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Highfield Resources On Fast Track To Become A Low Cost Producer Of Spanish Potash

Highfield Resources Limited (ASX: HFR) has acquired the high impact Navarra and Aragon potash projects in Spain.


Navarra contains the historic Sierra del Perdon underground potash mine that produced around 10MT of potash over 25 years to the mid-1990's, and can be rapidly re-commissioned as a solution mine to be a long term producer from shallow resources.

The management team includes Pedro Rodriguez who has over 30 years of experience in Spanish mining services and was recently involved in the evaluation, development and management of the Aguas Tenidos base metals mine, and management of the Los Santos tungsten mine; and Derek Carter who was Chief Geologist in Spain for Shell Billiton and has had a distinguished career as a geologist that included the discovery of the Prominent Hill Mine in South Australia. He is the recipient of AMEC's Prospector of the Year Award; AusIMM's President Award and is a Centenary medallist.

JORC compliant resources estimates are expected to be completed at Navarra and nearby Aragon in the current quarter. Additional high impact potash exploration ground will be drilled shortly at McLarty in the Canning Basin of Western Australia for which the Company has recently received Western Australian Government drilling support funding of $400,000.

Stock ticker: HFR
Share Price: $0.285
Market Cap: $27.2M
Issued Shares: 95.5MM
Cash: $2.9M ('Sept end)


Highfield Resources (ASX:HFR) is fast tracking the re-commission of the historic Sierra del Perdon underground potash mine by solution mining that produced around 10 million tonnes of potash over 25 years, for an average output of around 400,000 tonnes per annum.

Production was sourced from Zones A, B, C, and E, partially mined from Zone B, and left resources at Zones D and F untouched. These defined zones are contained within a 140km² area located around the historic mine, and are part of a larger landholding known as the Navarra project.

Additional high potential potash areas were also acquired at Aragon which is an advanced stage exploration project located approximately 60km from Navarra, and creates a total landholding of 430km².

The Company retains a very strong management team that has "in country" experience that holds ~24% of the Company on a fully diluted basis, and is expected to rapidly drive assets into production and provide a much higher valuation for shareholders.

Advanced stage potash developers typically carry higher valuations and include Prospect Global Resources (NASDAQ: PGRX) US$111.0M, Encanto Potash (TSXV: EPO) C$54.3M, and Allana Potash (TSX: AAA) C$125.9M, with a typical global CAPEX range of $1.3B - $2B for a mine producing 2MTPA of potash.

One of the advantages of the Highfield projects versus these peers are the fact Highfield has four different production fronts and will target much smaller initial production. This smaller initial production means there is a greater likelihood of the company securing funding. If funding is secured and production commences, additional mining fronts can be cash flow funded from profits.

The Navarra project already contains a historic potash mine that can be rapidly re-developed and commence production at a relatively low CAPEX, and over a much shorter timeline than projects under development within its peer group. The project is geologically analogous with Prospect Global Resources American West Project in the Holbrook Basin of Arizona, that is a shallow deposit containing 134 million tonnes of potash and is close to infrastructure and proximate to markets.

Current market capitalisation EV of Highfield Resources is $29M, and is extremely undervalued relative to the valuation placed on the American West Project at US$111.0M, and relative to a peer group valuation range of C$54.3M - C$125.9M.

Highfield Resources should attract a premium to both the America West Project, and peer group valuation range based on the previous operational history at Sierra del Perdon, short timeline for development, low CAPEX, strategic location, and low delivery costs due to proximity to markets where potash demand currently exceeds supply, presence of well-endowed local infrastructure, and availability of a plentiful supply of local skilled labour.

In addition, there is a significant market for the main by-product of potash production - common salt. This has a twofold benefit:

1. There is an additional revenue stream from production; and
2. There is a reduction in waste removal costs.

Both of these benefits provide significant advantages for Highfield Resources.


Derek Carter serves as Non-Executive Chairman, and is a geologist with over 40 years of experience in exploration, development and nearly 20 years in the management of ASX listed exploration companies. He has held senior positions in the Shell Group of Companies, including Chief Geologist in Spain, and was the Managing Director of the ASX listed Minotaur Resources from its inception in 1993 to 2010.

Anthony Hall serves as Managing Director, and is a qualified lawyer and company secretary with over 15 years of commercial experience in venture capital, risk management, strategy and business development. Prior to his appointment he was Head of Strategy and Business Development for the solar energy division of an ASX listed top 50 corporation.

Pedro Rodriguez serves as Development Director and is a geologist with over 30 years of experience in mining services in Spain working with six international mining companies that included Billiton International, Navan-Almagrera, and Newmont. He was recently directly responsible to the Board of Directors of Almagrera SA for delivering a mining chemical complex with more than 460 employees and produced more than US$50M in annualised sales.

