BHR.L Regulatory News (BHR)

30 July 2013

Beacon Hill Resources Plc / AIM: BHR / ASX: BHU / Sector: Mining

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

Quarterly Activities Report for the period ended 30 June 2013

2nd Quarter Highlights

·; Mining and processing operations commenced following the completion of the Phase 2A wash plant upgrade to a capacity of 1.8Mtpa ROM:

o The first low volatile premium hard coking coal and export quality thermal coal product has been produced from Minas Moatize

o Plant commissioning phase is progressing well with potential challenges identified and being rectified

·; A preferred contractor with extensive operating experience has been selected to operate the Company's CHPP (wash plant)

·; Rolling stock leasing conditions precedent finalised with the first rolling stock expected to arrive at Minas Moatize in Q3 2013

·; Associated rail infrastructure development is progressing well with the first Minas Moatize trains expected to depart for the Port of Beira in Q4 2013

·; Mining Contract signed between the Company and the Government of Mozambique to enhance the stability of the fiscal and regulatory environment for a period of 25 years

·; Strengthening of Board with the appointments of Cristian Ramirez and Nicholas von Bruemmer as Non-Executive Directors

·; Funding discussions progressing with both conventional pre-export senior debt providers and a number of equipment providers to vendor finance the capex for Phase 2B and Phase 2C expansion on a Build, Own, Transfer ("BOT") basis

Rowan Karstel, Chief Executive Officer of Beacon Hill commented, "We continue to advance our Minas Moatize Coal Project in Mozambique as evidenced by first production of coking and thermal coal following the completion of the first phase of our wash plant upgrade. While the spot price of coking coal is lower than in previous years, low cost producers such as Beacon Hill remain well positioned to build value, particularly when considering the high quality specifications of our product and the ongoing progress made in executing our cost efficient logistics solution. This differentiates us from many of our peers and with the associated rail infrastructure developing well, we look forward to completing the commissioning of the wash plant and moving into full production over the coming weeks."

Minas Moatize Coking Coal Project

Production

Mining and processing operations recommenced in May and 153,520 tonnes of ROM coal was mined with 14,354 tonnes of saleable coal produced. Production was therefore only active during the final six weeks of the second quarter.

Post period-end, the production ramp up continued to progress well with the plant producing both coking coal and thermal coal to expected specification and qualities. Production ramp up is expected to increase further during Q3 2013 as the commissioning progresses.

Due to the reduction in hard coking coal prices during the quarter, inventory is being carefully phased to produce volumes that will coincide with rolling stock availability in Q3 2013.

Coal Quality and Specifications

To date the Company has achieved composite quality specifications of hard coking coal and export thermal coal in line with expectations. The next phase of the ramp up is to produce the composite specifications at higher volumes and consistent yields.

Wash Plant (CHPP)

The Minas Moatize Phase 2A wash plant has been completed and the mine management are fully engaged with the commissioning phase. During May 2013 the plant was wet commissioned and the ramp up is progressing well although, as with any commissioning, we have encountered some issues which are being addressed.

·; During the first week of May 2013 the correct medium was commissioned and the local plant staff were inducted and trained on basic plant operation of the new plant.

·; During the third week in May 2013 an excavator bucket accidentally went into the plant and caused serious blockages requiring remedial action. In the process; the breaker plate of the primary crusher was damaged and it resulted in the crusher running at a reduced 70% capacity. The lead time to replace the breaker plate was two months and this will be installed and rectified by the end of July 2013.

·; Mine management have accumulated a ROM stockpile in anticipation of plant commissioning. During commissioning it was noted that the ROM stockpile contained coal fines in some sections greater than 40%, which reduced the plant efficiency. To mitigate the fines content and to effectively blend the ROM feedstock back to a desired blend, a section of the lower Chipanga seam was drilled and blasted to deliver more coarse coal to the plant. This blending will continue until the run of mine stockpile with the excess fines coal is depleted. The higher quality Lower Chipanga coal seam will only be fed into the plant in late August, and the yields will remain slightly below target until the correct blend of feedstock has been established.

·; During June 2013, the balancing of the reflux classifier caused some issues and it was decided to install a clean water circuit to the unit with a booster pump to obtain the correct pressure. This is expected to enable the unit to run efficiently as it is critical to the recovery of fine coking coal. The benefits of this calibration will be monitored during August 2013.

The saleable product stockpiles are being monitored and verified at up to hourly intervals by the Company's new on-site laboratory operated by Bureau Veritas and by an independent surveyor. The wash plant is performing in line with our current expectations for this early phase of the commissioning and we expect Q3 2013 data to confirm the ramp up remains on track to supply sufficient volume of export coking coal for the rolling stock arrival.

The Company is now focussed on pursuing Phase 2B/2C implementation for 1H 2014 subject to bank or vendor funding to deliver the required volume (2.8 million tons ROM) that will reduce unit production costs to that of a Tier 1 global hard coking coal producer. This will ensure that the Company is above all able to remain competitive and cash generative at current coal prices.

