Allegiance Coal Limited (AHQ) - New management given breathing room (Petra 26/5/22)
AHQ is under new management. Jon Romcke (ex- SMR) has commenced as CEO and US coal industry veteran Paul Vining has joined as Non-Executive Chairman. Mark Gray moves into a non-operational Executive Director role. AHQ has secured a US$42.9M convertible note, removing the immediate balance sheet pressure, evident since the Mar. Q’22. Despite lower production in the Mar. Q’22, March output contributed 40-50% of the quarterly total with a further 25% improvement in April. As new management settles in, we expect these stronger production rates can continue at a time of ongoing coal price strength. Post quarterly updates and the inclusion of new debt, our price target has reduced to A$1.22/sh (prev. $1.50/sh). We maintain a BUY given the inherent value due to be unlocked over the coming 12-24 months.
New management with the right experience
- Jon Romcke (ex – Stanmore Resources) has started as CEO of AHQ and will be based in Colorado.
- Experienced US coal industry professional, Paul Vining, has commenced as Non-Exec. Chairman, Mark Gray has moved to a non-operational Exec.Director role.
- Matthew Wall joined as a Non-Exec. Director in February 2022. The Board and management has now have been substantially refreshed.
Convertible note provides breathing room
- AHQ’s cash balance reduced to A$5.75M at end March 2022, with a A$42.9M convertible loan subsequently secured to relieve balance sheet pressure; the note has a 10% coupon, 3-year term, $0.816/sh conversion price and is secured against New Elk & Black Warrior mines.
- With improving production and higher realised coal pricing, we believe no further capital will be required.
Operational delivery to improve
- With new management now in-place and focused on improving operational delivery, we anticipate updated production and cost guidance over coming months.
- Whilst the operational ramp-up is ongoing at both New Elk & Black Warrior, we retain a conservative sales profile with 450kt in FY22, 1.3Mt in FY23 & 2Mtpa FY24.
- High-vol A&B prices remain very strong at US$468/t and US$450/t respectively; we maintain our conservative price forecasts with just US$357/t and US$283/t in FY22 and FY23 respectively for High-vol A.
Key Dates Ahead
- Jun. Q’22 – Jun. Q’22 quarterly activities and cashflow report.
Mark put in a lot of hard yards for AHQ - moved to Canada for over 3yrs to try and bed down the Canadian assets which turned out to be a dud, for reasons beyond the company's control - woke Canada.
Now, whatever the reason for his selling, it surely cant be a reflection of the state of the company? I think all SH's bought because of the quality of the assets, which in the right hands, like the new MD, will generate great profits in these extraordinary coal prices market.
There may be still operational issues that need to be ironed out, and hence the SP may remain static for a period, but surely AHQ will follow the trajectory of BCB when it gets its ducks to line up ?? The world needs lithium tomorrow, but needs coal today and for many tomorrows.
Technically, AHQ is forming a bullish triangle (bullish because of the strong commodity price and sector bullishness).
50c is key support - if that breaks down then WTF is going on ( ! ), and 60c is immediate resistance. 80c is VIP resistance, and if that becomes support, it will be a launch pad to 100c+ .... perhaps approaching analysts SP targets, which are conservative and cautious, as they've been disappointed by previous management and "events" beyond the company's control.
