Highfield Resources Ltd (ASX:HFR) has seen its ‘Buy’ recommended maintained by Foster Stockbroking in an equity research report released this week while the share price target has been reduced to A$1.31 from A$1.36.
With Highfield currently trading at around A$0.41 on the ASX, Foster’s target represents considerable upside while the company’s market cap is approximately A$158.83 million.
The research report comes on the back of the company awarding a €48 million contract for construction of the declines and underground mining infrastructure at its flagship Muga-Vipasca Potash Project in Spain.
READ: Highfield Resources awards contract for declines and underground infrastructure at Muga
In line with DFS update
Equating to 11% of the €449 million Phase 1 capex estimate, Foster said this was in line with that estimated in the updated DFS, “no surprise given HFR was then in advanced talks with the contractor on cost”.
The successful contractor, a Portuguese-Spanish JV between EPOS-Empresa Portuguesa de Obras Subterraneas (EPOS) and TUNELAN-Obras Subterraneas, is experienced in both underground and in the region.
Foster said both companies were specialists in underground works, each having more than 20 years of experience, and include EPOS’s mine development for majors AngloGold Ashanti (ASX:AGG) at Cuiaba in Brazil), Lundin Mining at Neves Corvo in Portugal and Sandfire at Matsa Aguas in Spain.
FID progress
Highfield is also making progress toward a Final Investment Decision (FID) which it expects to make later this half-year and the Foster report stated that the EPOS-TUNELAN contract represented a step to be construction-ready at Muga.
The civil works and urbanisation contract is expected to be the next package to be finalised as part of the pre-development process.
Potash markets
With regard to potash markets, which have been quite volatile, Foster’s report said that prices had generally stabilised during the current quarter with Saskatchewan and Brazil prices up in the past few weeks, and US NOLA flat.
Also on the market side, Foster said: “Last month, Mosaic shut down production from its 2.1 million tonnes per annum Colonsay mine (ca. 3% of global MoP production) as a response to market conditions. Meanwhile China recently restricted production from a major potash basin because of environmental concerns.”
Peer corporate activity also implies value upside for Highfield, according to Foster.
It said that last month Thai-listed Italian-Thai Development Company (IDT) fielded interest from potential investors of US$500 million for its 90% interest in the Udon Thani Potash Project in Thailand, which has 108 million tonnes in reserves and is expected to annually produce 2.1 million tonnes of MoP over a 21-year mine life. The project has a mining licence but is yet to be developed.
“Although IDT confirmed interest in its project but not the figure, it does highlight the rarity value in regulatory approved and derisked independent greenfield-ready potash projects outside the stranglehold of China/Russia/Canpotex. We value Muga at A$1,388 million,” Foster wrote.
Price catalysts
The equity report listed the following catalysts for the share price:
- Completion of strategic process;
- Financial closure and equity funding;
- Binding offtakes;
- FID;
- Commencement of construction; and
- Improving potash prices.