Hillsborough Resources Limited

Hillsborough Resources Limited

December 15, 2008 09:00 ET

Hillsborough Announces Entry Into a Royalty Agreement and Confirms Delivery of 75,000 Tonnes of Coal

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Dec. 15, 2008) - Hillsborough Resources Limited (TSX:HLB) (the "Corporation") is pleased to announce that its wholly-owned subsidiary, Quinsam Coal Corporation ("Quinsam") has entered into a Royalty Agreement ("Agreement") with Red Mile Resources No. 12 Limited Partnership ("Red Mile"), among others. Under the terms of the Agreement, Quinsam has sold a royalty on a portion of the coal production at its Quinsam Mine; this Agreement is expected to last approximately 10 years. Quinsam received cash of $40.1 million, which included the purchase price for the royalty of $35.0 million and fees and interest of $5.1 million.

Under the terms of the Agreement, Quinsam is required to make royalty payments at fixed amounts per tonne of coal produced; these amounts can vary between CDN $0.72 to $29.41 per tonne over the term of the Agreement. In addition, Quinsam granted Red Mile a Net Profits Interest (NPI) of 2.00%, 3.25% or 3.50% in years 2014 through 2018, payable only if the average price of coal sold by Quinsam in any of those calendar years is equal to or greater than CDN $225.00, $250.00 or $275.00 per tonne, respectively.

$35.0 million of the cash received was placed with a financial institution; in return, Quinsam received an interest bearing promissory note. The funds on deposit, together with the interest earned thereon, are expected to be sufficient to fund the expected basic royalty payments over the term of the Agreement.

Under certain circumstances, a subsidiary of Quinsam has the right, by way of a call option, to acquire the partnership units of Red Mile, effectively terminating the Agreement, for the lower of market value or for the outstanding amount of the promissory note plus a notional amount of interest.

The balance of the funds received of $5.1 million will be used for general corporate purposes.

Hillsborough Resources is pleased to confirm that Quinsam loaded 75,000 tonnes of coal on December 3rd, 2008 to fulfill its first export shipment to Vitol. It is anticipated that four 75,000 MT shipments will be shipped in 2009 at an average FOB price of US$134 per MT.

About Vitol

The Vitol Group is one of the largest traders in the world's energy marketplace. Vitol's main trading operation is located in Geneva, Switzerland. For further information, please visit www.vitol.com. For further information and to obtain a copy of the early warning report filed under applicable Canadian provincial securities legislation in connection with the transactions disclosed herein, please go to the Hillsborough profile on the SEDAR website at www.sedar.com or contact Vitol at telephone no: +31 10 452 6616.

About the Corporation

Hillsborough Resources Limited is a coal mining company that:

- Operates the 500,000 tpy Quinsam underground thermal mine near Campbell River, British Columbia, serving the local and west-coast U.S. cement industry with increasing sales into the export market.

- Is a limited partner in the Peace River Coal Limited Partnership (with 14.1 %), which has substantial metallurgical coal properties both in production (Trend Mine) and under development near Tumbler Ridge, British Columbia.

- Owns the Crossville Mine in Tennessee on which new evaluation is being done on opening a new mine for metallurgical coal production.

- Holds the Wapiti thermal coal property north of Tumbler Ridge, and is planning development of a mine.

- Holds the Bingay Creek metallurgical coal property located in the Elk Valley region of southeast British Columbia, and is resuming feasibility and regulatory work for development of a mine.

This release may contain forward-looking statements regarding the Corporation's business or financial condition. All statements in this release, other than statements of historical facts, that address future production, reserve potential, exploration drilling, exploitation activities and events or developments that the Corporation expects are forward-looking statements. Although the Corporation believes the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in the forward-looking statements. Actual results could differ materially from those described in this news release as a result of factors including but not limited to the following: adverse exploration or development results; adverse due diligence findings; re-assessments of corporate or development objectives and requirements; additional technical developments and considerations; unexpected increases in the costs of producing coal, changes in international coal or transportation markets, a rapid change in the value of the Canadian dollar particularly with respect to the US dollar, a fundamental slow down in the North American, Asian or worldwide economies; and other factors. Investors are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements.

Contact Information

  • Hillsborough Resources Limited
    David Slater
    President & C.E.O.
    (604) 684-9288
    Hillsborough Resources Limited
    Ian Kirk, C.A.
    (604) 684-9288
    (604) 684-3178 (FAX)
    Website: www.hillsboroughresources.com