Beacon Hill Resources Minas Moatize DFS demonstrates very strong economics, says chairman

This morning’s definitive feasibility study on Beacon Hill Resources’ (LON:BHR) Minas Moatize coal mine demonstrates its very strong economics and shows a very good return on investment for the company, according to chairman Justin Lewis.

“This is a very positive development for Beacon Hill,” Lewis said during a conference call this morning.

“Completing this feasibility is clearly a landmark in the development of the group and it is certainly a landmark in the development of the Minas Moatize project.

“Importantly it confirms the project is feasible and it also demonstrates that there is significant financial upside in the project as a whole.”

He added: “The study confirms our belief that we have a very unique and valuable asset in the heart of what is now clearly accepted as the world’s next coking coal region.”

Independent consultants TWP Australia based its financial modelling on a 4 million tonne a year run of mine operation producing 2.2 million tonnes of saleable coking and thermal coal.

This generated a net present value of US$662 million and an internal rate of return of 79.5 per cent.

The mine life will be 11.5 years and the capital costs are estimated at US$166 million, or just short of US$18 million using the “build, own, operate” blue-print where a contractor assumes the expense of items such as the washing plant.

The free-on-board cost of producing the coal will be US$58.5 a tonne. 

“Under (this model) the capital requirement for BHR is significantly less,” Lewis explained.

“We currently have no debt in the group. So we believe we have plenty of capacity to fund our portion of the capital requirement going forward in order to develop the mine.”

Minas Moatize is located in the Tete region of Mozambique and it is surrounded by a number of significant mine development projects such as Vale’s Moatize mine and the projects Rio Tinto acquired from Riversdale last year.

It currently has a JORC mineable reserve of 42.7 million tonnes, including a marketable reserve of 23.5 million tonnes. At least 8.7 million will be top quality coking coal.

The mine is already in production and through the development of the mine it aims to increase output significantly. The first shipments of thermal coal departed the port of Beira in December, while the group will start to export hard coking coal this quarter.

The output from Minas Moatize, which is in the Tete Province of northern Mozambique, is primarily sold to India, where the smaller type of ship that uses port of Beira is ideal.

The group's first shipment of 10,650 tonnes of thermal coal from Minas Moatize was trucked to Beira ahead of being shipped.  Longer term, the group's intention is to utilise the Sena rail line.

Minas Moatize is a member of Taskforce One, which together with VALE, Rio Tinto and government agency CFM, is finalising terms of reference to complete the refurbishment of the Sena rail line to an initial capacity of 6.5 million tonnes a year in mid-2012 and then to a fully operational capacity of 12 million tonnes later in the year.

Analysts say the rail export route is key to the mine’s economics.

Fairfax Securities John Meyer highlights that trucking initial production allows Beacon Hill to make a healthy margin for the high priced coking coal and the rail link should bring costs down over time.

Chief operating officer Peter Wilson explained that upcoming drilling should see the expected mine life increase.

The mine plan in the study does not include the coal that is currently being produced in the current year, nor does it include the inventory coal which is expected to increase the life of mine, he said.

Drilling work is being aiming at proving up this inventory coal so that it can be included in a further expansion plan at a future date.