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Beacon Hill Resources

Mozambique’s big player

Beacon Hill Resources is the company behind much of Mozambique’s coal story

With global steel production tipped to increase to 1.5 billion tonnes in 2012, it’s fair to say that miners who have got in early and secured top projects in the right locations, are in good stead for the foreseeable.

Those who have managed to enter Mozambican projects into their portfolios are amongst the best, and the few that have acted as first-movers towards reaching near-term production in the region are the most applauded of all. One such company, firmly rooted on global “buy” lists with two primary assets that fit any investor’s bill, is Beacon Hill Resources Plc (LON:BHR); the company in possession of an exciting magnesite play in northwest Tasmania (the Arthur Magnesite project, with a JORC confirmed resource of 39 million tonnes on track to commence feasibility in 2012) and the Minas Moatize coking coal mine in Tete, Mozambique—the only operating mine in the coking coal destination of choice (JORC resource 80 million tonnes, mineable resource 57 million tonnes).

Since raising a further US$20 million in funds in April, Beacon Hill has been particularly busy. From its recently completed Phase 1 drilling programme at Arthur River, to readying for coal export from Minas Moatize, there is a lot to prepare for. Minas Moatize is on track to commence coal exports from the second quarter of this year. Arthur River’s scoping study continues in full swing, taking the project towards full feasibility and finding the right partner for future success. In the words of Justin Lewis, Chairman, “we’ve been going hell for leather.”

First in Tete

As the company at the helm of the only operating coal mine in Tete to date, BHR is in the midst of some incredible investment and expansion. Neighbours Vale and Riversdale Mining are going about building two of the world’s largest coal projects, commanding new deepwater port facilities, rail refurbishments, river barging, workforces and everything else needed to quite literally re-landscape the region as a mining hub. As a result, Lewis explains, it has been important for BHR to uphold the political importance of the Minas Moatize mine and understand what its successful production means for the province at this stage of its overall development.

“We [are] currently producing what are fairly small amounts of coal, five to 10,000 tonnes a month. Since we acquired the mine a little over a year ago we’ve pursued a twin track strategy: firstly to continue production from the existing mine,” he says.

“Mozambique wants it to continue to produce and we’ve refurbished it [to do so]. Also in terms of our overall strategy, it’s important for us to maintain our first mover advantage, particularly in securing access to the logistics.”

In parallel with this strategy, BHR has been working to develop a larger open pit mine aimed at producing approximately 4 million tonnes a year run-of-mine and 2.35 million tonnes a year of saleable coal, with about one million tonnes of that made up by coking coal. The miner has already completed drilling across the entire project, taking the whole mineable resource from 25 million tonnes to 57 million tonnes, and in effect more than doubling the mine life from eight years to 15.

“We’re on course to be in production from the first quarter of next year—similar timelines to Vale and Riversdale,” Lewis says.

“As part of existing production, we’ve also just completed the installation of a small wash plant which will have capacity of about 120 tonnes an hour, or if you ran it at full pelt about a million tonnes a year.”

During the next 12 months leading up to opening the larger open pit, BHR will produce exportable grade coal with these facilities—perhaps even by the beginning of July. This plant will meet the project’s requirements until the larger pit comes into play, and the company will construct a larger wash plant in time for that, with a capacity of about four million tonnes a year, by early to mid-2012. In examining the way Minas Moatize and BHR’s related infrastructure will expand, and looking at the wider regional requirements of the many setting up shop in Tete, it becomes clear quite how important it is that BHR’s core project continues to develop: It is through following Minas Moatize that a lot of Tete’s future mining will take place.

More coal, more access and growth for BHR

Whether you’re a new arrival, old hand, large project planner or minor involvement party in Tete, it appears that general consensus for future coal exports trends towards going via rail-to-port. Lewis says that BHR’s long-term ambitions are the same, focused on transporting its coal to the port of Beira, and couldn’t be better timed given the plans for upgrades and extension work taking place.

“Importantly, we’re looking at exporting a maximum of about two million tonnes a year of coal, and most of that will end up in India. For us, Beira can be a long-term solution because although it’s a shallow port, and exporting coal to India that only tends to have shallow ports too,” he says.

“[Other larger project companies] need to be able to load direct onto cape-size vessels, particularly when they get up to large volumes, and that’s why they’re looking at developing other ports. In the short-term we’re also about to commence trucking coal to Beira any day now.”

With the railway line slightly behind schedule, with refurbishments taking place up until September-December this year, BHR has a 500,000 tonnes per annum trucking plan in place to commence initial export quickly; a little more expensive than using the rail straight away, but as Lewis says, with coking coal you do have quite a lot of margin in what you’re doing. Of the funds raised in April, about half has gone towards the Tete logistics chain, in keeping with the company’s ability to move quickly and retain first-mover advantage. At the same time as this balance of funds, the company entered a Memorandum of Understanding (MOU) to acquire an additional license area nearby named 1165 (“1165L”), about 40 kilometres east of Moatize.

“We think it’s an interesting one because it’s in the Moatize Basin where known coking coal exists, it’s surrounded on three sides by Riversdale, and on one side by another license area with a known billion ton coking coal resource on it,” Lewis says.

“There’s an estimated resource of about 400 million tonnes of coal, although that’s a non-JORC estimate by the vendors. The MOU allows us to acquire that area for $42 million, so $10 million of the funds raised provides the equity portion of that and we’re in the process of finalizing that acquisition and its debt funding.”

Once again, the group has used its initial position to expand and gain greater access to more coal. By bringing its holding into production in conjunction with expanding upon its logistics, it is poised to develop an ever more significant-size of operations.

“Clearly in terms of Beacon Hill, it turns us from what might be seen as a fairly niche player with an operating mine into a strategic player in the region with a combined resource of north of 500 million tonnes,” Lewis says.

“We think that puts us in a better position than someone coming in three or five years’ time.”

Still moving first

At the earlier stage Arthur Magnesite project in Tasmania, BHR is about to finalize the scoping study. Lewis says that critical licensing has been put in place and a small drill program alongside the now-complete study will run until August/September. At that stage, the company will begin looking at developing a project and going about finding the right partner in the process. On track for production within 24 months, it appears that Arthur Magnesite may well be BHR’s next success story—after Minas Moatize and global appreciation of Mozambican coal industry, of course.

“I’ve been in and out [of Mozambique] in the last few years, and it’s developed enormously. The speed of change in the last few months makes you very hopeful about the next 12 months,” Lewis says.

“We sit right in the middle as the only producing mine and have many strategic advantages, giving us a great platform—and demonstrating to some extent 1165 and growing and adding to that—and also it makes us an exciting potential opportunity to other people who might want a foothold in this region.”

BHR’s imprint on Mozambique’s growing coal industry has and will be incremental to its future success. In addition to getting in first as a company and prospering from that, it has provided many of the building blocks that will open the region up for future activity. In a matter of days the Minas Moatize mine will commence export, offering a vital new source of coking coal as global demand from the steel industry continues on strongly. The Arthur Magnesite project will be the next chapter, and given the way the Mozambique episode already reads it’s going to be a very exciting story.