Commencement of Phase II Expansion

31 July 2012

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

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

Commencement of Phase II Expansion, Production Update and Convertible Loan Notes

HIGHLIGHTS

·; Acceleration of 'Phase II' of Minas Moatize Expansion to H2 2012 with upgrade of current wash plant to commence in August 2012

·; Upgrade of existing 'Phase I CHPP' will increase feed capacity threefold to 1.8Mtpa ROM coal and will enable production of hard coking coal at an economic and consistent yield from the existing wash plant

·; The CHPP will continue to operate throughout 2012, however, capacity performance of the plant and the existing operation will be impacted by the planned works, which are targeted to be completed by the end of 2012

·; Total estimated capital cost of the plant upgrade is US$5m, which will be funded by the issue of £3.4m (US$5.35 million) in unsecured convertible loan notes

Justin Lewis Chairman of Beacon Hill commented: "The Board of Beacon Hill is pleased to announce the commencement of Phase II of the Minas Moatize Expansion, which is expected to result in ROM feed capacity of the existing Phase I CHPP increasing to 1.8Mtpa. Completion of the Phase II expansion in 2012 should see the Minas Moatize Mine able to operate as a profitable and cash flow positive operation on an ongoing basis from the beginning of 2013, based solely upon a trucking transport solution and without the requirement for any further significant capital expenditure."

PHASE II EXPANSION - WASH PLANT UPGRADE AND OPTIMISATION

The Group commenced mining from the Upper Chipanga Pit in May 2012 and has mined approximately 98,000 tonnes ROM coal for the quarter ended 30 June 2012, processing approximately 15,000 tonnes through the mine's existing wash plant ('Phase I CHPP').

The existing Phase I CHPP was commissioned in H2 2011. The plant performs a single-stage wash at a feed rate of 120 tonnes per hour ('tph') on a consistent basis and produces sized thermal coal for the domestic and export market. Whilst the plant continues to produce thermal coal efficiently, the existing configuration of the plant is not optimal for coking coal production at an economic and consistent yield.

In light of this and given current thermal coal prices, the Board has decided to advance the commencement of Phase II of the Minas Moatize Expansion involving the immediate upgrade and expansion of the existing wash plant.

The wash plant upgrade is designed to further liberate the coking coal fraction and to enhance recovery of the high quality coal fines. The upgrade is estimated to cost US$5 million and is targeted to be completed by the end of 2012.

The plant upgrade will involve the installation of the following:

a) Secondary crusher and a larger diameter cyclone;

b) Second stage wash circuit will produce a thermal coal product from the coking coal discard;

c) Reflux classifier and a centrifuge for improved fine coal beneficiation; and

d) Spirals for further thermal coal beneficiation.

The plant upgrade is likely to result in the plant processing capacity increasing threefold from 600,000tpa ROM Coal to 1.8Mtpa ROM Coal.

Completion of Phase II in 2012 should see the Minas Moatize Mine able to operate as a profitable operation from the beginning of 2013, based solely upon a trucking solution and without the expenditure of any further significant capital costs.

CONVERTIBLE LOAN NOTES

The Company has entered into subscription letters with lenders (the "Lenders"), which secure funding for the Group of £3.4 million (US$5.35 million) through the placement of unsecured convertible loan notes (the "Notes").

Pursuant to the Subscription Letters, the Lenders have each irrevocably undertaken to enter into a loan note instrument setting out the terms of the Notes, with the Company and its wholly owned subsidiary, BHR Investments Mauritius Limited. The Notes are convertible into ordinary shares of Beacon Hill at 5.5 pence per share, mature on 30 June 2015 and pay a coupon of LIBOR + 10% per annum on a quarterly basis. Further details of Notes are provided in the Appendix to this announcement.

PLANNED PRODUCTION

Whilst the existing Phase I CHPP will continue to operate for the balance of 2012, the capacity of the plant and the Group's existing operation will be impacted by the planned works. The Group anticipates that total coal production will be approximately 80,000 tonnes for 2012, of which 20,000 tonnes will be coking coal with the balance thermal coal.

Global Coke, an offtake partner of Minas Moatize, has nominated to receive their first shipment of coal from Minas Moatize in Q3 2012. The Group is well advanced in the production and transport of this coal to the port of Beira to meet this shipment.

Following completion of the Phase II plant upgrade at the end of 2012, the plant capacity will increase allowing the Group to produce approximately 400,000 tonnes of coal in 2013, of which 200,000 tonnes is estimated to be coking coal.

