Homeland Energy Group Reports on Operational Challenges and Updated of the Resource and Reserve Estimation for the Kendal Mine

TORONTO, 03/16/12 - Homeland Energy Group Ltd. (TSX: HEG) (“Homeland“ or the “Company“) wishes to provide shareholders with an update on the challenges that have been experienced at the Kendal mine in recent months. The Block E Boxcut suffered an inrush of water in August of 2011. As a result of this problem, mining activities had to be halted during Q4 of 2011 and into Q1 of 2012 which had a significant negative impact on revenue during those periods.

Management believes that the problem has been resolved and mining operations have restarted. The Company is ramping up its production levels and expects to return to full production in the coming months. It is not unusual for mines with old underground workings, such as the E block at Kendal, to experience water ingress from old underground dams and water filled voids from time to time. However, major disruptions in working can be avoided and the effect of the water ingress on operations can be reasonably mitigated through advance drilling and pumping. These actions have already been implemented.

The water entered the pit from the old No 4 Lower Seam underground workings. When this first occurred, it was thought that the source of this water was a small pocket of water from a “low lying“ area, or from an old underground dam which could have been constructed during the early 1900s. Pumping began and it was not originally expected to be a significant problem. However, after continuous pumping for more than a month it became clear that the extent of the problem was far worse than anticipated. Previous studies conducted by Ferret Environmental had indicated by reviewing the “Floor contour“ plans that there were a few low lying areas in which there could have been an accumulation of water. At the time, the mine personnel had drilled large diameter boreholes and installed borehole pumps for the dewatering of the workings and the water pockets were subsequently depleted. Unfortunately, this did not result in water levels receding in the pit at the expected rate.

Management of the Company then started exploring other potential sources of water such as a defunct neighbouring mine. It was found that that mine was flooded with water but it could not be proved that there was a direct link with the Block E underground workings. Management never the less decided to install pumps and commence dewatering of that mine. The mine was ultimately completely dewatered. At more or less the same time the water levels in the Boxcut started receding. Although it cannot be proven due to a lack of accurate plans that there was a direct connection between the defunct mine and Block E Boxcut, it is reasonable to assume that the defunct mine was the source of water. At the same time Management requested an opinion from MRM Consulting (part of the Runge group of companies, which provide consultancy in mining and related services industries globally) to determine whether any other technology was available to have determined the extent of the water, or whether Management could have taken any alternative action. An additional opinion was also acquired from a Mining consultant, Dr Steven Rupprecht. Both parties concurred that there was no better alternative solution than the one taken at the time.

In addition, as the Block E Boxcut reached the point of exposing the 4 lower seam pillars in late 2011, it became evident that more coal had been removed from prior mining than had been expected. In the technical report entitled “Kendal Colliery NI 43-101 Technical Report“ dated May 16, 2011 and prepared by SRK Consulting (the “Report“), the proven reserve estimate for the Block E 4 lower seam (the “E4L Seam“) in the Report was 2.64Mt Run of Mine ('ROM'). The total proven reserve estimate in the Report for Block E was 17.297 Mt ROM. The estimate for the E4L Seam was based on industry standard assumptions of historical mining practices to determine the amount of coal that was left behind in the pillars. It is now evident that at Kendal, the previous mining had been more extensive than historical mining practices reducing the available coal for current mining. The more extensive mining activity was likely the result of a number of factors but in particular the extremely competent roof conditions that facilitated removal of more coal than would have been standard practice. In some cases the remaining pillars are so thin as to making further mining extremely difficult. The Company retained Caracle Creek International Consulting Coal (Pty) Ltd. (“CCIC Coal“) and AB Global Mining Co. (“AB Global“) to review the resource and reserve estimations for the Kendal Mine including the E4L Seam and CCIC Coal and AB Global are in the process of completing an updated National Instrument 43-101 compliant Technical Report for the Kendal resource and reserve, which is expected to be available by the end of the month.

Management is continuing to work towards achieving stable production at Kendal.

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.

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 Energy Group Ltd. is currently traded on the Toronto Stock Exchange under the symbol “HEG“ with 471,204,149 common shares issued and outstanding.



Contacts:

Homeland Energy Group Ltd.
Ashis Basu, Interim Chief Executive Officer
+1 416 506-1979
info@homelandenergygroup.com
www.homelandenergygroup.com