Island coal mine working at capacity

COMMENT: The stock market doesn't quite seem to agree with this promotional bumf.

Andrew A. Duffy,
Times Colonist, with files from Bloomberg
January 16, 2009

Hillsborough CEO expects Quinsam is poised for an incredible 2009 to 2010

Uncertainty in the global coal market does not appear to have affected Hillsborough Re-sources, which operates the Quinsam coal mine near Campbell River.

According to Hillsborough CEO David Slater, the Island mine, which produces coal used in the production of cement or in coal-fired electrical plants, is working at full capacity and the company is forecasting a strong 2009.

"I think 2009 and 2010 will be incredible years for us," said Slater, noting a number of domestic and international contracts booked with coal at high prices have the company on firm economic footing. "We are poised for a hell of a year. We have to keep our heads and keep costs under control, but that's the same for any business."

Hillsborough issued an operations and sales update for shareholders yesterday following concerns raised by the uncertainty in the market and announcements by other coal producers of reduced production, likely due to reduced demand in China.

China is the world's biggest user of coal, relying on the fuel for 80 per cent of its power generation, but slashed its overseas purchases for the first time in five years due to slowing economic growth.

Coal imports to China declined by 21 per cent to 40.4 million tonnes last year, the first drop since 2003, when shipments fell 0.5 per cent to 10.76 million tonnes.

In the update, Hillsborough noted it has budgeted to produce 520,000 tonnes from its Quinsam operation, all of which has been spoken for through various contracts, including 300,000 tonnes into the international market at the high price of $137 US per tonne.

"I'd like to say it was foresight and incredible timing, but luck has a part to play in that," said Slater of the high contract price.

The spot price for coal at Richards Bay, South Africa, the largest export terminal for the fuel, hit $83.70 a tonne recently, though that figure remains less than half of the record prices hit last year when the global economy was firing on all cylinders.

According to Slater, the Quinsam mine is working at capacity with 150 full-time workers, and after a 2008 that featured higher-than-expected operating costs, it is poised to improve productivity over the next two years.

In the update to shareholders, the company says new equipment -- part of a $32-million expansion plan announced in 2007 that's designed to double the size of the Quinsam mine -- and a year's experience for new members of its workforce should allow the company to reduce production costs.

Despite what appears to be good news on the horizon, the markets haven't taken much of a shine to the company. Hillsborough's share price (TSX:HLB) closed up $0.03 at $0.215, well off its 52-week high of $2.08.

"I don't know what it takes to get the market to sit up and take notice, but we think it's pretty good news," said Slater. "You just need to get on and prove you're right. If you keep your head and keep doing it, you'll probably be OK."

Hillsborough Resources Limited Updates Operations and Sales

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Jan. 15, 2009) - Hillsborough Resources Limited (TSX:HLB) (the "Corporation") provides an operations and sales update to its shareholders to address concerns with respect to the current uncertainty in the coal markets and various announcements by other coal operators.

As a result of favourable sales contracts and operational improvements, Management believes that Hillsborough is positioned to do well during 2009.

Hillsborough has budgeted to produce 520,000 tonnes of Quinsam products during calendar year 2009, all of which has been contracted for. Our upwardly revised projections for 2009 call for an average blended sales price of CDN$125/tonne, which includes 300,000 tonnes into the international market at US$137/tonne with an assumed average exchange rate of CDN to US of $0.838. Management expects that any additional production would be readily sold at market prices.

For the first half of 2009, Vitol has requested the next shipments for mid-March and mid-June.

Hillsborough also advises that new pricing with one of its cement customers will take effect April 1st with a substantial increase due to adjustments based on the contracted producer price index. Sales to other domestic customers are already at or above market prices.

Although Quinsam had higher than forecast production costs through 2008, the mine is much better positioned to improve productivity, to meet production targets, and to reduce costs during 2009. New equipment has been added, the new workforce has become more experienced, and the mine plan has a good balance of development and depillar coal. Blended FOB cash costs are budgeted at CDN$73/tonne. If above noted improvements are achieved, production costs will reduce.

The impact of the downturn in the steel industry and demand for metallurgical coal is being monitored closely by Management at Peace River Coal (PRC). The Trend transition project which is well underway is expected to bring PRC greater capital and management control as well as to deliver a reduced operating cost environment. Options around optimal production will be assessed as more clarity emerges from the customers and market sector.

Further, subject to regulatory and shareholder approval, the directors of the Corporation have approved a new employee share purchase plan to replace its former plan which terminated in accordance with its terms on December 31, 2008, permitting participants to be issued up to a maximum of 2,000,000 common shares, with the Corporation effectively matching 50% of their contributions.

About the Corporation

Hillsborough Resources Limited is a coal mining company that:

- Operates the 500,000 tpy Quinsam underground thermal mine near Campbell River, British Columbia, serving the local and west-coast U.S. cement industry with increasing sales into the export market.

- Is a limited partner in the Peace River Coal Limited Partnership (with 14.1%), which has substantial metallurgical coal properties both in production (Trend Mine) and under development near Tumbler Ridge, British Columbia.

- Owns the Crossville Mine in Tennessee on which options for new mine development are being evaluated but the mine remains in reclamation at this time.

- Holds the Wapiti thermal coal property north of Tumbler Ridge, and is planning development of a mine.

- Holds the Bingay Creek metallurgical coal property located in the Elk Valley region of southeast British Columbia.

Certain statements and information herein, including all statements that are not historical facts, contain forward-looking statements and forward-looking information within the meaning of applicable securities laws. Such forward-looking statements or information include but are not limited to statements or information as to estimates, forecasts, future financial or operating performance of the Corporation, future production, costs of production, capital requirements, operating expenditures, reserve potential, exploration drilling, exploitation activities and activities and events or developments that we expect to occur. Often, but not always, forward-looking statements and information can be identified by the use of words such as "may", "will", "should", "plans", "expects", "intends", "anticipates", "believes", "budget", "forecasted" and "scheduled" or the negative thereof or variations thereon or similar terminology.

With respect to forward-looking statements and information contained herein, we have made numerous assumptions including among other things, assumptions about prices, anticipated costs and our ability to achieve our goals. In particular, our statements regarding future production expectation is based on current existing current resource/reserve estimates, production contracts in place, historical costs and mining conditions.

Forward-looking statements and information are necessarily based upon a number of estimates and assumptions that, while considered by management to be reasonable and to be based on reasonable assumptions, are inherently subject to significant business, economic and competitive uncertainties and contingencies and involve known and unknown risks. Readers are cautioned that any such forward-looking statements and information are not guarantees and there can be no assurance that such statements and information 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 the Corporation's expectations include adverse exploration or development results; interruptions in the ability of the Corporation to produce coal from any of its mines; inability to meet production volumes required; 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. See our recent annual information form and quarterly and annual management's discussion and analysis filed on SEDAR for additional information on risks, uncertainties and other factors relating to the forward-looking statements and information.

Although we have identified factors that would cause actual actions, events or results to differ materially from those disclosed in the forward-looking statements or information, there may be other factors that cause actual results, performance, achievements or events not to be as anticipated, estimated or intended. Accordingly, readers should not place undue reliance on the forward-looking statements or information. We expressly disclaim any intention or obligation to update or revise any forward-looking statements and information whether as a result of new information, future events or otherwise, except as required by law. All written and oral forward-looking statements and information attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements.