Allegiance Coal Limited (ASX: AHQ) has identified new opportunities to significantly reduce start-up Capex costs for its New Elk hard coking coal mine located in South-east Colorado, USA.
The company has released results of review and update of a previous Feasibility Study focussed on simplifying the mine plan in the early years of production, reducing start-up costs with the aim of commencing production later this year.
Chairman and Managing Director, Mark Gray, said a key takeaway from the original study was the consumption of retained earnings in the early years of production that was re-invested into expanding production and in turn potentially impacting the ability to prudently raise debt as part of start-up capital.
However, under the updated study, the new mine plan sees a reduction in start-up capital (including working capital), from US$56 million to US$40 million, and a reduction in sustaining capital in the first two years of production after the first six months of start-up, from US$67 million to US$35 million.
The updated study was undertaken by Stantec, who was the lead consultant in the original study. The focus of the work was to take out the development and mining of the Allen seam, and to run the Blue seam as a standalone mine plan for the life of its coal reserves, and also delay the timing in relaying the railway track.
The Blue seam is a shallow seam that has established portal infrastructure, with its main headings already advanced 350m underground.
Subject to the refurbishment of mining equipment and minor mine-site rehabilitation, the Blue seam is ready to produce, and with 23Mt of saleable coal reserves at a minimum coal seam height of four foot, is a significant mine operation from which New Elk can develop and expand.
The company entered into binding agreements to acquire New Elk on 21 January 2020, conditional only on Allegiance raising the start-up capital requirement by 14 July 2020.
Mr Gray said the company will now expedite discussions with both equity and debt funders in relation to New Elk and is hopeful of closing the funding in the next two months. Assuming the acquisition completes in this time frame, the target date for the commencement of production remains Q3 2020.