BHR.L Regulatory News (BHR)

16 February 2012

Beacon Hill Resources Plc ('Beacon Hill' or 'the Group')

Quarterly Activities Report for the period ended 31 December 2011

Highlights

Minas Moatize Mine, Mozambique

·; Completion of first seaborne export shipment of thermal coal from the Port of Beira

·; Commissioning of Minas Moatize's first wash plant has continued with a targeted rate of 600,000 tonnes run of mine ('ROM') per annum

·; Commencement of trucking operation to the Port of Beira

·; Pre-stripping commenced of a further open pit ('Upper Chipanga Pit') where coking coal will be mined from mid 2012

Minas Moatize Expansion Project

·; Maiden JORC compliant Mineable Reserve of 42.65 million tonnes ('Mt') - Marketable Reserve is 23.45Mt, of which at least 8.72Mt is coking coal

·; Definitive Feasibility Study ('DFS') nearing completion

·; Significant progress with respect to attaining an allocation on the Sena Rail Line, which would both reduce costs and allow for expanded production

Changara Coal Project, Mozambique

·; Acquired majority ownership in a newly formed joint venture ('JV') to explore and develop Coal Tenement 2001 ('Changara Coal Project') in the Songo Area of the Tete Province

·; JV provides a significant opportunity to considerably enhance Beacon Hill's resource base as the licence covers an area of 184km2 (70 times the size of Minas Moatize)

Tasmania Magnesite

·; Scoping study currently being finalised which will form the basis for moving towards identifying and securing a JV partner to fund the development of the project

Corporate

·; Senior Management appointments including Neil McKenzie as Chief Financial Officer and Ric Jose as the Mozambique Country Head and Executive Director of Minas Moatize

·; Conversion of all outstanding convertible loan notes

·; Commencement of an application to list on the Australian Securities Exchange

·; Cash on hand of approximately £4 million as at 31 December 2011

Justin Lewis, Chairman of Beacon Hill, commented, "During the final quarter of 2012, Beacon Hill achieved key milestones, which have further de-risked the Company's development objectives in Mozambique and highlighted the Company's highly strategic and commercially valuable Minas Moatize coking coal project. Our position in Tete has been reinforced following our acquisition of majority ownership in the Changara Coal Project, which covers a tenement 70 times the size of Minas Moatize Project. With the continued development of Minas Moatize, in tandem with our exploration objectives at Changara, I am confident that Beacon Hill is well positioned to build value and become a substantial coking coal producer."

Minas Moatize Mine

Production of thermal coal continued throughout the December quarter from the initial open pit, Trial Pit 1 ('TP1'), following the commencement of mining in Q2 2011. For the quarter 49,288t of Run of Mine ('ROM') coal was mined and processed at Minas Moatize's first wash plant with 13,741 tonnes of thermal coal being produced. Commissioning of the plant has continued over the quarter with the processing of export grade coal building to a targeted rate of 100tph, which translates to approximately 600,000t ROM per annum.

Thermal coal mined during the course of the year was successfully transported by truck to the Port of Beira prior to the Group's maiden export shipment of coal on 17 December 2011. This first shipment demonstrates Beacon Hill's viable operational end to end logistics solution to transport coal from mine to port and onto customers via the seaborne market.

Pre-stripping of a second open pit, the Upper Chipanga Pit ('UCP'), commenced in the quarter where the Group will focus its activities on mining the Upper Chipanga Seam, which is anticipated to yield coking coal. To 31 December 2011, 395,172 bank cubic metres ('bcm') has been pre-stripped using excavators and it is anticipated that mining from UCP will commence from mid-way through Q1 2012. The Group is seeking to produce and export in excess of 100,000 tonnes of coking coal in 2012.

Minas Moatize has experienced significant rainfall at the peak of the wet season from December 2011 to February 2012. Whilst this has interrupted the continuous mining operation and near term production the Group does not anticipate any long term impacts to operations. Continuous operation of the wash plant was affected by difficulties with a regular supply of power from the grid throughout the quarter. This issue has now been addressed through the acquisition and installation of an independent power generator.

Minas Moatize Expansion Project

Development work for the expansion of the Minas Moatize Mine continued throughout the final quarter. The Group recently reported its maiden JORC compliant Coal Reserve for Minas Moatize of a total Mineable Reserve of 42.65Mt with the potential upside of a further 7.9Mt. The Mineable Reserve represents the in situ portion of the Geological Resource that is economically mineable. 

The total Mineable Reserve includes a Marketable Reserve of 23.45Mt, representing the saleable portion after mining and processing of the resource, of which at least 8.72Mt is coking coal.

