Spanish potash developer, Highfield Resources (ASX:HFR), has entered into a major construction and collaboration agreement with Acciona Infraestructuras for the Muga Potash Mine.
Acciona Infraestructuras is part of the larger Acciona Group of Companies, (OTCMKTS:ACXIF) with a 33,000 workforce and have been constructing mining infrastructure projects for over 60 years. The company recently built two underground mines for Codelco in Chile.
Coupled with Iberdrola, it is the second IBEX 35 company involved in the project.
Significantly, Highfield has also received credit committee approval from two of the four major European commercial banks for project finance.
This is very significant given it means the project has successfully traversed the extensive due diligence process.
Next steps
Acciona is expected to submit by March 2016 a guaranteed maximum price (GMP) contract to construct the mine where it will assume program, cost and quality risk.
The GMP is expected to be delivered within the current capital estimates for the project.
Preparatory work for the construction of the Muga Mine will continue to move forward over the coming months with Acciona support.
The project is to be delivered in accordance with Highfield´s Fair Procurement Policy that gives preference to local companies.
Credit approval received from two of the four Mandated Lead Arrangers (MLA’s) with the remaining two MLA’s expected to follow shortly in January 2016.
Approvals are already secured in respect of the eight year term facility and cost overrun facility totalling up to €222 million.
Anthony Hall, managing director, commented:
“We are excited to be working with Acciona.
"It is one of Spain´s largest companies with a global workforce of over 33,000 employees in over 30 countries and most importantly a deep construction experience in Spain.
"Acciona’s support is another positive for the project as we move towards commencing construction in the New Year.
"With Acciona and Iberdrola, who will supply grid electricity, we now have two IBEX 35 companies involved in the project.
"We are also delighted to confirm two of the four leading European banks have received credit committee approval to participate in the Project Finance facility.
"This is a significant milestone given the project has satisfactorily traversed the rigorous due diligence process conducted by independent technical experts on behalf of the banks.
"We are now a step closer to constructing a world class global potash operation that has major geological and locational advantages over most other potash mines and producers.”
Analysis
2015 has been a year to forget for many companies but not for Highfield - which is finding the going easy making significant strides to bring its Muga Mine into production in 2016.
Acciona have been constructing mining infrastructure projects for over 60 years and have recently built two underground mines for Codelco in Chile.
Receiving credit committee approval from two of the four major European commercial banks for project finance highlights that Muga has passed due diligence and sends a message as to the strong valuation metrics and profitability of the Muga project.
With finalisation of due diligence expected early 2016 and documentation shortly after, provides a runway to commencement of construction at Muga in H1 2016.
The project could attract 65% debt to equity which is a huge plus in this current commodity price climate.
Highfield is one of our top ASX stock picks for 2016.
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