Highfield Resources delivers compelling PFS for Javier Potash Project

Highfield Resources (ASX:HFR) has released an eagerly awaited Preliminary Feasibility Study that demonstrates compelling economics for its key Javier Potash Project in Spain.
Proactive Investors believes that Highfield's share price should trade higher this morning on the PFS results.
This follows the company last week
increasing the Inferred Resource by over 100 million tonnes to 268
million tonnes at 11.2% K2O (17.8% KCl).
Key metrics for the project include:
- 20 year initial mine commencing in 2016 with a production target of 860,000 tonnes of K60 product per annum;
- After tax NPV10 of US$1.06 billion on
a headline capex of US$307.9 million (US$249 million pre-production
capex) with 94.5% of physical costs supported by Spanish contractor
budget pricing;
- After tax, unlevered IRR of 48.4% with first year EBITDA estimated at US$235 million;
-
Over 80% of capex estimate has been peer reviewed by Spanish prime
contractor IDOM that has actual potash construction experience in Spain;
-
Potential upside from current drilling campaign with a 4.5 metre
sylvinite intersect recently drilled not included in the mining target
estimate.
The project also demonstrates that variables such as
royalty rates, utility networks, logistics and proximity to markets are
key inputs that help drive project economics.
Analysis
The Pre-Feasibility Study highlights the attractiveness of Highfield Resources’
Javier Potash Project, which delivers an EBITDA in first year of full
production estimated at US$235 million after tax, an NPV of US$1.06
billion and IRR of 48.4% from annual production of 860,000 tonnes of K60
product.
The project benefits from mine access via a decline;
underground conventional mining; flotation circuit processing; First
World infrastructure; and close proximity to markets.
In terms of OPEX, total C1 costs
(mining, processing, transport, G&A and sustaining Capex) would see
an OPEX of US$144.59 a tonne providing a robust margin.
Notably,
the estimated capital cost of US$307.9 million (US$249 million
pre-production capex) compares favourably with the estimated US$650
million cost of the Allan Potash Project, which is the nearest
non-producer.
Given the project’s location in Spain, we believe
that the company will be able to secure favourable European bank project
finance for Javier.
Support is also expected from its major
shareholder, Owen Hegarty's EMR Capital (29.5%), which has been
supportive of Highfield's potash production ambitions.
The
company has started work on taking the project into a construction ready
position by early 2015 which provides strong price catalysts in 2014.
Separately,
updates are also expected over the coming months on Highfield’s other
two 100% owned potash projects – Sierra del Perdón and Pintano.
Proactive Investors continues to maintain our recently upgraded price target of $0.75 - $0.90 within six months for Highfield.


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