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Highfield Resources' Muga mine in lowest cost potash project ranking

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.

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