Zimbabwe coal project developer to use funds to clear all debt
Shares in Contango Holdings (LSE:CGO) jumped 42% to 1.14p on Friday after the company announced a proposed £5 million subscription from two strategic investors.
The AIM-listed company, which is focused on the Muchesu coal project in Zimbabwe, will issue approximately 450 million new shares at 1.11p each to Pacific Goal Investments and Huo Investments.
The subscription price represents a 39% premium to the mid-market closing price on 12 February.
Pacific Goal Investments, which currently operates the Muchesu mine, will subscribe for approximately £4 million and become Contango's largest shareholder with a 29.7% stake.
Huo Investments, already a major shareholder, will invest approximately £1 million to maintain its percentage ownership at 20.4% of the enlarged share capital.
The funds will be deployed to repay all outstanding debt, including previously reported shareholder loans, leaving the company debt-free.
The subscription is subject to a waiver of Rule 9 of the Takeover Code, which typically requires a mandatory offer when investors acquire 30% or more of a company's shares, and approval at a general meeting.
Danny dos Santos, chief executive, said the deal would recapitalise the company and put it in a position to pay dividends to shareholders as royalty income grows at Muchesu.
The Muchesu project contains reserves of more than 2 billion tonnes of coal.