Hillsborough Resources loses $443,384 in Q3
2005-11-02 17:44 ET - News Release
Mr. David Slater reports
HILLSBOROUGH RESOURCES: HILLSBOROUGH ANNOUNCES THIRD QUARTER RESULTS FOR FISCAL 2005
Hillsborough Resources Ltd. has released an overview for the third quarter of 2005. This 2005 year and the third quarter in particular have been periods of significant activity and growth for Hillsborough. The preoperating development of the new Crossville mine in Tennessee was completed during the quarter, and commercial production from the underground mine formally commenced on Sept. 27. In northeast British Columbia, extensive resource drilling and development activity continued through the summer season at Five Cabin and the other Murray River properties as Hillsborough deployed flow-through funds raised in December, 2004, and August, 2005. And in early October, 2005, Hillsborough announced it was negotiating a potential joint venture with Anglo Coal on these northeast properties.
Hillsborough's operating results for both the third quarter and the first nine months of 2005 reflect the impact of its investment in growth with the increased general and administrative costs necessary to execute this strategy. During the third quarter in particular, this impact was compounded by temporary factors affecting operating results from the Quinsam mine on Vancouver Island. For the quarter ending Sept. 30, 2005, Hillsborough has recorded a net loss of $443,384, or one cent per share, versus net earnings in the third quarter of 2004 of $115,549 or nil per share. Net earnings for the nine months ended Sept. 30, 2005, were $1,367,077 or three cents per share versus net earnings for the same period in 2004 of $1,638,411 or five cents per share. At Sept. 30, 2005, cash and cash equivalents totalled $3.5-million and net working capital totalled $5.1-million.
At the Quinsam mine, operating results for the third quarter of 2005 were hampered by unusually adverse underground conditions that persisted through much of the quarter, together with an unplanned shutdown for maintenance by one of the company's largest domestic customers. These conditions were behind the company by the end of September and raw coal production rates have since been running at or better than plan. However, the impact for the quarter is reflected in production cost of coal sold being approximately 6 per cent higher than normal, and as a result, contribution margin on coal sold for the quarter being approximately 12 per cent versus the 17-per-cent to 19-per-cent range more typically realized. As noted, production rates have run at or above plan since the underground conditions were mined through in September, and Hillsborough is investigating opportunities to mitigate the third quarter impact. These include completing one more international market shipment during the final quarter of 2005, as well as developing opportunities to increase sales into the domestic market.
With respect to the Crossville mine located in Tennessee, commercial production from underground was commenced on Sept. 27, 2005. Since the property was acquired by Hillsborough in the first quarter of 2005, Crossville has been in a preoperating mode while a box cut was taken and a face-up established for the underground mine. The box cut was taken in the exposed coal seam and a total of $1,764,322 was generated from the sale of coal yielded from the process, resulting in a significant offset to the development costs incurred bringing the underground mine into production. These sales were not included in reported operating revenues through the third quarter as, in accordance with generally accepted accounting principles, they are reflected as a reduction of the mine's development costs. With the commencement of commercial production, however, Hillsborough's operating revenues and expenses will include the Crossville mine operations, starting with the fourth quarter of 2005. Significant headway has been made with the underground workings. With the installation of the main haulage drive planned for the first two weeks of November, productivity will continue increasing to planned levels.
Regarding the Five Cabin property in northeast British Columbia, drilling has continued throughout the summer of 2005 as work continues on establishing resource evaluations in accordance with National Instrument 43-101. As this work has progressed, Hillsborough has identified a two-staged approach to the Five Cabin development. Primary efforts are currently being directed to preparing a National Instrument 43-101 technical report and resource estimate on what the company has termed the Horizon area, encompassing a subarea of the Five Cabin property, including what was previously referenced as the Murray pit area. This report is being prepared to a level of detail that will enable it to be used to support a feasibility study in respect of the Horizon mine, targeted at a production level of 1.2 million to 1.6 million tonnes per year. Given this expanded scope, combined with the effects of an unusually wet summer and shortages of drill rigs in the region, the corporation now expects to complete the Horizon technical report in the first quarter of 2006, to be followed by completion of the Horizon feasibility study targeted for the second quarter of 2006. The second stage of the Five Cabin development is focused on the Ridge area, with a target of enabling mine expansion to a three-million to five-million-tonne-per-year level of production. Drilling has occurred during summer 2005 on the Ridge area in support of this second-stage focus, as well as on other properties within the northeast property group.
On Oct. 5, 2005, Hillsborough entered into a non-binding letter of intent with Anglo Coal, a division of Anglo American PLC, providing for the possible acquisition by Anglo Coal of a minority equity position in Hillsborough and for a joint venture or joint ventures for the exploration and development of nine of the 11 northeast British Columbia coking and PCI coal resource properties, including the Five Cabin property. The transaction envisaged by the letter of intent remains subject to the negotiation and signature of a definitive agreement by the parties and the definitive agreement, if signed, will be subject to a number of conditions precedent, including due diligence by Anglo Coal, approvals by the boards of Anglo American PLC and the corporation, and the approval of the Toronto Stock Exchange. Further details of the proposed transaction will be disclosed publicly once a definitive agreement is signed, expected to occur before the end of the fourth quarter.
David Slater, president and chief executive officer of Hillsborough, stated: "Challenging underground conditions which are now behind us, together with an unexpected temporary shutdown by one of our domestic customers, led to disappointing operating results from our Quinsam mine in the third quarter, but it speaks to the skill and professionalism of our people that these conditions were safely and successfully mined through and that they are well on their way to making up for lost time. I am very proud to now be able to include Crossville as Hillsborough's second producing underground mine, and I am fully confident our people there will continue Hillsborough's tradition of safety and excellence in mining and environmental stewardship. The exploration and development of Five Cabin and our other Murray River Group properties has continued strongly, and our pending partnership with Anglo Coal in the northeast adds a whole new dimension to our options for developing those interests to their fullest potential."
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