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Allegiance Amends New Elk Agreement



By Esmarie Iannucci


June 5, 2020 - Australia's Allegiance Coal has struck an agreement with Canada's Cline Mining Corporation to accelerate the completion of Colorado's New Elk hard coking coal project acquisition, amending the terms of the original understanding.

Allegiance on Friday said that 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 would 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 would also include a further $3 million in cash.

Furthermore, 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,” said Allegiance chairperson and MD Mark Gray.

“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 that research analysis tells us demand for hard coking coal will exceed supply, resulting in stronger prices, is less than a year away.”