Highfield Resources Ltd (ASX:HFR) has retained its buy recommendation from Foster Stockbroking as it prepares to move towards the construction and development of the Muga Project in Spain.
While Highfield’s quarterly revealed nothing materially new, the company raised $13 million in December 2022, boosting its cash balance to $19 million as at 31 December 2022.
This allows Highfield to continue progressing relatively lower expenditure early works at Muga and to focus sharply on both finalising strategic process/funding and obtaining the Sanguesa Town Hall licence.
The following is an extract from Foster Stockbroking’s research update on Highfield.
Event:
- Quarterly review; Valuation and PT change.
Investment Highlights:
- Final construction still outstanding. HFR’s quarterly revealed nothing materially new. The company is still awaiting its outstanding construction licence from the Town Hall of Sanguesa, which is taking longer than we – or the company – had expected. There has been progress - in November 2022 HFR received approval from the town’s provincial government - Navarra - for authorised building on non-urbanised land, a significant pre-requisite. The company is hopefully expecting approval form Sanguesa this quarter.
- Strategic process also continuing. This is also has been progressing longer than anticipated. The company has made progress on a number of steps to bolster the Muga project’sreadiness, including the updated DFS in November 2022 and definitive documentation for a €320.6M facility with its syndicate of lenders in December 2022.
- Potash prices begin to stabilise, spot still above LT forecast and DFS. After a significant rally over 2021 and early 2022, global potash prices have fallen, the most dramatic being that of Brazil CFR spot which declined -59% from a peak of US$1,225/t in April 2022 to a low of US$500/t in December 2022. It since has ticked up slightly to US$510/t, suggesting some stabilisation. NW Europe CFR has fallen 21% from its 2022 peak of €950/t to €750/t. However, we note that both prices still above our LT forecast of €371/t and the €449/t assumed in the updated DFS.
- Equity raising allows focus on processes and continuation of early works. HFR raised $13M in December 2022 at $0.62/share, boosting its cash balance to $19M end December 2022. It allows HFR to continue progressing relatively lower expenditure early works at Muga and to focus sharply on both finalising strategic process/funding and obtaining the Sanguesa Town Hall licence.
Earnings and Valuation:
- Our risked valuation (0.34x NPV10 nominal) falls to $1.82 from $2.15 on higher dilution. This is mostly due to our assuming future equity raising or Muga to be at a lower share price than prior assumption ($0.64 vs $0.85), as well as incorporating the dilutive December equity raising.
Recommendation:
- We maintain our Buy and reduce our 12-month share price target to $1.82 from $2.15 based on our lower risked valuation.
- Catalysts for the share price include: 1) Award of Sanguesa town hall license; 2) Finalisation of Acciona construction contract; 3) Outcome of strategic process; 4) Equity funding; and 5) Commencement of plant and decline construction.