TIDMCGO
RNS Number : 2121G
Contango Holdings PLC
23 November 2020
Contango Holdings Plc / Index: LSE / Epic: CGO / Sector: Natural
Resources
23 November 2020
Contango Holdings Plc
('Contango' or the 'Company')
Audited Final Results for the year ended 31 May 2020
Overview
-- Executed successful acquisition strategy - two high quality
and near-term revenue projects acquired as Contango establishes
itself as an emerging mining and development company with multiple
commodities and revenue streams
-- Acquisition of the Lubu Coal Project in Zimbabwe completed in
June 2020 and significant progress made towards achieving first
production and sales of coking coal
-- Acquisition of the Garalo Gold Project in Mali in October
2020 - work underway ahead of achieving first gold production in H2
2021
-- Appointment of Carl Esprey and Roy Pitchford to the Board to
assist with the advancement of the Company's two initial assets and
manage Contango's future growth strategy
Chairman's Statement
The year under review saw Contango Holdings Plc progress the
previously announced acquisition of the Lubu Coal Project in
Zimbabwe. As shareholders will be aware, this transaction proved to
be a lengthy and complicated process however our reasoning was
solid - by taking this somewhat prolonged route, Contango
eventually acquired (post period end on 18 June 2020) an asset with
total historical spend in excess $20 million, over 100 holes and
12,000m of drilling completed and a total resource in excess of 1
billion tonnes of coal. The company has raised further finance post
year end and intends on raising a further $4m of debt or asset
finance to fund the expansion of the Garalo project.. The
development plans are discussed in more detail in the Strategic
Report.
The main focus of attention during the period was on advancing
the transaction and ensuring the asset was developed to the point
of pre-production. In June 2019, Contango began advancing funds to
commence a new work programme including a nine-hole drill campaign
designed to enable full washability test work, determination of
product range, specific gravity and grade to verify product types
for the purposes of off-take discussions.
This was a strategy which rewarded the Company following the
completion of the transaction as we were able to swiftly move
forward with off-take discussions, based on the evaluation of
samples sent as part of our development activities during 2019,
which has translated in two Letters of Intent from potential
off-take partners in the past month. The initial two LOIs, for a
total of 32,000 tonnes of coal per month, would, if formalised,
generate EBITDA in excess of $1 million per month for Contango.
This is clearly a remarkable result for shareholders and I believe
that further LOIs and formal off-take agreements will be signed in
the coming weeks as travel restrictions ease, and businesses
further recover, following the COVID-19 lockdown experienced in
recent months.
Contango is targeting an initial 1Mtpa of coal product sales,
focussing on the production and sale of semi-soft coking coal for
export to southern African countries. Although the project has a
total resource in excess of 1 billion tonnes of coal, we are
focussing initially on a small area of the B2 Block of Lubu, where
the deposit starts at surface and goes down to a maximum depth of
47m. Site preparation has begun, and we are planning to use
contract mining to fast track production whilst minimising capex.
The Board expects that combined contract mining and processing
costs will total US$15 per tonne, versus the sales price (minus
potential transport costs of a further circa US$15 per tonne) of
between $70 and $105 per tonne, highlighting the significant margin
achievable using this model.
The Board is now confident that we have the right foundation for
a highly profitable mine at Lubu and we continue to press forward
towards production, subject to formal off-take agreements, which
are expected by the end of 2020. Whilst Lubu remains a priority
focus for us, we have also returned to our original investment
strategy in order to evaluate additional opportunities through
which to generate further value. The Company has benefited from
both its regional expertise in Zimbabwe and the profile of its UK
listing, such that a number of opportunities have emerged that
appear complementary to the Company's growth strategy. This
strategy remains centred on targeting assets or businesses with
near term cash flow, low capital commitments and short payback
periods.
As announced in October, the Company advanced our investment
strategy through the acquisition of the Garalo Gold Project
("Garalo") in Mali for US$1 million. The Acquisition of Garalo,
which is expected to commence gold production in H2 2021, brings a
new and potentially lucrative dimension to Contango, diversifying
both the Company's geographic presence and commodity focus.
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.
Known to certain members of the Contango team since 2015, the
board is confident that Garalo, which benefits from excellent
proximal infrastructure, historical exploration and the deposit's
surface location, 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.
Corporate Overview
With the completion of the transaction post period end in June
2020, the Board's composition also changed. I joined the Board as
Non-Executive Chairman and my colleague Carl Esprey joined as
Executive Director. At the same time, and as previously announced,
Brian McMaster and Neal Griffith, both Non-Executive Directors,
retired.
I would like to extend my thanks to both Brian and Neal - both
of whom were extremely supportive and influential during the
advancement of the Lubu transaction - and I wish them well in their
future endeavours.
Outlook
Since the conclusion of the Lubu transaction in June 2020, both
corporate and operational activities have accelerated, and I am
confident that Contango will be revenue generative in 2021. This is
a significant achievement for Contango and represents the first
phase of our growth strategy as we look to become an emerging
mining and development company with multiple commodities and
revenue streams.
