Contango Holdings has entered an agreement to sell 51 percent of its shareholding in Muchesu Coal Mine in Binga to a Chinese investor while the United Kingdom firm will retain a 24 percent stake in the colliery project.
Last month, the London-listed natural resource development group said it was inundated with inquiries from investors interested in joint ventures or purchasing the mine and was open to exploring opportunities that would benefit the company and its stakeholders.
On the back of a capital raise of British Pounds 940 000 (equivalent to US$1,2 million) in early April this year, the firm resumed on-site operations to meet orders from potential offtake customers for samples.
Following the agreement, the Chinese investor, Mr Wencai Huo who is based in Zimbabwe, will invest US$20 million into the 2,6 billion-tonne colliery project in which Contango holds its direct interest in Muchesu 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 shortly, increasing Contango's shareholding to 74,75 percent.
"The company is pleased to announce it has entered into an agreement with the investor, a prominent Zimbabwe-based Chinese national (Mr Wencai Huo) with extensive mining and business investments in Zimbabwe and the southern African region.
"The Term Sheet currently envisages a sale of 51 percent from Contango's interest in Monaf, with Contango therefore expected to retain a 23,75 percent stake in Monaf.
"Completion of the disposal will require the parties to obtain various local approvals," said the mining group in the latest update.
Key terms of the agreement also involve the investor being expected to enter into a subscription for a 20 percent holding in the company, and that the company be awarded a life of mine royalty.
The agreement under this deal has been signed by the parties concerned following extensive due diligence, several site visits, and test work of the coals at Muchesu.
"The investor, the Contango and Monaf will now look to finalise, execute and enter into a suite of formal agreements (Definitive Agreements) to implement the transactions described above," said the mining group.
The Definitive Agreements are subject to completion of any outstanding due diligence by the Investor, as well as legal, regulatory, and shareholder approvals, which Contango expects to co-ordinate in the third quarter of this year.
"The investor has substantial business operations and investments in Zimbabwe and, therefore, is well regarded in the country."
Contango chief executive officer Mr Carl Esprey expressed gratitude in agreeing with the investor, adding that the milestone provides a framework for the final Definitive Agreements.
"Muchesu is a world-class coal deposit and we have focused our efforts on unlocking the value, whilst minimising dilution to shareholders.
"Mr Huo is highly experienced in mining and operating throughout southern Africa. His intention to become a major shareholder in Contango, as well as become the lead partner in the project, is testament to the upside this agreement offers to shareholders," he said.
"By investing a further US$20 million at Muchesu we will be able to quickly ramp up operations and satisfy some of the larger contracts we have been reviewing or are aware of.
"Our intention has always been to develop our suite of coal products, as well as the manufacture of coke at site.
"This transaction will position us to subsequently benefit from this, without requiring the shareholders of Contango to be diluted by further capital raises or to reinvest cash flow to fund expansion.
"We will update the market as appropriate as we move to signing of the Definitive Agreement."
Muchesu Coal Mine stands as a significant investment project under the Second Republic, expected to deliver substantial benefits for locals and the broader economy.
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President Mnangagwa in July last year commissioned the colliery project that covers 19 236 hectares of the highly prospective Karroo Mid Zambezi coal basin located in the established Hwange mining districts in north-western Zimbabwe.
Matabeleland North Province is a key region for mining activities that have played a pivotal role in the province's growth and Zimbabwe's overall development.
The province serves as a focal point for coal-to-energy value chain investments, poised to unlock up to US$1 billion in coal and hydrocarbon investments.
Coal is also one of the key minerals the Government designated a few years ago to drive the growth of the country's mining economy to a US$12 billion industry.
Notably, mining in general is strategically important to Zimbabwe given the sector accounts for 75 percent of Zimbabwe's export receipts and employs thousands across the country.
