Senior Business Reporter
ALTERNATIVE Investment Market (AIM) listed Contango Holdings has received US$1 million advance payment for the acquisition of new ordinary shares by a Chinese investor that is set to buy 51 percent stake of the former's Muchesu coal Mine in Binga.
The London-listed natural resource development firm recently 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.
This comes after Contango announced last month that it was inundated with inquiries from investors interested in joint ventures or purchasing the mine.
Contango indicated that it was open to exploring opportunities that would benefit it and its stakeholders.
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.
In a latest update, Contango said the subscription is subject to the issuance and approval of a Short Form Prospectus (SFP), which the company has submitted to the FCA for review and approval.
"In keeping with the collaborative relationship between the investor and the company, the company is pleased to report it has now received a payment of US$1 million as an advance against the subscription," it said.
As part of a revolving facility agreement, the investor will provide unsecured debt finance of up to US$20 million into the operating subsidiary Monaf Investments (Private) Limited, to fund the development and expansion of operations at Muchesu.
"The company is pleased to report that under this agreement, the investor has already commenced delivery of some capital equipment and operational items.
"The first convoy carrying parts for a new wash plant has arrived at the site, with the remaining convoys expected during this month.
"A team of engineers is already on site to oversee operations and the installation of the new wash plant.
"Upon completion, the plant is expected to have a washing capacity of 3 000 tonnes per day, significantly greater than the company's existing capabilities, which will continue to remain operational," said Contango in a statement.
Orders have now been placed for a further five heavy-duty excavators, four of which are to be delivered from South Africa.
"Also, another front-end loader and accessories have been ordered."
All the above equipment and machinery are due at Muchesu before the end of this month.
Contango chief executive officer, Mr Carl Esprey, said the latest development was testament to the investor's faith in Muchesu.
"The company has now submitted the prospectus pending FCA approval for the issue of the subscription shares.
"We are now seeing significant activity at Muchesu. A new wash plant is being delivered and constructed to materially increase production capacity, whilst other earth moving and processing equipment are expected to arrive on site in the forthcoming weeks," he said.
"We are also integrating members of the existing operational team with the one assembled by the investor. We believe the resultant outcome will leave Muchesu on a much firmer footing and poised for significant growth.
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"Finally, planning is also underway to expand the size of the existing open pit as well as engineering designs for underground mining."
Mr Esprey said the fresh capital investment would lead to a significant increase in mining output, from which Contango stands to benefit through its royalty arrangements and residual 24,75 percent interest in Muchesu.
Muchesu coal mine is one of the signature investments under the Second Republic and the project is expected to deliver substantial benefits for locals and the wider economy.
Last July, President Mnangagwa commissioned the colliery project that covers 19 236 hectares of the highly prospective Karroo Mid Zambezi coal basin situated in the established Hwange mining districts in north-western Zimbabwe.
