Here's why Contango Holdings is gaining lilmelight

November 29, 2024 07:15 PM AEDT | By Team Kalkine Media

Here's why Contango Holdings is gaining lilmelight — Image source: shutterstock

Strategic Investment and Corporate Updates

Contango Holdings has secured a US$2 million investment through a Subscription Agreement with Huo Investments (Pvt) Limited. The agreement will see Huo Investments become the largest shareholder in Contango, contingent upon the publication of a Short Form Prospectus (SFP) following the company’s FY2024 financial results. This deal marks a pivotal moment for Contango, strengthening its financial base with US$1 million already advanced.

Furthermore, the company is finalizing an agreement with Huo Investments to reduce its stake in Monaf Investments, the subsidiary holding the Muchesu coal project, from 74.75% to 23.75%. Huo Investments will acquire a controlling 51% stake in Monaf, committing at least US$20 million via a Revolving Facility Agreement (RFA) to fund expansion at Muchesu. Additionally, Contango has agreed to a Mineral Royalty Agreement (MRA), securing royalty payments based on coal production.

Operational Updates and Expansion Plans

A major milestone for the Muchesu project is the completion of the 3,000-tonne per day Dense Media Separation (DMS) plant. The plant is currently undergoing testing and calibration, with production expected to commence soon. Under the MRA, Contango is set to receive a royalty of US$8 per tonne of washed coking coal produced, providing a new revenue stream as production ramps up.

To further bolster its coal processing capabilities, Huo Investments has ordered a second DMS plant, scheduled for delivery in the first quarter of 2025. This addition will significantly expand the project’s capacity, enabling greater throughput and increasing the overall processing capacity at Muchesu.

Financial Position and Cash Flow Improvements

Contango's working capital position is set to improve with the closure of the Subscription Agreement and the expected US$1 million royalty payment under the MRA by December 2024. This cash infusion will support the company’s ongoing operations and help to repay outstanding loans. The company is also due to receive another US$1 million in royalty payments by the end of Q1 2025, with further payments tied to the level of coal production.

In addition, Contango’s loan repayment strategy is progressing. The company previously provided around US$20 million in loans to Monaf for the Muchesu project, and these loans will now be repaid on a 50-50 basis, with half of the amount funded by Huo Investments through the RFA. This financial restructuring is expected to provide Contango with additional liquidity, enhancing its ability to focus on future growth.

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