Highfield Resources Ltd (ASX:HFR)'s feasibility study update for the Muga-Vipasca Potash Project in Spain has returned promising financial projections, including EBITDA of around €400 million per annum at full production.
Sensitivity analysis using current flat real spot prices for the whole life-of-mine results in a post-tax net present value (using a discount rate of 8%) (NPV8) of €2.8 billion and a 42% internal rate of return (IRR).
“This feasibility study update reconfirms Muga’s outstanding economics, and the effect on revenue of current spot prices would multiply returns,” CEO Ignacio Salazar said.
Advanced engineering and procurement
The feasibility study update is based on more advanced engineering and procurement than the company's previous study.
In the current study, 86% of the capex estimate is based on signed contracts, firm offers and updated prices, compared with 59% in the previous feasibility study from 2019.
The 2021 mine plan assumes the delivery of approximately 1 million tonnes per annum of Muriate of Potash (MOP) over a mine life of 30 years, comprising approximately 18 years of mine life from ore reserves and 12 years from additional mineral resources and the exploration target.
With purchase contracts signed for 85% of the process plant equipment, the company believes the project is almost ready for construction. Once the main equipment is procured, the company will have a better handle on the engineering required for the processing plant.
“The updated numbers have been prepared with a significantly higher degree of confidence following all the engineering and procurement work of the last few months,” Salazar said.
Capex confidence
The latest feasibility study confirms that the economics of this project would justify a 30-year mine-life. The company has a high degree of confidence in its updated capex numbers with Phase 1 capex of €398 million and Phase 2 capex of €209 million.
Highfield continues to work with its financial advisor, Endeavour Financial, to secure appropriate financing for Phase 1.
Based upon its assessment of the Muga Project and following positive feedback on a draft term sheet by a potential syndicate of lenders, the company is targeting debt sizing of around €300 million to start construction of Phase 1.
“With supportive shareholders, potential strategic investors and a significant debt capacity, Highfield is well positioned to finance Muga,” Salazar said. “The team is ready to progress Muga into construction and realise the intrinsic value of this project.”
Project timeline
The company plans to kick off construction in the first half of 2022 following pre-construction preparation.
This assumes that agreement is reached on the construction contract and maximum price with construction partner. It also factors in successful procurement of long-lead items, that the local town hall issues construction licences and that the company will finalise the debt package being nutted out with the help of Endeavour Financials.
Key risks
Key risks for the project include the future conversion of additional resources and the exploration target into ore reserves, adverse movement in the potash price or in key operating costs, the timeliness of project approvals by authorities, future uncertain engineering results and project funding.