PERTH (miningweekly.com) – A feasibility study into the New Elk coking coal project, in Colorado, has estimated that the $28.4-million project could produce some 2.7-million tonnes a year of run-of-mine coal, and two-million tonnes a year of saleable coal.

ASX-listed Allegiance Coal on Thursday said that the study estimated that the project would have a mine life of 23 years, based on a total resource of 267.6-million tonnes.

The study estimated a pre-tax net present value of A$1.2-billion and an internal rate of return of 130%, generating annual revenues of A$370-million and average annual earnings before interest, taxes, depreciation and amortization of A$153-million.

“The feasibility study results in relation to a high productivity room and pillar underground mining operation are truly outstanding. What appealed to the board at the outset of this asset is its scale,” said Allegiance chairperson and MD Mark Gray.

He said that the scale allowed the development of a mine plan minimising out-of-seam dilution by setting a high minimum coal seam height of four foot, while still allowing a large resource base to design an efficient mine plan.

“Avoiding significant out-of-seam dilution resulted in an average yield of 72% which is very high compared to most US coking coal mines and sets this mine apart. The board now intends to expedite acquisition of the project, with a target of returning the mine to production in mid-2020.”

Allegiance in July this year entered into an one-year option agreement to acquire the New Elk project from New Elk Coal Company. The mine has been on care and maintenance since 2012, following the fall in coking coal prices and the subsequent bankruptcy of New Elk’s shareholder Cline Mining Corporation.

Allegiance would acquire New Elk Coal Company for $1, and would take over debt owing to Cline of C$55-million.  An initial $3-million will become payable on the completion of the acquisition, with a further $3-million worth of Allegiance shares issued at the same time.

A further $5-million will be paid to replace the Colorado State Mine reclamation bond, with the balance of the debt to be repaid from an agreed percentage of mine operating cash flows.