Sinokubonga Nkala
Nqobile Bhebhe, nqobile.bhebhe@chronicle.co.zw
CONTANGO Holdings Plc, the producing London-listed natural resource development company, has indicated that investor loans amounting to £4 million will be repaid from the proceeds of the subscription with the new strategic investor, Huo Investments (Pvt) Limited, and from royalty income.
The royalty income consists of both minimum payments and further payments linked to coal production at Muchesu. The investor loans were due for repayment by 30 November 2024.
In an update, chief executive officer Mr Carl Esprey said several of the providers of the investor loans are also long-standing shareholders of the mining entity. They have reiterated their ongoing support of the company and its intention to repay these debts from both the proceeds of the subscription with the new strategic investor, Huo Investments (Pvt) Limited, and forthcoming royalty income.
He said the providers of the investor loans have not entered into formal agreements to defer loan repayments and may still exercise their right to be repaid immediately on demand.
“However, the company does not believe this to be a likely scenario, with repayment instead taking place once the company has improved its working capital position,” he said.
Mr Esprey said the firm’s working capital position will be improved in the near future from the receipt of the balance of US$1 million from the subscription and an additional US$1 million from the minimum royalty payment by the end of December. The company also expects a further minimum royalty payment of US$1 million around the end of Q1 2025.
“These funds amounting to a total of US$3 million (£2.4 million) will principally be used to repay investor loans,” said Mr Esprey.
In addition, Mr Esprey noted that the board expects to receive additional regular royalty income following the commencement of coal production at Muchesu, with operations on site now active and the new plant in the process of being ramped up.
The Dense Media Plant has a processing capability of 3,000 tonnes per day of coking coal, with a royalty of US$8 per tonne owed to Contango on processed coking coal.
“The company has also recently been advised by the strategic investor that an additional DMS Plant has been ordered and is due for delivery in Q1 2025,” he said.
The CEO further said that the company’s working capital position is reliant on the receipt of the subscription funds and royalty income.
“If the company failed to realise revenue from the receipt of royalty income, it would be required to raise further capital or reach a settlement with the holders of the investor loans. Following the closing of the subscription, the investor will be the largest shareholder of the company and aligned with existing shareholders of the company.”
The new investor confirmed that an inaugural royalty payment of US$1 million is to be made before the end of 2024, with a second US$1 million expected around the end of the first quarter in 2025. Thereafter, the additional royalty payments to the company will be in line with operational productivity at Muchesu.
A few months ago, the firm received a US$1 million advance payment for the acquisition of new ordinary shares by a Chinese investor that is set to buy a 51 percent stake in the former’s Muchesu coal mine in Binga.
The London-listed natural resource development firm had announced that it had entered into an agreement to sell 51 percent of its shareholding in the Muchesu colliery project to a Zimbabwe-based Chinese national, Mr Wencai Huo.
Contango will retain a 24 percent stake in the project. Under the agreement, the Chinese investor is expected to subscribe for a total of 142 million new ordinary shares from which Contango would receive US$2 million.
Mr Wencai is expected to invest US$20 million into the 2, 6 billion-tonne colliery project in which Contango holds direct interest through a 70 percent controlling stake in Monaf Investments (Pvt) Limited.
An additional 4, 76 percent interest in Monaf is expected to be transferred to Contango soon, increasing the firm’s shareholding to 74, 75 percent.
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