Highfield Resources delivers compelling PFS for Javier Potash Project
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.
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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