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Allegiance starts review as US mines under-perform

Tuesday, July 19th, 2022

North America-focused coal miner Allegiance Coal on Tuesday flagged a strategic review of its portfolio management and ongoing liquidity requirements, given the performance of its operating mines in the US.

The ASX-listed Allegiance told shareholders that the company had been unable to successfully ramp up production to previous expectations at its two operating mines, and has been unable to secure medium term equipment financing at both Black Warrior and New Elk, which has driven lower than expected performance.

In light of the lack of available financing, the company is now considering different capital initiatives to fund equipment acquisition and upgrades at both mines.

Allegiance noted that legacy coal sales contracts at New Elk, coupled with production constraints, staffing issues and poor logistics performance in transporting coal to port, have meant that the mine is running at an operating cash flow loss which has significantly constrained cash flows.

It was also currently unclear if Black Warrior or New Elk had the capability to meet, within a material margin, previously advised target production rates. As such the board has made the decision to commence a strategic review.

The outcome of the strategic review is expected before the end of August 2022.

In the meantime, Allegiance has entered into a A$5-million equity facility with Regal Funds Management, providing the company with the necessary liquidity to complete the strategic review.

“We are pleased to have secured the equity facility, which will provide the board with time to consider its strategic alternatives and address liquidity constraints. While performance has been below the board’s previous expectations, the strategic review will provide the company with the ability to reset production and profitability targets and appropriately capitalise the company,” said CEO Jon Romcke.

Under the Facility, the Company will have access to A$5 million of capital following a drawdown request, with an initial drawdown of A$3-million. In exchange, the Fund will be issued with shares at the lower of a 15% discount to the volume weighted average price of Allegiance shares prior to the settlement date and the ASX closing price of Allegiance shares on the day prior to the settlement date.

Meanwhile, Allegiance on Tuesday reported that coal sales during the June quarter generated revenues of $32.1-million, compared with the $14.5-million revenue generated in the March quarter, with run-of-mine production reaching 220 000 t, compared with the 148 000 t produced in the previous quarter.

Production from the Black Warrior operation reached 85 000 t, up from the 56 000 t delivered in the March quarter, while New Elk contributed 135 000 t, up from the 92 000 t in the previous quarter.

The June production at Black Warrior was well below the 150 000 t previously set for quarterly production, while New Elk also failed to meet its 250 000 t production target for the quarter.

“The results for the June quarter demonstrate the impact of strong coal prices coupled with improvement in the production capability of both the Black Warrior and New Elk mines where the quarterly run-of-mine production figures were the best on record since Allegiance commenced operations,” said Romcke.

“Unfortunately, the ability of the mine to port logistics chain to keep pace with production has affected the timeliness of cashflow receipts for the company from sales and inventory finance arrangements. We are working to address the logistics constraints and improve the working capital position at Allegiance. As we manage the challenges of our assets, the board has commenced a strategic review with the purpose of assessing the optimal approach to each of its assets and the overall liquidity profile of the company.” 

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