Allegiance Coal Limited announced that it has secured an initial 2.7 million tonnes of Alabama high sulphur high volatile `A' hard coking coal which will be used to blend with New Elk hard coking coal prior to sale on the seaborne market. Summary of offtake contract: Allegiance has entered into a binding terms sheet, subject only to completion of formal legal documentation, with Mays Mining Inc. Allegiance has met with several mine owners who produce Pratt coal, all of whom are potential future partners when Allegiance increases its production at New Elk. Mays however, is well known to the New Elk project management team and a producer Allegiance can trust to deliver, on time, and within specification. Allegiance will acquire from Mays: Upon New Elk commencing production at 32,500 tonnes per month, 30,000 tonnes per month of Pratt coal at 1.5% sulphur (Pratt), for total saleable coal per month of 62,500 tonnes; and Upon New Elk reaching 65,000 tonnes per month within six months of commencement of production at New Elk, 60,000 tonnes per month of Pratt, for total saleable coal per month of 125,000 tonnes. The term of the contract is four years equating to around 2.7 million tonnes of Pratt coal bought, more if Allegiance is able to ramp to 125,000 tonnes more quickly than six months post New Elk start-up. Allegiance will pay for the Pratt coal fortnightly upon the coal being washed, weighed, and tested for specification compliance at the mine site. Mays will then direct load from the mine site into a barge on the Black Warrior River (west of Birmingham), where the coal under Allegiance's control will be barged approximately 400 miles to CMT, and unloaded into its own stockpile awaiting ship loading and blending. Allegiance will pay Mays a fixed price for the coal, along with a bonus payment of an agreed share of the FOB sales price above USD 110 per tonne, that Allegiance achieves for the blended coal. In addition, Allegiance has agreed with Mays to construct a wash plant adjacent to the Pratt coal, which is also adjacent to the Black Warrior River and an existing, operational, barge load out. To do so will reduce May's haulage costs of having to truck the raw Pratt coal to a wash plant 10 miles from the mine site, and back, and avoid any port barge loading fees by direct loading from the wash plant. Helping Mays to maintain a good margin for the Pratt coal provides Allegiance with comfort that Mays will be a safe, and reliable supplier. By owning the wash plant, Allegiance will be able to control the quality of the coal being loaded, and give Allegiance security around future supply. Improvement in New Elk coal quality from blending with Pratt: The New Elk mine commences production in the Blue seam which outcrops at surface, is already developed with portal entries, fan ventilation, belting, and the mains advanced 350 metres underground. It is the easiest, quickest, and cheapest seam within which to commence mining. New Elk's premium coal, the Primero seam, is planned to be brought into production around 12 months after production commences in the Blue seam, once permits to mine underground in the Primero seam are re-instated. An open pit mining permit for the Primero exists, and an underground mining permit did exist though the prior owner allowed it to lapse. Allegiance understands that the re-instatement of the underground mining permit is a simple process provided the surface footprint does not change. However, blended with Pratt at 53% Blue to 47% Pratt to ensure the sulphur content is <1%, the Blue seam is very close to meeting HVA specifications and will therefore command a better price than HVB. The Primero seam standalone is very close to HVA, and when blended with the Pratt at a similar ratio will deliver a good HVA hard coking coal to the seaborne market and command a premium price. Allegiance is not concerned by the higher ash and phosphorous, and lower reflectance in the two coal blends compared with the HVA range. As can be seen by the PLV specifications, 9% ash and 0.07% phosphorous is acceptable to the steel mills (particularly in Asia), and lower reflectance is off-set by very good dilatation. Improvement in export location with a change in port from Houston to New Orleans: New Orleans, along with neighbouring Port of Mobile. Moving New Elk coal to New Orleans instead of Houston, although marginally more costly, creates better access to steel mill vessels. CMT is the only coal terminal in New Orleans that is set up to receive coal by rail, which is the only way New Elk can move coal to New Orleans affordably. All other coal terminals in New Orleans can only receive coal via barge, as can CMT as well. CMT has 1.35M tonnes of storage capacity and annual outbound throughput capacity of 13.5M tonnes. CMT has two berths capable of receiving Cape and Panamax sized vessels. CMT also has two stacker-reclaimers enabling simultaneous ship loading from two different stockpiles for coal blending. A revised rail rate has been agreed with Union Pacific Rail, as well as Canadian National Rail, and the port rate has been agreed with CMT. Overall, rail and port costs for New Elk to CMT are only marginally higher than the rail and port costs to Pasadena Deepwater Terminal (PDT) as estimated in the New Elk feasibility study announced on 28 November 2019. The extra rail mileage has been offset in part by lower port costs due to CMT being a more active, and efficient, coal handling port than PDT. The extra cost however, gets New Elk coal to an active coal neighbourhood where there is a constant flow of steel mill vessels collecting Alabama hard coking coals as well as coking coals from Appalachia which are often barged down the Ohio River connecting to the Mississippi to make their way to several New Orleans coal terminals. More importantly however, the extra cost enables the blending opportunity with Alabama hard coking coals. The costs of moving bulk commodities on water in the US and elsewhere globally, is typically a lot less than on rail. This has helped Allegiance to pay a fair fixed price for the Pratt coal, and to then move that coal to CMT at a cost acceptable to Allegiance. Allegiance has barge quotes from three barge operators, as well as a rail quote from Pratt to CMT, and will settle on one of the offers in the very near future.