BHR.L Regulatory News (BHR)

BEACON HILL RESOURCES PLC ('BEACON HILL' OR 'THE GROUP')

OPERATIONS UPDATE

Beacon Hill, the AIM listed coking coal production company, is pleased to provide an update on the Company's operational activities since the commencement of 2014.

Overview:

· Continued progression towards establishing the Minas Moatize Coking Coal Mine as a Tier One production asset in H2 2015, with low level domestic coal sales continuing from stockpiles

· Beacon Hill's 89 rail wagons arrived in Beira, Mozambique and passed commissioning on 26 March 2014 with the five locomotives scheduled to be hot commissioned shortly

· Minas Moatize Limitada ('MML'), Beacon Hill's operating subsidiary in Mozambique, in the final stages of negotiating a sub-lease for the rolling stock to be used on the Sena Line

· EPC contract for construction for $16.7 million washplant Expansion Project well advanced

· $20.0 million Senior debt term sheet signed for Expansion Project - working to achieve final approvals thereon and to commence final legal documentation

· Investec Bank plc appointed as financial adviser in relation to strategic partner search

· Current cash balance of $3.8m with further financing options progressing

Rowan Karstel, Chief Executive Officer of Beacon Hill Resources commented:

"The Minas Moatize Coking Coal Mine has completed four years of continuous development with the potential to be a highly profitable production asset, in spite of an extended period of depressed coal prices. We are working hard to develop a highly efficient and commercially viable operation through the Minas Moatize 2B & C Expansion Project, which we aim to deliver by H2 2015. In the meantime we remain focused on keeping our corporate overheads low and on generating revenues to help support our cash treasury. A key focus in this regard is the assessment of opportunities to sub-lease our rolling stock and local coal sales and I am delighted to announce that we are making important headway in this vein.

"With more encouraging forecasts for coal being issued by many commodities analysts, and Beacon Hill working towards funding and commencing its Expansion Project, I remain confident that Beacon Hill will negotiate this difficult period successfully."

OPERATIONAL UPDATE

Rail Wagons Commissioned in Beira 

90 rail wagons were completed by Transnet Engineering and inspected and signed-off by the Company in January 2014. Inspectors from Caminos e Ferros de Mocambique ('CFM') travelled to Uitenhage, South Africa to inspect the rail wagons and accepted all 90 rail wagons on 20 February 2014 as completed. The following day all rail wagons were taken to Port Elizabeth, loaded on the vessel Tao Star and shipped to Beira. The vessel arrived in Beira on 3 March 2014 and after a short delay berthed on 5 March 2014. The 90 rail wagons were all discharged on 7 March 2014.

89 rail wagons underwent and passed the final acceptance tests conducted in Beira on the 26 March 2014 (one rail wagon that came loose and fell back in the hold of the vessel during handling of the rail wagons in the port of Beira is still to undergo heavy repairs by Transnet Engineering). Lease payments for the rail wagons have now commenced. 

The rail wagons are still stored in the Beira port secure area and will be released once the final customs clearance documentation has been obtained from the Mozambique Government.

Locomotives Completed and on their way to Mozambique

Inspectors from CFM travelled to Pretoria-West, South Africa to inspect the locomotives and accepted all five locomotives on 21 February 2014 as completed. CFM has issued the trains the relevant locomotive registration numbers. The locomotives are scheduled for hot commissioning in Beira Mozambique next week. The hot commissioning is the final major acceptance test before a sub-lease can be progressed to completion.

Rolling Stock Sub-Lease

The Company is pleased to announce it has selected a preferred party for sub-lease of the Company's rolling stock and has entered final documentation stage in those negotiations. The transaction envisages sub-leasing all five locomotives and 45 of the Company's rail wagons to the preferred party and the Company has secured the consent of Thelo Rolling Stock Leasing to proceed and conclude legal documentation with the sub-lessee. The preferred party is envisaged to utilise the rolling stock on the Sena Line between Tete and the Port of Beira. The rolling stock sub-lease is expected to terminate at or about Q4 2015 in time for the expected ramp-up of the Minas Moatize expansion project (Phase 2B & C). The Company will provide updates regarding the transaction and any potential successful conclusion upon the execution of definitive legal documentation.

Rail transfer stations

The Carbomoc Coal Loading Site in Tete (jointly developed with JPSL Mozambique) is functional and is utilised by JPSL for the loading of their trains.

Two sites have been identified for the off-loading of coal in the Port of Beira. One site is fully functional and the other site is ready for development.

Expansion Project EPC Contractor

In Q4 2013, the Company concluded its tender process and selected a preferred contractor for the construction of the Minas Moatize expansion project for Phase 2B & C of the washplant including specialist sub-contractors related to flotation cells for recovery of coking coal.

In January 2014, MML received an updated and final draft $16.7 million turnkey contract based on the tender documents. Negotiations are underway to finalise contracts for presentation to the senior debt financier.

COMMERCIAL AND CORPORATE UPDATE

Overview of hard coking coal market and local coal sales

Hard coking coal prices for low volatile Platts Australia FOB remained depressed during Q1 2014. Post period end prices spot prices began to recover with a number of analysts commenting that it appears prices have currently reached the bottom with the majority of second and third tier producers currently operating at a loss. US producers have come under particular pressure as a consequence of a prolonged period of price weakness and supply growth. Analyst price forecasts were lowered during the period, but near term forecasts and the forward curve indicate a gradual recovery back to the marginal long run average cost of production at or around US$160/ton. The hard coking coal quarterly settlement was agreed at US$120/ton (previously US$ 143/ton). The Company continued to make low level domestic coal sales to its domestic clients during the first quarter from its existing product coal stockpiles.

Appointment of Financial Adviser

As previously announced, the Board has commenced a search for one or more strategic investor(s) and the Company is pleased to announce it has approved the appointment of Investec Bank plc ('Investec') to act as its financial adviser in this regard. The Board is seeking a minority investment in the Company or at a project level and has commenced a process to identify qualified parties and to receive indicative proposals by the end of May 2014. The Board is also reviewing, with its financial adviser and existing lenders, various options for strengthening or recapitalising the balance sheet.

Senior Debt Project Finance 

As stated in the RNS dated 28 March 2014, the Company is in receipt of a signed term sheet for a $20m senior debt facility based on independent technical and legal due diligence conducted to date. The Board is working to achieve final approvals thereon and to commence final legal documentation. Whilst management remains confident of completing the transaction as indicated in the signed term sheet there can be no certainty the Company will receive approval at the quantum or on the terms envisaged. Those approvals are expected to be decided upon by 30 June 2014 for drawdown on 1 September 2014.

Funding and Financial Update

The Company is confident of concluding final financing arrangements for the Expansion Project debt facility and commitments for a strategic equity investment by the end of June 2014, for drawdown in the third quarter, but there can be no certainty that it will do so.

The Company's current cash balance is $3.8 million with a creditor balance of $2.8 million. The Board remains confident it can secure the additional funding to be made available in the third quarter since cash burn has been now been reduced to approximately $400k per month or less. In addition, the Company has successfully amended the terms of its existing senior debt facility, providing the additional headroom to accrue both principal and interest payments during the whole second quarter and until 31 July 2014. During June 2014, the Company also expects to be eligible to receive an additional $1.1 million VAT refund from the Government of Mozambique, which will further supplement available cash resources and available headroom.

**ENDS**