Highfield Resources' Muga mine in lowest cost potash project ranking

Jan. 19, 2016 5:03 PM ET
Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Short Only

Contributor Since 2009

Proactiveinvestors is a leading multi-media news organisation, investor portal and events management business with offices in New York, Sydney, Toronto, Frankfurt and London. Proactiveinvestors operates five financial websites in four languages providing breaking news, comment and analysis on hundreds of listed companies across the globe daily. We are one of the fastest growing financial media portals in the world. The group also operates hugely successful “investor forums” where three or four companies present to an audience of high net sophisticated investors, fund managers, hedge funds, private client brokers and analysts. Ian Mclelland founded Proactiveinvestors in 2006 as a way to channel his own views on companies small and mid-cap public companies. What started as a hobby quickly turned into a full time job as the website's readership exploded. One2One forums were added later in 2006, and within two years the company had expanded its operations into Canada and Australia. In 2009 the company expanded into Germany and finally into the US in 2010. Proactiveinvestors is now one of the fastest growing global financial media organizations in the world receiving more than one million visitors per month, with investor forums held across the globe on a regular basis.

Highfield Resources (ASX:HFR) has been given the ultimate accolade with an independent report by Argus FMB that calculated the Spanish potash developer's Muga Potash project is positioned as the highest margin, lowest cost global producer.

The estimated margin in CY2015 would have been over US$200 / tonne.

Muga is on track for production to commence in October 2017.

The report was commissioned by the European project finance banking syndicate that will look to fund long term project financing, has determined the Muga potash mine is the highest margin potash producer globally.

Argus FMB, which is generally regarded as the leading fertiliser industry expert estimated the profit margins of all potash producers globally, taking into account actual sales markets.

The costs estimated include all cash costs required to get one tonne of Muriate of Potash product to the point of sale in the relevant market.

This is based on average potash prices received in the 2015 calendar year.

If Muga was in production in 2015, it would have delivered a total cash margin of 61% for potash product delivered to customers into its target markets of Europe, Brazil, and the United States.

This is based on a sales ratio of 75% / 25% into Europe and the United States.

Highfield will be the lowest cost producer on a delivered basis into Europe and Brazil and equal with goliath Potash Corporation of Saskatchewan (POT) into the U.S. market.

The costs estimated in the study included all cash costs required to get one tonne of Muriate of Potash product to the point of sale in the relevant market.

Analysis

The highest margin potash project mantle and lowest cost producer ranking demonstrates just how profitable Muga will become for Highfield Resources when in production, currently on track for 2017.

It also demonstrates why the European project finance banking syndicate BNP Paribas S.A., ING Bank N.V., Societe Generale Corporate & Investment Banking and Banco Santander S.A. were keen to provide financing for Muga, subject to final due diligence.

There is also significant exploration expansion potential at Muga/Vipasca and Sierra del Perdon that should provide substantial upside to future production.

Given the high margin, low cost economics of Muga and pipeline of additional potash projects in Spain, Highfield could be an attractive takeover target given its upside production potential and strategic location.

Amazingly, Highfield has a further two potash projects (likely to be sylvinite mines) that could be equal to Muga in production and revenues.

What is evident is that the current market valuation of $490m and share price of $1.60 undervalues Highfield to a large degree.

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.

Recommended For You

Comments

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.