British buyers seek Zimbabwean coal to plug energy supply gaps

By David Whitehouse
Posted on Wednesday, 6 July 2022 08:12

Heated coke is transported to be quenched by water at the SSI steel plant at Redcar
Heated coke is transported to be quenched by water at the SSI steel plant at Redcar REUTERS/Nigel Roddis

British energy users are seeking off-take agreements to purchase coal from a project in Zimbabwe as the Russia-Ukraine war prompts a search for alternative supplies.

The coal mining company Contango, which has a 70% interest in the Lubu coal project in north-western Zimbabwe, is getting off-take proposals from industrial users, including from the UK, executive director Carl Esprey tells The Africa Report.

Record gas prices are depressing global demand and causing users to switch to coal, while sharp cuts in Russian gas flows to Europe are raising alarms about supplies ahead of the winter, the International Energy Agency said on 5 July.

Russian imports accounted for 27% of British coal use in 2021. The UK has banned the import of Russian coal, and the European Union’s ban will take effect from August. The British government has said that some coal-fired power plants slated for closure in 2022 may need to stay open to ensure electricity supply.

The British idea is for the coal to be transported to the port of Maputo in northern Mozambique for shipping. Esprey says he is “agnostic” on the proposal, adding that higher margins are available by selling the coal in the Southern Africa region. “The logistics cost more and more,” for northern hemisphere clients, he says.  “It just seems an awful long way.”

The company’s stated aim is to sell coke, which is distilled from coal, for the Southern African ferro-alloy and industrial markets. Even if Contango is willing to sell coal further afield, British users would face competition.

  • Contango signed an initial off-take agreement with South African coal trader AtoZ Investments, which was announced in June.
  • Contango has received further interest, including from Bulgaria and Georgia. “There’s no shortage of off-takers at this point.”

Coking factories

World Bank economists Justin-Damien Guénette and Jeetendra Khadan forecast in June that coal prices will climb by 81% in 2022. The combined increase in oil, natural gas and coal prices could reduce global growth by 0.5 percentage points in 2022 and a further 0.3 of a point in 2023, the economists predicted. Policy-makers should respond by accelerating the transition to low-carbon energy sources, they argue.

The coal resource identified at Lubu exceeds 1.3bn tonnes. Though mining has started, the mine is not yet fully built, with completion scheduled for the third or fourth quarter. The current plan is to move the coal by truck for use in South Africa. New funding from an off-taker, Esprey says, could be used to take over a rail siding and get carriages for rail transport to Maputo port, or Richards Bay in South Africa.

Contango, which trades on the London Stock Exchange, plans to build a coke factory at Lubu and already has a small test plant. The company is looking for off-take partners to help get it built. Contango could build a modular, Chinese-style factory that would cost about $8m.

  • Ultimately, Esprey says, Lubu could justify three or four such factories, each with capacity of 150,000tn, which would give individual off-takers a dedicated coke supply.
  • “Our resource base could handle a large expansion.”

The bottom line

The global energy squeeze puts resource holders such as Contango in a strong position to secure funding for project development.

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