Homeland Energy Group Ltd.
TSX : HEG

Homeland Energy Group Ltd.

March 31, 2011 23:03 ET

Homeland Energy Group Reports 2010 Year End, Reserve and Resource Updates and Operations and Corporate Update

TORONTO, CANADA--(Marketwire - March 31, 2011) - Homeland Energy Group Ltd. (TSX:HEG) ("Homeland" or the "Company") today reported its financial results for the year ended December 31, 2010. The 2010 Year-End Audited Consolidated Financial Statements and related Notes along with the Management's Discussion and Analysis and Annual Information Form have been filed with SEDAR (www.sedar.com) and can be viewed on the Company's website at www.homelandenergygroup.com.

The highlights from the financial statements are as follows:

• Net loss for the full-year 2010 were $11.54 million ($0.03 loss per share, basic and diluted), compared to $35.60 million loss ($0.14 loss per share, basic and diluted) for the prior year. 

• Cash and cash equivalents were $3.72 million at December 31, 2010. 

• Operating cash outflow was $17.39 million for 2010, compared to operating cash outflow of $8.80 million 2009.

• Capital expenditures totalled $4.84 million for 2010, compared to capital expenditures of $32.81 million in 2009.

• At December 31, 2010, total available liquidity was approximately $12.24 million and total debt was $42.72 million, inclusive of current loan payable to majority shareholder GMR Energy Limited of $28.84 million. 

Summary Financial Data            
   
  December 31, 2010   December 31, 2009  
   
($ thousand unless otherwise noted)            
   
Revenue $ 33,016   $ 7,071  
EBITDA   -6,502     -31,782  
Operating loss   -13,197     -20,069  
Net loss   -11,545     -35,599  
Basic loss per share ($ per share)   $(-0.03 )   $(-0.14 )
Diluted loss per share ($ per share)   $(-0.03 )   $(-0.14 )
Net working capital   -29,700     -21,143  
Capital expenditures   4,842     32,817  
Total assets   66,080     69,615  
Shareholder's equity   22,890     25,419  
Weighted-average number of shares (thousands)            
  Basic   381,796     257,657  
  Diluted   381,796     257,657  

KENDAL RESERVE CALCULATION

Dr P.J Hancox, Pr.Sci.Nat., Caracle Creek International Consulting Coal (Pty) Limited with A. Dougall, Pr.Eng, of SRK Consulting (South Africa) (Pty) Ltd. independent consultants of the Company, prepared a mineral serve calculation for the Kendal Colliery in accordance with National Instrument 43-101. The calculation includes the results from the additional 15 boreholes were drilled in order to further delineate the Block E expansion area. A new independent NI43-101 technical report will be lodged on SEDAR within 45 days from the date of this press release. Refer to Schedule A for details.

It should be noted that there are small discrepancies in the tonnages derived from the geological model and those derived from the XPAC model. This is due to the algorithms used in the various computer programs, these differences will have an insignificant effect on the detailed mine planning.

It should be noted that certain modifying factors have been applied to determine RoM and Saleable production. Additional modifying factors for contamination, moisture, practical yields, because of the contamination and moisture, have not been applied. Additional reconciliation studies should be carried out to determine the appropriate factors to be used in determining RoM and Saleable Coal Reserves in future planning exercises.

Please note: To view Schedule A, please visit the following link: http://media3.marketwire.com/docs/heg331a.pdf.

ELOFF ONE RESOURCE BLOCK PROJECT AREA UPDATED MEASURED RESOURCE

Dr P.J Hancox, Pr.Sci.Nat., Caracle Creek International Consulting Coal (Pty) Limited, an independent consultant of the Company, prepared an updated resource calculation for a portion of the Eloff property being referred to as the Eloff One Resource Block Project Area. in accordance with National Instrument 43-101. 

A total of forty (40) boreholes were drilled during 2010 on the Eloff Project area for a total of 1907.83m. Of these twenty-three (23) were collared in the Eloff One Resource Block project area for a total of 1193.11m drilled. Exploration was carried out using vertical diamond drilled fully cored boreholes of a TNW size (60.5mm core diameter). The drilling contractor was Bio Quadro Exploration Drilling and Mining Services (Company registration No.2008/126676/23), and the standard of drilling was acceptable. All field procedures were carried out by CCIC, by suitably experienced and qualified geological staff. Coal samples were analysed at Midlab (Pty) Limited, a coal and mineral analytical laboratory based in Middelburg, South Africa. A new independent NI43-101 technical report will be lodged on SEDAR within 45 days from the date of this press release.

