Aim-listed Edenville Energy's share price jumped by 30.7% on Wednesday morning following the company's announcement that it has signed two new significant contracts to supply washed coal from the company’s flagship Rukwa coal project, in western Tanzania.
The two contracts are for the supply of up to 6 000 t and up to 3 000 t, respectively, of washed coal a month to industrial customers in Rwanda and Uganda.
The up to 6 000 t a month supply contract has been signed with Rwandan company Tara Group, a wholly owned subsidiary of Tanzanian company Kitanyoe Group, which currently supplies coal, gypsum, limestone and calcite to industrial users.
The end-user for the company's coal is expected to be a major cement manufacturer in Rwanda.
The up to 3 000 t a month contract has been signed with Ugandan company Springwood Capital, with the expected end-user being a Kampala-based steelworks. As with the Tanzanian agent, Springwood supplies limestone, gypsum, calcite and iron-ore to consumers in Uganda and Kenya.
The Rwanda contract is of particular importance for the Rukwa project as it has the potential to open up a major new transport route for the company's coal on Lake Tanganyika to both Rwanda and Burundi, Edenville said on Wednesday, highlighting that this route was shorter than conventional truck transport and more cost-effective, using low-cost barge transport.
The two new contracts will account for about 75% of the current capacity of the recently refurbished wash plant at Rukwa. The new contracts will also complement the existing long-term contracts, Edenville said.
The progression of these supply arrangements was, however, dependent on the company securing sufficient operating capital to fund production, Edenville announced last month.
In this regard, discussions with the potential strategic investor in the project are progressing and a second investor has expressed interest in becoming involved with the company as a strategic shareholder at the company level, Edenville elaborated.
While there is currently no certainty that these negotiations will lead to a successful outcome for Edenville, the statement on Wednesday said the company believes the two new contracts increase the attractiveness of both the project and the company for potential investors.
Assuming sufficient working capital is available, Edenville expects to be in a position to supply coal on an ongoing basis under these contracts before the end of the first quarter of 2020.
Edenville expects cashflow breakeven at Rukwa at around 4 500 t of washed coal sold monthly and has a target of achieving this by May 2020.
These contracts represent “an important first step,” CEO Alistair Muir commented.
Since opening up the Northern mining area earlier this year, the company has expanded its marketing efforts in the countries to the north of Tanzania, in particular Uganda, Rwanda, and Burundi, where Edenville's directors believe the company has a competitive advantage over other Tanzanian coal producers, many of whom are located up to 700 km further south of Rukwa.