Acquires Producing Coal Mine in Tete, Mozambique

Beacon Hill Resources plc / Ticker: BHR / Index: AIM / Sector: Mining

16 April 2010

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

Acquires Producing Coal Mine in Tete Province, Mozambique

Beacon Hill Resources plc (AIM:BHR), the AIM listed resource group, is pleased to announce the conditional acquisition of Minas Moatize LDA ('Minas Moatize'), which owns and operates a coal mine in the Tete Province of Mozambique, for a total cash consideration of US$35m by the Group's 49 per cent. owned associate BHR Mining Limited ('BHR Mining').

Overview

·; Transformational acquisition for the Group of an interest in the only operating coal mine in the Tete Province of northern Mozambique, one of the world's largest undeveloped coking coal regions

·; Beacon Hill to be granted immediate management control with revenue generation from producing underground coal mine - intention to expand production to 2Mtpa of saleable coal for domestic and export markets, which management estimates at current prices has the capability to generate revenues of US$250 million per annum

·; Discussions in advanced stages with potential off-take partners, including the provision of financing upon entering into an off-take agreement

·; Option giving exclusive right for Beacon Hill to increase interest in BHR Mining to 75 per cent.

Beacon Hill Executive Chairman Justin Lewis said, "This exciting acquisition gives Beacon Hill access to the only operating mine in the globally significant coking coal region of Tete in Mozambique, which we believe has the potential to generate annual revenues in excess of US$250 million. To achieve this target we intend to develop a large, open cast mining operation, producing both coking and thermal coal for domestic and export markets. 

"However ahead of this, our immediate focus is on increasing production to an average of 20,000 tonnes of saleable coal per month though expanding current underground production and opening a small scale open cast pit. This will provide near term cash flow to fund drilling programmes to further prove and expand the current resource, and subsequently maximise the potential uplift in value for our investors.

"We continue to have very constructive discussions with potential off take partners for both a thermal and coking coal, with such arrangements including the provision of additional finance."

This summary should be read in conjunction with the full text of the following announcement.

Contacts

For further information on the Group, visit: www.bhrplc.com or contact:

Further Information

Proposed Acquisition of a 49 per cent. interest in Minas Moatize

1. Introduction

Beacon Hill is pleased to announce the conditional acquisition, by its 49 per cent. owned associate BHR Mining, of Minas Moatize, for a consideration of US$35m to be paid in cash on or before 31 December 2010 ('the Acquisition'). In addition, BHR Mining has agreed to acquire the benefit of outstanding loans owed by Minas Moatize to the Sellers totalling US$5m for their full face value payable in cash on or before 31 December 2010. Minas Moatize owns and operates a coal mine in the Tete Province of Mozambique, with an estimated resource of 33 million tonnes ('Mt') of coal, of which 20 Mt is in the measured category. 

2. Background to and Reasons for the Acquisition

Beacon Hill has a strategy of focussing on the acquisition, exploration and development of resource projects related to steel industry commodities. In line with this, whilst focussing on its existing portfolio, its management team has also continually assessed acquisition opportunities. 

Minas Moatize, which was introduced to the Group by its long term partners, Consolidated Resources and Mining (Pty) Limited, brings to the Group a transformational opportunity. Minas Moatize provides the Group an interest in:

·; Coal - this is a commodity in high demand as demonstrated by the significant increase in coking coal prices over the last 12 months. Minas Moatize will enable the Group to provide both coking and thermal coal to the seaborne market;

·; A producing asset - Minas Moatize currently has a small producing underground mine which BHR Mining intends to expand in the very short term to be producing thermal coal at a rate of 20,000 tonnes per month. This will bring short term cash flow; and

·; A foothold in one of the world's largest developing coal regions, the Tete district of northern Mozambique. Through the Group's activities there, it has seen and will continue to see further interesting potential opportunities for further growth.

Minas Moatize brings to Beacon Hill exposure to coal, a highly attractive and increasing sought after commodity, as well as an interest in an operating asset. It therefore represents a transformation opportunity for Beacon Hill.

An exclusive option agreement to acquire Minas Moatize was signed on 8 January 2010. Since then, due diligence has been undertaken and legal documentation finalised. An agreement for the acquisition of Minas Moatize by BHR Mining was signed on 16 April 2010. Further details of the acquisition are set out below.

