Shares in Contango Holdings PLC rose by nearly a third early Monday, after the company announce a new investor has bought a majority stake in its Muchesu coal project in Zimbabwe.

Contango was up 31% to 1.28 pence early Monday in London, giving the company a £7.2 million market capitalisation.

Contango said the investor, Wencai Huo, is ‘a prominent Zimbabwe-based Chinese national with extensive mining and business investments in Zimbabwe and the southern African region’.

Huo will buy a 51% stake in the Muchesu mine. Contango currently holds a 70% interest via its Monaf Investments (Pvt) Ltd subsidiary. This is interest is expected to rise to 74.75% in the near term, so Huo’s acquisition will leave Contango with a 23.75% stake.

Contango also will be awarded a life-of-mine royalty worth a minimum of $2 million per year, irrespective of the level of production. The variable royalty will be $2 per tonne of thermal coal produced, $4 per tonne of industrial coal, and $8 per tonne of coking coal.

Huo will make a cash investment in Contango at the recent average market price to take a 20% stake. The investor also will spend at least $20 million to develop Muchesu, matching what Contango has already invested in the project.

Contango confirmed that it is involved in ‘numerous offtake discussions’ to sell the coal output from Muchesu. Following the new agreement with Huo, the company said it expects the mine to have ‘materially larger production capacity’.

Huo will be allowed to appoint a director to the board of Contango.

‘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,’ Contango Chief Executive Officer Carl Esprey said.

‘By investing a further $20 million 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.’

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