As we look to earnings in 2021 and thereafter, as outlined
earlier, the previously announced LOIs for 32,000 tonnes per month
from Lubu the Board could translate to earnings of circa US$1m per
month based on current pricing discussions. And at current gold
prices of circa US$1,900, the Company's mine planning and block
modelling studies at Garalo suggest that margins on production
would exceed US$1,000/oz at the 10,000oz per annum production
level, with the margin further enhanced once the larger 30,000oz
operation was commissioned. Based on the initial 10,000oz scenario,
the Board believes that Garalo would deliver a potential EBIT
figure of circa US$1m per month, highlighting the material and
near-term earnings potential for Contango.
It is with great optimism that I look forward to the remaining
months in 2020, and 2021 onwards, as we build out on our guiding
investing principles and generate material value for our
shareholders. I would like to thank our shareholders, and the
Contango team here, in Zimbabwe and Mali, for their support during
the year and I look forward to providing further updates in due
course.
Roy Pitchford
Non-Executive Chairman
20 November 2020
Strategic Report
Contango's primary objective during the year was to advance the
transaction to acquire, by way of a reverse takeover, Consolidated
Growth Holdings' interest in the Lubu Coalfield Project in Zimbabwe
("Lubu"). Although the transaction completed post period end,
Contango provided assistance to Monaf Investments (Private) Limited
("Monaf"), which holds legal title to the Lubu Coalfield Project in
Zimbabwe during the year under review.
Post period end, the Company announced the acquisition of the
Garalo Gold Project in Mali which the Company plans to develop into
production in H2 2021.
Lubu Coal Project
On 22 February 2010, Monaf was granted SG 4686 to prospect for
coal (excluding oil) in the Bulawayo Mining District of Zimbabwe.
Exploration work started on the Special Grant Area on 22 February
2010 (with subsequent phases on 2 February 2011 and 12 October
2011). SG 4686 was extended for a period of two years from 22
February 2016. On 7 August 2017, Monaf submitted an application to
extend SG 4686 for a further 25 years.
The Zimbabwean Mining Affairs Board sat in April 2018 and
recommended this application for approval; on 4 September 2018 SG
4686 was extended to 27 September 2043, inclusive.
2019 Work Programme
Monaf undertook a programme that commenced in June 2019 to drill
nine holes to extract samples from near surface seams within the
initial pit design at Block B2 of the Lubu Coalfield. The seams at
or closest to surface are seams 1C and 1A Lower. Both of these
seams are amenable to open pit mining.
The analytical tests of these samples were undertaken by an
independent laboratory being Bureau Veritas in South Africa.
The objective of the drilling was twofold:
i) to confirm the near surface structure of the coal measures; and
ii) to extract these samples for detailed analysis for
washability to determine coking/caking yields and basic analysis to
measure testing was primarily to investigate coking and caking
properties.
The cokeability of coal is an important technology parameter of
coals during the reduction process in the electric furnace method.
The simplest test to evaluate whether a coal is suitable for
production of coke is the free swelling index test. The free
swelling index in British Standards Index (BSI) nomenclature (the
crucible swelling index number (CSN) in ISO nomenclature) is a
measure of increase in the volume of coal when heated, with
exclusion of air. This parameter is useful in evaluating coals for
coking and combustion. Coals with a low free swelling index (0-2)
are not suitable for coke manufacture. Coals with high swelling
numbers (+8) cannot be used by themselves to produce coke, as the
resultant coke is usually weak and will not support the loads
imposed within the blast furnace.
The caking test is a measure of the strength of the coal once
burnt. A successful coke must be strong and not powdery. There are
a number of methods to calculate the caking, however, the G index
was developed in China and is performed in accordance with GB/T
5447 and ISO 15585 standards. It is used as one of the primary met
coal evaluation tools by Chinese coke producers. In this test, 1g
of minus 0.2mm coal is mixed with 5g anthracite and placed in a
crucible and is run through a range of tests to determine its
durability. A desirable result is from 60 to 90.
The results from the Bureau Veritas laboratory in South Africa
noted the following:
i) The coking properties of seam 1C which has a circa 45% yield
at a float of F1.60, are supported by an average swell index of
over 7. Seam 1A Lower was tested for a high 28MJ/KG CV coal which
for (circa 44%) yield for a 28MJ/kg CV coal but can also produce a
coking coal with swell indices ranging between 5.5 and 7.5; and
ii) The caking results from seam 1C ranges from 66 to 87, and
seam 1A Lower range from 60 to 82 respectively.
The tests have not been reported upon by the Competent Person as
tests are ongoing and designed for discussions with potential
purchasers of the coal only.
Development Strategy
The main strategy and emphasis of the Monaf exploration
programme was to focus on coal seams of economic significance
within Block B2.
Monaf's current NI 43-101 compliant resource mineral resource
estimate presents an opportunity to establish a large-scale coal
mining operation. The drilling results from the Block B2 area
indicates lateral continuity over a large surface area (roughly
1,600 ha). This block has the potential to become the opencast
nucleus of a relatively large dragline operation. With additional
drilling, the Block B2 Indicated resource may be taken up the
confidence level to Measured status, while Block B7 also may have
potential as an open-castable block. The balance of the resource
appears to consist of discrete, fault bounded blocks with the
potential to form economic underground business units. Although the
balance of the resource is at a Speculative level, it is understood
that the structural elements of the deposit will allow for these
blocks to be taken up the confidence curve into mineable blocks of
sustainable magnitude.
The Company will undertake a phased development of Lubu by
initially undertaking a period of small-scale mining from the open
pit of predominantly coking coal. The Company will be required to
undertake a Bankable Feasibility Study to determine the decision to
invest in the full-scale production which is dependent on the
economic conditions in the country and the development of the power
generation capacity given the magnitude of developing the
project.
