HARARE – British company Contango Holdings has announced that it has signed its first offtake agreement with a South African trading company for the production of coking coal from its Lubu project in the Hwange Basin in 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 reagent 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 closely linked to the demand for steel. Additionally, primary steel companies often have a division that produces coking coal, to ensure a stable, low-cost supply.
Zimbabwe has abundant coal deposits in the southwest of the country, but its steel business, Zimbabwe Iron and Steel Company (Zisco), which was previously one of Africa‘s largest steel companies, collapsed in 2008 and is being resurrected.
The mineral-rich nation of South Africa held around 553 million tonnes of proven coal reserves in 2016, ranking 38th in the world and accounting for a significant share of the world’s total coal reserves of 1,139,471 tonnes.
Contango Managing Director Carl Esprey said, “I am delighted to announce our first coking coal purchase agreement. AtoZ has established a significant presence in South Africa and Zimbabwe and we are delighted to be working with AtoZ on what we hope will be the first of a number of future contracts.
“We are excited that Contango is now starting to generate sales and cash flow and transition into a mining company.”
The resource company said AtoZ Investments had agreed to buy 10,000 metric tonnes per month at the price set by state-owned mineral trader, Minerals Marketing Corporation of Zimbabwe (MMCZ). The price of coal currently stands at 120 US dollars per ton.
Contango estimates the contract could fetch up to $10 million a year, with the mining company expected to enjoy margins of $70 to $80 a tonne at current world coal prices.
Mr. Esprey added: “In addition, we are focused on executing the coke production business plan as it is expected to increase our margins fivefold compared to the sale of coking coal alone, which already provides a good margin. more than 70 USD/ton.”
Mr Esprey said that given the scale of Lubu’s assets, with a resource base of over a billion tonnes, they believe they can sell both coking coal and coke as two separate sources of income in the future.
“Additionally, with the infrastructure in place for higher margin coking coal and coke products, it is likely that there will be other economic markets for its additional range of thermal and industrial coals.
“So far we have reached a critical milestone and the horizon is looking really, really exciting,” he said.
As reported by this publication earlier in March, the miner started coking coal production at Lubu at the end of the first quarter, with the coking coal being stored.