Half Year Report for the period ended 30 June 2012

28 August 2012

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

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

Half Year Report for the period ended 30 June 2012

HIGHLIGHTS

Minas Moatize Mine

·; Completion of Definitive Feasibility Study ('DFS') - demonstrated highly compelling economics for Phase III Minas Moatize mine expansion - pre-tax NPV of US$662 million

·; Maiden JORC compliant Mineable Reserve of 42.65 million tonnes ('Mt')

·; Commencement of Phase II Expansion in August 2012 that involves the upgrade of the existing plant, which will enable a threefold increase in plant feed capacity to 1.8Mtpa ROM coal and support the production of coking coal at a higher and more consistent yield

·; Completion of a drilling and sampling programme recommended in the DFS

·; Entered into strategic marketing partnership with Vitol Group

·; Continued progress with respect to logistics and attaining an allocation on the Sena Rail Line

Arthur River Magnesite Project

·; Completion of a Preliminary Scoping Study - financial modelling demonstrates a NPV of A$42M based on a 292,000 dry tonne per annum ('dtpa') ROM operation producing on average 100,000dtpa of calcined magnesia with an average grade of 95% MgO

Changara Coal Project

·; First phase drilling programme of a planned 17 holes commenced with initial five drill holes being completed to a shallow depth of up to 200m across the 184km2 licence area

Financial

·; Revenue of £253,503 (2011: £292,039) and a loss of £5.651 million (2011: £1.895 million)

·; Net assets as at 30 June 2012 of £54.670 million and cash in bank of £3.332 million

·; Issue of £3.4m in convertible loan notes in July 2012

Justin Lewis, Chairman of Beacon Hill, commented:

 "The first half of 2012 has been an active period for the Group against a challenging backdrop. The primary focus of the Group has been the ongoing expansion and development of Minas Moatize. This year, the Group has published a DFS that demonstrates compelling economics for the Minas Moatize Project, commenced mining from the Upper Chipanga Pit, executed a highly valuable marketing agreement with the Vitol Group, and commenced Phase II of the Minas Moatize Expansion that involves the upgrade and optimisation of the existing wash plant. 

"The Phase II Expansion, which is scheduled to be completed by the end of this year, will see ROM feed capacity of our existing plant triple to 1.8Mtpa and will expand the ability of the Group to produce coking coal. Beacon Hill continues to make progress with respect to logistics and we remain confident of attaining an allocation on the Sena rail line in advance of the completion of the Phase II Expansion. The Group remains well funded and the completion of the Phase II expansion this year should see the Minas Moatize Mine able to operate as a profitable and cash flow positive operation from 2013." 

**ENDS**

CHAIRMAN'S REPORT

Overview

The first half of 2012 has been a challenging period for the Group operationally, against an uncertain global economic climate, in particular for commodities. Notwithstanding this, we have continued to make significant progress towards achieving our goals.

Production and development

The year began with one of the most severe wet seasons Mozambique has seen for many years which resulted in a considerable interruption to our Phase I operations in the first few months of the period, and a consequent loss in production. Throughout the period the washplant continued to operate producing thermal coal and work has recently commenced on upgrading the plant's capabilities.

Coal produced is being sold at the mine gate, with the balance being transported to the Port of Beira. The Group has sufficient stockpiles of coal at the port and is awaiting Global Coke to nominate a vessel to receive their first shipment of coal, anticipated to be in Q3 2012.

In July the Board made the decision to accelerate the commencement of the Phase II Expansion of Minas Moatize, which will see the capacity of the washplant increase threefold to 1.8Mtpa ROM and see its ability to produce coking coal be expanded. Once this upgrade is completed at the end of the year, the Minas Moatize Mine will be able to operate on profitable basis, utilising solely our existing trucking solution to transport coal to the port of Beira.

Development work for Phase III of the Minas Moatize Expansion continues alongside existing production. A key milestone was the publication of the DFS at the beginning of this year. Additional drilling and test work recommended by the study has commenced and is due to be completed by the end of this year. Discussions have also begun with debt financiers with a view to funding this next stage of the project and in order to maximise production from the Mine. 

