Hillsborough Resources Limited

Hillsborough Resources Limited

August 11, 2006 05:00 ET

Hillsborough Resources: Hillsborough Announces Second Quarter Results for Fiscal 2006

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - Aug. 11, 2006) - Hillsborough Resources Limited (TSX:HLB) (the "Corporation") is pleased to report that results from its Quinsam mine for the second quarter of 2006 were again strong from the continuing benefits of increased contract prices and lower production costs, plus the delivery in late June of a 76,000 tonne shipment into the international market. In July 2006, a technical report was completed and filed on SEDAR in respect of the adjacent Quinsam North property identifying new thermal coal resources of immediate interest for underground mining totaling 25,293,000 measured and indicated plus 11,688,000 inferred, giving the potential to not only significantly extend Quinsam's current life of mine but also to support a possible mine expansion as well.

At the Crossville mine in Tennessee, the Corporation continued to incur substantial losses through the second quarter as development of the mains drive, the primary access and haulage tunnels for the mine, continued through a zone where only limited quantities of coal were encountered and recovery yields were low. Based on a recent tightly spaced operational drill program completed in August 2006, it has been determined that due to adverse geological conditions the coal resources along the planned path of the mains drive are severely limited. It will therefore not be practical to access the main coal resources targeted for room and pillar mining from the current drive. It has now been decided to retreat from the existing mains, carrying out incidental room and pillar mining in the process on certain coal resources accessible from that drive to the extent such mining would yield positive incremental cash flows. An active program has been initiated to locate a buyer for the Crossville mine. For accounting purposes, the Crossville mine is reported as a discontinued operation classified as held for sale and its results for 2006 and prior periods are presented separately as a single line item in the statements of operations and cash flows. Going forward, the Corporation will focus its efforts on its Quinsam operation and on developing its other resource properties and projects, particularly Quinsam North, the Horizon project group and the Wapiti property.

For the three month and six month periods ended June 30, 2006, the Corporation's net earnings from continuing operations were $843,686 or $0.02 per share and $2,259,659 or $0.05 per share respectively, compared to $805,803 or $0.02 per share and $1,833,444 or $0.02 per share for the same periods in 2005 respectively. Coal revenues for those same periods from continuing operations were $8,725,328 and $13,527,665 respectively for 2006, compared to $7,464,622 and $13,045,212 respectively in 2005. Contribution from sales from continuing operations for the three month and six month periods ended June 30, 2006, being revenues less the production cost of coal sold, were $1,723,780 and $3,120,448 respectively, compared to $1,644,838 and $2,636,110 respectively for the same period in 2005.

After recording net losses from the discontinued Crossville operation of $14,165,638 and $15,618,956 respectively, the Corporation incurred net losses for the three and six month periods ended June 30, 2006 of $13,321,952 or $0.26 per share and $13,359,297 or $0.28 per share respectively. An active program has been initiated to locate a buyer for the Crossville mine. As a prudent measure the Corporation has written off as of June 30, 2006 all deferred mine property and development and asset retirement costs pertaining to the Crossville mine, being $2,507,407 and $9,952,273 respectively, and these write-offs are included in the net loss for the period from the discontinued operation.

The Corporation's net working capital at June 30, 2006 was $4,486,068 compared to $5,767,946 at December 31, 2005. The Corporation had long term financial debt at June 30, 2006 of $4,759,715 and capital lease obligations of $2,800,011 versus $4,578,771 and $2,085,735 respectively at December 31, 2005. Included in the long term debt at June 30, 2006 is $4,634,764, including accrued interest, for a three year term loan advanced by Anglo Coal, a division of Anglo American plc, 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 June 30, 2006 was $9,568,870 compared to $8,999,804 at December 31, 2005. Cash currently on hand combined with cash flows from operations during the second half of 2006 and into 2007 is expected to be sufficient to cover the Corporation's near-term investment and working capital requirements with respect to Quinsam and its current operating plan, the completion of a feasibility study in respect of the Horizon project group, and the completion of a feasibility study and associated permit application activity in respect of the Wapiti mine, as well as ongoing reclamation expenditure requirements at the discontinued Crossville operation.

