New Elk Mine
featured top story

Agreement in place to sell New Elk Coal Mine to Allegiance Coal

  • 0
  • 2 min to read
New Elk Mine

According to documents released Monday by Allegiance Coal Limited, the Australian company has entered into a “conditional term sheet” for the proposed purchase of all shares of New Elk Coal Company from Cline Mining, Inc.

The purchase price for the shares of New Elk Coal is $1 per share. New Elk will also have to repay debt owed to Cline Mining totaling $55 million.

Also included in the term sheet is the condition that the mine will be brought back into production by June 14, 2020.

The term sheet states the completion of the purchase must take place before July 14, 2020, yet states “Allegiance hopes to complete significantly earlier.”

Investor documents prepared by Allegiance estimates New Elk Mine sits on 15 billion metric tons of coal.

Said a proposal to investors from Allegiance, “Allegiance Coal Limited is pleased to announce the planned acquisition of the New Elk Coal Mine comprising a resource of 656 (metric tons) of hard coking coal, which is permitted and constructed, and subject to bringing the mine out of care and maintenance, is production ready…

“The mine has access to both international and domestic steel mill markets. The mine is near rail that can supply coal to the seaborne export market via Kinder Morgan Coal Terminal located in Houston Port on the Gulf of Mexico, as well as rail access to a steel mill nearby in northeast Mexico that currently buys coal from the eastern coal mines of U.S. and the seaborne market. While the rail haul is further, the mine can also potentially supply coal to the steel mills in eastern U.S.”

Recently, the Bureau of Land Management (BLM) announced a public hearing for July 24 at Mt. Carmel (6 to 8 p.m.) in reference to a proposed lease by New Elk Coal Mine of 1,279 acres that holds approximately 8 million tons of recoverable federal coal, below a privately owned surface. If approved, this lease will allow New Elk to access federally owned coal from its current facilities at the site. Information provided by the BLM said, “At peak production levels, the New Elk Mine would employ up to 175 people.”

Allegiance is a publicly listed Australian company with its main focus on a metallurgical coalmine project in British Columbia, Canada, called the “Tenas Project.”

In explaining its rationale for the acquisition, Allegiance said they were looking to “bridge the gap” between the Tenas Project, which is less developed and less advanced in the permitting process, than the long established New Elk mine, so they can begin generating “cash flow in the very near term.”

Said Allegiance, “The mine was recently introduced to the company. Following an initial high level due diligence, the company observed that the mine was permitted with good quality hard coking coal, would involve minimal start-up capital given the mine was fully constructed and appeared to be well maintained and with thicker coal seams compared to what is typically seen in U.S. coal mines, could potentially be one of the lower cost producers of hard coking coal in the U.S.”

New Elk Coal Mine is located in Las Animas County within the Raton Basin where mining has been active for nearly 150 years. The mine was first named the “Allen Mine,” when production started in 1951, supplying coal to the Pueblo Steel Mill until the late 1970s. The mine continued production through 1989, supplying local power utilities. The wash-plant continued operating until 1996, servicing neighboring mines. Cline Mining acquired the mine in 2008 for $17 million. In 2010, the mine was reopened as “New Elk Mine.”

According to Allegiance, Cline opened the mine in 2011, but was forced to close in 2012, when coal prices plummeted. They say Cline invested $62.5 million in surface and underground equipment, including an $8.5 million upgrade of the wash-plant.   

To repay the $55 million in debt, New Elk will repay Cline with:

1) $3 million in cash on completion of the acquisition of the shares in New Elk,

2) $3 million in Allegiance shares issued on completion,

3) $5 million to replace the Colorado State Mine reclamation bond and with

4) the balance (+$44 million) to be repaid from an agreed percentage of mine operating cash flow.

Term sheet conditions for Allegiance include, in part:

— Undertake a feasibility study to develop a mine plan for production by April 14, 2020.

— Raise $5 million to replace the Colorado State Mine reclamation bond by June 14, 2020.

— Raise $3 million to meet the cash payment part of debt reduction by June 14, 2020.

— Raise sufficient working capital to bring the mine back into production by June 14, 2020.

— Obtain shareholder approval to the purchase by June 14, 2020.

— Enter into transaction documentation with Cline by June 14, 2020.

— Completion shall be no later than July 14, 2020.

Load comments