Beacon Hill AGM statement

This has been a transformational year for Beacon Hill, which has seen the group grow into a significant Mozambican coal producer and developer operating in one of the world’s most exciting developing metallurgical coal regions.

During the last 12 months we have delivered on numerous key operational objectives at our primary asset, the Minas Moatize coal project in Tete, resulting in Beacon Hill beginning its ramp up of operations targeting production of 4 million pta ROM coal. These achievements included the commencement of metallurgical coal production and the publication of a Definitive Feasibility Study (DFS), which demonstrated the highly attractive economic fundamentals of the project. Perhaps most importantly, our focus on logistics has culminated in developing an end-to-end logistics solution that was demonstrated in our first export shipment in December 2011, and we continue to make progress with respect to securing long-term rail access, which will enable increased capacity and higher margins for our product.

On a corporate level, we executed a valuable marketing agreement with the Vitol Group, the world’s largest private energy trader, which offers Beacon Hill an optimum route to market for our products, in addition to providing the flexibility to meet our existing commitments under our off-take agreement with Global Coke. Importantly, we remain well funded with access to a US$ 20 million debt facility from the Vitol Group, and revenues from the sale of both metallurgical and thermal coal, which places us in a strong position to expand our operations.

In addition, the Group has recently commenced exploration at the Changara coal project, which – with a licence area 70 times the size of Minas Moatize – offers the potential for significant upside to our overall resource. Mozambique, and the Tete province in particular, is increasingly being recognised as a major new coal basin. With this in mind, the acquisition of a majority ownership in the Changara coal project has significantly strengthened our position in this area, and we remain proactive in evaluating additional assets through which we can further strengthen our footprint in Mozambique.

Aside from our coal operations, the recent completion of the Preliminary Scoping Study (PSS) for the Arthur River magnesite project in Tasmania has further highlighted the robust financial potential of the project. This PSS has underpinned the value of this significant asset and will provide us with a strong platform to move forward to full feasibility and towards securing a joint venture or off-take partner to fund the development of the project.

Minas Moatize coal project

It has been an exciting period at Minas Moatize with significant developments being achieved in the past 12 months that have transformed the Group into a seaborne exporter of coal. The recent completion of the DFS for Minas Moatize, which reported a pre-tax NPV₁₃ of US$ 662 million and an IRR of 79.5%, highlighted the compelling economics of the project. Minas Moatize is now well placed to ramp up production to a targeted level of 4 million tpa ROM coal producing on average 2.2 million tpa of saleable coal over the coming years.

Production of metallurgical coal has also commenced from the Upper Chipanga mine and metallurgical coal is being trucked to the Port of Beira in readiness for our first export shipment of metallurgical coal, which is targeted for mid-year. The metallurgical coal will be sold to Global Coke, our off-take partner. The Group remains on track to produce and export approximately 100,000 t of metallurgical coal in 2012 in addition to thermal coal, which is being sold at the mine gate to the domestic market.

Our trucking operation continues to operate effectively, allowing coal to be transported to port for shipment, including our first export shipment which departed the Port of Beira in December 2011. The trucking operation will allow the transport of up to 0.5 million tpa to the port for future shipments, which is more than sufficient for our planned production over the next 18 months. We intend to continue to use this trucking solution pending the commencement of the transportation of coal via the Sena rail line, which remains our longer-term preferred transportation solution due to both cost and capacity.

The refurbishment of the Sena rail line to an initial capacity of 6.5 million tpa is ongoing with works still anticipated to be completed in 2012. Following completion of these works, we remain confident of attaining an allocation to the line in 2012, which will allow us 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. Changara 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 metallurgical coal basin of the Songo area of the Tete province, an area with proven coal reserves. The joint venture is a further step in our wider expansion strategy and has provided the Group with an opportunity to invest in a longer-term development project that has the potential to considerably enhance our resource base. The first phase of the exploration programme at Changara has recently commenced and we expect to receive the results of this initial drill programme in the next quarter.

In summary, I believe that the last 12 months has seen Beacon Hill make excellent progress towards achieving its strategy of developing high quality assets relating to the steel industry, and in so doing, considerably enhanced the value of our projects. I would like to take this opportunity to thank our valued shareholders for their commitment during this period of market upheaval, and I look forward to providing further news on our progress over the next year.

Adapted from a press release by Lauren Bryant

Read the article online at: https://www.worldcoal.com/coal/17052012/beacon_hill_agm_statement/