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The company released a definitive feasibility study for its Spain-based Muga potash project on Monday.
Specifically, it reveals an ore reserve of 146 million tonnes at an average grade of 12.73 percent K2O on an initial 24-year mine life; that’s based solely on reserves. Furthermore, it points to average yearly production of 1.123 million tonnes of granular K60 potash with opex in full production estimated at US$135 per tonne.
Looking at the project’s earnings potential, the DFS shows a post-tax unlevered net present value (including a 10-percent annual discount) of US$1.42 billion, a post-tax unlevered internal rate of return of 51.9 percent and an EBITDA (margin of 66 percent) of US$296 million in the first full year of production. The project’s pre-production capital cost is estimated at US$256 million, including a 12.5-percent contingency.
Highfield Managing Director Anthony Hall commented, “[t]he DFS builds on a compelling pre-feasibility study and reconfirms Muga´s potential to be a very low capex, high margin potash mine. We believe Muga has the potential to be the highest margin potash mine globally in production and this is very exciting for everyone involved with the Company.”
Takeover potential
Other firms agree with that outlook. For instance, Rhys Bradley from Pareto Securities said that with the DFS now complete, other potash companies may have their eye on Muga.
“With the DFS now complete, we anticipate the small universe of potash producers will be running the ruler over Highfield. Whilst a takeover premium would be a short term win, the longer term producer metrics are the real attraction. On Pareto numbers, Highfield will generate EBITDA of AU$322 million once it reaches full production. Currently the listed producers are trading at 8.0x EV/EBITDA, implying a per share value of AU$4.90 per share for Highfield once Muga comes online,” his note states.
Blue Ocean Equities also believes the company is at a high risk for takeover, but said, “given EMR Capital holds a fully diluted 20 percent stake and management holds a fully diluted 29 percent stake, we believe it is likely that any potential suitor would have put a bid price on the table which is sufficiently attractive to satisfy both of these groups. In our view, this dynamic means any premium offered would probably need to be well north of the standard 35-40 percent.”
Whether those analysts are right about Highfield’s takeover potential remains to be seen. For now, construction at Muga is set to start in Q4 of this year, with production due to begin in 2017. At close of day Monday, the company’s share price was down 2.55 percent, trading at AU$1.34. It’s up 111.9 percent year-to-date.
Securities Disclosure: I, Kristen Moran, hold no direct investment interest in any company mentioned in this article.