PERTH (miningweekly.com) – Coal miner Allegiance Coal has secured a $40-million loan and an up to 40 000 t/m offtake agreement with New York-based financier Marco.
The offtake agreement will run for a period of 12 months, starting in October, and Marco will have the right to extend the contract for another year, and at the expiry of the second year, for a possible third year.
The price for the coal for the term of the contract has been set at $220/t, and Allegiance has the right in each renewable period to reduce the offtake by 10 000 t/m for the new term.
A blend of coal from the New Elk and Black Warrior mines would be used to deliver into the offtake agreement, which is anticipated to leave surplus coal which will be sold into the spot market.
Meanwhile, the term sheet for the $40-million loan signed with Marco will have a three-year term and an interest rate of 14% a year on the outstanding principal amount, payable in monthly arrears.
Alliance told shareholders on Monday that $25-million of the loan will be used to repay the Collins Street convertible note, with a further $3-million going towards equipment at the New Elk and Black Warrior mines, and a further $12-million towards working capital.
Allegiance in July launched a strategic review of its portfolio management and ongoing liquidity requirements, given the performance of its operating mines in the US, saying the company had been unable to successfully ramp up production to previous expectations at its two operating mines, and had been unable to secure medium term equipment financing at both Black Warrior and New Elk, which has driven lower-than-expected performance. ‘
Allegiance on Monday said that the results of the strategic review will see the company continue to optimise performance at both mines simultaneously, and to reduce expenditure on Tenas, to simplify managing the environmental assessment review process, and to delay the independent feasibility study on the Short Creek underground mine, until the acquisition of the Short Creek asset was complete.
The board of Allegiance is, meanwhile, considering additional equity raising activities to complete the funding package to optimise its portfolio of assets.
In the meantime, Allegiance is hoping to reach steady-state production at both New Elk and Black Warrior by the end of the December quarter, relying on the Marco offtake contract and loan for capital investment and working capital.