Allegiance aiming for 2Mtpa production as first cargo from New Elk sets sail to China

Allegiance Coal has loaded and sailed the first steel-making coal cargo from its New Elk mine in Mexico to China.

It’s a significant milestone for the company that restarted the mine in May, with the focus now on executing the next cargo more quickly and more efficiently as production at the mine continues to improve.

New Elk is strategically located in Colorado, close to North America’s western seaboard, giving the company a competitive advantage over other US coal producers – most of whom operate on the east coast.

Allegiance Coal (ASX:AHQ) has direct access to the Japanese and Korean steel markets, where prices paid for coking coal are scaling to new highs on the back of supply constraints and soaring steel production post pandemic.

The company says it’s about to hit the ‘inflection point’ on a plan that will turn it from a small coal mine developer into a mid-tier with a 2 million tonne per annum plus production profile near term.

Black Warrior barges loaded

The company has also loaded the first barge at its recently acquired Black Warrior mine in Alabama, where it’s planning to increase the production rate this quarter from 200,000tpa to 600,000tpa.

The company is starting to move coal to McDuffie Terminal in the Port of Mobile for its second cargo set to sail in the first 10 days of December.

This comes after securing its first sale for 80,000 tonnes in early November, with the price at a discount to high-vol B due to the untested nature of the coal pending results of the pilot coke oven tests.

The sale enables the company to get Black Warrior coal onto the seaborne market now to take advantage of the current price environment with an alternative product, while it waits for a pilot coke oven test to be completed on the premium Mary Lee and Blue Creek Top coals.

Petra Capital analysts reckon the company is unlikely to reap the benefits of full pricing for its coal until April, but will sell 680,000t over the next six months at a healthy average price of US$178/t.