The Board will focus on developing markets for its semi soft
coking coal and 28MJ/kg CV coal which is known to be in demand by
industrial users in the Southern Africa region. The Company may
develop a relatively material operation without recourse to the
full-scale mining given that the terms of the SG 4686 does not
stipulate a maximum threshold of production under the trial mining
licence and bulk licence.
The Directors have engaged with the local environmental
consultancies and the Zimbabwean Environmental Management Agency to
progress discussions and applications for the licences and permits.
These discussions have centred on establishing Monaf's regulatory
obligations and are ongoing.
Coal extraction and sales of coal from the open pit
Once the site preparation is complete, the company will commence
production of coking coal from the open pit in compliance with the
terms of SG 4686. Monaf shall use contract mining companies based
in Zimbabwe to carry out the extraction, for which the Directors
estimate the mining costs will be circa US$15 per tonne of coal
based on recent enquiries from mining contractors in Zimbabwe.
By renting the wash plant, the Company will, other things being
equal, be able to avoid the need for significant capital
expenditure on Lubu. The downside to this approach is that the
rental costs are likely to result in a higher production cost per
tonne of coal of US$15, however the economics of the operation are
estimated to cover this and the recently signed LOIs further
support this assertion.
Whilst the Directors currently take the view that it is optimal
to hire contractors rather than engage in the greater capital
expenditure required for owner-operated mining at the present time,
the Directors shall weigh-up the benefits of the contract-mining
versus the owner-operated mining approaches on a regular basis in
light of changing conditions.
The Board will review the appropriate time to initiate the
Bankable Feasibility Study following a period of sustained success
in Phase 1 operations. The likelihood of embarking on a much larger
development would increase in the event international funding is
made available for investment in power infrastructure.
Garalo Gold Mine
Post period end, in October 2020 the Company announced the
acquisition of the Garalo Gold Project in Mali for a consideration
of 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
its 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.
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.
Financial Review
Funding
During the year the Company was funded through cash raised from
the IPO.
Revenue
The Company generated no revenue during the year, however was
focussing on acquisition targets that will ultimately generate
revenue for the Company.
Expenditure
The Company has low ongoing overheads and devoted its cash
resources to the transactions costs and advancing certain funds to
Consolidated Growth Holdings in order to progress activities on the
Lubu Coalfield site.
Liquidity, cash and cash equivalents
At 31 May 2020, the Company held GBP10,430 (2019: GBP280,884).
However, the company relisted on the main market of the London
Stock Exchange on 18(th) June 2020 in conjunction with a capital
raise of GBP1.4 million. A further GBP1.8 million was raised in
October 2020. As disclosed in note 2 (b) the company will seek
further funding during the course of 2021 to fund its planned
capital expenditure.
Financial risk management objectives and policies
The Company's principal financial instruments comprise cash and
trade and other payables. It is, and has been throughout the year
under review, the Company's policy that no trading in financial
instruments shall be undertaken. The main risks arising from the
Company's financial instruments are liquidity risk, price risk and
foreign exchange risk. The board reviews and agrees policies for
managing each of these risks and they are summarised below.
Liquidity risk
Prudent liquidity risk management implies maintaining sufficient
cash reserves to fund the Company's exploration and operating
activities. Management prepares and monitors forecasts of the
Company's cash flows and cash balances monthly and ensures that the
Company maintains sufficient liquid funds to meet its expected
future liabilities. The Company intends to raise funds in discrete
tranches to provide sufficient cash resources to manage the
activities through to profitability.
Price risk
The Company is exposed to fluctuating prices of commodities,
including coal and gold, and the existence and quality of these
commodities within the licence and project areas. The directors
will continue to review the prices of relevant commodities as
development of the projects continue and will consider how this
risk can be mitigated.
Foreign exchange risk
The Company operates in a number of overseas jurisdictions and
carries out transactions in a number of currencies including
British pound sterling (currency symbol: GBP or GBPGBP) and United
States dollar (currency symbol: USD or US$). The Company does not
have a policy of using hedging instruments but will continue to
keep this under review. The Company operates foreign currency bank
accounts to help mitigate the foreign currency risk.
COVID-19 risk
The Company regards the health and safety of its employees and
contractors as its highest priority. This is especially so during
the current global COVID-19 outbreak. All Contango employees and
contractors follow the Company's strict protocols to reduce the
risk of transmission of COVID-19 across the Company's
operations.