Jonathan Murray serves as Non-Executive Director and is a lawyer with over 15 years of commercial experience in equity markets, takeovers, project acquisition and divestments, corporate governance, commercial law and strategy. He has an extensive global network of contacts and is a director of a number of ASX listed entities.

Scott Funston serves as Non-Executive Director and is a chartered accountant with over 10 years of experience in the mining industry and accounting profession. His expertise is in financial management and general corporate advice, and he is a Director and Company Secretary of a number of ASX listed entities.

Aaron Bertolatti serves as Company Secretary, and is a chartered accountant with over 8 years of experience in the mining industry and accounting profession. He has both local and international experience and is the Company Secretary for a number of ASX listed entities.

John Claverley serves as General Manager based in Spain and is a mechanical engineer by training. He managed a team of over 20 consulting engineers in Spain through the 1990s and most recently was the European Head of Business Development for a large global construction and property development company.


The largest shareholders include Derek Carter with 5.8%, Pedro Rodriguez 5.8%, Raúl Hidalgo 5.8% and Jose Manuel Prada 5.8% for a total of 23.2% of the issued shares.

The Company has issued 10.0M unlisted options that are exercisable at $0.20 per share and expire on 01/11/16.

The company has issued 51.5M performance "A" shares that will convert to a maximum of 51.5M ordinary shares on the completion of a JORC Indicated Resource of 150MT at a grade of 13% K2O (~20% potash), with a lesser number of shares to issue on delineation of smaller but richer resources.

An additional 51.5M performance "B" shares have been issued that will convert to 51.5M ordinary shares on receipt of construction and operating approvals for a mine producing 0.5MTPA of potash.

In country Spanish management retains a 24% interest, with remaining management holding 12%, and other shareholders with 64%.


The September 2012 quarterly reported $0.402M for exploration and evaluation, $0.299M for administration, $0.076M interest received for a net operating cash outflow of $0.625M.

Expenditures for the December 2012 are forecast at $0.50M for exploration and evaluation, and $0.15M for administration for a total cash outflow of $0.65M.

Cash held at the end of the September quarterly was $2.933M.


Highfield Resources is a potash explorer and developer with a portfolio of three key projects that are located in Spain and Australia. The Navarra and Aragon potash projects are located in the Ebro potash producing basin in northern Spain and are being fast tracked into near term production; and the McLarty potash project is an exploration play located in the Canning Basin of northwestern Australia.


(Areas in blue are granted tenements and areas in red represent recently applied for tenements)

The Navarro and Aragon potash projects comprise a 100% interest in a total of six awarded tenements that cover approximately 430km² and are located in the Navarra and Catalan potash sub-basins.

The Navarra potash project is formally known as Sierra del Perdon and was an established mining operation that produced around 10 million tonnes of potash and comprises six mining zones, of which four zones were historically mined from 1972 - 1997 at an average rate of around 400,000 tonnes of potash per annum. The mine ceased operations when potash prices fell to a low of US$110 per tonne.

The newly installed management team at Highfield Resources is taking advantage of firm potash prices that are currently ~US$400 per tonne to revive mining operations at the Navarra potash project. They are fast tracking the re-opening of the historic mine, upgrading unmined resources, and developing additional resources for production at the nearby Aragon potash project.

The Navarra potash project area contained defined zones of potash mineralisation within Zones A, B, C, D, E and F that are located across a ~140km² area, with historic mining extracting potash from Zones A, B, C and E in the form of sylvinite and carnallite, and leaving significant quantities of remnant ore within Zone B, and untouched resource potential at Zones D and F that are available for long life production.

The historic Sierra del Perdon Mine is located near water, roads, rail and power infrastructure, and is within 150km of an industrial port. The mine is also close to a large and skilled labour force that is currently suffering from high unemployment, and the proposed re-opening has the full backing of the local community and government regulators.

The Sierra del Perdon Mine is analogous to the Moab Potash Mine in Utah that originally operated as an underground mine and extracted potash from zones at a depth of 2,400 - 4,000 feet via room and pillar mining. Moab currently operates a solution mining system that pumps concentrated brine to the surface for processing via evaporation ponds, for recovery of potash and salt crystals, and has an estimated remaining mine life of approximately 125 years.

North Rim, which is a Canadian based geological and engineering firm that specializes in the evaluation of potash projects has completed its technical due diligence at both project areas, and has identified four prospects capable of producing potash. These include (1) the historic mine at Sierra del Perdon at Zone B (2) nearby Zones D & F, (3) Javier sub-basin; and (4) Pintano sub-basin at the Aragon project area.

The Company has obtained historic assays, seismic work and drill cores from the Aragon Area that are being re-sampled and assayed for reinterpretation and completion of a maiden JORC compliant resource estimate. A preliminary feasibility study based on this data will then be fast tracked.

In addition, the Company is in the process of creating a detailed mine model of the old Sierra del Perdon Mine using production records that should be able to be used to prepare a resource model to deliver a maiden JORC compliant resource on this asset.