Northeast Development Projects

On the Horizon project group in Northeast British Columbia, two technical reports have now been completed and filed on SEDAR that taken together delineate estimated metallurgical coal resources totaling 167,388,000 tonnes measured and indicated plus 58,288,000 inferred. A subset of these resources has been reported totaling 49,660,000 tonnes measured and indicated which fall within constraints currently used in the majority of underground coal mining districts similar to those of the Canadian Foothills. These could form the basis for underground mines at Horizon utilizing conventional room-and-pillar mining methods typical of those used by the Corporation at Quinsam. A feasibility study is now being developed for Horizon, with a planned production level of up to 1.6 million tonnes of coking coal product per year and with a large portion of the production tonnage expected to be derived from underground mining. A scoping study which is being finalized by an independent engineering firm is currently forming the basis for the full feasibility study targeted for completion in the fourth quarter of 2006.

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 remains ongoing. A total of 31 holes and approximately 6,000 metres have been drilled under the program to date, and in addition extensive surface mapping has been carried out on both Southridge and Reesor. In addition and as previously announced, the Corporation has recently entered into a non-binding letter of intent, together with Anglo Coal, NEMI Northern Energy & Mining Inc. ("NEMI") and Itochu Corporation, whereby the Northeast British Columbia metallurgical coal assets of Anglo Coal, the Corporation and NEMI will be consolidated into a company to be formed for the purpose. Shareholdings in the new entity of Anglo Coal, the Corporation and NEMI are intended to be 60%, 20% and 20% respectively, subject to a fair market valuation of each company's metallurgical coal assets located in Northeastern British Columbia. The parties intend to finalise the transaction within a three month period with comprehensive due diligence exercises and binding agreements to be concluded during this time. The transaction is subject to, amongst other things, regulatory and respective company board approvals.

On July 27, 2006, BC Hydro announced that AESWapiti Energy Corporation ("AESWapiti") had been awarded an energy purchase contract based on its bid submission for a 184 megawatt generating facility. The AESWapiti plant will be a coal/bio-mass facility using circulating fluidized bed technology, and will be located on the Corporation's Wapiti thermal coal property some 40 kilometres northeast of Tumbler Ridge. Coal from the Wapiti property will be the principal fuel source under a long term exclusive supply agreement, with bio-mass fuel being derived from forestry activities in the area. 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 power plant anticipated to commence in late 2010. The advancement of the project remains subject to a number of conditions, including but not limited to AESWapiti executing a formal energy purchase contract with BC Hydro and posting certain performance security, and the necessary permits being obtained by AESWapiti with respect to the power generation plant and by the Corporation with respect to the Wapiti property mine.

Mr. David Slater, President & CEO of the Corporation, stated, "Over the first half of 2006, we have had tremendous success, not only with our Quinsam mine operations but also our development programs as we've defined very substantial resources at Quinsam North on Vancouver Island and at the Horizon property in Northeast BC. And with the award of the power supply contract to AESWapiti, we can now look forward to bringing the Wapiti mine into production in the Northeast. The decision to discontinue the Crossville operation and seek a buyer was difficult, and we are very disappointed that it could not be a successful operation for us. However, we will concentrate our efforts on our Quinsam mine operations and on our Quinsam North, Horizon and Wapiti development properties, and we will put the experience gained at Crossville to full use as we develop these projects into new mines."

Hillsborough's unaudited interim consolidated financial statements with accompanying notes for the three months ended March 31, 2006 and management's discussion and analysis of financial condition and results of operations for that same period, as well as additional information relating to Hillsborough, are available on SEDAR at www.sedar.com as well as on Hillsborough's website at www.hillsboroughresources.com.

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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