BEACON HILL RESOURCES PLC. 
By ?
29 January 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 31 December 2012
and Post Quarter Update
Q4 2012 Highlights and Post Quarter Update
Minas Moatize Coking Coal Project
· Strategic Review: Completion of strategic review following the appointment of Rowan Karstel as Managing Director. Key strategic decisions reached including:
o Expansion Strategy: Revised expansion strategy expected to deliver an estimated US$80M saving in future capital expenditure whilst achieving a run-rate of 2.8Mtpa ROM by the end of 2013
o Coking Coal Focus: Mining activities focussed on producing high value coking coal shipments following the completion of the wash plant upgrade
o Cost Reduction Programme:The implementation of a cost cutting plan to materially reduce labour costs in 2013
· Wash Plant: Phase 2A (1.8Mt ROM) wash plant upgrade continued throughout the quarter with key components undergoing cold commissioning in South Africa before being transported to site in Tete. Commissioning on target to commence in February 2013
· Rolling Stock: Minas Moatize Limitada ('MML') entered into a preliminary heads of agreement ("Rolling Stock Heads of Agreement") to lease locomotives and rail wagons conditional on amongst others a 0.5Mtpa allocation on the Sena Rail Line
· Rail: Pursuant to entering into the Rolling Stock Heads of Agreement the Company believes that it should attain its rail allocation in the near term.
· Shipment: Second trial shipment of 18,576 tonnes of thermal coal departed the Port of Beira on 24 December 2012
· Test Work: Optimisation work continued throughout the quarter including washability, liberation and flotation testing to optimise the plant design and to upgrade the Mineable Reserve
· 31% Increase in JORC Resource: Minas Moatize JORC Resource upgraded to 86.8Mt (Measured and Indicated of 76.3Mt), previously 66.4Mt Measured and Indicated. This represents an increase of 31% on the previous JORC resource statement.
Board and Management Structure
· Appointment of Rowan Karstel as Managing Director
· Appointment of Justin Farr-Jones as Chairman
· Appointment of David Premraj to the Board
· Departure of Justin Lewis and Peter Wilson from the Company and its subsidiaries
Funding
· The Company raised circa US$8.75m through the issue of equity and convertible loan notes
Rowan Karstel, Managing Director of Beacon Hill commented:"Since being appointed as Managing Director of the Company, we as a Board have focussed on optimising the value of the Minas Moatize Project. We have identified a strategy to deliver an estimated US$80 million reduction in the proposed capital expenditure associated with the expansion of Minas Moatize, but which should still see the Company achieve plant capacity of 2.8Mtpa by the end of 2013.
"Over the past quarter, we have focussed our activities on the upgrade of our wash plant. The plant assembly is near completion and commissioning is targeted to commence towards the end of February 2013. In addition, we continue to make significant progress with respect to attaining an allocation on the Sena Rail Line and securing rolling stock, and we look forward to updating the market when we achieve this milestone."
"Another focus area for 2013 will be to successfully execute projects on the Phase 2B and 2C Wash Plant expansion, as well as to upgrade the Carbonoc and Dondo Sidings. Our key challenge operationally will be to increase production from 650,000tpa to 2.8Mtpa and we have successfully recruited middle management to oversee the increase in production from the upgraded wash plant."
Justin Farr-Jones, Chairman of Beacon Hill commented:"Whilst a lot more remains to be done to restore shareholder value, I am optimistic that Beacon Hill has made significant progress with its new management team in a very short space of time.
"The key to Beacon Hill prospering in the current challenging commodity markets is to adopt a "lean and mean" strategy. In addition to the announced reduction of capex spend on Minas Moatize, during the last 10 weeks of 2012, the restructured Board implemented an expatriate headcount and board cost saving plan to deliver up to US$2M per annum in annualised savings. In recognition of poor operating performance, no bonuses were paid to the Executive Committee Management in 2012 and the restructured Board also waived their 2012 option incentives except for the new KPI based long term incentive plan required to recruit a 'best in class' Group Managing Director.
"The Rolling Stock Heads of Agreement entered into in January 2013 should be one of the last hurdles prior to securing a 0.5Mtpa rail allocation. With rail access, new rolling stock and a competitive cost of production, the Minas Moatize Coking Coal mine remains capable of producing healthy cashflow even at today's coking coal prices."