This will be followed by drilling of mineralisation at Zone B so that a more robust JORC compliant Indicated Resource can be confirmed and allow for the completion of a Bankable Feasibility Study in the later part of 2013.

The shallow depth of the mineralisation at both projects increase the economic appeal for development. This is allied with the presence of local infrastructure that is indicating a low CAPEX for the project area.


The McLarty potash project is subject to a farm-in agreement that will allow the Company to secure up to an 80% interest and covers three tenements that are located in the Canning Basin of Western Australia. Vast accumulations of Ordovician evaporate salt bearing sediments are found throughout the Basin at depths of 600 - 2,000m, and are known to have a thickness of up to 740m.

They are considered prospective for economic potash mineralisation within the prospective Mallowa Salt unit, which is interpreted to be present within the project area at a depth of approximately 640m.

A significant number of petroleum wells have been drilled across the Canning Basin that have intersected and assayed intervals of the Mallowa Salt, and include Fruitcake #1 that was drilled within the project area, and identified low grade but promising potash mineralisation.

The Company has completed a study of Canning Basin petroleum well log data and associated seismic surveys to map the depth, thickness, structure disruption and areal extent of the Mallowa Salt within the tenement holdings, and has identified the presence of two significant targets at a depth of 500m - 700m. Heritage approvals have been finalised and a Programme of Works has been prepared, with drilling expected to commence in the near future.


- Complete maiden Inferred JORC resource estimate within both Spanish projects in the March quarter of 2013.
- Preparation of a budget and programmes to prepare full feasibility studies on all four potential prospects in the March quarter of 2013.
- Recruitment of additional Spanish based consultants and employees to complement existing "in country" management team.
- Lodge Programme of Works with Western Australian Government for final approval prior to commencement of drilling at McLarty potash project.
- Complete prefeasibility study at Sierra del Perdon.
- Complete prefeasibility study at Javier and Pintano.
- Complete drilling programme for upgraded JORC resource on both Spanish projects.
- Complete Bankable Feasibility Study at Sierra del Perdon
- Complete all approvals, infrastructure arrangements, off-take agreements and funding to resume mining at Sierra del Perdon.


The UN and OECD estimates that the human population of the world will reach 9.3B by 2050 and that the middle class will grow from 1.8B to 4.9B. This will require an increase of 70% in global farm output; and drive demand for potash which is a key source of potassium that is a vital for plant life development and quality.

In the shorter term the potash market is projected to grow to 63 million tonnes in 2015 and reach 75 million tonnes in 2020, led by demand from China, Brazil and India, and will support potash pricing in the longer term.

Tetra Tech currently utilises a potash price range of US$397 - US$595 per tonne for the evaluation of proposed potash projects that are being developed to meet this growing demand.

Newer developers of potash resources include Prospect Global Resources (NASDAQ: PGRX) which is based in the Holbrook Basin of Utah, and has currently defined Measured, Indicated and Inferred Resources of 780.0MT of sylvinite containing 134MT of potash. A Preliminary Economic Assessment assigns a CAPEX of US$1.334B for an underground mine producing 2.0MT of potash, and an OPEX of US$97 per tonne of potash.

Intrepid Potash (NYSE: IPI) reports OPEX of US$175-190 per tonne of potash for U.S. based operations and Potash Corp (TSX: POT) reports $112 per tonne from Canadian operations. Transport costs can add $50 - 85 per tonne for shipment from mine to consumers in distant locations.

Highfield Resources has a major strategic and financial advantage over other potash developers because it can re-commission an established potash mine at very low CAPEX within a short timeline; and is located in the Spanish market where demand and very close to French, Portuguese and Northern African markets where demand currently exceeds production.

This proximity to local markets translates into a transportation advantage of up to US$80 per tonne of potash.

Mining operations in Spain are well established and attract significant financial advantages that include royalty free and large CAPEX offsets that significantly reduce tax liability and enhance net margins.

A weak EU economy also provides Highfield Resources with the opportunity to bid very competitively for capital equipment for mine re-commissioning, and high unemployment rates underwrite strong support from the local community for long term skilled labour positions.

Highfield Resources retains the historic geological and production records for the Sierra del Perdon mine that significantly de-risk the project, and increase confidence that the prospects within the Navarra project area can be mined profitably.

Potential also exists for the sale of by-products that include sodium chloride as refined table salt, and sale of road salt into European markets. Iberpotash which is a local Spanish potash producer recently reported the sale of 1.2MT of road salt at ~ $80.00 per tonne.

The rapid development of JORC compliant resources, data from scoping studies, and commencement of a Bankable Feasibility Study, mine permitting and negotiations for off-take agreements should see near term valuation growth in the range of $75-105M, or $0.78 - $1.10 per share on an undiluted basis in 12 to 18 months.

This number still reflects extreme undervaluation for a near term potash mine development, and will be further governed by the release of data on the size of JORC resources, planned throughput rate and funding sources.

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