Contango Holdings PLC Gold Project Acquisition & GBP1.8 million Placing (4018C)

TIDMCGO

RNS Number : 4018C

Contango Holdings PLC

19 October 2020

Contango Holdings Plc / Index: LSE / Epic: CGO / Sector: Natural Resources

19 October 2020

Contango Holdings Plc

('Contango' or the 'Company')

Contango Acquires The Garalo Gold Project in Mali and Raises GBP1.8 million at 5p per Share

Highlights

   --    Acquisition of the Garalo Project for gross consideration of US$1M 
   --    Targeting production scenario of 30,000oz per annum 
   --    Further drilling expected to expand resource and mine life 
   --    Oversubscribed GBP1.8M capital raise provides funds for first gold production in H2 2021 

Contango Holdings Plc, the London listed natural resource development company, is pleased to announce the acquisition of the Garalo Gold Project ("Garalo") in Mali for US$1M (the "Acquisition"). The Acquisition of Garalo, which is expected to commence gold production in H2 2021, further advances the Company's strategy of acquiring defined assets with near-term production potential and modest capital requirements.

In conjunction with the Acquisition, the Company has raised GBP1,800,000 (before expenses) through an oversubscribed Placing of 36,000,000 New Ordinary Shares of GBP0.01 each ("Placing Shares") at a price of 5 pence per Placing Share (the "Placing Price"). The Placing was undertaken by its broker Brandon Hill Capital Limited and is expected to provide sufficient funds to bring Garalo into production in H2 2021.

The Garalo Project

The Garalo permit occupies 62.5km(2) in the Sikasso region of southern Mali, 200km south-east of the capital Bamako and close to the Guinea border. The permit is surrounded by a number of multi-million ounce gold deposits and the region is home to some of the world's leading gold miners, including AngloGold Ashanti, IAMGOLD, Barrick, B2 Gold, Endeavour Mining and Hummingbird Resources, which has helped to establish Mali as the third largest gold producer in Africa.

Contango has secured an agreement to acquire Garalo for US$1M, of which US$100K has already been paid to the vendor, who will retain an initial 25%. The vendor's interest is not free carried and will dilute in the event the vendor does not provide his pro rata contribution to the development of Garalo. The balance of the Acquisition cost, being US$900k, falls due in February 2021, following conformational exploration work to be undertaken by Contango in the period. It should be noted the deposit has been known to certain members of the Contango team since 2015 and the Company does not foresee any discrepancy with historical data reviewed to date.

Garalo is an advanced discovery and has a non-independent resource of 320Koz Au at an average grade of 1.5g/t across three dominant structural trends. Garalo has been subject to the following work to date:

   --    regolith mapping and interpretation; 
   --    soil geochemistry; 
   --    airborne magnetic and radiometric surveys; 
   --    over 900 drill holes, which have returned grades of up to 43g/t. 

To date the drilling programme has focused on the G1A and G3 targets, which cover a relatively small footprint of the licence and remain open along strike, indicating further resource upside. With the planned exploration work to be undertaken by Contango over the coming months, the Company expects to be in a position to reclassify the resource to JORC standards in 2021, in conjunction with an anticipated increase in resource ounces. However, given the attractiveness and robust nature of the economics and drilling undertaken to date, the Company intends to trigger construction ahead of this to enable first production in H2 2021.

Given the excellent infrastructure in the vicinity, historical exploration and the deposit's surface location, the Company believes the mine can be brought into production in H2 2021 for a capital cost of just US$1.2M. This will enable initial production of circa 10,000oz of gold per annum through an oxide plant, with further capital required for subsequent production from the sulphides. The Company is also looking at the potential of sourcing a further US$4M through non-equity capital providers, which would enable the Company to increase production to a rate of 30,000oz per annum. Discussions are underway with regional banks, well versed in the gold industry, as well as providers of royalties and the Company is optimistic it will have sourced this additional funding, without any dilution at the plc level, to enable a larger project and significantly enhanced economics by the time construction is scheduled to start in Q1 2021.

At current gold prices of circa US$1,900, the Company's mine planning and block modelling studies suggest that margins on production would exceed US$1,000/oz (at the 10,000oz per annum production level). Consequently, the Board believes this would result in a potential EBIT figure of circa US$1M per month from Garalo. In the event a larger 30,000oz per annum mine was constructed, the average cost per ounce of production would reduce further, thereby increasing the margins and associated EBIT figures.

An updated presentation with further information on the Garalo Project has been uploaded to the Company's website: https://contango-holdings-plc.co.uk/corporate-documents/#

Carl Esprey, Executive Director of Contango Holdings, said:

"I am delighted to confirm the acquisition of Garalo for just US$1M. It is a deposit both myself and our newly appointed in-country mine manager have known for some time and I am confident it is an ideal fit within the Contango portfolio, which is focused on low capex, high margin, near term production assets.

"Once Garalo is in production, there should be a significant opportunity to acquire similar projects nearby, which have typically been overlooked by the larger operating companies in the region that are developing multi-million ounce deposits. This, coupled with the prospectivity that remains unexplored at Garalo, should in due course ensure a significant boost to reserves and mine life, which already stands at over 10 years.

"At a stabilised base case of 10,000oz per annum, we would expect the Garalo deposit to generate circa US$1M of EBIT per month. In the event we are able to increase the production rate to 30,000oz per annum, there would be a further material increase in earnings.