Strategic Review
An immediate review of the Company's operations was conducted by Rowan Karstel following his appointment as Managing Director. Rowan's key findings and recommendations were presented and subsequently approved by the Board on 9 November 2012. The findings and strategic decisions during the quarter are highlighted below:
Production
The ramp up of export production from Minas Moatize will be phased in a way to match Beacon Hill's anticipated rail capacity, which is expected to be initially 500,000tpa, and to rise in line with capacity increases on the Sena Rail Line.
Coking Coal
The Board has made the decision to focus its mining activities initially on high value coking coal production and shipments following the completion of the Phase 2A 1.8 Mtpa ROM wash plant upgrade. Coking coal will be transported using trucks for a limited period prior to the arrival of rolling stock in country and the commencement of the Company's rail operations on the Sena Rail Line (subject to a definitive rail allocation), in order to maximise revenue and returns.
Mine Planning
Opportunities to improve on the historic short and medium term mine planning were identified. The existing open pit will be mined deeper to access the lower Chipanga seam with good quality coking coal yield sooner than the previous plan.
Wash Plant Upgrade
Potential bottlenecks and limitations in the design of the wash plant upgrade were identified and as result an additional circa US$1.1m was required to complete the wash plant upgrade.
Minas Moatize Expansion
The Company revised its ramp up strategy in accordance with the review undertaken to optimise the project's net present value by timing expansions with export capacity received on the Sena Rail Line. The staged development further breaks down the prior Phase 2 expansions into three parts, by adding Phase 2B and 2C as summarised in the table below:
Phase 2A | Increase Plant Capacity to 1.8Mtpa ROM Coal and enable production of Coking Coal at a consistent and economic yield The current upgrade of the plant is now scheduled to be completed in the near term with commissioning and testing to commence in Feb 2013. The Phase 2A upgrade will enable the plant capacity to ramp up to 150,000tpm ROM processing, with saleable production transported to port by rail. The capital cost associated with Phase 2A is approximately US$6m. |
Phase 2B | Increase Coking Coal Yield installing flotation cells The Phase 2B upgrade is scheduled to commence in Q2 2013 and is expected to result in an increase in coking coal yields by up to 4 percentage points, lifting the coking coal output. The cost of the Phase 2B upgrade is anticipated to be circa US$3.5m. |
Phase 2C | Increase Plant Capacity to 2.8Mtpa ROM Coal The Phase 2C upgrade is scheduled to commence in Q4 2013, and is expected to result in an increase in plant capacity to 2.8Mtpa. The cost of the Phase 2C upgrade is anticipated to be circa US$6.5m. |
Given the materially lower capital cost provided in the Phase 2B &2C upgrade, which takes the ROM wash plant capacity to 2.8Mtpa for approximately US$16m relative to the previously planned Phase 3 plant expansion to 4Mtpa for US$150m, the Board made the decision to not proceed with the Phase 3 expansion as originally envisaged in the DFS. The revised Phase 2B & 2C plant upgrade has the potential to achieve 70% of the targeted ROM output of the Phase 3 expansion (2.8Mtpa v 4.0Mtpa ROM Coal) for a fraction of the capital cost. The new optimised scenario increases the life of mine ('LOM') from 10.5 to 15 years with further potential upside to extend the LOM further.
Resource Upgrade
In January 2013, the Company announced that the results of the infill drilling programme undertaken in 2012 have resulted in Minas Moatize's JORC Resource being upgraded to 86.8Mt (Measured and Indicated of 76.3Mt) compared to the previous Resource statement of 66.4Mt all of which was Measured and Indicated. This represents an increase of 31% on the previous JORC resource statement.
JORC RESOURCE | Upgraded JORC Resource | Previous JORC Resource |
Measured | 41.4Mt | 35.9Mt |
Indicated | 35.2Mt | 30.5Mt |
Inferred | 10.6Mt | - |
Less Historical Underground Extraction | 0.4Mt | |
Total JORC Resource | 86.8Mt | 66.4Mt |
Production
Mining and processing operations were minimal throughout the quarter to accommodate the access and preparation required to commence the Phase 2A 1.8 Mt ROM wash plant upgrade. During the quarter 3,013 tonnes of ROM coal was mined with 2,722 tonnes of saleable coal produced.
Production (tonnes) | Q1 12 | Q2 12 | Q3 12 | Q4 12 | 2012 |
Run of Mine | 29,230 | 98,080 | 64,020 | 3,013 | 194,343 |
Saleable Coal | 9,640 | 15,700 | 26,370 | 2,722 | 54,432 |
Wash Plant Upgrade
The wash plant upgrade continued throughout the quarter with key components undergoing cold commissioning in Witbank, South Africa before being transported to site in Tete. The plant assembly is progressing well with the structure of the first and second stage wash circuit largely being completed. The outstanding equipment to be installed on the plant includes the reflux classifier, dewatering screens, the basket centrifuge, the product conveyors, and the feeder-breaker which will be installed in February. Commissioning remains on target to commence in February 2013.
