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Highfield Resources Ltd signs key offtake agreements for Muga Potash Mine

Published: 09:30 30 May 2016 AEST

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Highfield Resources Ltd (ASX:HFR) has signed memorandum of understandings (MOUs) with three large European fertiliser companies for future output from its Muga potash mine in northern Spain.

Under the non-binding agreements, 320,000 tonnes per annum of K60 Muriate of Potash (MOP) will be supplied to the southern European fertiliser market.

By focusing on local offtake agreements, Highfield will be able to truck directly to customer depots and receive a premium over free on board (FOB) Vancouver prices.

Anthony Hall, managing director, commented: "These MOUs reinforce the belief shared by ourselves and other market observers that the Muga Potash Mine will make Highfield the highest margin global producer.

"It is also a positive development and de-risking milestone for the company as we move towards commencing construction this year.”


Muga Project

Muga is one of five 100%-owned projects, covering 550 square kilometres, in the potash and halite producing Ebro Basin in northern Spain.

The company completed a Definitive Feasibility Study (DFS) for Muga in March 2015, which was optimised in November 2015.

Highfield is progressing towards construction of Muga subject to the receipt of a positive environmental declaration and the granting of the mining concession.

The project hosts Reserves of 253 million tonnes at 11.5% potash and has capex costs of €412.7 million for a 1.02 million tonnes per annum MOP producing mine.

The funding of Muga's phase 1 capex of €267 million was secured following a $A101 million share placement in July 2015 and indicative non-binding €222 million project financing facility in August 2015.


Offtake agreements

Highfield recently appointed Pablo Moreno, an experienced global fertiliser trader, as global head of sales and marketing.

Discussions are ongoing with additional parties in the European and North African markets for remaining future production from the Muga Potash Mine.

European mine closures and expansions are expected to remove a net 1.0 million tonnes of MOP production from these markets by 2020.

Highfield has focused on markets that deliver it a maximum possible margin and where it has clear logistical and margin advantages over its peers.


Analysis

These MOUs demonstrate that Highfield has started to formalise its engagements with supply partners for production from Muga.

The interest from offtake partners further validates the strong economics of the Muga project, which are underpinned by location, infrastructure and cost advantages, as well as de-risk the road to path to production at Muga.

A recent independent report by Argus FMB confirmed the Muga Potash Mine would have been the highest margin potash producer globally in 2015.

Highfield maintains broker coverage from 10 research analysts with share price targets ranging from $1.75 per share to $3.47 per share. The stock is currently trading at $1.48 per share.

The key near term catalyst for Highfield is the receipt of a positive environmental declaration and the granting of the mining concession for Muga with a major milestone not far away as it looks to commence construction this year.

Muga represents only 10% of wider tenement portfolio, leaving ample opportunity for further development.

Highfield had A$98.8 million cash at bank as at 31 March, 2016.

 

Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX emerging companies with distribution in Australia, UK, North America and Hong Kong / China.

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