The business and operations of the Company are subject to a
number of risk factors which may be sub-divided into the following
categories:
Exploration and development risks, including but not limited
to:
-- Mineral exploration is speculative and uncertain
-- Verification of historical washability analysis
-- Independent verification of internal resource estimation at Garalo
-- Mining is inherently dangerous and subject to conditions or
events beyond the Company's control, which could have a material
adverse effect on the Company's business
-- The volume and quality of coal recovered may not conform to current expectations
-- The extend and grade of gold mineralisation at Garalo may not conform to current expectations
Permitting and title risks, including but not limited to:
-- Licence and permits
-- The Company will be subject to a variety of risks associated
with current and any potential future joint ventures, which could
result in a material adverse effect on its future growth, results
of operations and financial position
Political risks, including but not limited to:
-- Political stability
-- Enforcement of foreign judgements
-- Potential legal proceedings or disputes may have a material
adverse effect on the Company's financial performance, cash flow
and results of operations
Financial risks, including but not limited to:
-- Foreign exchange effects
-- Valuation of intangible assets
-- The Company may not be able to obtain additional external
financing on commercially acceptable terms, or at all, to fund the
development of its projects
-- The Company will be subject to taxation in several different
jurisdictions, and adverse changes to the taxation laws of such
jurisdictions could have a material adverse effect on its
profitability
-- The Company's insurance may not cover all potential losses,
liabilities and damage related to its business and certain risks
are uninsured and uninsurable
Commodity prices, including but not limited to:
-- The price of coal may affect the economic viability of ultimate production at Lubu
-- The revenues and financial performance are dependent on the price of coal
-- The price of gold may affect the economic viability of ultimate production at Garalo
Operational risks, including but not limited to:
-- Availability of local facilities
-- Adverse seasonal weather
-- The Company's operational performance will depend on key
management and qualified operating personnel which the Company may
not be able to attract and retain in the future
-- The Company's directors may have interests that conflict with its interests
-- Risk relating to Controlling Shareholders
The Company's comments and mitigating actions against the above
risk categories are as follows:
Exploration and development risks
There can be no assurance that the Company's development
activities will be successful however significant exploratory work
has been conducted to date at Lubu and Garalo which supports the
Board's confidence that a profitable mining operation can be
developed.
Additionally, the phased development route which will be
employed at Lubu seeks to mitigate risks along the development life
cycle of the project.
Permitting and title risks
The Company complies with existing laws and regulations and
ensures that regulatory reporting and compliance in respect of each
permit is achieved. Applications for the award of a permit may be
unsuccessful. Applications for the renewal or extension of any
permit may not result in the renewal or extension taking effect
prior to the expiry of the previous permit. There can be no
assurance as to the nature of the terms of any award, renewal or
extension of any permit.
The Company regularly monitors the good standing of its
permits.
Political risks
The Company maintains an active focus on all regulatory
developments applicable to the Company, in particular in relation
to the local mining codes.
In recent years the political and security situations in
Zimbabwe and Mali have been particularly volatile.
Financial risks
The board regularly reviews expenditures on projects. This
includes updating working capital models, reviewing actual costs
against budgeted costs, and assessing potential impacts on future
funding requirements and performance targets.
Commodity prices
As projects move towards commercial mining the Company will
increasingly review changes in commodity prices so as to ensure
projects remain both technically and economically viable.
Operational risks
Continual and careful planning, both long-term and short-term,
at all stages of activity is vital so as to ensure that work
programmes and costings remain both realistic and achievable.
COVID-19 outbreak
In addition to the foregoing comments and mitigating actions
against the above risk categories the Company has implemented
various protocols in relation to the current COVID-19 outbreak.
Contango places the health and safety of its employees and
contractors as its highest priority. Accordingly, a business
continuity programme has been put in place to protect employees
whilst ensuring the safe operation of the Company.
Having spoken with, amongst others, local government, staff and
contractors, strict protocols have been implemented to reduce the
risk of transmission of COVID-19 at all the Company's
operations.
The situation in respect of COVID-19 is an evolving one and the
Board will continue to review its potential impact on its staff and
the business.
Directors' section s172 statement
The Board of Contango Holdings plc is aware that the decisions
it makes may affect the lives of many people. The Board makes a
conscious effort to try and understand the interests of the
Company's stakeholders, and to reflect them in the choices the
Board makes in creating long-term sustainable value for the
business.
The Board views engagement with the Company's shareholders and
wider stakeholder groups as essential work. The Board is aware that
it needs to listen to each stakeholder group, so that it can
understand specific interests, and foster effective and mutually
beneficial relationships. By understanding the Company's
stakeholders, the Board can build their needs into the decisions it
takes.
Throughout this Annual Report, the Board provides examples of
how Contango:
-- Considers the likely consequences of long-term decisions;
-- Fosters relationships with stakeholders;
-- Understands its impact on local communities and the
environment; and
-- Demonstrates the importance of behaving responsibly.
This section serves as Contango's section 172 statement and
should be read in conjunction with the Strategic Report and the
Company's Corporate Governance Statement. Section 172 of the
Companies Act 2006 requires Directors to act in a way that they
consider, in good faith, would most likely promote the success of
the Company for the benefit of its members as a whole, taking into
account the factors listed in s172 in regard to:
(a) the likely consequences of any decision in the long
term;
(b) the interests of the Company's employees;
(c) the need to foster the Company's business relationships with
suppliers, customers and others;
(d) the impact of the Company's operations on the community and the environment;
(e) the desirability of the Company maintaining a reputation for
high standards of business conduct; and
(f) the need to act fairly between members of the Company.
The Directors continue to have regard to the interests of the
Company's employees and other stakeholders, including the impact of
its activities on the community, the environment and the Company's
reputation, when making decisions. Acting in good faith and fairly
between members, the Directors consider what is most likely to
promote the success of the Company for its members in the long
term.
The Company is seeking to produce coal and gold to benefit our
employees, investors, communities and regional stakeholders. The
Board regularly reviews its principal stakeholders and how the
Board engages with them. The stakeholder voice is brought into the
boardroom throughout the annual cycle through information provided
by management and also by direct engagement with stakeholders
themselves. The relevance of each stakeholder group may increase or
decrease depending on the matter or issue in question, so the Board
seeks to consider the needs and priorities of each stakeholder
group during its discussions and as part of its decision
making.
