Hillsborough Resources Limited
TSX : HLB

Hillsborough Resources Limited

November 06, 2006 04:30 ET

Hillsborough Resources Announces: Third Quarter Results for Fiscal 2006

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - Nov. 6, 2006) - Hillsborough Resources Limited (TSX:HLB) ("Hillsborough", or the "Corporation") is pleased to report its results for the third quarter of fiscal 2006. Results from the Quinsam mine were substantially improved over those of the third quarter of 2005, when results had been adversely affected by underground conditions. Coal revenues from continuing operations for the three and nine months periods ended September 30 were $4,998,091 and $18,525,756 respectively for 2006, compared to $4,035,502 and $17,082,714 respectively in 2005. Contribution from sales from continuing operations for those same periods, being revenues less the production cost of coal sold, were $1,012,321 or 20.3% and $4,132,769 or 22.3% respectively in 2006, compared to $472,661 or 11.7% and $3,108,771 or 18.2% respectively in 2005. Actual results for the third quarter of 2006 are still not representative of regular quarterly results, due to the impact of a three week planned partial shut-down taken at Quinsam in the quarter to facilitate the management of summer labour force scheduling as well as major infrastructure maintenance. The contribution margin for the third quarter of 2006, as well as the net earnings from continuing operations, reflect the impact of this partial shut-down. The Corporation is also pleased to report that it has renewed a contract with a key long-time Quinsam customer for a new three year term commencing April 2007. The contract includes annual price escalators tied to the Producer Price Index.

At the Crossville mine in Tennessee, and as announced in the Corporation's second quarter report, the decision was taken in August to discontinue operations due the effects of adverse geological conditions. The results from discontinued operations in the third quarter reflect the losses incurred up to the time this decision was taken in August, as well as the costs of then reducing operations to care and maintenance and reclamation activity. The reduction of operations at Crossville to care and maintenance and reclamation activities was achieved in September, and operating costs at Crossville going forward will be substantially lower. An active program is in progress to locate a buyer for the Crossville mine, and a substantial portion of the Crossville mining equipment is currently being re-deployed for use at the Quinsam mine.

For the three and nine months ended September 30, 2006, the Corporation's net earnings from continuing operations were $75,689 or $nil per share and $2,335,348 or $0.05 per share respectively, compared to a net loss of $441,107 or ($0.01) per share and net earnings of $1,392,337 or $0.03 per share for the same periods in 2005 respectively. After recording net losses from the discontinued Crossville operation of $1,498,190 and $17,117,146 respectively, the Corporation incurred net losses for the three and nine month periods ended September 30, 2006 of $1,422,501 or ($0.03) per share and $14,781,798 or ($0.29) per share respectively.

The Corporation's net working capital at September 30, 2006 was $1,764,111 compared to $5,767,946 at December 31, 2005. The Corporation had long term financial debt at September 30, 2006 of $4,812,891 and capital lease obligations of $3,325,713 versus $4,578,771 and $2,085,735 respectively at December 31, 2005. Included in the long term debt at September 30, 2006 is $4,695,139, including accrued interest, for a three year term loan advanced by Anglo Coal, a division of Anglo American plc ("Anglo Coal"), which is convertible at Anglo Coal's option into a 60% participating interest in the Horizon project group. The Corporation's non-financial asset retirement obligation at September 30, 2006 was $9,275,724 compared to $8,999,804 at December 31, 2005.

Northeast Development Projects

Horizon Project Group

In September 2006, the Corporation announced the results of a scoping study on Horizon, and a technical report prepared in accordance with NI 43-101 was subsequently filed on SEDAR. That preliminary assessment reported project IRR of 26%, and a net present value of $64.1 million at a 10% discount rate, based on pre-tax cash flows and constant 2006 dollars. The scoping study includes the construction cost of infrastructure including rail load-out facilities. However, under the property consolidation proposal currently pending between the Corporation, Anglo Coal and NEMI, it may be possible to realize significant cost savings through the sharing of facilities.

Murray River Project Group

With the Murray River project group, Anglo Coal assumed responsibility for continuing exploration and development activity on the completion of the Coal Projects Agreement in February 2006. A short drill program was supported by Anglo Coal in March 2006, and a major drill program involving two drill rigs was commenced by Anglo Coal on Southridge in late June and has been recently completed. A total of 61 holes for approximately 8,500 metres have been drilled under these programs to the date hereof, and in addition extensive surface mapping has been carried out on Southridge as well as Reesor, one of the ancillary properties. Drilling is currently under way on Reesor, with five holes planned for that program.

Proposed Coal Partnership Transaction

Further to a non-binding letter of intent entered into in July, in October 2006 the Corporation signed a definitive asset transfer agreement, together with Anglo Coal and NEMI Northern Energy & Mining Inc. ("NEMI"), whereby the Northeast British Columbia metallurgical coal assets of each company will be consolidated into a new limited partnership with Anglo Coal, the Corporation and NEMI having partnership interests in the Coal LP of 60%, 20% and 20% respectively. The agreement provides that at the time of closing of the asset transfer agreement, Anglo Coal will crystallize the full vesting of its interests in the Horizon and Murray River project groups. Anglo Coal or an affiliate will be the operating manager of the Coal LP, and the Coal LP is expected to be financed from operating cash flows, cash calls to the partners or both, and with non-contributing partners subject to normal dilution provisions. The transaction is subject to a number of conditions including but not limited to approval of the respective boards of the Corporation and Anglo Coal and receipt of al regulatory and third party consents. As NEMI has voluntarily sought and obtained protection for itself under CCAA on October 13, 2006, closing of the transaction is also subject to approval of NEMI's plan of compromise or arrangement by NEMI's creditors as well as the Supreme Court of British Columbia. The parties intend to finalise the transaction prior to December 31, 2006.

Wapiti Project

On July 27, 2006, BC Hydro announced that AESWapiti Energy Corporation ("AESWapiti"), a Canadian subsidiary of The AES Corporation (NYSE:AES), had been awarded an energy purchase contract based on its bid submission for a 184 megawatt generating facility, and AESWapiti has subsequently executed a formal energy purchase contract with BC Hydro and posted certain performance security. Under the terms of a fuel supply agreement the Corporation had previously entered into with AESWapiti, the Corporation's Wapiti property is to be the exclusive supplier of thermal coal for a $500 million power generation plant to be sited by AESWapiti on the property, located in Northeast British Columbia. The coal supply requirements of the power plant are planned at 550,000 to 600,000 tonnes per annum, and the Corporation intends to develop the Wapiti mine as a surface operation with deliveries of coal to the plant anticipated to commence in late 2010.

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. Near Tumbler Ridge in Northeast British Columbia, the Corporation has substantial metallurgical coal properties under development including the Horizon mine project, and is developing the Wapiti thermal coal mine to be the exclusive supplier commencing in 2010 for a power generation plant to be constructed and operated on the property by AESWapiti Energy Corporation. The Corporation also holds the Bingay Creek metallurgical coal property located in the Elk Valley region of Southeast British Columbia.

David J. Slater, President & Chief Executive Officer

This release may contain forward-looking statements regarding the Company'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 Company expects are forward-looking statements. Although the Company 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.

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