Contango Secures US$20 Million Investment to Accelerate Muchesu Coal Project Expansion
London Stock Exchange-listed mining and exploration junior, Contango Holdings, has secured a significant US$20 million investment from its strategic partner, Huo Investments (Pvt) Limited, to advance the Muchesu coal project in Binga.
By Patricia Rwafa
The investment marks a major milestone for the company, enabling the acquisition of critical mining equipment, the expansion of the mining site, and the installation of key infrastructure to boost production.
The funding, provided under a US$20 million Revolving Facility Agreement (RFA), has already facilitated the purchase of excavators and trucks, which have helped clear approximately 20,000 square meters of overburden, allowing for the expansion of the existing open pit. This positions the Muchesu site for increased steady-state coal production once full-scale mining resumes.
The strategic investment is also poised to transform Muchesu’s output capabilities with the installation of a Dense Media Separation (DMS) plant. With a production capacity of 3,000 tonnes of washed coal per day, the DMS plant represents a vital component in Contango’s efforts to process coking coal, a key resource that the project will target once the pit expansion is complete. The concrete foundations for the DMS plant have been laid, and full operational status is expected by the end of October 2024.
Huo Investments’ commitment to the Muchesu project extends beyond the current phase, with plans to install additional DMS plants to further boost production output. Under the existing Mineral Royalty Agreement (MRA) between Contango and Huo Investments, Contango will receive royalties of US$8 per tonne of washed coking coal, payable monthly. The first royalty payment of US$1 million is expected in Q4 2024, with subsequent payments following in early 2025. If the DMS plant meets expectations, royalty payments are expected to exceed the minimum of US$2 million annually.
In addition to the ongoing developments, Huo Investments has subscribed to 142 million new ordinary shares in Contango at a price of £0.0111 per share, aligning its interests more closely with the company’s success. The company has submitted a Short Form Prospectus to the FCA for approval, which will enable the issuance of these new shares.
Contango’s Chief Executive Officer, Carl Esprey, expressed optimism about the ongoing developments, highlighting the transformative impact of Huo Investments’ capital commitments.
“Muchesu is now under new stewardship, and we expect significant progress in the coming months.
“With the DMS plant becoming operational in Q4 2024, we anticipate material amounts of coking coal being processed, which will trigger royalty payments well above the minimum outlined in the MRA,” Esprey said.
He further added, “Corporately, we have taken steps to address our creditors, rationalize costs, and position the company for sustained growth. The board has deferred their salaries until substantial royalty income is generated, reflecting our commitment to this project.”