Coking coal production is targeted to increase to at least 300,000 tonnes out of a total production of at least 500,000 tonnes in 2014 before any rail allocation and Phase III Expansion. The Group considers that this level of production could be maintained on an ongoing basis, utilising only a trucking transport solution, and with only minor additional capital expenditure funded from internal resources.

The Board remains committed to Phase III of the Minas Moatize Expansion, however, this will be dependent on certain key milestones being achieved including a rail allocation, finalisation of the design of the Phase III CHPP and the required financing.

**ENDS**

APPENDIX

KEY TERMS - UNSECURED CONVERTIBLE LOAN NOTE

GLOSSARY

NOTES

Beacon Hill Resources

Beacon Hill Resources Plc is focused on building a portfolio of near-term production projects in commodities relating to the steel production industry. Beacon Hill is dual listed on the AIM market of the London Stock Exchange (Code: BHR) and the Australian Securities Exchange (Code: BHU).

Beacon Hill has three projects:

1. Minas Moatize Project, Mozambique

2. Changara Coal Project, Mozambique

3. Arthur River Magnesite Project, Australia

Minas Moatize Project

Beacon Hill, through its subsidiary Minas Moatize Limitada, owns and operates the Minas Moatize Coal Mine, which is one of three operating coal mines producing and selling coal in the Tete Province of Mozambique.

In February 2012, Beacon Hill published the DFS for the Minas Moatize Expansion, which demonstrated strong economics for the project. Financial modelling, based on a 4Mtpa ROM operation producing on average 2.2Mtpa of saleable coking and thermal coal using a 13% discount rate, demonstrates a pre-tax NPV13 of US$662 million and a post-tax NPV13 of US$428 million.

The Minas Moatize Expansion is being undertaken in three phases:

*Rail will be used when available. Existing trucking operation will be sufficient to transport Phase II production

Changara Coal Project

Beacon Hill acquired majority ownership in a joint venture to explore and develop the Changara Coal Project in the Tete Province of Mozambique in December 2011. The Changara Coal Project covers a licence area of 184km2, which is 70 times the size of Minas Moatize. The project is located in the heart of the highly prospective coking coal basin of the Songo Area of the Tete Province. 

The joint venture is a further step in Beacon Hill's wider expansion strategy in the globally significant coking coal region of Tete and will provide the Group with an opportunity to invest in a longer term development project that has the potential to considerably enhance its resource base. 

Arthur River Magnesite Project

Beacon Hill has recently completed the Preliminary Scoping Study for the Arthur River Magnesite Project in Tasmania, Australia. The Study has indicated that the Project has robust financial potential and provides a strong platform to move forward towards a full Feasibility Study and securing a joint venture ('JV') and / or off-take partner to fund the development of the Project.

Financial modelling, using a discount rate of 10% (real), demonstrates a pre-tax NPV of A$42 million based on a mine life of 17 years and a 292,000dtpa ROM operation producing on average 100,000tpa of calcined magnesia.

More details on Beacon Hill can be found at www.bhrplc.com.

Competent Persons Statement

The Competent Person for reporting of coal resources, Peet Meyer of PC Meyer Consulting Pty Limited, who is a member of the Geological Society of South Africa (GSSA) and the Fossil Fuel Foundation. Peet Meyer has more than 21 years' experience in the southern African coal industry of which he has spent more than 5 years in the Mozambique Coalfields. 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).

The Competent Person for reporting of coal reserves, Mr. Simon Griffiths, who is a Member of The Australian Institute of Mining and Metallurgy (AusIMM) and Society for Mining, Metallurgy, and Exploration, Inc. (SME) has sufficient experience which is relevant to the style and mineralisation and type of deposit under consideration and the activity to which he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the 'Australian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves'.

The Coal Resources and Reserves 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.

Mr Meyer and Mr Griffiths have consented to being named as the authors of the Resource and Reserve Statements respectively in this announcement.

Forward Looking Statement

Certain statements made during or in connection with the communication, including, without limitation, those concerning the economic outlook for the coal mining industry, expectations regarding coal prices, production, cash costs and other operating results, growth prospects and the outlook of Beacon Hill operations, its liquidity and the capital resources and expenditure, contain or comprise certain forward-looking statements regarding Company's development and exploration operations, economic performance and financial condition.

Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Accordingly, results could differ materially from those set out in the forward-looking statements as a result of, among other factors, changes in economic and market conditions, success of business and operating initiatives, changes is the regulatory environment and other government actions, fluctuations in coal prices and exchange rates and business and operational risk management. For a discussion of such factors, refer to the Company's most recent annual report and half year report. The Company undertakes no obligation to update publicly or release any revisions to these forward-looking statements to reflect events or circumstances after today's date or to reflect the occurrence of unanticipated events.