Name of the Project
New Elk coking coal project.

Location
The project is located in south-east Colorado, in the US.

Project Owner/s
Allegiance Coal entered into binding agreements to acquire New Elk in January 2020, on condition it raises the startup capital required by July 14, 2020.

Project Description
Following the results of the New Elk feasibility study announced in November 2019, Allegiance has updated the study, simplifying the mine plan in the early years of production to reduce startup and sustaining capital.

The project’s total Joint Ore Reserves Committee-compliant coal resources of 267.6-million tonnes have remained the same, while saleable coal reserves have decreased from 45-million tonnes in the feasibility study to 23-million tonnes in the updated study.

Based on the updated coal reserves, the project’s mine life has decreased from 23 years to 15 years, and saleable coal production from two-million tonnes to 1.4-million tonnes.

Coal will be mined using continuous miners adopting the place change room-and-pillar method.

Rehabilitation and operating plans for the coal handling preparation plant, which has a nameplate feed rate of 727 t/h, have remained unchanged under the updated study.

Potential Job Creation
An estimated 210 jobs are expected to be created.

Net Present Value/Internal Rate of Return
The project’s net present value has decreased from A$1.17-billion, at an 8% discount rate in the feasibility study, to A$560-million at an 8% discount rate in the updated study. The internal rate of return has decreased from 130% to 121%.

Capital Expenditure
The updated study has resulted in a reduction in startup capital, including working capital, from $56-million to $40-million.

Planned Start/End Date
The company hopes to start production at the mine by the first quarter of 2021.

Latest Developments
Allegiance Coal has struck an agreement with Cline Mining Corporation to accelerate the completion of the New Elk hard coking coal project acquisition, amending the terms of the original understanding.

The up-front cash payment required has now been reduced from $8-million to $3-million, while Cline has also waived the condition precedent requiring Allegiance to raise the mine startup capital.

The necessary startup capital is estimated to be about $24-million.

In return, the settlement of Cline’s debt will be accelerated, with Allegiance to take over the care and maintenance costs of the mine from August 2019, comprising $150 000 of monthly payments, and the payment of about $5-million in cash to replace the reclamation bond in place for the mine with the state of Colorado.

The debt will also include a further $3-million in cash.

Further, Allegiance will issue $3-million worth of fully paid ordinary shares in the company, with the debt repayment shares to be subject to a voluntary 12-month escrow.

The remaining debt will be repaid to Cline on a quarterly basis from cashflow generated by New Elk after making provision for working and sustaining capital, and scheduled repayments of preferred debt, but prior to any cash distribution to Allegiance shareholders.

“The pathway to completion is now clear, allowing us to focus on raising the startup capital in the comfort and knowledge that we own the mine,” Allegiance chairperson and MD Mark Gray has said.

“While the date to return the mine to production has slipped, due mainly to Covid-19, our target production start date of the first quarter of next year – a time during which that research analysis tells us, demand for hard coking coal will exceed supply, resulting in stronger prices – is less than a year away.”

Key Contracts and Suppliers
Stantec (updated study) and Performance Industries (coal handling preparation plant review).

Contact Details for Project Information
Allegiance Coal, tel +61 2 9233 5579 or email info@allegiancecoal.com.au.