Tender for World Class CHPP (Wash plant) Operator

·; In March 2013, the Company commenced a tender for an experienced CHPP operator. The Company received a number of proposals from pre-qualified firms. The preferred contractor has extensive operating experience of the fine Tete coals which will be invaluable to mine management who will continue to have overall responsibility for production.

·; After a period of three months (the plant commissioning phase), the contractor will be required to meet the Company's Key Performance Indicators ('KPIs') for operating performance going forward. The transaction remains subject to final definitive documentation.

Logistics

Rolling Stock Leasing

·; All conditions precedent relating to the rolling stock leasing finance were completed during the quarter including the attainment of political and commercial risk insurance from ECIC, the export agency of South Africa. The leasing transaction was completed and the payments have been released to the rolling stock manufacturers in South Africa, who are in the process of manufacturing the locomotives and wagons. The Company expects delivery of the first rolling stock in Q3 2013 and to begin transporting coal via the Sena Rail Line in during Q4 2013.

Site Design

·; The Company appointed Aurecon Consultants to assist with the development, layout, site survey, geotechnical investigations, pavements designs, specifications, quantities, documentation, submissions and drawings of the Beira rail transfer project, the port community road and the improvement to the laydown area.

Rolling Stock Fabrication

The first inspection of locomotives (undercarriage) took place on 21 June at RRL Grindrod workshop in South Africa. The inspection was also attended by Thelo Leasing. In addition the Company made a 50% deposit for on board computers (mandatory for safety and to facilitate train control from the centralised control room) for the locomotives as per the agreement between the Company, Thelo Leasing and RRL Grindrod.

Rail Infrastructure

Since formally securing the rail allocation earlier this year the Company's priority has been on the development of the associated rail infrastructure, most notably the Carbonoc transfer station in Moatize, Tete, and the Beira transfer station. The development of the Carbonac transfer station is advancing encouragingly, and the Company is currently on schedule to have the work completed the end of August 2013. The transfer station in Beira is currently behind schedule and the Company remains in dialogue with CFM as to interim measures that can be taken until the final siding location is approved and construction work completed.

Reserve Statement

The Company has completed an updated JORC compliant mineable reserve statement and will publish the results shortly after receipt of final committee approval from its consultants. Management has rebuilt the mining model database which has resulted in a delay to its preparation but which will going forward enable its integration into mining models of adjacent properties.

Mining Contract

On 3 April 2013, Minas Moatize Limitada ('MML'), represented by Chief Executive Officer ('CEO') Rowan Karstel, and the Mozambican Government, represented by Her Excellency the Minister for Mineral Resources, Dra Esperanca Bias, signed a mining contract in Maputo. The initial phase of the mining contract allows the government a 5% equity stake in MML which aligns the Government's interests with that of the Company. In addition, Mozambican national interests can acquire a further 10% stake in MML at fair market price, of which: i.) 5% can be acquired at fair market price by the Mozambique Sovereign Fund, EMEM; and ii.) the Mozambique Government can exercise its option to acquire a 5% stake in MML at fair market price for the purposes of listing on the Mozambique Stock Exchange.

The signing represented a significant milestone in the process of stabilising the fiscal and legal framework of MML by providing the following advantages:

·; Security of tenure through this 25 year contract and a predictable long term legal framework of investment;

·; The ability to transfer the attained contractual position to third parties;

·; The granting of fiscal incentives and exemption from custom duties; and

·; The ability to employ sufficient skilled foreign professionals required to implement planned development and, if required, hire international contractors for the term of the contract.

Corporate

Board Changes

Cristian Ramirez and Nicholas von Bruemmer joined the Board as Non-Executive Directors and Timothy Jones resigned as Group Finance Director during the quarter with Stefanie Cronje taking over full responsibility for group's finance function.

The Company is currently reviewing a number of expansion opportunities in Mozambique within its key focus area of steel related commodities. Further updates on those transactions, which remain subject to due diligence will be communicated to shareholders during Q3 2013 should they progress further.

Funding

Cash Position

The Company is currently adequately funded with US$ 13.6 million (approximately £ 8.9 million) in cash and cash equivalent assets as at 30 June 2013, including contractor prepayments.

The Company is in discussions with a number of leading financial institutions with respect to arranging a pre-export senior secured debt facility and or a mezzanine debt facility to commence its Phase 2B/2C capital expenditure (as described above). In addition the Company has entered negotiations with a number of equipment providers to submit vendor finance proposals on a build, own, transfer ("BOT") basis to fund Phase 2B/2C wash plant upgrades. If the BOT vendor financing is completed satisfactorily this would be expected to replace the senior debt facility requirement. A decision on the funding for Phase 2B/2C is expected to be made shortly after final BOT proposals have been assessed.

**ENDS**