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Why Contango (CGO) Shares Surged 21% on Thermal Coal News

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Updated 16 Sep 2022

Key points:

  • Contango Holdings (CGO) shares surged 20.6% on thermal coal news.
  • The company wants to start selling thermal coal internationally.
  • Investors cheered the timely and demand-driven news. Is CGO a buy?

The Contango Holdings PLC (LON: CGO) share price surged 20.6% after announcing that it is considering exporting thermal coal from its Lubu Coking Coal Project in Zimbabwe. The company decided after receiving multiple inquiries and proposals from potential thermal coal buyers in recent months.

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The natural resource company noted that it was currently working on producing coking coal at the Lubu Project but that the process could quickly produce thermal coal as a byproduct. The company also noted that the current high global demand for coal had pushed thermal coal prices to $450 per tonne from $125 per tonne, which it could tap into.

Also read: A Trader’s Guide To Energy Trading And Investing.

Contango Holdings reaffirmed its commitment to extracting coking coal, which was its initial goal. Still, it believes it can create significant additional value for shareholders by selling thermal coal on the international markets.

The company noted that it would have to make minimal capital investments to expand its current operations and build the necessary infrastructure to handle the production and sales of thermal coal, given that mining costs for the energy material are minimal.

Investors cheered the company’s announcement that it would create a new revenue stream and significant profits if it managed to sell thermal coal internationally. Contango expects to deliver 10,000t of coking coal and 10,000t of thermal coal each month.

Contango expects to start shipping thermal coal in H1 2023 after it sets up the necessary infrastructure, including shipping routes from ports outside South Africa, since the country cannot handle thermal coal.

However, there are no guarantees that the company’s thermal coal exports will fetch the current high prices in the market since market dynamics are constantly changing, and it will take a few months for Contango to start exporting its thermal coal.

After today’s rally, Contango shares are trading below a crucial resistance level; hence, a break above it could lead to a more significant rally. However, a failure to break the level could lead to a pullback and a better trade entry opportunity.

*This is not investment advice.

Contango holdings (CGO) stock price chart.

Contango Holdings (CGO) stock price 16-09-2022
Source: IG

Contango Holdings (CGO) share price surged 20.63% to trade at 7.72p, rising from Thrusday’s closing price of 6.40p.