Hillsborough Resources Limited

Hillsborough Resources Limited

November 14, 2007 17:52 ET

Hillsborough Resources Issues Financial Results for Third Quarter of Fiscal 2007

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Nov. 14, 2007) - Hillsborough Resources Limited (TSX:HLB) is pleased to issue its interim financial results for the three month and nine month periods ended September 30, 2007.

Hillsborough recorded a gain of $2,572,514 during the third quarter of 2007, compared to a loss from continuing operations in the third quarter of 2006 of $78,842. Included in the 2007 gain is a $3,150,000 gain on dilution of Hillsborough's share in the Peace River Coal Limited Partnership ("Peace River Coal") plus the effect of unrealized foreign exchange gains. Hillsborough's share of losses at Peace River Coal reduced significantly in the third quarter, from $215,000 in the second quarter, to $47,000 in the current quarter. Hillsborough's net profit for the first nine months of 2007 was $2,572,514, including a provision of $440,000 for its share of Peace River Coal's nine-month start-up losses. Hillsborough's losses from continuing operations for the three month and nine month periods ended September 30, 2006 were $78,842 and a profit of $1,891,016 respectively, and include the effects of a $979,200 gain in the first quarter of 2006 from a recovery of future income taxes.

At the Quinsam mine, demand for coal from the domestic markets has remained strong through the first three quarters of 2007, reflecting the strength of the regional cement industry which is the dominant segment of Quinsam's domestic market. Revenues during the three and nine month periods ended September 30, 2007 were $5,932,458 and $20,647,386 respectively compared to $4,998,091 and $18,525,756 respectively for 2006, and include the revenues from international shipments that occurred in the first quarter of 2007 and the second quarter of 2006. Quinsam's average revenue per tonne of coal sold during these periods was $52.87 and $52.51 respectively for 2007 compared to $50.04 and $50.99 respectively for 2006, with the increase arising from the realization of price increases under Quinsam's long-term domestic contract renewals effected over 2006, partially offset by the impact of a stronger Canadian dollar on sales denominated in US dollars which include certain domestic contracts in addition to international market shipments.

Contribution from sales during the three month and nine month periods ended September 30, 2007 were $814,424 and $2,696,100 respectively, yielding contribution margins of 13.7% and 13.06%, compared to contribution from sales in the same periods of 2006 of $1,012,321 and $4,132,769 and contribution margins of 20.25% and 22.31% respectively. Both the lower contribution from sales in 2007 and the lower contribution margins are reflective of production difficulties that have been experienced at the Quinsam mine over the course of the year to date. As noted in the first quarter report, adverse weather conditions over winter had impacted production levels and resulted in significantly higher costs per tonne of coal sold during the quarter, though production had returned to normal levels in February and March. Further production difficulties were experienced commencing in April, related primarily to persistent mechanical difficulties with a newly-deployed roof bolter and also to the impact of significant faulting on underground mining conditions, and these difficulties continued throughout the third quarter. Quinsam has been working to resolve the roof bolter issues, and the manufacturer has replaced the unit with a rebuilt and updated machine. The first weeks of its operation have been very positive, and have resulted in great improvements in productivity.

Quinsam Development Activity

During the second quarter of 2007, a re-assessment was made of the surface potential at Quinsam. As a result, mine plans have been developed for an open pit operation on Quinsam's 7 South block, which is approximately 3 kilometres from the coal preparation plant by existing road and is adjacent to the 5 South block which Quinsam is currently mining underground. Based on Quinsam's NI 43-101 compliant reserve and resource estimate as of December 31, 2006, an estimated 2.5 million to 3.5 million tonnes could be recoverable under a five-year plan to produce 500,000 to 700,000 tonnes per year, at favourable costs using area mining techniques. Development and operation of the 7 South pit will also facilitate acceleration of the reclamation of several old open pits. Area mining of 7 South will enable backfilling of these old pits as well as 7 South itself, resulting in a substantial reduction in overall surface disturbance at Quinsam. Regulatory approval has been sought to commence taking a bulk sample in the last half of 2007 to produce a trial cargo, and Quinsam has also commenced the process of seeking a mine permit amendment for the proposed open pit.

Wapiti Property

At the Wapiti thermal coal property in northeast BC, an NI 43-101 compliant technical report was completed and filed in February 2007 providing an updated resource estimate of 80.1 million tonnes measured and indicated plus a further 35.2 million tonnes inferred. The large resource tonnage offers the opportunity for mine development based on the export market as well as the regional industrial markets both in British Columbia and Alberta, and Hillsborough is in active discussions with two potential customers in those markets. A large core drilling program has recently been completed at Wapiti which will allow potential customers to determine the efficacy of the coals.

Hillsborough is continuing the process of obtaining regulatory approvals for a Wapiti thermal coal mine in support of its market development activities, and over the second quarter of 2007 has also completed an initial internal assessment of underground mining potential on the Jackpine block within the Wapiti property indicating favourable underground mining conditions and costs that would be competitive with surface mining. While initial development would likely be based on area mining, an underground mine plan could be incorporated into the overall property development.

Peace River Coal

In January 2007, Peace River Coal commenced operations at the Trend mine. The coal preparation plant that had been modified in late 2006, including addition of a fines wash circuit, was commissioned, and the first shipment for the Japanese market was successfully loaded during March. Shipments of coal, including trial cargos, into international markets continued through the third quarter, with transportation being improved by the acquisition of a leased, dedicated train set. As a result of the success of the first train-set, PRC is now in process of evaluating the acquisition of a second set. With improvements made over the first nine months of 2007, plant operations have enabled targeted throughput capabilities to be achieved. The ramp-up of raw coal production has progressed more slowly than planned due to issues related primarily to equipment and labour availability, though Peace River Coal is working to address these matters. Labour availability is an issue for the overall northeast British Columbia region, however, and must be addressed over the longer term.

The Trend mine is currently in the pre-commercial production phase, ramping up pit and plant operations to commercial production levels and undertaking market introduction initiatives to develop a long-term customer base. Peace River Coal has therefore capitalized most expenditures, net of sales proceeds, as mine development costs and the pre-commercial production phase came to an end at the completion of the third quarter of 2007.

As previously announced, Peace River Coal had provided its partners with a 2007 program and budget totaling $53 million, and participation by Hillsborough in its pro rata share of that program would have entailed a net funding requirement of approximately $11.2 million. Participation in any proposed program and budget by the partners is not obligatory under the terms of the limited partnership agreement, with each partner able to elect to participate partially or not at all but subject to dilution provisions. Hillsborough conducted an evaluation of the investment merits of participation in the 2007 program and budget, and from that analysis determined that the cost at which the necessary finance could be arranged was too high relative to the investment merits. Hillsborough accordingly elected to not participate in the 2007 operating program and budget. As a result, the $1.95 million which had been held within Peace River Coal from its formation for application against future cash calls was returned to Hillsborough in the third quarter. Based on recalculations of the partners' participating interests as advised by the general partner of Peace River Coal, and reflecting the return of the $1.95 million, Hillsborough's 20% interest in Peace River Coal was diluted to approximately 14.1% effective August 1, 2007, and resulted in a gain on dilution of $3,150,000.

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 Company is a limited partner 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 Company 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
    Cathy Hume
    (416) 868-1079 ext. 231
    (416) 868-6198 (FAX)
    Email: cathy@chfir.com