London listed natural resource development company, Contango Holdings Plc, has signed two offtake agreements for coal products produced at the company’s Lubu Coalfield Project in Zimbabwe (‘Lubu’).
Contango, which signed another offtake agreement with South Mining a few weeks ago, this week announced a second agreement with CoalZim Marketing (Pvt) Limited (‘CoalZim’).
These formalised agreements will allow the miner to move forward with development at Lubu, according to Carl Esprey, executive director of Contango Holdings.
Esprey said as a result of the offtake agreements, and more that will follow, Lubu is expected to be in a position to deliver first production and revenues within six months.
The offtake agreements demonstrate “the strong demand for the high-quality coal products produced at Lubu,” according to Contango management.
The latest agreement will see CoalZim, a coal sales and trading company based in Harare, purchase an anticipated 2 000 tonnes of 28CV metallurgical coal per month from Monaf, subject to contract and appropriate standard and quality coal testing.
Pricing of the offtake remains subject to contract, negotiation and prevailing market conditions, however, this is a higher value product and it assumed a sales price (delivered to Harare) of between US$100 and US$120 per tonne of coal is achievable based on discussions.
Contango has previously cited expected combined contract mining and processing costs of US$15 per tonne for Lubu coal. Transport costs to Harare are expected to be circa US$15 per tonne.
In addition to CoalZim and South Mining, Contango is negotiating with additional customers, ahead of the anticipated commissioning of Lubu in Q4 2020.
Commenting on the developments, Esprey, said: “The delivery of another Letter of Intent (LOI), within 10 days of securing our first agreement with South Mining, further highlights the strong demand dynamics for our coal products within Zimbabwe.
“As previously reported, I am confident that commercial negotiations can be finalised with CoalZim and South Mining, as well as the additional coal offtake partners we are currently in discussions with, and this process is likely to move quickly once the Covid-19 related travel restrictions ease further in Zimbabwe,” said Esprey.
Coal remains a dominant energy mineral for Zimbabwe. The country boasts of vast reserves of coal particularly in the north-west and southern parts of the country.
Contango coal project dovetail with the mining sector’s ambitious US$12 billion economy by 2023, of which the coal sector is expected to contribute US$1 billion.