The following table acts as Contango's s172(1) statement by
setting out the key stakeholder groups, their interests and how the
Company has engaged with them over the reporting period.
STAKEHOLDER THEIR INTEREST ENGAGEMENT METHOD
Investors
* Business sustainability * Annual and Interim reports
* High standard of governance * Regular operations and trading updates
* Comprehensive review of financial performance of the * RNS Announcements
business
* Investor relations section on website
* Ethical behaviour
* AGM
* Awareness of long term strategy and direction
* Shareholder circulars
* Continual approval of market perception of the
business
* Shareholder liaison through board
* Delivering long term value
* Board encourages open dialogue with the Company's
investors
* Social media
----------------------------------------------------------- ------------------------------------------------------------
Regulatory
bodies * Compliance with regulations * Stock Exchange announcements
* Worker pay and conditions * Annual Report
* Health & Safety * Website
* Waste and environment * Direct contact with regulators
* Insurance * Compliance update at Board meetings
* Environmental Protection * Communications with Zimbabwean and Malian Governments
* Engagement with local community leaders
----------------------------------------------------------- ------------------------------------------------------------
Environment
* Sustainability * Adhere to local environmental codes
* Waste Management
* Energy usage
----------------------------------------------------------- ------------------------------------------------------------
Community
* Community outreach * Meeting with key community representatives
* Human Rights * Partnering with communities in which we operate
* Sustainable growth minimising adverse impacts
----------------------------------------------------------- ------------------------------------------------------------
Contractors
and JV * Terms and conditions of contract * Anti-bribery policy
Partners
* Health & Safety * Whistleblowing policy
* Human rights and modern slavery
----------------------------------------------------------- ------------------------------------------------------------
Signed on behalf of the board of directors
Carl Esprey
Executive Director
20 November 2020
FINANCIAL STATEMENTS
Statements of Comprehensive Income
For the year ended 31 May 2020
Year ended Year ended
31 May 2020 31 May 2019
Notes GBP GBP
Administrative fees and other expenses 4 (258,027) (320,229)
--------------- --------------
Operating loss (258,027) (320,229)
Finance revenue - -
Finance expense - -
--------------- --------------
Loss before tax (258,027) (320,299)
Income tax - -
Loss for the year and total comprehensive loss for the year (258,027) (320,299)
--------------- --------------
Basic and diluted loss per Ordinary Share (pence) 5 (0.60) (0.75)
The notes to the financial statements form an integral part of
these financial statements.
Statements of Financial Position
For the year ended 31 May 2020
As at As at
Notes 31 May 2020 31 May 2019
GBP GBP
Current assets
Other receivables 9 403,163 31,311
Cash and cash equivalents 10 10,430 280,884
Total current assets 413,593 312,195
Current liabilities
Trade and other payables 11 435,173 75,748
-------------- --------------
Total current liabilities 435,173 75,748
Net (liabilities)/assets (21,580) 236,447
-------------- --------------
Equity
Share capital 7 429,500 429,500
Share premium 7 368,978 368,978
Warrant reserve 7 84,874 84,874
Retained earnings 7 (904,932) (646,905)
-------------- --------------
Total equity (21,580) 236,447
-------------- --------------
The notes to the financial statements form an integral part of
these financial statements.
This report was approved by the board and authorised for issue
on 20 November 2020 and signed on its behalf by:
....................................
Carl Esprey
Director
Statements of Changes in Equity
For the year ended 31 May 2020
Warrant Total
Share Capital Share premium Reserve Retained earnings Equity
GBP GBP GBP GBP GBP
Balance as at 31 May 2018 429,500 368,978 84,875 (326,676) 556,676
Loss for the year 31 May 2019 - - - (320,229) (320,229)
Balance as at 31 May 2019 429,500 368,978 84,874 (646,905) 236,447
-------------- -------------- ---------- ------------------ ----------
Loss for the year - - - (258,027) (258,027)
-------------- -------------- ---------- ------------------ ----------
Balance as at 31 May 2020 429,500 368,978 84,874 (904,932) (21,580)
-------------- -------------- ---------- ------------------ ----------
The notes to the financial statements form an integral part of
these financial statements.
Statements of Cash Flows
For the year ended 31 May 2020
Year Year
ended ended
Notes 31 May 2020 31 May 2019
GBP GBP
Operating activities
Loss after tax (258,027) (320,229)
Changes in working capital
(Increase)/decrease in trade and other receivables (371,852) (19,123)
Increase in trade and other payables (see reconciliation below) 359,425 (17,322)
------------- -------------
(Decrease) in Net cash from operating activities (270,454) (356,674)
Financing activities
Ordinary Shares issued (net of issue costs) 7 - -
------------- -------------
Net cash flows from financing activities - -
(Decrease)/Increase in cash and short-term deposits (270,454) (356,674)
Cash and short-term deposits as at the start of the period 280,884 637,557
Cash and short-term deposits at the end of the period 10,430 280,884
------------- -------------
The notes to the financial statements form an integral part of
these financial statements .