Schedule B summarizes the new measured mineral resource for the Eloff One Resource Block Project Area:

Please note: To visit schedule B, please visit the following link: http://media3.marketwire.com/docs/heg331c.pdf.

Operations Update

Outlook

Homeland anticipates that it will be cash flow positive in 2011, taking into account existing debt repayments to GMR as well as ongoing measured capital expenditures for the expansion of the Kendal Colliery.

Homeland intends to build upon the platform of assets, of production and cash flows established over the past three years and over the past twelve months in particular. The growth profile of Homeland will include three primary areas of focus: organic growth of production at Kendal Colliery; the continued development of the Eloff Mineral Property in Mpumalanga, South Africa; and potential acquisitions of green and brown fields near operating assets in South Africa.

Current Market Conditions

The outlook for the coal industry has revived materially from the weakness experienced in 2008 and 2009. Generally, most coal companies have been profitable in 2010, given the recovery in the global and domestic coal demand. This uptrend in profits is largely driven by soaring demand from the Asian countries. The scarcity of coal in relation to the growing needs of the Pacific markets, specifically from China and India, has led to improvement in coal exports from around the world. Despite some recent pressures, the overall trend in thermal coal prices has been favourable, driven by improvements in demand from the domestic and international markets and reduced stockpiles. 

Throughout most of 2010 Richards Bay Coal Index ("API4") coal prices increased to around the mid $90s, due to the rising demand for coal in China and India. 

Going forward, the API4 is expected to gradually increase to around $120.

Mining Operations

Mining is currently undertaken in Block D and Block F, both of which are currently in steady state operation with a strip ratio of approximately 4:1 for Block D and around 2.5:1 for Block F which is anticipated to be completed by the end of Q2 2011. An additional 400,000 tonnes of plant coal was identified on the southern portion of the Block F reserve, which was previously not included in the mining plan. This has had a favorable impact on yield. The Company has completed extensive studies to determine the position of underground workings in the 4 lower coal seams in Block E. Currently, the boxcut in Block E is under way, and is expected to yield its first coal by Q2 2011. Detailed mine scheduling in the form of a Life of Mine Plan for Block E was completed in Q4 2010 and further refinement of this plan will continue in 2011. Mining during 2011 will focus on Block F and Block E. It is planned to suspend production in Block D due to poor yielding coal but might later be mined for the Eskom market.

An additional 60,000 tonnes of plant coal was sourced from the mining of the barrier pillar between Kendal Colliery and a neighboring mine.

The following table outlines production for the four quarters ending December 31, 2010:

  Q1 2010 Q2 2010 Q3 2010 Q4 2010
Run-of-Mine ("ROM" tonnes) 291,856 238 409 286 408 275 866
Feed to plant (tonnes) 239,965 224 558 299 683 253 582
Yield (%) 47.2 41.7 35.7 39.6
Product
(tonnes saleable)
113,263 93 571 106 841 100 423
Sales (tonnes) 116,778 359 134 571 939 268 984
Stock (tonnes) 290,206 189 819 89 872 113 774
Stock Discard 510,768 461 310 277 100 248 333

Run of Mine ("ROM") production was lower than anticipated in the three months ending December 31, 2010. The mining contractor was instructed to ramp up production in the beginning of Q3 2010 as a result of increased sales and increased plant performance leaving the ROM stockpile depleted. The Company aims to maintain stocks of not more than one week's production. Increased levels of production was not forthcoming and it was then decided to engage with existing contractors and give them notice to deploy their equipment in Block D and to relinquish their contract over Block F. The contractor mining the Block E box cut was deployed to Block F. Production was also hampered by above average high rainfall.

Yield on production was lower than anticipated during 2010. During Q4 2010 the face length in Block F shortened substantially causing production to reduce from this area. The coal quality from block F is generally higher than that of Block D which has a longer face length. The result has been that a larger ratio of coal was produced from Block D than from F resulting in lower yields. During Q4 2010 the above situation continued but to make matters worse, Geological intrusions in the form of Dolerite was experienced in both Blocks F and D resulting in a lower than anticipated yields. In order to improve the situation until Block E comes to production, coal was sourced from the mining of the barrier pillar between Kendal colliery and the neighbouring Wescoal mine.. This coal was of significantly higher yield. Another pillar of about 400,000 tonnes was also identified at Block F which is currently beinge mined. This pillar has been yielding higher production.

Processing Operations

Plant throughput for the quarter ended December 31 2010 was negatively impacted as a result of the poor quality of raw coal from Block F and D. This was a result of geological intrusions. Throughput was further affected by low tonnages mined by the opencast mining contractor. In Q4 2010, the mine continued to expend significant costs and operational time to bring the plant back to an acceptable standard.

