Beacon Hill Chairman says rail line negotiations progressing well

2011-09-30

Sep. 27, 2011 - Beacon Hill Resources Chairman Justin Lewis said “good progress” is being made with plans to gain access to the Sena Rail Line, which links the company’s coal mine in the Tete region of Mozambique with the port of Beira.
The company is currently using a fleet of 20 trucks to ferry output from the Minas Moatize operation to the coast.
This is far more expensive than the rail option and limits capacity. In fact the economics are such that trucking only really works successfully for higher priced coking coal, Lewis told a conference call this morning.
Beacon Hill has brought forward the production of coking coal at Minas Moatize by around six months to enable the switch out of export-grade thermal coal.
"We have the ability to move the coal by truck. It’s not a long term solution as it is more expensive,” Lewis said.
"But it does work and allows us to move half a million tonnes of coal. But it really is just a solution that works with coking coal.”
He added: “(As for) the Sena Railway Line, we continue to make good progress with that. "We are in active discussions with the government, Vale and Rio with a view to having capacity over the next two years, entering into a take or pay agreement, which will turn into a long-term agreement.”
In the same call, Lewis gave the company’s reasons for not taking up the option to acquire licence area 1165 in the Tete after an extended period of due diligence.
"We undertook a drilling programme to look at the quality and quantity (contained in 1165) and due largely to geological features, the coal is not the quality we anticipated,” he said.
The next 30 months are going to be crucial as the company ramps up production to an estimated 2.35 million tonnes of coal a year.
A total of 920,000 tonnes will be coking coal, and 880,000 tonnes export quality thermal coal. The remainder will be sold domestically at the mine gate or will be sold to neighbouring countries.
Today’s update, followed publication of Beacon Hill’s interims, which reprised six months of significant progress for the company.
The company will make its first overseas shipment of coal from Beira at some point in the final quarter of the year.
And as well as expanding production, the group now has an interim washing plant onsite.
Separately, phase one of the company’s drilling programme on the Arthur River magnesite project in Tasmania has been completed, and a scoping study should be compiled by the end of the year.
A full feasibility study will begin next year.
Beacon Hill chairman Justin Lewis said: "We are making good progress at both our Minas Moatize coal mine in Mozambique and at our Arthur River Magnesite project, as we advance our strategy of building and developing resource assets in commodities associated with the steel industry. 
"During the period, we significantly increased the value of our assets and we firmly believe there remains considerable potential for a further step-up in valuation as we rapidly progress our asset base through the development cycle.
The update was contained in Beacon Hill’s interim results statement which revealed the company made a loss of £1.9 million, compared with £1.3 million previously. More importantly, it has cash in the bank of just over £9 million and its net assets totalled just over £40 million.
The company recently turned down a takeover offer that valued the company at 16.25 pence a share, or £120 million (current share price 9.25 pence). 
"Our confidence in, and commitment to, our projects lay behind the board's decision to reject an approach for the group,” Lewis said.
"We have met key development milestones at Minas Moatize having commenced production of export grade coal and commissioned our first wash plant. 
"Initial production of coking coal has been accelerated with mining on course to commence in early 2012 which, following results attained from the recent coke test analysis, will now target hard coke which trades at a premium to thermal coal. 
"We remain on track for our first export shipment in the fourth quarter of 2011 and are already stockpiling at our warehousing facilities in Beira.”
Although the tenor of today’s statement was generally upbeat, analyst Andrew McGreary, of Northland Capital Partners, said he is reducing his production forecasts to reflect “lower capacity expectations”.
This he says is a function of trucking the coal out of Minas Moatize rather than taking via the rail route.
However he remains a buyer of the stock, and says there is “plenty upside” from the current depressed levels.
Mike Savage, small-cap guru at Killik & Co, said he remains a “confident holder” of the stock at “these depressed levels”.
"There remains considerable potential for a further step-up in valuation as Beacon Hill progresses its asset base through the development cycle and, in the meantime, management maintains that it is making progress in active discussions with the operators of the railway,” he added.