Hillsborough Resources Limited

Hillsborough Resources Limited

March 27, 2007 04:00 ET

Hillsborough Resources Announces Financial Results for Year Ended December 31, 2006

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - March 27, 2007) - Hillsborough Resources Limited (TSX:HLB) is pleased to report its financial results for the year ending December 31, 2006.

Net earnings from continuing operations for 2006 were $12,115,884 ($0.23 per share), compared to $2,170,543 ($0.05 per share) for 2005. Hillsborough recorded a net loss of $5,384,822 ($0.10 per share) for 2006 compared to net earnings of $1,141,024 ($0.03 per share) for 2005.

Hillsborough's 2006 fiscal year was characterized by significant events across all of its operations and developments. At the flagship Quinsam mine, revenues were increased from the impact of long-term contract renewals that have captured the benefits of a strong domestic thermal coal market, and the contribution from sales in 2006 was $5,387,554, an increase of 23% over 2005. On the adjacent Quinsam North property, new coal resources of immediate interest for underground mining were defined totaling 25.3 million tonnes measured and indicated plus a further 11.7 million tonnes inferred, offering the potential to support not only formal extension of the current Quinsam mine life plan but possible mine expansion as well.

In northeast British Columbia, the start of the 2006 year saw the commencement of a relationship with Anglo Coal, a division of Anglo American plc, for the joint development of Hillsborough's metallurgical coal properties in the region. By the end of 2006, that relationship had been taken to a new level as Anglo Coal and Hillsborough joined with a third company, NEMI Northern Energy and Mining Inc., to form what Hillsborough expects will be the dominant producer in the northeast BC coal fields, the Peace River Coal Limited Partnership. The effects of the crystallization of Anglo Coal's interests in Hillsborough's properties, required by the formation of Peace River Coal, included the settlement in full of the $4.7 million loan from Anglo Coal and the recognition of a gain by Hillsborough of $9.8 million in respect of the Murray River project group.

At the Wapiti thermal coal property in northeast BC, exploration and development continued through 2006, resulting in an updated resource estimate in February 2007 of 80.1 million tonnes measured and indicated plus a further 35.2 million tonnes inferred. Hillsborough joined with AES Corporation, and through AESWapiti Energy Corporation successfully procured a contract with BC Hydro to supply 184 megawatts of power generation from a proposed bio-mass and coal fired generating plant to be located on the Wapiti property, with the Wapiti mine to be the exclusive supplier of coal to the plant. However, the power plant development is now on hold as a result of the BC government's new policy on coal-fired power generation, announced in the February 2007 throne speech. Nonetheless, the large resource tonnage offers the opportunity for mine development based on the export market as well as the regional industrial markets, and the Corporation is therefore continuing the process of obtaining regulatory approvals for a Wapiti thermal coal mine.

At the start of 2006, commercial operations were ramping up at the newly opened Crossville underground thermal coal mine in Tennessee, but by summer it had become apparent that due to adverse geological conditions it would not be practical to access the coal resources from the current mains drive. Accordingly, in August 2006 the operations at Crossville were discontinued and by the fourth quarter of 2006 had been reduced to care and maintenance and reclamation activities. The deferred mine property and development costs and asset retirement costs totaling $12.5 million were written off, and a substantial portion of the Crossville mining equipment has been re-deployed to Quinsam. A provision of $0.4 million has been taken in respect of remaining equipment on site which is in the process of being disposed of. For accounting purposes, the Crossville mine has been reported as a discontinued operation.

Impacting the results from continuing operations from 2006 are the effects of the gain of $9.8 million recognized on the crystallization by Anglo Coal of its interests in Hillsborough's northeast BC metallurgical coal properties, offset by a write-off of $0.5 million in costs for resource properties that have effectively been abandoned. The results of 2006 also include the interest expense related to both the $4.5 million Anglo Coal loan, which was outstanding from the end of 2005 through November 2006, and the capital lease obligation which was newly established in the fourth quarter of 2005. Additionally, included in both 2006 and 2005 were recognitions of future income tax recoveries of $979,200 and $1,317,000 respectively, resulting from the Corporation's renunciation of exploration expenditures during each year under previously issued flow-through shares, plus in 2006 a further $1.4 million future income tax recovery realized from a reduced valuation allowance against future income tax assets partially offset by future income tax costs associated with the gain recognized under the Anglo Coal crystallization. The overall net loss for 2006 of $5,384,822 arises from the loss for the year from the discontinued Crossville operation totaling $17.5 million, which includes write-downs totaling $12.9 million for deferred mine property and development costs and asset retirement costs as well as equipment provisions.

Hillsborough's net working capital at December 31, 2006 was $0.4 million compared to $5.8 million for 2005, with the usage resulting primarily from the investment over the year in exploration and development on the northeast BC resource properties and the expenditures required over the year at Crossville, partially offset by cash flows from continuing operations plus the receipt of $1.8 million as part of the proceeds realized under the property interest crystallization by Anglo Coal. Hillsborough had long term financial debt at December 31, 2006 of $2.9 million, including capital lease obligations, versus $6.7 million for 2005, with the decrease resulting primarily from the elimination of the Anglo Coal loan of $4.5 million plus accrued interest. Hillsborough's non-financial asset retirement obligation at December 31, 2006 was $9.1 million compared to $9.0 million for 2005, reflecting the effect of a re-assessment of the Crossville obligation arising from the discontinuation decision plus normal accretion, offset by reclamation expenditures incurred during the period primarily at Crossville.


Demand for coal from the Quinsam mine is expected to remain strong, not only within the domestic contract market but in the international market as well, and Hillsborough is developing opportunities to increase sales into both. A trial burn was recently conducted with a potential new domestic customer, yielding highly encouraging results. With respect to the international market, Quinsam has now completed within the past week the delivery of 75,000 tonnes under a contracted shipment, and is exploring opportunities to contract an additional shipment for possible delivery in late 2007. To meet this increased demand, the Quinsam mine is increasing its rate of production for 2007 to a targeted 600,000 clean tonnes per annum.

Peace River Coal, in which Hillsborough holds a 20% interest, is currently bringing the Trend mining operations up to commercial production levels with a targeted rate of production of 1.6 million plant feed tonnes per annum within the first half of 2007. It is also preparing its detailed operating and development plans for the full 2007 year which will include exploration and development work on the additional properties now held within the partnership, and its strategic plan for the ensuing five years.

About the Corporation

Hillsborough Resources Limited is a coal mining company that operates the Quinsam underground thermal coal mine in Campbell River, British Columbia, serving the local and west-coast U.S. cement industry. The Corporation holds a 20% interest in the Peace River Coal Limited Partnership, which has substantial metallurgical coal properties both in production start-up and under development near Tumbler Ridge, British Columbia. In addition, the Corporation is developing the proposed Wapiti thermal coal mine in the same region. Hillsborough also holds the Bingay Creek metallurgical coal property located in the Elk Valley region of southeast British Columbia.

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
    (604) 684-3178 (FAX)
    Website: www.hillsboroughresources.com
    CHF Investor Relations
    Jan Moir
    Vice President
    (416) 868-1079 ext. 237
    Email: jan@chfir.com
    CHF Investor Relations
    Heather Colpitts
    Account Manager
    (416) 868-1079 ext. 223
    (416) 868-6198 (FAX)
    Email: heather@chfir.com