Reconciliation of Movements in Financial Liabilties
Classification 1 June 2019 Cash Flow Trade and Other Payables 31 May 2020
Trade Payables 35,350 (124,349) 295,193 206,194
------------ ---------- ------------------------- ------------
Accruals and Other Payables 40,398 (81,339) 269,920 228,979
------------ ---------- ------------------------- ------------
Total 75,748 435,173
------------ ---------- ------------------------- ------------
Notes to the Financial Statements
For the year ended 31 May 2020
1 General information
The Company was incorporated in England under the Laws of
England and Wales with registered number 10186111 on 18 May 2016.
All of the Company's Ordinary Shares were admitted to the London
Stock Exchange's Main Market and commenced trading on 1 November
2017. The company was re-registered as a public company under
Companies Act 2006 on 1 June 2017, by the name Contango Holdings
plc.
The Company's focus is to identify, acquire and scale projects
focused on mining. At present, the Company is looking to reverse a
mining asset into the Company. The Company had no employees during
the period other than the Directors.
2 Summary of Significant Accounting Policies
The Board has reviewed the accounting policies set out below and
considers them to be the most appropriate to the Company's business
activities.
a) Basis of Preparation
The Company Financial Information has been prepared in
accordance with and comply with IFRS as adopted by the European
Union, International Financial Reporting Interpretations Committee
interpretations and the Companies Act 2006. The financial
statements have been prepared under the historical cost convention
as modified for financial assets carried at fair value.
At the date of authorisation of these financial statements.
certain new standards, amendments and interpretations to existing
standards have been published but are not effective, and have not
been adopted early by the Company. The Directors anticipate that
all of the pronouncements will be adopted in the Company's
accounting policies for the first period beginning on or after the
effective date of the pronouncement.
The Company has not early adopted amended standards and
interpretations which are currently in issue but not effective for
accounting periods commencing after 1 June 2019 as adopted by the
EU. The Directors do not anticipate that the adoption of standards
and interpretations will have a material impact on the Company's
financial statements in the periods of initial application.
The financial information of the company is presented in British
Pound Sterling ("GBP").
b) Going concern
The company has raised finance post year end to fund the
acquisitions and development expenses. The company projects that it
will need to raise further debt or asset finance of approximately
$4m to fund the planned development expenditure over the period to
December 2021. The directors believe that this will bring the
projects to production and cash generation however due to the
inherent uncertainties associated with the development of mining
assets neither this, nor the raising of the finance, can be
guaranteed. Whilst the directors are confident they will be able to
realise the additional finance required, based on their recent
experience of raising money in the Covid-19 environment, this is
not guaranteed and hence there is a material uncertainty in respect
of going concern. However, the directors have, at the time of
approving the financial statements, a reasonable expectation that
the Company will have adequate resources to continue in operational
existence for the foreseeable future, which is defined as twelve
months from the signing of this report. For this reason, the
directors continue to adopt the going-concern basis of accounting
in preparing the financial statements.
In making this assessment the directors have considered current
and developing impact on the business as a result of the COVID-19
virus. Whilst this has not had an immediate impact on the group's
operations, it is not anticipated to have any significant impact
given the relatively limited activities of the group. The directors
are aware that if the current situation becomes prolonged then this
may need to be re-evaluated.
c) Standards and interpretations issued but not yet applied
At the date of authorisation of this Document, the Directors
have reviewed the accounting standards in issue by the
International Accounting Standards Board and the International
Financial Reporting Interpretations Committee, which are effective
for annual accounting periods ending on or after the stated
effective date. In their view, none of these standards would have a
material impact on the financial reporting of the Company.
d) Taxation
The tax currently payable is based on the taxable profit for the
period. Taxable profit differs from net profit as reported in the
income statement because it excludes items of income or expense
that are taxable or deductible in other periods and it further
excludes items that are never taxable or deductible. The Company's
liability for current tax is calculated using tax rates that have
been enacted or substantively enacted by the reporting date.
Deferred income tax is provided for using the liability method
on temporary timing differences at the balance sheet date between
the tax basis of assets and liabilities and their carrying amounts
for financial reporting purposes. Deferred income tax liabilities
are recognised in full for all temporary differences. Deferred
income tax assets are recognised for all deductible temporary
differences carried forward of unused tax credits and unused tax
losses to the extent that it is probable that taxable profits will
be available against which the deductible temporary differences,
and carry-forward of unused tax credits and unused losses can be
utilised. The carrying amount of deferred income tax assets is
assessed at each balance sheet date and reduced to the extent that
it is no longer probable that sufficient taxable profits will be
available to allow all or part of the deferred income tax asset to
be utilised. Unrecognised deferred income tax assets are reassessed
at each balance sheet date and are recognised to the extent that is
probable that future taxable profits will allow the deferred income
tax asset to be recovered.
e) Financial Instruments
The Company applied IFRS 9 for the first time in the prior year
financial statements. IFRS 9 sets out requirements for recognising
and measuring financial assets and financial liabilities and
replaces IAS 39 Financial Instruments: Recognition and
Measurement.
The company has applied the new standard with effect from 1
January 2018. There has been no impact on opening equity. This has
not lead to any changes in the basis of the measurement categories
of either financial assets or financial liabilities. The
comparative period have not been restated and reflect the
requirements of IAS 39.
Financial Assets
On initial recognition, a financial asset is classified as
measured at amortised cost, fair value through other comprehensive
income (FVTOCI) or fair value through profit or loss (FVTPL).
