Contango Holdings is transitioning into a cash-generative royalty company, capitalizing on its operations at Muchesu Mine to secure steady revenue streams and long-term growth. This shift follows the implementation of a Mineral Royalty Agreement (MRA) with its primary investor, designed to reduce operational risks while ensuring consistent cash flow.
By Ryan Chigoche
However, this strategic transition comes as the company remained in the red for the six months ending November 2024, posting a loss of US $1,152,324, although 17% lower than the $1,400,630 loss reported in the prior comparable period.
The strategic shift marks a defining period in the company’s history, significantly reducing previous risks associated with being the sole mine operator at Muchesu.
The move to a royalty-focused business model not only provides investors with substantial growth potential but also shields shareholders from uncertainties related to future operational costs, capital expenditure, and working capital requirements.
In the financial results for the six months ending November 30, 2024, Contango’s Chief Executive Officer, Carl Esprey, highlighted the transformation, stating,
“Contango continues to make strong progress as it transitions to a cash-generative royalty company, and I am pleased with the strides we have made during this defining period. The decision to transition to a royalty-focused company has removed a number of the previous risks associated with being the sole mine operator at Muchesu. This strategy not only offers our investors significant growth potential but also protects shareholders from changes to future operating, as well as capital expenditure and working capital funding requirements. Moreover, the company has now resized its cost base and expects to see the benefits of a leaner organisation flow through in the next financial year,” he said.
Under the MRA, Contango has already received $500,000 in royalties, with another $500,000 expected soon. A further $1,000,000 is projected for the second quarter of 2025, aligning with the MRA’s minimum annual royalty schedule of $2,000,000. This arrangement provides a consistent cash flow, supporting debt reduction and enhancing shareholder value, which will further narrow the company’s losses.
Looking ahead, royalty payments for the second half of 2025 and beyond will be directly linked to production levels at Muchesu. The investor, focusing on coking coal production and sales, will generate royalty payments of US$8 per tonne to Contango, creating a stable revenue model that supports long-term growth.
Additionally, Contango successfully raised £1,850,000 in gross proceeds following the publication of a Short Form Prospectus (SFP) in January 2025. The investor subscribed for 142,000,000 shares and later acquired additional shares on the open market, increasing its total holdings to 154,750,000 shares, approximately 20.42% of the company. This makes the investor the largest shareholder, further aligning its interests with Contango’s strategic direction.
The funds raised, alongside the received and expected royalty payments, will primarily be allocated to repaying outstanding investor loans. As of November 30, 2024, these loans stood at £4,418,062. Contango has reached an agreement with loan holders, many of whom are long-standing shareholders, to prioritize loan repayments before implementing its intended dividend policy. Any additional income will be directed toward general working capital, ensuring financial stability.
Commenting on the development, Chairman Roy Pitchford expressed optimism about the transition from a mining operation to a royalty-based business and its potential to create shareholder value.
“Looking forward, I remain highly optimistic about the outlook for the remainder of 2025 and beyond. We are well-positioned to transition from being a mining operation to a profitable royalty business, with the infrastructure now in place to support continued growth. As we ramp up production at Muchesu and begin to see the full impact of the DMS plants, we expect operational momentum to accelerate, translating into increased sales and higher royalty receipts. I am confident that the steps we have taken, alongside the continued support from our investor, will enable us to deliver on our strategy and create lasting value for all stakeholders.” Pitchford said.
The Board has pledged to provide shareholders with regular updates on Muchesu’s production levels, with royalty payments made one month in arrears. This structured approach aims to solidify Contango’s transition into a financially sustainable royalty business while delivering long-term value to stakeholders.
Contango also stated that its strategic alliance with Huo Investments Ltd, the investment vehicle of a prominent Zimbabwe-based Chinese national, is progressing well and is expected to drive significant advancements at Muchesu Mine.
The company further noted that the initial royalty payments under the MRA mark a significant milestone, with expectations of higher revenue as operations scale up. Esprey emphasized confidence in Huo Investments’ ability to establish a profitable operation at Muchesu, underlining the strong partnership and shared vision for growth. Additionally, he pointed out that the company’s streamlined cost structure would lead to improved financial efficiency in the coming year.
