Key points:
- Contango Holdings (CGO) share price surged 34.3% on a supply contract.
- The coal producer has agreed to sell its washed coal to AtoZ Investments.
- Is coal a good investment despite its environmental impact?
- Read on to discover my thoughts on the same.
The Contango Holdings PLC (LON: CGO) share price surged by 34.3% after revealing that it had signed an offtake contract with AtoZ Investments (Pty) Ltd (AtoZ) for the purchase of the coal produced at Contango’s Lubu Coking Coal Project in Zimbabwe (Lubu).
Also read: The 5 Best Solar Energy Stocks In 2022.
The natural resource company revealed that AtoZ had agreed to collect the coking coal produced at Lubu from the mine gate, relieving Contago of the responsibility of transporting the coal to client sites, a service that most coal producers have to perform.
Contango agreed to sell its coking coal at $120 per tonne, the minimum price set by the Minerals Marketing Corporation of Zimbabwe (MMCZ). In addition, AtoZ agreed to purchase 10,000 tonnes of coking coal each month, generating monthly revenues worth over $1.2 million for Contango.
Investors cheered that Contango expects to generate a margin of between $70 and 80 per tonne of its washed coking coal, allowing it to generate significant profits under the contract.
Luckily for investors, Contango started producing coal at its Lubu project at the end of Q1 2022 and has been stockpiling the mineral since then. First, however, the company is building a wash plant and surface infrastructure to support the mine’s operations.
Contango expects to start delivering washed coking coal to AtoZ in Q4 2022, with the mine having an initial annual capacity of producing 120,000 tonnes of washed coal. The company intends to expand the mine’s annual production capacity to 300,000 tonnes in H1 2023 using its internal cash reserves.
Overall, Contango looks like an attractive investment given its positive fundamentals and the rising global demand for coal despite calls to abandon coal as an energy source. Over time, the world could wean itself off coal, but that time is yet to arrive.
Much like what has happened to global crude oil supplies, it might be too early for the world to ban coal as an energy source despite its adverse environmental impact. However, such a move will be viable sometime in the future.
*This is not investment advice. Always do your due diligence before making investment decisions.
Contango Holdings share price.
The Contango Holdings share price surged 34.32% to trade at 6.38p, rising from Monday’s closing price of 4.75p.