By proactiveinvestors.co.uk

LONDON: Contango Holdings shares soared in Monday’s early deals after it unveiled a new deal which promises to unlock the Muchesu coal project in Zimbabwe.

The company, in a statement, said it had agreed to sell a 51% interest in the project to Wencai Huo, a Zimbabwe-based Chinese investor with experience in the coal mining industry in the region.

Contango expects to retain a 24% stake in the project.

Its initial agreement with Wencai Huo envisages the investor providing investments into the project (matching an historic spend of $20 million) , as well as taking a 20% stake in Contago.

The investor, meanwhile, will also grant to Contango life-of-mine royalties over gross production, with a minimum annual payment of US$2 million.

Subsequently, Contango said it expects to reach future agreements over the mine’s offtake and the composition of its board.

Carl Esprey, Contango chief executive, described himself as delighted with the term sheet agreed with the investor.

“Muchesu is a world-class coal deposit and we have focused our efforts on unlocking its value while minimizing dilution to shareholders,” Esprey said in the statement.

“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 potential for Contango shareholders.”

Esprey added: “By investing a further US$20 million at Muchesu we will be able to quickly ramp up operations and secure the larger contracts we have been reviewing or are aware of.

“Our intention has always been to develop Muchesu into a significant source of thermal and coking coal, as well as the manufacture of coke at site.

“This transaction will position us to subsequently benefit from this, without requiring the shareholders to be diluted by further capital raises or to reinvest cash flow to fund expansion.”

In London, Contango shares were up 31% changing hands at 1.28p – and earlier traded as high at 1.68p.