Atlantic Coal to save US$10 million following termination of Pagnotti supply agreement

Atlantic Coal (AIM: ATC) has agreed the termination of its legacy supply agreement with Pagnotti Enterprises. The board estimates that the termination will save the company in excess of US$10 million during the life of its Stockton mine. Previously the agreement obligated Atlantic to sell 100,000 tons of coal annually, below current market prices. Atlantic said it will utilise the improved cash-flow to expand its asset base and production.

"The termination of the Pagnotti supply agreement is a major step forward in improving the long term profitability of the Stockton Mine and should save us approximately US$10 million during the life of the mine”, Atlantic MD Steve Best commented, “The additional tonnage released as a result of this agreement will also provide substantial opportunities for sales not only to our existing customers but also for securing new customers.”

The supply deal was struck in connection with Atlantic’s acquisition of the Stockton mine real estate in November 2000. Under the terms of the initial agreement, Pagnotti’s affiliate vendor Jeddo was granted the option to purchase up to 100,000 tons of coal annually until all the coal reserves at the Stockton Mine were depleted. The pricing under the agreement was not fixed to the market, but instead based on changes to the producer price index. Atlantic said the price of any coal supplied to Jeddo would be substantially below current market prices.

Previously Atlantic incurred costs as a result of non-supply under the original agreement, which at 30 June 2009 stood at US$2,592,000. As a result of the termination, Atlantic will benefit from a write-back of approximately US$800,000 for the year ended 31 December 2009.

Also part of the original agreement, Atlantic was required to deposit US$1.00 for every ton of prepared coal produced from Stockton, into an escrow account which currently stands at US$435,000. 

The agreed settlement for the termination sees Pagnotti receive a cash payment of US$565,000, a US$700,000 promissory note which is payable in three annual instalments beginning in March 2011 and the release of the US$435,000 currently held in escrow. Furthermore Pagnotti will also receive a US$1.50 per ton royalty payable on all clean coal sold, continuing over the life of the Stockton mine.  http://www.proactiveinvestors.co.uk/companies/news/12446/atlantic-coal-to-save-us10-million-following-termination-of-pagnotti-supply-agreement-12446.html