Contango seeks partners for Garalo gold project

Discussions over Garalo have been moving forward, leading to confidence that a deal can be reached in the next few months, Esprey says.

The “ideal” scenario, he says, would be to find a specialised exploration company to develop the resource. Contango plans to keep a stake in the project once an agreement is reached.

The project occupies 62.5 square kilometres in the Sikasso region of southern Mali, close to the border with Guinea and about 200km southeast of the capital Bamako. Contango said in March that the project has a targeted resource of 1.8m to 2m ounces of gold.

The company, which has a market cap of about 20m pounds, said in February that it had approaches from potential domestic and international investors for the project.

The aim of bringing in a partner, Esprey says, is to “minimise the monthly exploration burn” from the project. The company’s cash stood at 2.4m pounds in November 2021.

Signs of a thawing in Mali’s international isolation after a 2021 military coup may make it easier to secure interest. The Economic Community of West African States (ECOWAS) at the start of July lifted sanctions imposed after military rulers proposed a two-year transition to democracy, with a deadline for elections set for February 2024.

• Executives such as Danny Callow of Canadian junior miner African Gold have said that the military regime is accessible and easy to work with – adding that poor electrical infrastructure in southern Mali means that tying into the national grid is not a feasible solution for its planned Kobada gold mine.

Infrastructure challenges

Lack of infrastructure is an obstacle that the Garalo project will have to overcome. Though the main highway, Route National 9, runs through Bamako and Garalo, most major roads in the region are unpaved and tertiary roads are little more than tracks, according to an independent technical report on the project in 2021. The report noted limited power and water availability in the area, though the mobile network and Internet were reliable over most of the exploration area.

Bringing in a partner would enable Contango to concentrate on its other asset, the Lubu coal project in Zimbabwe. Esprey is open to the possibility of investing in other projects in west or southern Africa in minerals which are complementary to coal. They would need to be “not hugely capital intensive” and close to reaching production, he adds.

The priority will be to pay a first dividend to shareholders.

• That should be possible, Esprey says, once the Lubu coal mine in Zimbabwe starts to generate free cashflow, which is projected to happen during 2023.
• “We are very focused on getting that first dividend.”

Bottom line

Contango sees its future as a dividend-paying developer of African coal resources.