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Allegiance Coal has signed a binding joint venture (JV) agreement over its Tenas metallurgical coal project, located in northwest British Columbia, Canada, with Japanese commodity trading company Itochu.

The project is 100% owned by Allegiance’s subsidiary Telkwa Coal (TCL).

Under the terms of the agreement, Itochu will invest in TCL over two stages in order to acquire up to 50% of the issued share capital. The company will set up a JV, known as the‘Telkwa Met Coal Joint Venture.

TCL’s Telkwa project is estimated to contain 126Mt of JORC metallurgical coal resource from the Tenas Project, and the adjacent Goathorn Creek and Telkwa North deposits.

Allegiance Coal non-executive chairman David Fawcett said: “It is testament to the quality of the Tenas Project, and the strength of our management team that Itochu has the confidence in our ability to successfully secure permits to mine, and bring the Tenas Project into production.

“We look forward to a long and prosperous future with Itochu in relation to the Telkwa project.”

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The investment will also give Itochu exclusive sales rights over all coal produced from the Telkwa project.

During the first stage, Itochu will invest C$6.6m ($5.03m) in TCL by way of a subscription for shares representing 20% of the issued share capital.

Prior to the stage one investment, the company is required to hold C$1.5m ($1.14m) of cash at bank. This means that TCL will have total available funding of C$8.1m ($6.17m), which will be used to fully fund the project through to the completion of permitting.

Once the relevant permits are granted, Itochu will invest a certain amount in the second stage. The quantum of investment is undisclosed at this stage and will be determined at a later stage.

“We look forward to a long and prosperous future with Itochu in relation to the Telkwa project.”

While TCL will operate the Tenas mine, the Japanese firm will be responsible for the marketing, sale and delivery of coal from the mine.

TCL is undertaking a definitive feasibility study on the Tenas project, the completion of which is expected during the first quarter of next year.

The company expects to carry out operations at the project targeting a production rate of 750,000 tonnes per annum that are suitable for sale. Semi-soft coking coal from the project is planned to be supplied to the seaborne metallurgical coal market.