Logistics

We continue to make good progress with respect to logistics. The Group is currently operating an effective trucking operation between Minas Moatize and the Port of Beira and we remain confident of attaining a formal rail allocation before the end of the year. The Government of Mozambique is well progressed with the finalisation of the refurbishment of the Sena rail line to a capacity of 6.5Mtpa and has publically stated this work should be completed by November 2012. The Group has also been in discussions with other operators in the region to jointly develop logistical infrastructure. 

Corporate & Financial

In April 2012, we were delighted to form a partnership with the Vitol Group, one of the world's largest commodity traders, providing the expertise to assist in marketing our coal as well as making a US$20 million debt facility available to the Group of which US$10 million was drawn down in April 2012. 

The Group is reporting turnover of £253,503 and a loss of £5.65 million for the half year ending 30 June 2012. The Group's loss was predominately driven by interrupted mining operations and by reduced performance of the wash plant. In the period, the wash plant experienced low recoveries which resulted in lower amounts of saleable coal production. The Group recently commenced the Phase II Expansion, which involves the upgrade of the existing wash plant, allowing production of coking coal at a higher and more consistent yield. 

The balance sheet remains strong with net assets of £54.7 million and cash at the period end of £3.3 million, which was increased by £3.4 million following the period end as a result of the loan note to finance the Phase II Expansion.

Outlook

The global economic climate remains uncertain and coal prices remain volatile. Against this background I believe the Group is in a strong position. In Minas Moatize we have a funded, producing asset, which following the completion of the Phase II Expansion, should be able to operate profitably with no further significant capital expenditure and on the basis of existing infrastructure. We continue to hold a very strategic position in Mozambique's rapidly developing coal fields, surrounded now by major projects including Vale's Moatize Project, Rio Tinto's Benga and Zambeze Project and Anglo American's Revuboe Project. We continue to make very good progress with regard to infrastructure and we remain focused on the production of high grade coking coal, which despite current markets continues to benefit from healthy margins.

I would like to thank on behalf of the Board the on-going commitment and dedication of all the Group's employees, consultants and wider stakeholders in what has been a challenging period and look forward to informing the market on progress made throughout the balance of the year.

Justin Lewis

Chairman

27 August 2012

REVIEW OF OPERATIONS

Minas Moatize Coal Mine

Overview

Beacon Hill, through its subsidiary Minas Moatize Limitada, owns and operates the Minas Moatize Coal Mine in the Tete Province of Mozambique. Following the recent acquisition of the Revuboe Project by Anglo American, Minas Moatize is now surrounded by globally significant projects owned and operated by Vale, Rio Tinto and Anglo American. Since acquiring Minas Moatize in 2010, Beacon Hill has focussed on increasing production whilst in parallel working on the expansion and development of the Minas Moatize Coal Project. 

Coal Reserve

In February 2012, the Group reported its maiden JORC compliant Coal Reserve for Minas Moatize. The total Proved and Probable Reserve is 42.65Mt of which 23.45Mt is estimated to be recoverable and saleable after processing. 

Definitive Feasibility Study

In February 2012, Beacon Hill published the DFS for the Minas Moatize Coal Project. The DFS, completed by consultants TWP Australia Pty Ltd, demonstrates strong economics for the project. Financial modelling, based on a 4Mtpa ROM operation producing on average 2.2Mtpa of saleable coking and thermal coal during its mine life using a 13% discount rate, demonstrates a pre-tax NPV13 of US$662 million and a post-tax NPV13 of US$428 million. 

Minas Moatize Expansion

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

Current Production (Phase I)

The Group commenced mining from the Upper Chipanga Pit, a second initial open pit in Q2 2012. For the six month period the Group mined approximately 127,000 tonnes ROM coal and produced approximately 24,000 tonnes of saleable coal from the mine existing wash plant ('Phase I CHPP'). 

Production figures in the first quarter were impacted by one of the most severe wet seasons Mozambique had seen for many years which resulted in a considerable interruption to our Phase I operations. In the second quarter, the wash plant experienced low recoveries which resulted in lower amounts of saleable coal production.

Coal produced in the period is being sold at the mine gate, with the balance being transported to the Port of Beira. The Group has sufficient stockpiles of coal at the port and is awaiting Global Coke to nominate a vessel to receive their first shipment of coal, anticipated to be in Q3 2012.