Plant availability improved significantly during Q4. The plant was however underutilised due to the lack of ROM production.

Sales Contract

Discard was sold under a contract to Just Coal, who supplies to ESKOM. Homeland is currently in discussions with ESKOM to become a direct supplier of low grade coal for power generation. It is envisaged to construct a re-wash plant, should such a contract materialise. Sales were further negatively impacted in the last month of 2010 due to the holiday period and rainy season in South Africa.

Financing Update

As previously announced, the Company completed a USD 29,000,000 credit facility with GMR Energy Limited in late September of 2010. Continued cash requirements at the Kendal facility have necessitated that this facility be increased by USD 5,000,000. This additional amount is subject to the same terms as the original loan amount. The additional loan amount is exempt from the minority shareholder approval requirements of NI 61-101 by virtue of section 5.7(f).

Management is in the process of negotiating a credit facility of up to $50 million from financial institutions to repay the GMR Energy loan of USD 34 million when it falls due in September 2011. The funds will also be used to support the development of the Kendal and Eloff mines and for working capital requirements for Homeland and its subsidiaries in South Africa.

Corporate Update

The Company wishes to report that Mr. Avrom Howard tendered his resignation as a director in January of 2011 to pursue other interests. The Company would like to extend its thanks to Mr. Howard for his contributions and wishes his well in his future endeavours.

The Company has scheduled its annual meeting for Tuesday, June 28, 2011. We look forward to seeing shareholders at that time.

Mr Henry Hoffmann, current COO of Homeland, has been appointed as the qualified person as defined by Canadian National Instrument 43-101 for the Company's properties and has reviewed the content of this release. Dr P.J Hancox, Pr.Sci.Nat., Caracle Creek International Consulting Coal (Pty) Limited (Eloff and Kendal) and A. Dougall, Pr.Eng, of SRK Consulting (South Africa) (Pty) Ltd. (Kendal only) are the independent qualified persons for the disclosure with respect to the Kendal reserve calculation and the Eloff One Resource Block Project Area and have also reviewed the content of this release.

Homeland Energy Group Ltd. (TSX:HEG) is a coal producer with operations in the Witbank area of South Africa. The company also has a large-scale development property in South Africa and exploration interests in Southern Africa. Homeland will continue to seek out interests in additional coal projects in South Africa and neighbouring countries as well as internationally. Homeland is a shareholder in Homeland Uranium Inc., a Canadian uranium exploration company focused on projects in Niger and the United States. Homeland Energy Group Ltd. is currently traded on the Toronto Stock Exchange under the symbol "HEG" with 302,115,756 common shares issued and outstanding. www.homelandenergygroup.com.

Forward-Looking Statements

This press release contains certain "Forward-Looking Statements" that are prospective and reflect management's expectations regarding Homeland Energy Group Ltd's ("Homeland") future growth, results of operations, performance and business prospects and opportunities. Forward-looking statements are not based on historical facts, but rather on current expectations and projections about future events, and are therefore subject to risks and uncertainties which could cause actual results to differ materially from the future results expressed or implied by the forward-looking statements. Forward-looking information can often be identified by forward-looking words such as "anticipate", "believe", "expect", "goal", "plan", "intend", "estimate", "may", "could", "should" and "will" or the negatives thereof, or similar variations suggesting future outcomes, or other expectations, beliefs, plans, objectives, assumptions, intentions or statements about future events or performance. All statements, other than statements of historical fact, included in these documents, including without limitation statements regarding potential mineralization, the quantity and quality of resources and reserves, estimates of future production, unit or operating costs, costs of capital projects, the timing of commencement of operations, exploration results and future plans and objectives of Homeland are forward-looking statements that involve various risks and uncertainties. Such statements are qualified in their entirety by the inherent risks and uncertainties surrounding future expectations. There can be no assurance that such statements will prove to be accurate, and actual results and future events could differ materially from those anticipated in such statements. Important factors that could cause actual results to differ materially from Homeland's expectations include, but are not limited to, failure to establish estimated resources and reserves, the quality and recovery of ore to be mined varying from estimates, capital and operating costs varying significantly from estimates, delays in obtaining or the failure to obtain required governmental, environmental or other project approvals, inflation, changes in exchange rates, fluctuations in commodity prices, delays in the development of projects, financing risks, general business and economic conditions, industry risks and other factors.

Shareholders and prospective investors should be aware that these statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those suggested by the forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking information. By its nature, forward-looking information involves numerous assumptions, inherent risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and various future events will not occur. Homeland undertakes no obligation to update publicly or otherwise revise any forward-looking information whether as a result of new information, future events or other such factors which affect this information, except as required by law.

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