The LoI, which is the first step to advance formal talks, is between Contango arm Monaf and South Mining, and involves a commitment for at least 30,000 tonnes of raw coal each month from Lubu, which is located in the Karroo Mid Zambezi coal basin in the established Hwange mining district.
South Mining has itself committed to producing 420,000t of coking coal from a new battery oven, also located in the Hwange district.
Offtake pricing will be based on its forthcoming negotiations as well as prevailing market conditions.
"The LoI has been entered into despite a period of lockdown in Zimbabwe and follows work undertaken by Contango in 2019 and 2020 to clearly identify the characteristics of Lubu coal," Contango executive director Carl Esprey said. He added that this contract will give the producer enough cash flow for a contract mining agreement.
Contango is targeting the fourth quarter of this year to commission Lubu. Its met coal is expected to be sold on the South African industrial market, and thermal to be provided to regional power companies.