentioned, US$2m/year will be owed to to CGO regardless of level of production.
Wencai Huo has substantial mining operations throughout southern Africa, and is well-regarded in Zimbabwe. His decision to become CGO's lead partner in Muchesu validates the project's value and bolsters upside. CGO also confirmed numerous offtake discussions, but did not provide specifics at this stage.
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