As at the reporting date the Company holds no financial assets
other than cash and the loan to Consolidated Growth Holdings
Ltd.
f) Financial liabilities and equity instruments
Classification as debt or equity
Financial liabilities and equity instruments issued by the
company are classified according to the substance of the
contractual arrangements entered into and the definitions of a
financial liability and an equity instrument.
Equity instruments
An equity instrument is any contract that evidences a residual
interest in the assets of the company after deducting all of its
liabilities. Equity instruments are recorded at the proceeds
received, net of direct issue costs.
Financial liabilities
Financial liabilities are classified as either financial
liabilities at fair value through profit or loss or financial
liabilities measured at amortised cost.
Financial liabilities are classified as at fair value through
profit or loss if the financial liability is either held for
trading or it is designated as such upon initial recognition
Other financial liabilities
Trade and other payables are initially measured at fair value,
net of transaction costs, and are subsequently measured at
amortised cost, where applicable, using the effective interest
method, with interest expense recognised on an effective yield
basis.
Warrants
Warrants classified as equity are recorded at fair value as of
the date of issuance on the Company's Balance Sheet and no further
adjustments to their valuation are made. Management estimates the
fair value of these liabilities using option pricing models and
assumptions that are based on the individual characteristics of the
warrants or instruments on the valuation date, as well as
assumptions for future financing, expected volatility, expected
life, yield, and risk-free interest rate.
g) Derecognition of financial liabilities
The company derecognises financial liabilities when, and only
when, the company's obligations are discharged, cancelled or they
expire.
h) Financial Risk Management Objectives and Policies
The Company's major financial instruments include bank balances,
trade payables and accruals. Details of these financial instruments
are disclosed in respective notes. The risks associated with these
financial instruments, and the policies on how to mitigate these
risks are set out below. The management manages and monitors these
exposures to ensure appropriate measures are implemented on a
timely and effective manner.
Liquidity Risk - the Company raises funds as required on the
basis of budgeted expenditure and inflows. When funds are sought,
the Company balances the costs and benefits of equity and debt
financing.
3 Critical accounting estimates and judgements
The preparation of financial statements in conformity with IFRS
requires management to make estimates and assumptions that affect
the reported amounts of income, expenditure, assets and
liabilities. Estimates and judgements are continually evaluated,
including expectations of future events to ensure these estimates
to be reasonable.
The estimates and associated assumptions are based on historical
experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the
basis of making the judgements about carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
The Company's nature of operations is to act as a special
purpose acquisition company.
Going concern is assessed to be a significant judgement which is
detailed in accounting policy note 2 (b)
4 Loss before taxation
Loss before income tax is Year Year
stated after charging: ended ended
31 May 2020 31 May 2019
GBP GBP
Directors' remuneration 72,000 48,000
Fee payable to the Company's
auditor for the audit of the
company's annual accounts 15,250 16,800
Fee payable to the Company's
auditor in respect of all
other non-audit services 5,113 60,750
The Company did not employ any staff during the period under
review other than the Directors. The Directors are the only members
of key management and their remuneration related solely to
short-term employee benefits.
5 Loss per Ordinary Share
The calculation of the basic and diluted loss per Ordinary Share
is based on the following data:
Year Year
ended ended
31 May 31 May
2020 2019
Earnings
Loss from continuing operations for the period attributable to the equity holders of the
Company (258,027) (320,229)
Number of Ordinary Shares
Weighted average number of Ordinary Shares for the purpose of basic and diluted earnings
per
Ordinary Share (number) 42,949,987 42,949,987
----------- -----------
Basic and diluted loss per Ordinary Share (pence) (0.60) (0.75)
----------- -----------
There are no potentially dilutive Ordinary Shares in issue.
6 Income tax
Corporation tax is calculated at 19% of the estimated taxable
loss for the period.
As the Company continues to be non-trading, no account has been
made for Corporation Tax nor for Deferred Tax in the year ended 31
May 2020. The Company also believes there are no accumulated losses
to be carried forward. The Board believes that the previously
reported losses in the year ended 31 May 2019 may not be
recoverable against future gains.
7 Share capital
Number of Share Share Warrants Total
Ordinary Capital Premium Reserve Share
Shares Capital
issued
and fully
paid
GBP GBP GBP GBP
---------------------- ------------------- ------------------- -------------------- -------------------
As at
31
May
2019
and
2020 42,949,987 429,500 368,978 84,874 883,352
---------------------- ------------------- ------------------- -------------------- -------------------
The Ordinary Shares issued by the Company have par value of 1p
each and each Ordinary Share carries one vote on a poll vote. The
Authorised share capital of the company is GBP5,000,000 ordinary
shares at GBP0.01 per share resulting in 500,000,000 ordinary
shares.
On 18 June 2020 Consolidated Growth Holdings were paid for their
70% shareholding in the Lubu project with the issue of 128,849,961
new shares in Contango Holdings. In the associated placing 28
million new ordinary shares were issued along with 3,333,330 bonus
shares for the Contango directors. This increased the total number
of shares in issue to 203,133,278.
On 5 August 500,000 warrants were exercised.
On 19 October Contango announced that it had issued 36 million
new ordinary shares in a placing. This increased the total number
of shares in issue to 239,633,278. See Note 12.
Explanation of Reserves
Share Capital - Represents the nominal value of ordinary shares
issued.
Share Premium - Represents the amount in excess of nominal value
received from the issue of ordinary shares.