Beacon Hill is due to finalise the DFS for the Minas Moatize Expansion Project shortly which will include a detailed mine plan and the design of the larger, life of mine Coal Handling and Preparation Plant ('CHPP'). Production from the main life of mine pit is targeted to commence in H2 2012 following the completion of mining from the Upper Chipanga Pit. The operation is targeted to build to a rate of up to 4Mtpa ROM coal producing in excess of 2Mtpa of saleable hard coking and thermal coal for the life of mine.

Coal Qualities

Coke test results have reconfirmed that the coking coal produced at Minas Moatize will be classified as a Hard Coking Coal. The Coke Strength after Reaction ('CSR') range of 68-71 is similar to the hard coking coal produced from Queensland, Australia, which trades at a premium to other coking coals due its limited resources and its importance in the steel production industry.

Off-Take Agreement

In November 2011, Beacon Hill entered into a revised off-take agreement with its partner Global Coke. The revised off-take agreement was for up to 600,000 tonnes of coking coal per annum from Minas Moatize for the life of the mine. As part of the agreement, the parties agreed to the pricing benchmark being a Free-on-Board ('FOB') Australian Hard Coking Coal Index. The revised agreement provided Beacon Hill with greater flexibility, taking into account predicted short term coking coal production and logistics capacity, whilst the agreed pricing index followed the reconfirmation as Minas Moatize coking coal as a hard coking coal.

Beacon Hill continues active discussions with respect to other potential marketing and off-take partners.

Logistics

Significant progress has continued to be made with respect to logistics. On 17 December 2011, Beacon Hill's first export shipment departed from the Port of Beira. The Group's first shipment of 10,650 tonnes of thermal coal produced from Minas Moatize was trucked to the Port of Beira ahead of being loaded onto the MV Aztec Maiden and shipped, marking a key milestone for the Group.

The trucking operation is being operated by a local Mozambican trucking contractor, initially using a fleet of 40 trucks, each carrying approximately 36 tonnes of coal. The trucking solution will allow the transport of up to 0.5Mtpa to the Port of Beira for future shipments, which is more than sufficient for its planned production over the next 18 months.  The Group intends to continue using this trucking solution that has worked effectively, pending the commencement of the transportation of coal via the Sena Rail Line, which remains the Group's longer term preferred transportation solution. 

Significant progress continues to be made regarding the Sena Rail Line. Minas Moatize continues to work with the Government of Mozambique alongside Vale and Rio Tinto to complete the refurbishment of the Sena Rail Line to an initial capacity of 6.5Mtpa in mid-2012 and then to a fully operational capacity of 12Mtpa later in the year. These discussions are progressing well and the Group remains confident of attaining an allocation to the line in 2012 which will allow it to further ramp up coal production.

Changara Coal Project

In December 2011, Beacon Hill acquired majority ownership in a joint venture to explore and develop the Changara Coal Project in the Tete Province of Mozambique. The Changara Coal Project covers a licence area of 184km2, which is 70 times the size of Minas Moatize. It is located in the heart of the highly prospective coking coal basin of the Songo Area of the Tete Province, an area with proven coal reserves located within close proximity to Jindal Steel & Power Chingodzi Coal Project, which is estimated to contain a resource in excess of 700Mt of coking and thermal coal.

The JV is a further step in Beacon Hill's wider expansion strategy in the globally significant coking coal region of Tete and will provide the Group with an opportunity to invest in a longer term development project that has the potential to considerably enhance its resource base. 

Tasmania Magnesite

Beacon Hill is in the final stages of completing the Scoping Study for the Tasmania Magnesite Project, which will form the basis for moving towards securing a JV partner to fund the development of the project. Whilst the Scoping Study was initially expected to be completed by the end of 2011, delays with respect to geotechnical and hydrology testing resulted in the release of the Scoping Study being delayed until the first quarter of 2012. 

Corporate

Management Appointments

The Group strengthened its management team throughout the December quarter with the appointments of Neil McKenzie as Chief Financial Officer and Ric Jose as the Mozambique Country Head and Executive Director of Minas Moatize. In addition to Mr Jose's appointment, the opening of the Maputo office has strengthened the Group's presence in Mozambique.

Share Capital

Beacon Hill's net asset position has strengthened following the conversion of all outstanding convertible loan notes, which have now been converted into ordinary shares in the Company.

Beacon Hill currently has 1,051,442,137 ordinary shares, 19,770,000 warrants and 59,337,084 options outstanding.

Cash Position

As at 31 December 2011 the Group had cash on hand of £4.18M and had no outstanding debt. 

ASX Listing

At the Company's General Meeting on 23 December 2011, the resolution to amend Beacon Hill's Articles of Association to comply with the ASX Listing Rules were duly passed. Beacon Hill has subsequently lodged its application to dual list on the Official List of the ASX and the Group expects to commence trading on the ASX in Q1 2012.

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