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Allegiance buys idled New Elk coal mine in Colorado

22nd January 2020

By: Esmarie Iannucci

Creamer Media Senior Deputy Editor: Australasia

     

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PERTH (miningweekly.com) – Junior Allegiance Coal has formalised an agreement with Cline Mining to acquire New Elk Coal Company, which owns the New Elk hard coking coal project, in Colorado.

The two companies last year struck a one-year option agreement allowing Alliance to acquire the mine, which had been on care-and-maintenance since 2012, following the fall in coking coal prices and the subsequent bankruptcy of Cline Mining.

Under the terms of the agreement, Allegiance will now pay Cline a purchase price of $1 and would arrange for an initial debt repayment comprising $5-million in cash to replace thesState of Colorado’s reclamation bond relating to the mine, a further $3-million in cash and $3-million in Allegiance shares.

Following the initial debt repayment, a further $30-million of debt will remain owing, which will be repaid by Cline receiving 60% of New Elk Coal’s retained earnings after New Elk Coal made provisions for any preferred debt payments and obligations, along with sustaining capital and working capital, until the Cline loan is repaid in full.

The acquisition is conditional only on Allegiance raising the mine startup capital, which has to occur prior to July 15, with the company continuing to pay $150 000 per month towards care-and-maintenance costs.

A previously completed feasibility study into the New Elk project estimated that $28.2-million would be required to restart production at a rate of 2.7-million tonnes a year run-of-mine coal, and 2-million tonnes a year of saleable coal. The project’s mine life has been estimated at 23 years, based on a total resource of 267.6-million tonnes.

“The mine is permitted, and it is built. To construct the mine today would require at least $250-million in capital. The acquisition terms represent a wonderful opportunity for Allegiance,” said chairperson and MD Mark Gray.

Edited by Creamer Media Reporter

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