"In Zimbabwe we recently reported two LOIs for a combined 32,000t per month from our Lubu coking coal project. As previously stated, we expect to move these to formal offtakes over the coming months, thereby enabling construction ahead of first production also in H2 2020. Discussions are ongoing with other interested parties with respect to additional LOIs and offtakes and we expect to provide a separate operational update to the market on Lubu later this quarter. If the Company is successful in converting the 32,000t per month under LOI, the Board believe additional earnings of circa US$1M per month could be realised from Lubu based on current pricing discussions.

"I would like to thank all our existing shareholders who participated in the over-subscribed GBP1.8M capital raise at 5p, as well as welcome new shareholders who are joining the register. I believe the demand for the Placing highlights the underlying value now within the Contango portfolio and across our two assets, both of which we expect to have in production in H2 2021 without the need for further funds at the Company level. The Company has stated previously it would look to pay dividends once stable cashflows have been established. With the acquisition of Garalo and the potential for both projects now in the portfolio to yield +US$1M per month of earnings each, the Company remains ever focused on achieving this objective targeting the pay out of 50% of net profits by way of a dividend.

"I look forward to updating all shareholders on our progress over the coming period."

Admission and Total Voting Rights

The Company has raised GBP1.8 million, before expenses, through the issue of the Placing Shares with certain existing Shareholders and new investors.

An application has been made for the Placing Shares to be admitted to trading on the London Stock Exchange with effect from 22 October 2020 ("Admission").

In accordance with the FCA's Disclosure Guidance and Transparency Rules, the Company confirms that following Admission, the Company's enlarged issued ordinary share capital will comprise 239,633,278 Ordinary Shares. The Company does not hold any Ordinary Shares in Treasury. Therefore, following Admission, the above figure may be used by shareholders in the Company as the denominator for the calculations to determine if they are required to notify their interest in, or a change to their interest in the Company, under the FCA's Disclosure Guidance and Transparency Rules.

Details of Director Subscription

Oliver Stansfield, a Director in the Company, subscribed for a total of 700,000 New Ordinary Shares in the Placing. He currently holds 5,300,000 ordinary shares. Following Admission he will have a revised interest of 6,000,000 ordinary shares in the Company, representing 2.5% of the enlarged issued share capital.

Related Party Transaction DTR 7.3

RAB Capital, an entity controlled by Philip Richards, subscribed for 7,000,000 shares as part of the Placing for gross consideration of GBP350,000 resulting in an interest of 2.9% of the enlarged issued share capital. As Philip Richards is a director of the Company, this Subscription is deemed a related party transaction as defined under DTR 7.3. The independent director Roy Pitchford (Non-Executive Chairman), considers the terms of the Director participation in the Fundraising are fair and reasonable insofar as the Company's shareholders are concerned.

Philip Richards directly holds 5,940,699 shares in the Company resulting in an interest of 2.5% based on enlarged issued share capital.

**S**

For further information, please visit www.contango-holdings-plc.co.uk or contact:

 
 Contango Holdings plc                E: [e-mail] 
  Chief Executive Officer 
  Carl Esprey 
 
 Brandon Hill Capital Limited         T: [phone] 
  Financial Adviser & Broker 
  Jonathan Evans 
 
 St Brides Partners Ltd               T: [phone] 
  Financial PR & Investor Relations 
  Susie Geliher / Cosima Akerman 
 
 
 1     Details of the person discharging managerial responsibilities 
        / person closely associated 
 a)    Name                                     Oliver Stansfield 
      ---------------------------------------  --------------------------------- 
 2     Reason for the notification 
      -------------------------------------------------------------------------- 
 a)    Position/status                          Non-executive Director 
      ---------------------------------------  --------------------------------- 
 b)    Initial notification                     Initial Notification 
        /Amendment 
      ---------------------------------------  --------------------------------- 
 3     Details of the issuer, emission allowance market participant, 
        auction platform, auctioneer or auction monitor 
      -------------------------------------------------------------------------- 
 a)    Name                                     Contango Holdings PLC 
      ---------------------------------------  --------------------------------- 
 b)    LEI                                      213800HZ69B3QHCUGX36 
      ---------------------------------------  --------------------------------- 
 4     Details of the transaction(s): section to be repeated 
        for (i) each type of instrument; (ii) each type of transaction; 
        (iii) each date; and (iv) each place where transactions 
        have been conducted 
      -------------------------------------------------------------------------- 
 a)    Description of the                       Ordinary shares 
        financial instrument, 
        type of instrument 
 
       Identification code                      GB00BF0F5X78 
 
 b)    Nature of the transaction                Placing 
      ---------------------------------------  --------------------------------- 
 c)    Price(s) and volume(s) 
                                                --------------  -------------- 
                                                 Price(s)        Volume(s) 
                                                --------------  -------------- 
    GBP0.05                                                      700,000 
   -----------------------------------------------------------  -------------- 
 
 d)    Aggregated information 
 
  - Aggregated volume                      700,000 
 
  - Price                                  GBP35,000 
 
 e)    Date of the transaction                  19/10/2020 
      ---------------------------------------  --------------------------------- 
 f)    Place of the transaction                 London UK 
      ---------------------------------------  --------------------------------- 
 

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October 19, 2020 02:00 ET (06:00 GMT)