Why the Allegiance Coal (ASX:AHQ) share price rocketed 40% higher today

The Allegiance Coal share price soared 40.3% higher today, before shares entered a trading halt. We look at what happened…

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The Allegiance Coal Ltd (ASX: AHQ) share price soared 40.3% higher today, before shares entered a trading halt at 2.15 pm AEDT at the company’s request. Allegiance requested the trading halt pending the release of a new announcement.

Today’s big share price gains followed on an earlier announcement, released this morning, relating to the company’s New Elk coking coal mine. That mine is located in southeast Colorado in the United States.

What did Allegiance Coal report to send its shares up 40%?

In this morning’s ASX release, Allegiance Coal delivered a progress report stating that its New Elk start-up mine plan has been finalised. The company expects production, subject to raising the start-up capital requirement, to start in the second quarter of 2021.

Back in April, Allegiance Coal announced its New Elk mine plan involves mining 22.2Mt of saleable coal reserves from the Blue seam. Today’s release revealed a change in rescheduling labour and equipment by a reduction in production units from four to two. This means the coal reserves will be mined over a period of 24 years instead of 15.

Earlier in December, the company reported that its acquisition of the Pratt seam coal from Mays Mining, Inc would offset the loss in annual sales from the reduced rate of production at Blue seam.

The reduced production units have seen the start-up capital required also reduced to US$13.5 million (AU$17.8 million) from the initial US$24 million. The company plans to fund this with project debt.

According to the release, coal sales should commence in June 2021 at 75ktpm. Allegiance Coal plans to increase this to 137ktpm by December 2021. It reported it expects to mine 40ktpm of Blue seam coal from June 2021, with that level increasing to 73ktpm by December. The company also plans to mine 35ktpm of Pratt seam coal from June 2021, with that level increasing to 64ktpm by December.

At the end of next year, Allegiance forecasts its annualised coal sales will hit 1.6Mt , a level it expects to maintain over the following years.

With both assets located in the US, the company noted that the Chinese ban on Aussie coal has created short-term opportunities for US coking coals.

Allegiance Coal snapshot

Allegiance Coal is an Australia-based company engaged in the acquisition and exploration of coal tenements.

Allegiance shares had a rough start to the year, tumbling 63% by 24 March. Despite today’s 40.3% leap, the Allegiance share price remains down 50% year-to-date.

For comparison the broader All Ordinaries Index (ASX: XAO) is up 2% for the year.

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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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