The Directors of Beacon Hill believe that the acquisition of Minas Moatize should strengthen the Group's position and will significantly enhance the Group's growth profile.

3. Information on Minas Moatize

Minas Moatize currently operates a small underground mine in one of the world's largest undeveloped coal regions, the Tete district of northern Mozambique, producing thermal coal for domestic consumption. The Group intends to immediately expand production of the underground mine and commence production from a small open cut pit, which should take production levels to an average of 20,000 tonnes per month. In addition the Group will acquire a small scale modular beneficiation plant.

Over the next 18 months, the Group intends to develop the resource into a larger open pit operation, under the aegis of Minas Moatize's existing government and environmental licences, to produce both coking and thermal coal for export markets. The Group has developed a plan which will potentially allow the mining of up to 2Mtpa of saleable coal. At current prices (coking coal US$200/tonne; thermal coal US$80/tonne) the directors of Beacon Hill believe that Minas Moatize could generate annual revenues in excess of US$250m.

The Group will commence a drilling and testing programme over the next six months to enable the finalisation of a mine plan and final design of a beneficiation plant. It is intended that the larger open pit mine will be in production in early 2012.

In the year ended 31 December 2009, Minas Moatize had revenues of 32 million Metical (approximately £603,000) and incurred a loss of 22.5 million Metical (approximately £423,000). At 31 December 2009, Minas Moatize had gross assets of 28.6 million Metical (approximately £539,000) and net liabilities of 33.5 million Metical (approximately £1.2 million).

The Group is currently in advanced discussions with potential customers interested in entering into long term off-take agreements, which it is anticipated will include the provision of up front financing which BHR Mining will use to assist in the payment of the consideration for Minas Moatize.

4. Principal terms of the Acquisition

Beacon Hill has a 49 per cent. interest in a newly formed company, BHR Mining, with the remaining 51 per cent. held by Consolidated Minerals Pte Limited. Beacon Hill has an option to increase its interest in BHR Mining to 75 per cent. by subscribing for shares for an aggregate value of US$1,000,000.

BHR Mining has agreed to purchase the immediate holding companies of Minas Moatize ('the Sale Companies') for $35 million on or before 31 December 2010, subject to the satisfaction of certain conditions prior to 30 April 2010. The Sale Companies own, or have undertaken to acquire, 100 per cent. of the issued equity of Minas Moatize LDA.

Certain of the conditions are administrative in nature and principally relate to the finalisation of security documentation between BHR Mining and the Sellers. Closing of the Acquisition is anticipated to take place within ten business days of the conditions being satisfied.

The consideration of $35m is payable on or before 31 December 2010, with $1m having already been paid by way of a deposit. In addition, BHR Mining has agreed to acquire the benefit of outstanding loans owed by Minas Moatize to the Sellers totalling US$5m for their full face value payable in cash on or before 31 December 2010. In the event that BHR Mining does not pay the full consideration by 31 December 2010, then the Sellers will be able to repossess the shares in the Sale Companies they had sold to BHR Mining. In the interim period before 31 December 2010 at which date the balance of the consideration must be paid, BHR Mining will own and operate Minas Moatize, benefiting from any profits generated.

Resource Estimation:

Resource estimations relating to Minas Moatize included in this release have been compiled, according to SAMREC Code, by Mr. Grant van Heerden, Pr.Sci.Nat, MGSSA of SRK Consulting (South Africa) (Pty) Limited ('SRK'). Mr van Heerden is a specialist in Coal Resource estimations and reporting to various international standards and has been involved in many such commissions in South Africa and sub-Saharan Africa over the past five years. Mr. van Heerden is a permanent employee of SRK. SRK consents to the inclusion of the information in this announcement in the form and context in which it appears.

Information on Minas Moatize

The information on Minas Moatize including the resources estimation has been provided by Minas Moatize management and has not been independently checked or legally verified.

To the fullest extent permitted by law, no representation or warranty, express or implied is given by or on behalf of the Group or any of its constituent companies or partners as to the accuracy or completeness of the Minas Moatize information.

**ENDS**