Phase II Expansion (Currently being undertaken)

Beacon Hill commenced the Phase II Expansion involving the upgrade and expansion of the existing wash plant in August 2012. The plant upgrade is designed to increase the recovery of coking coal by further liberating the coking coal fraction and to enhance recovery of the high coking quality fines. The plant upgrade will also result in the plant processing capacity increasing threefold from 600,000tpa ROM coal to 1.8Mtpa ROM coal. The upgrade is due to be completed by the end of 2012, which should see the Mine able to operate as a profitable operation from the beginning of 2013, based upon a trucking logistics solution only and without any further significant capital expenditure.

Phase II Expansion: Planned Production

The Group anticipates that total coal production will be approximately 80,000 tonnes for 2012, of which 20,000 tonnes will be coking coal and 60,000 tonnes thermal coal. Following completion of the Phase II plant upgrade, 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 requiring only minor additional capital expenditure funded from internal resources. 

Phase III Expansion

Throughout the first half of the year optimisation work continued for Phase III of the Minas Moatize Expansion, which is aimed at increasing production to 4Mtpa ROM, producing on average 2.2Mtpa of saleable coking and thermal coal for the life of mine. Optimisation work included a drilling programme that was recommended in the Definitive Feasibility Study ('DFS'). The drilling programme included 19 holes and the core samples from this drilling programme have been forwarded to laboratories for:

a) Washability, liberation and flotation testing to optimise the design of the Phase III CHPP

b) Upgrading the Minas Moatize JORC Coal Resources and Reserve

c) Geotechnical investigations to optimise the pit design and the foundation design for the Phase III CHPP.

The commencement of Phase III is targeted for H2 2014, however Phase III will be subject to key milestones being achieved including a rail allocation, finalisation of the design of the Phase III CHPP and securing the required financing. Discussions have commenced with debt financiers with regard to funding this next stage. 

Logistics

Beacon Hill has continued to make progress with respect to logistics in the past six months. The Group's existing trucking operation is operating efficiently and will allow the Group to transport up to 0.5Mtpa to the Port of Beira for future shipments, which is sufficient for the Phase II Expansion.

The refurbishment of the Sena rail line is progressing encouragingly and the upgrade to 6.5Mtpa capacity remains scheduled to be completed in November 2012. The Group remains confident of attaining an allocation to the rail line in 2012 following the completion of the upgrade. The Group has also been in discussions with other operators in the region to jointly develop logistical infrastructure. 

Marketing

In March 2012, Beacon Hill entered into a strategic marketing partnership with the Vitol Group, one of the world's largest energy trading groups. As part of the partnership the parties entered into a Coal Marketing Agreement whereby Vitol Group will act as agent to market export coal produced by the Minas Moatize Mine. In connection with the marketing agreement, Vitol made available to Beacon Hill a secured debt facility of up to US$20M million in two tranches of US$10 million, of which the first tranche has been drawn, with the second tranche subject to conditions principally related to achieving certain production targets. 

Arthur River Magnesite Project

Overview

Beacon Hill, through its subsidiary Tasmania Magnesite NL, holds mineral tenure over two large, high-grade magnesite deposits at Arthur River and Lyons River in north-western Tasmania, Australia. 

Preliminary Scoping Study

In May 2012, Beacon Hill announced the results of the Preliminary Scoping Study for the Arthur River Magnesite Project, over which the Mining Lease is held. The Scoping Study has confirmed that the project has robust financial potential with an NPV of A$42 million based on a 292,000 dtpa ROM operation producing on average 100,000dtpa of calcined magnesia with an average grade of 95% MgO. The Scoping Study results provide a strong platform to move the project forward and towards securing a joint venture ('JV') and/or off-take partner to fund the development of the Project. 

Following the completion of the Scoping Study the Group has commenced further metallurgical testwork to provide further information on the metallurgical and chemical composition of the magnesite ore. In addition, the Group has commenced discussions with potential off-take and JV partners and these discussions are progressing well. 

Changara Coal Project

Overview

In December 2011, Beacon Hill acquired majority ownership in the Changara Coal Project, an exploration project in the Tete Province of Mozambique. The Changara project 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 coking coal basin of the Songo Area of the Tete Province, an area with proven coal reserves located within close proximity to Jindal Steel & Power Chingodzi Coal Project. The Changara project is a further step in Beacon Hill's wider expansion strategy in the globally significant coking coal region of Tete and provides the Group with an opportunity to invest in a longer term development project that has the potential to considerably enhance its resource base. 

