British firm signs Zimbabwe coal deal

Hwange Colliery Mine

HARARE – The United Kingdom-based company Contango Holdings says it has signed its first offtake agreement with a South African trading company for coking coal production from its Lubu project in the Hwange basin, Matabeleland North Province.

Metallurgical coal or coking coal is a grade of coal that can be used to produce good-quality coke. Coke is an essential fuel and reactant in the blast furnace process for primary steelmaking, of which South Africa is a major producer on the continent. 

The demand for metallurgical coal is highly coupled to the demand for steel. Further, primary steelmaking companies often have a division that produces coal for coking, to ensure a stable and low-cost supply. 

Zimbabwe has abundant coal deposits in the South West of the country, but its steel making operation, Zimbabwe Iron and Steel Company (Zisco) previously one of the largest steelworks in Africa, collapsed in 2008 and is being resuscitated.

The mineral rich Southern African nation was believed to hold about 553 million tonnes of proven coal reserves as of 2016, ranking 38th in the world and accounting for a significant portion of the world’s total coal reserves of 1 139 471 tonnes. 

Contango chief executive, Carl Esprey said, “I am delighted to announce our first offtake deal for coking coal. AtoZ has established a significant presence in South Africa and Zimbabwe and we are delighted to be working with AtoZ on what we hope is the first of a number of future contracts. 

“We are pleased that Contango will now begin to produce sales and cash flow and mature into a mining company.”

The resourcescompany said AtoZ Investments agreed to purchase 10 000 metric tonnes a month at the price established by state-owned mineral trader, the Minerals Marketing Corporation of Zimbabwe (MMCZ). The coal price currently stands at US$120 a tonne.

Contango believes the contract could yield earnings of up to US$10 million annually, with the coal mining company expected to benefit from margins of US$70-US$80 a ton at the current global coal prices.

Mr Esprey added, “Also, we are laser focused on executing the coke production business plan as it is expected to transform our margins five-fold in comparison to the sale of coking coal only, which already provides a good margin of over US$70/tonne.”

Mr Esprey said that given the scale of the Lubu asset, with a resource base of more than 1 billion tonnes, they believe that they can sell both coking coal and coke as two separate revenue streams moving forward.

“In addition, with the infrastructure in place for the higher margin coking coal and coke products, there is likely to be further economic markets for its additional suite of thermal and industrial coals. 

“For now, we have reached a critical milestone and the horizon looks very exciting indeed,” he said.

As reported by this publication earlier in March, the miner commenced production of coking coal at Lubu at the end of the first quarter, with coking coal being stockpiled.