Contango Holdings Closes in on the Sale of a 51% Stake in the Muchesu Coal Project
London Stock Exchange-listed entity Contango Holdings is set to sell a 51% stake in its 2 billion-tonne Muchesu coal project in Zimbabwe to Huo Investments.
by Ryan Chigoche
Currently, the coal project is 74.75% owned by Contango’s subsidiary, Monaf Investments. In an update, the company revealed that they have already signed binding agreements with Huo Investments, who are set to become the largest shareholder and operator of Muchesu.
Huo Investments will invest up to US$20 million in Muchesu to complete the 51% equity ownership stake.
As part of the deal, the investor will invest US$2 million in Contango, as well as provide a production royalty in relation to Muchesu.
Huo Investments (Pvt) Limited is an investment vehicle of Wencai Huo, a Zimbabwe-based Chinese national with extensive mining and business investments in Zimbabwe and Southern Africa.
“The investor has entered into an agreement under which new ordinary shares in Monaf will be issued to the investor so that, following completion, the investor shall own 51% of the enlarged share capital of Monaf. The company’s interest in Monaf will be diluted by these arrangements, but it is expected that the minority shareholders of Monaf will maintain their respective percentage holdings of the issued share capital of Monaf. This investment is subject to standard regulatory approvals in Zimbabwe, and following completion, Contango will have enshrined rights to maintain the appointment of two directors on the board of Monaf,” read part of the company statement.
As a result of the confirmation that Contango Holdings is closing in on the sale, the company’s shares were up 7% as the negotiations have progressed to final documentation.
Last month, the group had said it was in talks with businessman Wencai Huo over the sale of 51% of the Muchesu coal asset in Zimbabwe. On Tuesday, Contango said:
“The company will update the market upon confirmation and entry of final definitive documentation in relation to this transaction.”
As part of the deal, the investor has also entered into a subscription agreement with Contango for 142,000,000 new ordinary shares at a price of £0.0111 per share, with the company set to receive US$2,000,000 in fresh funding.
The subscription will be applied towards general working capital purposes. Following the subscription, the investor will hold 142,000,000 ordinary shares in the company, resulting in a holding of approximately 20% of the enlarged share capital following the subscription.
Monaf and Contango have entered into a mineral royalty agreement which will become effective immediately following the disposal of the company’s 51% interest in Monaf and the waiver of the mineral royalty agreement entered into between Monaf and the company in favor of Consolidated Growth Holdings Limited on 24 July 2020.
The royalties will be awarded on gross production at Muchesu, for the life of the mine, as follows: US$2 per tonne in relation to thermal coal production, US$4 per tonne in relation to industrial coal production, and US$8 per tonne in relation to coking coal production.
Formerly known as the Lubu Coal Project, the Muchesu Coal Mine covers 19,236 hectares of the highly prospective Karroo Mid Zambezi coal basin, located in the established Hwange mining district in north-western Zimbabwe.
The local community also owns 30% of the project. Previous owners have expended more than $20 million on Muchesu, which has enabled a sizeable resource in excess of 2 billion tonnes.
Approximately US$10 million has subsequently been spent by Contango on mine construction and development to bring Muchesu into production.