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Allegiance Coal to acquire Short Creek Underground mine

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World Coal,

Allegiance Coal Limited has announced the acquisition of the Short Creek Mine located 25 km west of Birmingham, Alabama, and 27 km southwest of the Black Warrior Mine (acquisition).


  • Allegiance has entered into an agreement with Drummond Coal Inc. (and related entities) to acquire the Short Creek Mine located west of Birmingham, Alabama.
  • The mine is a tier 1 asset, a deposit with scale and premium hard coking quality coal, that consolidates and complements Allegiance’s investment in Alabama and Colorado.
  • The acquisition will complete upon Marshall Miller & Associates delivering a JORC compliant resource statement and upon completion of the transfer of land and fixed assets, existing permits, and the coal lease to the Mary Lee, Blue Creek and Newcastle coal seams.
  • While mine permits exist and are in good standing for opencast production and the operation of the wash-plant and the barge load-out, Allegiance will have to permit the underground mine estimated to take 6 – 9 months after completion of the acquisition.
  • The acquisition from Drummond involves:
    • The purchase of the land over the deposit, the fixed assets (primarily a CHPP, a barge loadout, conveyors and stackers), and all existing permits to operate.
    • The lease of the mineral rights to the Mary Lee, Blue Creek and Newcastle seams under the land for up to 23 years, in consideration for the payment of royalties ranging from 7 – 10% based on a sliding scale of the FOB sales price achieved.
  • The acquisition cost is:
    • US$4.4 million in cash to Drummond and related entities to acquire the land and assets.
    • US$11.5 million to replace the reclamation bond with the State of Alabama that follows the land and assets.
  • Allegiance has raised AUS$30 million through a placement with institutional and professional shareholders which will be applied to the acquisition, to advance the Short Creek Mine into development and to working capital.

Chairman and CEO, Mark Gray, commented: “Short Creek is a tier 1 asset – it has scale, exceptional coal quality, and provides Allegiance with a long life mine delivering premium CSR coking coal to the seaborne market. The acquisition positions Allegiance alongside the major producers of high quality hard coking coal in the Black Warrior Basin including Peabody, Warrior Met and Javelin Commodities. It both complements and consolidates our investment in Alabama coking coal and sets a pathway to Allegiance becoming a producer of a variety of US coking coals from New Elk, Black Warrior and now Short Creek.”

Coal resources

Allegiance has engaged Marshall Miller & Associates (MMA) to deliver a JORC 2012 compliant resource statement in relation to the Newcastle, Mary Lee and Blue Creek coal seams. The resource statement is expected to be completed by late-November 2021.

Initially however, MMA prepared an exploration target (as defined in the JORC Code 2012) to quickly assess the scale of the deposit. In accordance with clause 17 of the JORC Code, it noted, among other things, that the potential quantity and quality of an exploration target is conceptual in nature. There has been insufficient exploration to estimate a coal resource in accordance with the JORC Code, and it is uncertain if further exploration will result in the estimation of a mineral resource.

Allegiance notes in this clause that, ‘insufficient exploration’ does not necessarily mean there has been insufficient drilling, but that there has, for example, been insufficient review of drill hole data in accordance with the JORC Code which Allegiance believes is the case with this deposit.

The exploration target is based on existing exploration results as opposed to proposed exploration programmes. The relevant exploration activities include:

  • 212 exploration holes within the property boundary, with the expectation of additional data to be forthcoming. The drilling was accomplished using a combination of vertical continuous (diamond) coring, along with coalbed methane gas wells typically drilled via air rotary methods along with geophysical logging.
  • Additional core holes including coal quality data located immediately west of and adjacent to the property.
  • 185 gas wells all of which have been geophysically logged.

Once MMA completes the resource statement Allegiance intends to undertake additional drilling in the new year to better understand the coal quality across the entire deposit and to increase the resource categorisation under JORC, if required. Allegiance also intends to undertake a JORC compliant feasibility in 1H22.

Capital raising

In conjunction with the acquisition, the company has confirmed the completion of a AUS$30 million two tranche placement at AUS$0.50 per share (placement). Funds raised from the placement will be applied towards the acquisition of the Short Creek Mine operating coal mine:

  • AUS$6.0 million to Drummond for the acquisition of land and assets.
  • AUS$15.8 million to the State of Alabama to replace the reclamation bond.
  • AUS$8.3 million working capital.

Petra Capital Pty Limited acted as sole lead manager and sole bookrunner to the placement. 23 542 295 shares (AUS$11.8 million) and 706 268 lead manager options, will be issued under the company’s placement capacity under ASX LR7.1 and 36 457 705 shares (AUS$18.2 million), along with 1 093 732 lead manager options, will be issued subject to shareholder approval at the annual general meeting of the company.

Tranche one placement shares are expected to be issued on 29 October 2021, with tranche two shares expected to be issued following the AGM on 3 December 2021, on or around 9 December 2021.

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