Telkwa Metallurgical Coal Project

Background

The Telkwa metallurgical coal project (Project) is located on the western side of British Columbia. The Project enjoys simple access to rail and port and, from the Port of Prince Rupert, it is a comparatively short shipping distance to the Asian steel mills where Telkwa metallurgical coal will be sold.

The Project has been the subject of a significant amount of historical exploration and evaluation by previous owners estimated in today’s dollars to be in the order of A$40M. In addition, the subject of two pre-feasibility studies in 2017, the Project sits in the lowest five percentile of the global seaborne metallurgical coal cost curve.

Coal Resources & Reserves

The Staged Production PFS and the accompanying statement of Resources and Reserves was prepared by SRK (Canada) Inc. (SRK) in accordance with the JORC 2012 Edition (JORC Code) and National Instrument NI 43-101 ‘Standards of Disclosure for Mineral Projects’ (NI 43-101). A summary of the Resources and Reserves is set out in Tables below. 

Resources  Measured Mt  Indicated Mt  M+I Mt Inferred Mt
 Tenas  58.8   58.8 -
 Goathorn 59.5 9.2 64.7 0.2
 Telkwa North 15.7 9.3 19.4 1.0
Total 134.0 12.9 146.9 1.2

 

Reserves ROM Coal Clean Coal Saleable Coal
Tenas Proven 29.1 20.6 21.0
Tenas Probable - - -
Tenas Total 29.1 20.6 21.0
Goathorn Proven 22.1 12.6 18.8
Goathorn Probable 0.2 0.1 0.1
Goathorn Total 22.3 12.7 13.9
Telkwa North Proven 10.8 6.4 7.0
Telkwa North Probable 0.7 0.4 0.5
Telkwa North Total 11.5 6.8 7.5
Grand Total 62.9 40.1 42.5

Coal Quality Parameters (compared to similar NSW products)

Telkwa Coal Quality Units Tenas NSW SSCC NSW HV PCI
Total moisture 9.0  6-10.5  6-10.5 
Volatile matter 24.6  33-37  33-39 
Ash 9.5  6.5-10.5  9-10.5 
Sulphur 0.9 0.5-10.5  0.35-0.85 
Fixed carbon 65.3  50-60 55
Calorific value Kcal/kg  7,245 N/A 7,250 
Free swell index   3-4  3-6  N/A 
HGI   64  N/A  40-50 
Reflectance 0.84  0.80  0.65-0.85 
Maximum fluidity ddpm  2-17 100-500  N/A 
Coal strength reactivity (calculated) % 37-43  25-30 N/A 

Staged Production Pre-feasibility Study

On 3 July 2017, Allegiance released (3 July Announcement) the results of a Staged Production Pre-feasibility Study of the Project undertaken by SRK (Staged Production PFS). That study assessed the viability of the Project across the entire reserve base of 42.5 million tonnes of saleable coal. It assumed the commencement of mining at 250,000 saleable tonnes per annum under the Sub-EA permitting process (as explained in the 3 July Announcement), ramping to 1.75M saleable tonnes per annum in four years if permitted to do so under a Full EA permitting process (again as explained in the 3 July Announcement). 

Staged PFS Highlights

  • Staged development of a shallow open pit operation commencing with 250 ktpa of saleable coal production (Stage 1) ramping to 1.75 Mtpa over 4 years (Stage 2). 
  • Proven and Probable Coal Reserve estimate of 62.9 Mt. 
  • Mine life of 28 years. 
  • Average life-of-mine all-in FOB (ex-port) cash cost before tax of US$55 per tonne, positioned in the lowest five percentile of the global seaborne metallurgical coal cost curve. 
  • Average life-of-mine strip ratio of 5.8:1 BCM/ROMt. 
  • First 14 years of production, an all metallurgical saleable coal yield of 75%, and a life-of-mine average of 68%. 
  • Stage 1 initial capital investment of US$51M, this can be reduced to US$21M with a manufacturer funded and operated washplant, and either contract mining or equipment leasing. 
  • Stage 2 initial capital investment of US$162M, this can be reduced to US$54M with a manufacturer funded and operated washplant, and either contract mining or equipment leasing. 
  • Unleveraged NPV10% pre-tax of US$416M (A$553M) with an IRR pre-tax of 37%. 
  • Total initial capital, Stage 1 and 2, is repaid in 1.8 years (real terms) after commencement of Stage 2 production. 
  • The assumed life-of-mine average coal price for a PCI product is US$110 per tonne, with an exchange rate of CAD:USD 1.33 applied. 

Stage 1 Pre-feasibiity Study

On 11 September 2017, Allegiance released the results of its Stage 1 Pre-feasibility Study undertaken by SRK (Stage 1 PFS). The Stage 1 PFS assesses the viability of the Project assuming Allegiance is only ever permitted to mine at the rate of 250,000 saleable tonnes per annum. 

Stage 1 PFS Highlights

  • 250,000 tonne per annum of saleable coal with a mine life of 19 years at an average strip ratio of 1.9:1 BCM/ROMt. 
  • Average life-of-mine all-in FOB (ex-port) cash cost before tax of US$54 per tonne. 
  • All metallurgical saleable coal yield of 74%. 
  • Life-of-mine average annual EBITDA of A$18M at a ratio to revenue of 50%. 
  • Unleveraged start-up capital expenditure of US$35M. 
  • Unleveraged NPV10% pre-tax of US$51M with an IRR pre-tax of 32%. 
  • The mine complex (equipment, washplant and infrastructure) has a production capacity of 500,000 tonnes per annum of saleable coal that can be ramped from 250,000 tonnes per annum instantly (subject to permitting) with outstanding project economics:
    • Average life-of-mine all-in FOB (ex-port) cash cost before tax of US$51 per tonne;
    • Life-of-mine average annual EBITDA of A$38M at a ratio to revenue of 54%;
    • Unleveraged NPV10% pre-tax of US$83M with an IRR pre-tax of 52%.
  • The assumed life-of-mine average coal price for a PCI product is US$110 per tonne, with an exchange rate of CAD:USD 1.33 applied. 

Next Steps

  • The Company’s primary focus is to accelerate towards the permitting of Stage 1 production; 
  • Critical to achieving that is:
    • Complete all baseline studies in calendar H1 2018;
    • Complete an affects assessment of the Project on the baseline environmental data in calendar Q3 2018; 
    • Work closely with stakeholders, especially First Nations, in respect of the affects assessment; 
    • Undertake aspects of a feasibility study for Stage 1 production critical to permitting Stage 1; and 
    • Lodge applications for permits to operate a Stage 1 production mine in calendar Q4 2018.