REG - Contango HoldingsPLC - Term Sheet: Investment & Part Purchase of Muchesu

Contango HoldingsAnnouncement

17/06/2024 07:15

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RNS Number : 5962S  Contango Holdings PLC  17 June 2024

Contango Holdings Plc / Index: LSE / Epic: CGO / Sector: Natural Resources

17 June 2024

Contango Holdings PLC

("Contango" or the "Company")

 

Term Sheet Signed for Investment and Part Purchase of Muchesu

 

·    Agreement entered into with Mr Wencai Huo (the "Investor") for the
sale of 51% of Muchesu

·    Royalties granted to Contango for life of mine over gross production

·    Minimum of US$2M per annum to be paid to Contango under royalty
arrangement

·    Contango expects to retain 24% of Muchesu going forward

·    The Investor to make a cash subscription to take a 20% stake in the
Company

·    The Investor to match Contango historic expenditure of approximately
US$20M directly into Muchesu, to expand production and operational capacity

·    Offtake updates

·    Board Changes

 

Contango Holdings Plc, a company focused on the development of the +2 billion
tonne Muchesu coal project in Zimbabwe ("Muchesu" or the "Mine"), which is
held by the Company's 70% subsidiary Monaf Investments (Pvt) Limited
("Monaf"), is pleased to announce it has entered into an agreement (the "Term
Sheet") with the Investor, a prominent Zimbabwe-based Chinese national with
extensive mining and business investments in Zimbabwe and the Southern African
region.

 

The Term Sheet set out the following key terms:

 

i)             Purchase of a 51% stake in Muchesu by the Investor;

ii)            The Investor to enter into a subscription for a 20%
holding in the Company;

iii)           The Company to be awarded a life of mine royalty; and

iv)           The Investor to invest at least US$20M at Muchesu.

 

The Term Sheet has been signed by the Investor and the Company following
extensive due diligence, several site visits and test work of the coals at
Muchesu. The Investor, the Company and Monaf will now look to finalise execute
and enter into suite of formal agreements (the "Definitive Agreements") to
implement the transactions described above.

 

The Definitive Agreements are subject to completion of any outstanding due
diligence by the Investor, as well as legal, regulatory and shareholder
approvals, which the Company expects to co-ordinate in Q3 2024. The Investor
has substantial business operations and investments in Zimbabwe, therefore, is
well regarded in the country. Further details are provided below with respect
to the Term Sheet. Once the Definitive Agreements have been entered into a
General Meeting will be called for Company shareholders to approve the
proposed transaction.

 

1.         Disposal of 51% Interest in Monaf

 

The Company holds its direct interest in Muchesu through its 70% shareholding
in Monaf.  An additional 4.76% interest in Monaf is expected to be
transferred to the Company in the near term, increasing Contango's interest to
74.75%. The Term Sheet currently envisages a sale of 51% from Contango's
interest in Monaf, with Contango therefore expected to retain a 23.75% stake
in Monaf. Completion of the disposal will require the parties to obtain
various local approvals.

 

2.         Cash investment into Contango

 

The Investor will directly, or through affiliate(s) and/or related controlled
corporate entities, subscribe for new ordinary shares to be issued by the
Company. The Investor will subscribe for an amount that results in a 20%
holding of the enlarged share capital of the Company based on a 10-day VWAP
share price prior to signing of the Definitive Agreements (the
"Subscription").

 

The Company will be required to issue a prospectus with regard to the
Subscription as it does not currently have the available headroom to issue the
quantum of shares.  A prospectus will be lodged with the FCA in due course
and published following the completion of the Definitive Agreements.

 

3.           Royalty Agreement with Contango

 

Upon execution of the Definitive Agreement and the disposal of 51%, Contango
will be awarded royalties on future gross production at Muchesu, for the life
of mine as follows:

 

i)             US$2 royalty per tonne in relation to thermal coal
production

ii)            US$4 royalty per tonne in relation to industrial
coal production

iii)           US$8 royalty per tonne in relation to coking coal
production

 

(collectively the "Production Royalties"). Production Royalties are to be paid
to CGO on a monthly basis in arrears.

 

The Term Sheet also notes that following a 6-month holiday from entering into
the Definitive Agreements, going forward a minimum of US$2M per annum will be
owed to Contango, irrespective of the level of production. The Production
Royalties will be subject to separate industry standard contractual
documentation, with standard protections, and will form part of the Definitive
Agreements.

 

Following completion of the Monaf disposal, Contango will have enshrined
rights to maintain the appointment of two directors on the board of Monaf.

 

4.         Further Investment into Muchesu

 

The Company has historically invested circa US$20M into Monaf by way of a
shareholder loans ("Contango Funding"). The Term Sheet recognises this and
accordingly the Investor has agreed to make a similar investment at Muchesu to
expand operational capacity ("Operational Funding"). The precise investment
amount will be finalised at the time of entering into the Definitive
Agreements. The Operational Funding will be provided either in cash or through
the purchase of agreed equipment necessary to advance and expand the Muchesu
Project (including but not limited to requisite 'yellow metal', wash plants,
screens etc). The debt owed by Monaf to both Contango and the Investor will
both be unsecured and rank pari passu.

 

Offtake Discussions Update

 

As previously reported the Company is currently engaged in numerous offtake
discussions. Updates in these discussions will be provided at the appropriate
times. Assuming completion of the Definitive Agreements, the Company expects
Muchesu to have materially larger production capacity. For the avoidance of
doubt, Production Royalties will be applicable on any contracts entered into
prior or post the completion of the Definitive Agreements and are based on all
future production.

 

Board Changes

 

Following entering into Definitive Agreements, and as a condition of the
Subscription, the Investor will be given a right to maintain the appointment
of a single director to the Board of the Company.

 

The Company also expects further changes to the existing Board at this time
and will update shareholders as appropriate.

 

Carl Esprey, Chief Executive Office of Contango, commented:

 

"I am delighted to announce we have entered into a Term Sheet with the
Investor, providing the 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. By investing a further US$20M 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 cashflow to fund expansion.

 

"We will update the market as appropriate as we move to signing of the
Definitive Agreement."

 

 

**ENDS**

 

 Contango Holdings plc                   E: contango@stbridespartners.co.uk

 Chief Executive Officer

 Carl Esprey

 Tavira Financial Limited                T: +44 (0)20 7100 5100

 Financial Adviser & Broker

 Jonathan Evans

 St Brides Partners Ltd                  T: +44 (0)20 7236 1177

 Financial PR & Investor Relations

 Susie Geliher / Charlotte Page

 

 

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