Highfield Resources Ltd (ASX:HFR) has signed a non-binding memorandum of understanding with Cargill, Inc. to assess the viability of salt sales into the US market from its Muga potash mine in northern Spain.
High purity salt will be a primary by-product from the mine and is suitable for industrial applications.
Cargill is the largest privately held corporation in the US with sales in FY15 of $120.4 billion.
Anthony Hall, managing director, commented: “Cargill is an outstanding partner for Highfield Resources as it plans for the monetisation of its salt by-product production from Muga.
“Cargill already has highly-respected salt business and is well positioned to market the tonnes Highfield produces into its distribution network.”
Muga Project
Muga is one of five 100%-owned projects, covering 550 square kilometres, in the potash and halite producing Ebro Basin in northern Spain.
The company completed a definitive feasibility study (DFS) for Muga in March 2015, which was optimised in November 2015.
Highfield is progressing towards construction of Muga subject to the receipt of a positive environmental declaration and the granting of the mining concession.
The project hosts Reserves of 253 million tonnes at 11.5% potash and has capex costs of €412.7 million for a 1.02 million tonnes per annum MOP producing mine.
The funding of Muga's phase 1 capex of €267 million was secured following a $A101 million share placement in July 2015 and indicative non-binding €222 million project financing facility in August 2015.
Offtake agreements
Highfield recently signed non-binding offtake agreements with fertiliser traders covering more than 100% of expected phase one production from its flagship Muga potash mine in northern Spain.
The traders include three globally recognised fertiliser trading companies Keytrade AG, Ameropa AG and Trammo Inc.
The offtake agreement will cover up to 600,000 metric tonnes of K60 Muriate of Potash (MOP) per annum produced from Muga.
Discussions are ongoing with European fertiliser companies and the company expects to execute offtake contracts with these entities as Muga approaches first production.
European mine closures and expansions are expected to remove a net 1.0 million tonnes of MOP production from these markets by 2020.
Highfield has focused on markets that deliver it a maximum possible margin and where it has clear logistical and margin advantages over its peers.
Analysis
The non-binding agreement with a company such as Cargill is further validation of the Muga project’s quality.
Parties to the agreement will discuss initial tonnages and potential sales of other specialty salts.
Further details on potential sales stemming from this agreement will be highly anticipated by the market.
The largest short term catalyst for Highfield remains a positive environmental declaration and formal mining declaration. Highfield awaits a successful election to form a Spanish government.
The circa €220m project finance facility being negotiated with 4 mandated banks is expected to be signed off once the mining concession has been awarded.
The company remains well funded in the interim with over $90 million cash.
Highfield maintains broker coverage from 10 research analysts with share price targets ranging from $1.75 per share to $3.47 per share. The stock is currently trading at $1.32 per share.
Muga represents only 10% of wider tenement portfolio, leaving ample opportunity for further development.
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