Warrant reserve - Is used to recognise the fair value of the
issuance of warrants , net of issue costs. This will be transferred
to the share capital/premium reserves upon the exercise of the
warrants.
Retained Earnings - Reflects the entity's accumulated earnings
recognised in the statement of financial position.
8 Financial instruments
As at As at
31 May 31 May
2020 2019
GBP GBP
Financial assets
Cash and cash equivalents 10,430 280,884
Loan to CGH 392,331 -
Financial liabilities
At amortised cost 435,173 75,748
9 Other receivables
2020 2019
GBP GBP
Prepayments 10,832 31,311
Loan to Consolidated Growth Holdings
Ltd (CGH) 392,331
403,163 31,311
============= ==========
The loan was made to CGH to fund ongoing exploration work at the
Lubu coal project in Zimbabwe whilst the acquisition was being
considered by the UK Listing Authority (see Note 12). Had the
transaction not gone ahead the loan would have been repayable by
CGH by the end of 2020. On completion of the transaction in June
2020 the balance was considered to be part of the purchase
consideration and hence will be classified as investments and a
non-current asset. When assessing the asset for impairment
Management have considered the overall carrying value of the assets
acquired as the loan has funded their development.
10 Cash and Cash Equivalents
2020 2019
GBP GBP
Cash at Bank 10,430 280,884
============ ==========
11 Trade and other payables
2020 2019
GBP GBP
Trade payables 206,194 35,350
Accruals and other payables 228,979 40,398
435,173 75,748
============= ==============
12 Events after the reporting date
The acquisition of the Lubu coalfield project by the company
took place on the 18 June 2020 and the company's shares were
readmitted for trading on the London Stock Exchange. The company's
shares had been suspended on 22 December 2017 when it was announced
that it had signed a memorandum of understanding with CGH and
entered into an exclusivity period with regards to the possible
acquisition of Monaf, a company incorporate in Zimbabwe which holds
the Lubu Coalfield. Dealings in the Company's Ordinary Shares were,
accordingly, suspended pending the publication of a prospectus in
relation to this transaction. The company acquired 70% of the
shares of Monaf, which holds the Lubu Coalfield project, with the
issue of 128,849,961 new shares in Contango Holdings and the
payment of GBP392,331 in cash which had already been advanced to
the vendor, Consolidated Growth Holdings (see note 9). This
represents 63.4% of the enlarged share capital of Contango. In the
associated placing 28 million new ordinary shares were issued and a
total of GBP1.4m (before costs) was raised at this date.
The preliminary assessment of the assets acquired on acquisition
of Monaf is:
GBP
Intangible assets - mining rights 9,823,084
------------
Trade and other payables (59,000)
------------
Non-controlling interest (2,929,255)
------------
Purchase consideration 6,834,829
------------
If the acquisition had occurred at the beginning of the
accounting period no additional revenue would have been recognised
and the reported loss would have increased by an estimated
GBP127,000.
The above disclosure assumed the acquisition of Monaf will be
accounted for as an acquisition under IFRS 3. Management are,
however, still reviewing the details of the transaction and in
particular whether it meets the definition of a reverse acquisition
under IFRS 3. This involves an analysis of the legal agreements and
in particular the Relationship Agreement which governs the
relationship between the company and Consolidated Growth Holdings,
its majority shareholder. This analysis is still ongoing. If the
transaction were accounted for as a reverse acquisition the assets
of Monaf would be recognised at book value (limited to the
GBP59,000 value of trade payables) and the assets of Contango fair
valued. The difference to the purchase consideration would be
recognised in reserves.
On 19 October 2020 Contango announced that it had issued 36
million new ordinary shares in a placing that raised GBP1.8m
(before costs). On the same date the company announced that it had
bought a 75% stake in the Garalo gold mining project in Mali for
$1m.
13 Related Party Transactions
All directors hold shares and warrants as disclosed on pages 16
and 17 in the Directors' Remuneration Report. Neal Griffiths and
Oliver Stansfield are Directors of both Brandon Hill Capital and
the Company. Brandon Hill Capital acts as the broker to the Company
and are paid an annual retainer of GBP35,000 per annum
As at 31 May 2020 an amount of GBP252,665 (2019: nil) was due to
the directors of the company. This amount is included in trade and
other payables. Subsequent to the year-end GBP162,000 of this
balance was converted into equity and the remainder repaid.
14 Warrants
During the year ended 31 May 2020 the Company renewed the
following warrants (originally due to expire on 31 October 2019) to
subscribe for shares:
Warrant exercise Number of warrants Vesting Expiry Fair value
granted Date Date of individual
option
Price 18,666,667 31 Oct
2021
GBP0.03 11,666,650 26 Oct 31 Oct GBP0.0026
2017 2021
GBP0.05 30,333,317 1 Nov
Total granted during 2017 GBP0.0032
the year ended 31
May 2020
No warrants have been exercised in the Company.
* ENDS *
For further information, please visit
www.contango-holdings-plc.co.uk or contact:
Contango Holdings plc E: info@contango-holdings-plc.co.uk
Carl Esprey
Brandon Hill Capital Limited T: +44 (0)20 3463 5000
Financial Adviser & Broker
Jonathan Evans
St Brides Partners Ltd E: info@stbridespartners.co.uk
Financial PR & Investor Relations
Susie Geliher / Cosima Akerman
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