Logistics
Rail
The Board has prioritised the use of rail in 2013 for bulk transporting coal to the Port of Beira. The Board remains confident of securing a rail allocation of initially 500,000tpa on the Sena Rail Line in the near term.
Rolling Stock
MML entered into preliminary heads of agreement on 15 January 2013 with a leading South African leasing company to lease five 'as new' locomotives and 90 new rail wagons to bulk transport coal along the Sena Rail Line. The rolling stock is expected to be arrive in Mozambique from South Africa during Q2 and Q3 2013, and remains subject to MML arranging or entering into among others; rolling stock supplier contracts, definitive master lease documentation and as final rail allocation confirmation from Portos e Caminhos de Ferro de Moçambique ('CFM'). Until the expected commencement of rail operations in Q3 2013, the Company will continue to make use of trucks to transport coal to the port as an interim solution.
Shipment
The Company's second test shipment of 18,576 tonnes of thermal coal departed the Port of Beira on 24 December 2012. The coal was sold through the Company's marketing agreement with Vitol Coal S.A.
Corporate
Board and Management Structure
On 2 November 2012, Rowan Karstel was appointed as Managing Director. In addition to Rowan's appointment, Justin Farr-Jones was appointed as Chairman on 2 November 2012 and David Premraj was appointed to the Board on 11 October 2012. Justin Lewis, Peter Wilson and a number of other managers have also recently departed the Company and its subsidiaries.
Funding
The Company raised circa US$8.75m through the issue of equity and convertible loan notes
Cost Reduction Programme
A cost cutting plan was implemented throughout the quarter to materially reduce expatriate labour costs in 2013. The cost cutting plan will initially result in the Company closing its Australian Office in Melbourne and rationalising of the management and finance function into Johannesburg and Tete by March 2013. The acceleration of the transfer of management and operations from Australia to Southern Africa will reduce operating costs significantly through reductions in both staff and travel costs.
**ENDS**
For further information, please contact: | |
Beacon Hill Resources Plc | |
Rowan Karstel, Managing Director (rowan.karstel@bhrplc.com) | |
Justin Farr-Jones, Chairman (jfarr-jones@bhrplc.com) | |
Timothy Jones, Group Finance Director (timothy.jones@bhrplc.com) | + 44 (0) 1372 464 549 |
David Premraj, Director, Corporate Development (david.premraj@bhrplc.com) | +61 3 9627 9910 |
Canaccord Genuity Limited (Nominated Adviser) | |
Rob Collins / Sebastian Jones | +44 20 7523 8000 |
**NOTES**
Statement of Resource
The Coal Resources are reported in compliance with the guidance as defined in Appendix 5A of the ASX Listing Rules being the Australasian Code for Reporting Exploration Results, Mineral Resources and Ore Reserves (the JORC Code), 2004 Edition.
The Golder Associates (NZ) Limited nominated JORC Compliant Person responsible for supervising the preparation of the Statement of Resource is Adam Bonham-Carter. Adam has a background of 25 years in coal including extensive resource modelling and mine planning experience on coal projects in New Zealand, Africa, and Canada with geology ranging from simple to extremely complex. Adam is a Registered Professional Engineer with the Association of Professional Engineers and Geoscientists of British Columbia and a Chartered Professional with the Australasian Institute of Mining and Metallurgy.
The supervising geologist contributing to the Statement of Resource is Petrus Cornelius Meyer ('Peet Meyer') of PC Meyer Consulting Pty Limited. Peet Meyer is a registered natural scientist with the South African Council for Natural Scientific Professions (SACNSP) and with the South African Council for Geosciences (SACG), both of which are Recognised Overseas Professional Organisations (ROPO) under the JORC 2004 Code. In addition, he is a registered professional with the Department of Mines and the Geological Society of Mozambique.
PC Meyer has more than 21 years' experience in the South African Coal Industry. He holds B.Sc. Hons (geology) and M.Sc. (Earth Science Practice and Management) degrees from the University of Pretoria and is an active member of the Geological Society of South Africa (GSSA) and the Fossil Fuel Foundation. He has the appropriate relevant qualifications and experience to be considered as a Competent Person as defined in the Standards on Mineral Resources and Reserves - Definitions and Guidelines (2004).
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