Contango Holdings PLC on Friday reported that it can earn an extra $10 million through selling thermal coal internationally.

Shares in the London-based natural resource development company were trading 17% higher at 7.47 pence each in London on Friday morning.

The Lubu deposit, the Zimbabwe coal mine in which the company has a 70% interest, contains ‘significant quantities’ of both coking and thermal coal. The company has initially focused on the extraction of coking coal from Block 2. At Block 2 it is anticipated that around 60% of coal extracted will be thermal coal while 40% will be coking coal.

Contango noted that it can sell thermal coal internationally at a high price. The price of thermal coal has increased to around $450 per tonne from $125 due to energy displacement and shortage in supply.

The company anticipates it can begin delivering thermal coal in the first half of 2023 subject to finalising transport and export routes.

The cost of mining is ‘negligible’ as the thermal coal is effectively a by-product of the coking coal mined, the company said.

Contango anticipates that it will be able to deliver 10,000 tonnes of coking coal and 10,000 tonnes of thermal coal per month based on current capacity. Additionally, it can expect to benefit from margins of $100 to $150 per tonne on sales of thermal coal based on recent off take discussions and in the current thermal coal pricing environment.

The announcement comes after the company received ‘a number of unsolicited approaches’ from buyers of thermal coal from Africa, Europe and Asia.

Chief Executive Officer Carl Esprey commented: ‘The global energy crisis has seen the demand for thermal coal dramatically increase, which in turn has been reflected in the thermal coal price, which has nearly tripled over the last year. What was initially a by-product in our coking coal and coke development plan, is now a highly profitable and complementary product.

‘Whilst no one can be certain how long the market imbalance and demand for thermal coal will remain at these levels, or potentially higher, given the synergies with ongoing operations and limited additional costs, the ability to initially generate over $10 million of additional earnings per annum by selling our thermal coal makes clear financial sense.’

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