Initial Exploration

The first phase drilling programme of a planned 17 holes commenced at Changara in Q2 2012. An initial five exploratory drill holes have been completed using an air flush percussion method to a shallow depth of up to 200m across the 184km2 licence area. All the holes were completed by 25 July 2012. All drill holes have identified sandstone, believed to be the Matinde formation, which is known to typically sit above the coal zones within the Moatize Formation of the Lower Karoo, the geological formation seen within the coal bearing region of Tete Province, Mozambique. These initial shallow holes, whilst very widely spaced across a large area give early guidance as to the geological structure present in the area and provide the basis for further drilling below the sandstone. The next stage is for further holes to be drilled deeper using a larger PCD-enabled drill rig, able to drill to up to 750m, to determine the presence and depth of coal below the sandstone identified, in the Lower Karoo Formation.

Financial Results

For the six months under review, the Group generated revenue of £253,503 (2011: £292,039) from the sale of coal in Southern Africa. The Group has reported a loss of £5.651 million (2011: £1.895 million). At 30 June 2012, the Group had total assets of £81.361 million (2011: £73.337), net assets of £54.670 million (2011: £40.301) and cash in bank of £3.332 million (2011: £9.037 million), which was increased by £3.4 million following the period end as a result of the loan note to finance the Phase II Expansion.

Share Capital

Beacon Hill has 1,051,442,137 ordinary shares, 19,770,000 warrants and 59,337,084 options.

1. Accounting policies

Basis of accounting

These condensed consolidated financial statements do not include all disclosures that would be required in a complete set of financial statements and should be read in conjunction with the 2011 Annual Report. The financial information for the half years ended 30 June 2012 and 30 June 2011 does not constitute statutory accounts within the meaning of Section 434(3) of the Companies Act 2006 and is unaudited.

The annual financial statements of the Company are prepared in accordance with IFRSs as adopted by the European Union. The comparative financial information for the year ended 31 December 2011 included within this report does not constitute the full statutory accounts for that period. The statutory Annual Report and Financial Statements for 2011 have been filed with the Registrar of Companies. The Independent Auditors' Report on that Annual Report and Financial Statements for 2011 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

The same accounting policies, presentation and methods of computation are followed in these condensed consolidated financial statements as were applied in the Group's latest annual audited financial statements. The IASB has issued a number of IFRS and IFRIC amendments or interpretations since the last annual report was published. It is not expected that any of these will have a material impact on the Group.

2. Loss per share

The calculation of loss per ordinary share is based on a loss attributable to equity holders of the parent company of £5,651,199 (2011: £1,895,441) and on 1,051,442,137 (2011: 674,413,930) ordinary shares, being the weighted average number of ordinary shares on issue during the period.

3. Dividends

The directors do not recommend the payment of a dividend.

INDEPENDENT REVIEW REPORT TO BEACON HILL RESOURCES PLC

Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2012 which comprises the consolidated income statements, the consolidated statement of comprehensive income, the consolidated statement of changes in equity, the consolidated balance sheet, the consolidated cash flow statement and the related notes.

We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The interim report, including the financial information contained therein, is the responsibility of and has been approved by the directors. The directors are responsible for preparing the interim report in accordance with the rules of the London Stock Exchange for companies trading securities on AIM and of the Australian Securities Exchange which require that the half-yearly report be presented and prepared in a form consistent with that which will be adopted in the company's annual accounts having regard to the accounting standards applicable to such annual accounts.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Our report has been prepared in accordance with the terms of our engagement to assist the company in meeting the requirements of the rules of the London Stock Exchange for companies trading securities on AIM and of the Australian Securities Exchange and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ''Review of Interim Financial Information Performed by the Independent Auditor of the Entity'', issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2012 is not prepared, in all material respects, in accordance with the rules of the London Stock Exchange for companies trading securities on AIM and the Australian Securities Exchange.

BDO LLP

Chartered Accountants and Registered Auditors

London

United Kingdom

27 August 2012

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

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 STATEMENTS

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.