PERTH (miningweekly.com) – Junior Allegiance Coal has struck a non-binding memorandum of understanding (MoU) to acquire additional coal resources adjacent to the New Elk hard coking coal mine, in Colorado.
The Lorencito property is estimated to host an additional 87.6-million tonnes of hard coking coal, and could increase the resource base at New Elk from 656-million tonnes to 744-million tonnes.
Allegiance told shareholders that the Lorencito property offered very low capital cost access to additional coal, and created blending opportunities to consistently deliver a premium hard coking coal to the seaborne market.
While the property was currently not permitted for production, it was estimated that the permits to mine could be obtained within a two-year period.
Allegiance and the seller would now work towards commercial terms for the acquisition of the asset, with the aim of completing binding agreements by January next year.
Under the terms of the proposed agreement, Allegiance would pay an initial $500 000 up front on the completion of a feasibility study, a further $1-million on securing permits to mine the coal at Lorencito and a further $2-million on the production of the first one-million tonnes of clean coal.
A production royalty would also become payable to the seller, along with a 2.5% equity stake in the owner of the New Elk mine, once the Lorencito asset is in production. This stake would be non-dilutionary up to a capital cost requirement to reach three-million tonnes a year of saleable coal production.
Allegiance in July this year entered into a 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.