Allegiance Coal ramping up on cue to capture US coking coal price boom
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Allegiance Coal has quadrupled its revenues as it looks to take advantage of booming US coking coal prices and ramps up to full scale production at its Black Warrior and New Elk mines.
The ASX-listed, American coal producer saw revenues climb from US$1.7 million in the September quarter to US$8 million in the December quarter.
It is a growth trajectory that is not expected to stall any time soon.
With two cargoes already sold for delivery this quarter and a third trial shipment scheduled, that is expected to triple in March.
Allegiance Coal (ASX:AHQ) expects to sell well over 132,000t of met coal in the March quarter after producing 51,000t from its Black Warrior mine in Alabama and 77,000t from the New Elk mine in Colorado in the three months to December 31.
While ROM production was down 21% at New Elk, this followed a call to realign the main underground headings in order to provide quicker access to panel mining and improve mine development and production down the line.
Allegiance will be well equipped to do that after solving recent labour shortages. It is now fully manned with two production units, delivering four shifts per 24 hour day, 5 days a week from February 1.
Equally important was the delivery of carbonisation tests on Black Warrior’s premium Mary Lee Blue Creek seams, which delivered a CSR of more than 60%.
That qualifies the coal as hard coking coal and, pending a 20,000t trial run with a European steel mill, should give Allegiance access to premium high vol A US coking coal prices of US$388/t.
High vol B prices also deliver incredible margins right now at US$348/t.
With coking coal prices like those Allegiance is ramping up its operations at the right time, with chairman and CEO Mark Gray hailing the upcoming March quarter as a “significant step in AHQ’s growth”.
“I am very pleased with progress to date despite the challenges we face due to the COVID pandemic,” Gray said.
“Loading our first cargo and completing our first sale on the seaborne market was a significant event and I thank our staff for their efforts notwithstanding the challenges around us.
“We have two cargoes sold for delivery this quarter (one already loaded and delivered) plus a trial cargo agreed subject to documentation for delivery this quarter as well, enabling revenue to more than triple this quarter.”
Productivity improvements at Black Warrior, which is moving from five to ten shifts a week, have been driven by equipment improvements to modernise the mining fleet.
Allegiance in November brought in a new 3600 Hitachi excavator to replace the 1200 Hitachi in waste rock removal.
More significant productivity gains are anticipated with the arrival of a 150t dump truck fleet in January and February.
Gray said productivity improvements are expected at New Elk as well, with its workforce increasing from around 50 to 71.
Allegiance has secured around 50 rental properties in the nearby city of Trinidad to accommodate workers.
“It proved a wise decision to realign our two underground main headings at New Elk in the quarter enabling our two fully manned production units to now enjoy long straight driveage this year,” he said.
“That coupled with excellent progress at Black Warrior gives me great confidence we will achieve our quarter-to-quarter production and revenue targets very quickly this quarter.
“While Black Warrior is already tracking very close to its targets, we will revise New Elk’s targets in February once our two production units have settled into production and our work force numbers have settled following the recent arrivals.
“It goes without saying, March quarter ’22 will be a very significant step in Allegiance Coal’s growth.”
Allegiance has lined up plenty of growth opportunities in the December quarter, including outside its core New Elk and Black Warrior operations.
It announced the purchase of the Short Creek underground coking coal mine, a tier one asset containing the globally renowned mid-vol Blue Creek brand.
A JORC 2012 compliant resource statement is due in February with the mining permit to be transferred in March to close the transaction.
Marshall Miller and Associates have been contracted to deliver a feasibility study on a 1.5Mtpa underground operation during the third quarter of 2022.
An environmental approval application for the Tenas project in Telkwa in British Columbia, Canada, will likely be filed in February once two environmental impact reports have been delivered by consultants.
Allegiance will also get a boost from sales of third party coal from its Black Warrior operations, with 30,000t a month of coal supply from Yellowhammer Energy expected to kick in from late in the June quarter.
Informal offtake supply arrangements with Alabama based vendors of high vol A coking coals are also progressing, providing a reliable supply of Alabama coking coals from small miners Allegiance will trade on the seaborne market.
After raising $30 million from sophisticated and institutional investors in October to back the Short Creek deal, Allegiance is well backed to continue growing its production profile and expand its operations with $17.4m in the bank as of December 31.
This article was developed in collaboration with Allegiance Coal, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.