Minas Moatize - Beacon Hill

Beacon Hill, through its subsidiary Minas Moatize Limitada, owns and operates the Minas Moatize Coal Mine in the Tete Province of Mozambique. On 8 December 2010, Beacon Hill completed the acquisition of Minas Moatize Limitada after taking management control of the project in May 2010. Since taking management control, Beacon Hill has focussed on the expansion and development of the Minas Moatize Coal Mine.

Production

Beacon Hill commenced open pit mining of thermal coal from an initial open pit, Trial Pit 1, in Q2 2011. The coal produced is being mined at Minas Moatize’s first wash plant, which was built and installed in the first half of 2011. Commissioning of the plant continues with the processing of export grade coal building to a targeted rate of 100tph, which translates to approximately 600,000t ROM per annum.

Thermal coal mined during the course of the year was successfully transported by truck to the Port of Beira prior to the Group’s maiden export shipment of coal on 17 December 2011. This first shipment demonstrates Beacon Hill’s viable operational end to end logistics solution to transport coal from mine to port and onto customers via the seaborne market.

Pre-stripping of a second open pit, the Upper Chipanga Pit (‘UCP’), commenced in Q4 2011 where the Group will focus its activities on mining the Upper Chipanga Seam, which is anticipated to yield coking coal. To 31 December 2011, 395,172 bank cubic metres (‘bcm’) has been pre-stripped using excavators and it is anticipated that mining from UCP will commence from mid-way through Q1 2012. The Group is seeking to produce and export in excess of 100,000 tonnes of coking coal in 2012.

Minas Moatize Expansion Project

Development work for the expansion of the Minas Moatize Mine continued throughout the final quarter. The Group recently reported its maiden JORC compliant Coal Reserve for Minas Moatize of a total Mineable Reserve of 42.65Mt with the potential upside of a further 7.9Mt. The Mineable Reserve represents the in situ portion of the Geological Resource that is economically mineable.

The total Mineable Reserve includes a Marketable Reserve of 23.45Mt, representing the saleable portion after mining and processing of the resource, of which at least 8.72Mt is coking coal.

	Resource		Total Mineable Reserves¹			Marketable Reserves
	Measured	Indicated	Proved	Probable	Total	Yield²	Total³
Location	(Mt)	(Mt)	(Mt)	(Mt)	(Mt)	(%)	(Mt)
DFS Pit			25.45	17.2			23.45
Total	35.92	30.50	25.45	17.2	42.65		23.45

Coal Product Type
Coking Coal						20.45%	8.72
Thermal (Export)						25.53%	10.89
Thermal (Domestic)						9.01%	3.84
						54.99%	23.45
1. All reserves stated are on an air dried basis
2. Yield calculation for marketable reserves is based on a fines content of 7%
3. Reported reserves does not include 'tonnes' currently unclassified and subject to in-fill drilling programme

Beacon Hill has recently finalised the Definitive Feasibility Study for the Minas Moatize Expansion Project which includes a detailed mine plan and the design of the larger, life of mine Coal Handling and Preparation Plant (‘CHPP’). Production from the main life of mine pit is targeted to commence in H2 2012 following the completion of mining from the Upper Chipanga Pit. The operation is targeted to build to a rate of up to 4Mtpa ROM coal producing in excess of 2Mtpa of saleable hard coking and thermal coal for the life of mine.

Coal Qualities

Coke test results have reconfirmed that the coking coal produced at Minas Moatize will be classified as a Hard Coking Coal. The Coke Strength after Reaction (‘CSR’) range of 68-71 is similar to the hard coking coal produced from Queensland, Australia, which trades at a premium to other coking coals due its limited resources and its importance in the steel production industry.

Off-Take Agreement

In November 2011, Beacon Hill entered into a revised off-take agreement with its partner Global Coke. The revised off-take agreement was for up to 600,000 tonnes of coking coal per annum from Minas Moatize for the life of the mine. As part of the agreement, the parties agreed to the pricing benchmark being a Free-on-Board (‘FOB’) Australian Hard Coking Coal Index. The revised agreement provided Beacon Hill with greater flexibility, taking into account predicted short term coking coal production and logistics capacity, whilst the agreed pricing index followed the reconfirmation as Minas Moatize coking coal as a hard coking coal.

Marketing Partnership and US$20 Million Debt Facility

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 will act as agent to market export coal produced by the Minas Moatize Mine.

Vitol has also made available to Beacon Hill a secured debt facility of up to US$20 million in two tranches of US$10 million. The facility may be utilised for capital expenditure, general corporate and working capital purposes.