potash market fundamentals hayden locke
TRANSCRIPT
Highfield Resources LtdPotash Market Fundamentals
Hayden Locke – Head of Corporate Development
November 2015
ASX Code: HFR
Highfield Resources Ltd.
POTASH MARKET FUNDAMENTALS
2
CONTENTS
1. Introduction
2. Potash is not iron ore
3. Types of potash
4. Supply and Demand Fundamentals
5. Where is the marginal unit of supply?
6. Why is there current price weakness?
7. What is Highfield´s strategic position?
8. Summary
9. Questions
1. Introduction
3
• Potash is not iron ore
• The marginal unit of production is controlled by some of the largest producers
• The marginal unit of production has no incentive to increase supply as it cannot displace any production of significance
• The potash market overcapacity is generally overstated
• The decline of the Canadian dollar over the past 12 months, and the associated cost implications for PotashCorp and
Mosaic cannot be overstated in terms of its impact on short term potash prices
• Highfield is in an outstanding strategic position with its high margin potash projects in Spain
2. Potash is not iron ore
Although both bulks and logistics is key, the market structure is fundamentally different
70% of demand is seaborne to
China
85% of demand if you include
Japan, Korea and Taiwan
Cost curve is much easier to
define
Pilbara is both lowest cost and
closes to centre of demand
The cost curve is much easier to define in iron ore
4
2. Potash is not iron ore
Concentrated and generally remote supply into diverse end markets
The margin curve, which takes into account cost to customer and price received, is far more
relevant in potash
Supply
DemandThe largest
seaborne market
accounts for only
15% of global
demand
5
3. Types of potash
MOP
c. 90%
Pink White
SOP / Other
c. 10%
Granular
Standard
• USA and Brazil consume mostly granular MOP
• Granular primarily used in bulk blending, colour is important for developing nations where
customers like to “see their K” in the blend
• Also used for direct application fertilisers
• China consumes 50/50 Granular and Standard
• Generally a higher price which reflects the additional cost to produce (US$15-20 / tonne)
• Water soluble, direct application
• Primary markets are India and China, but large quantities used for speciality blending
Potassium Fertilisers
• Includes SOP
• SOPM
• Potassium
Nitrate
• Kieserite
• Difficult to substitute as MOP contains the highest levels of key macro-nutrient potassium and
is the cheapest to produce
• Specialty
applications
6
4. Supply and Demand Fundamentals
7
Global MOP Volumes and Capacity
Source: PotashCorp – Presentation 29 Oct 2015
Observations on Supply
• PotashCorp believes it holds the majority of the excess
production capacity
• Other producers globally continue to produce at
virtually full capacity
• PotashCorp and Mosaic Company both cut Q4 2015
production by 500k tonnes – why would they do this?
• New projects very difficult in current pricing
environment suggesting few additional projects will be
constructed in coming years
Balanced market primarily due to Canadian discipline
Observations on Demand
• Great long term tail winds with respect to demand
underpinned by growing population and food security
• Limited risk of structural changes to demand profile
seen in iron ore and copper
• Demand has grown at 2.8% per annum compounding
over the past 10 years
5. Where is the marginal unit of supply?
The excess capacity is also the marginal unit of supply
2014 Operating Costs PotashCorp Mosaic Uralkali Belaruskali
Export port Vancouver Vancouver St Petersburg Lithuania
Total Tonnes Produced - 2014 (millions tonnes) 8.7 9.0 12.1 10.3
US$ / tonne1 US$ / tonne1 US$ / tonne US$ / tonne
COGS (Incl. Freight to port) 144.6 197.2 76.0 74.0
Royalty 26.7 17.0 4.0 41.0
SG&A 13.2 16.1 17.3 4.0
Sustaining Capex 32.5 47.5 28.9 15.0
Total Cash Cost to Port 217.0 277.8 126.2 134.0
Freight to NOLA 30.0 30.0 25.0 25.0
Freight to China 18.0 18.0 N/A N/A
Freight to Brazil 30.0 30.0 25.0 25.0
Total Cost to NOLA 247.0 307.8 151.2 159.0
Total Cost to China 235.0 295.8 173.0 154.0
Total Cost to Brazil 247.0 307.8 151.2 159.0
Source: Company websites, annual reports, Goldman Sachs research
1) Converted to US$ using CY2014 average US$:CAD exchange rate of 0.91; per www.x-rates.com
8
5. Where is the marginal unit of supply?
Canada’s cost of production is highly dependent on CAD : USD exchange rate
PotashCorp Mosaic
To export port Vancouver Vancouver
Total Tonnes Produced - 2014 (millions of tonnes) 8.726 8.972
CAD$/tonne CAD$/tonne
COGS (Incl Freight to port) 159.6 217.8
Royalty 29.5 18.8
SG&A 14.6 17.7
Sustaining Capex 35.9 52.5
Total Cash Cost to Export Port 239.6 306.8
Total Cash Cost US$ / tonne:
US$ : CAD$ - 0.70 167.7 214.7
US$ : CAD$ - 0.85 203.7 260.7
US$ : CAD$ - 1.00 239.6 306.8
Total Cost to Brazil US$ / tonne:
US$ : CAD$ - 0.70 197.7 244.7
US$ : CAD$ - 0.85 233.7 290.7
US$ : CAD$ - 1.00 269.6 336.8
Source: Company Annual Reports 2014
9
6. Why is there current price weakness?
0.0
200.0
400.0
600.0
800.0
1,000.0
1,200.0
12 Jun 2014 12 Sep 2014 12 Dec 2014 12 Mar 2015 12 Jun 2015 12 Sep 2015
GM
OP
Price /
Tonne
Brazilian GMOP PricesUS$ vs Local Currency
Brazilian GMOP (US$)
Brazilian GMOP (LocalCurrency)
38% increase in
price in domestic
currency terms
In local currency terms MOP is more expensive than 18 months ago
Source: Argus, X-Rates
10
6. Why is there current price weakness?
Price elasticity of demand and Canadians remaining competitive
Price Elasticity
of Demand
Expected
declines in crop
prices
Devaluation of
C$
• The devaluation of the C$ has preserved Canadian producers margins – although recent cuts suggest
declining prices are starting to impact financially
• Ruble has also devalued strongly
• Canadian competitive position is highly dependent on the C$
• Canadian cost of production to customer is the driver of floor price
• Key demand centres show relatively high levels of elasticity of demand
• Especially true if they believe they can hold out for better pricing in a following year
• China and Brazil have both seen devaluations of currency resulting in higher prices in domestic currency
terms
• China has seen the addition of a VAT
• India has seen subsidies reduced
• A number of key crops are facing short term headwinds, although there is positive news in crops such as
palm oil
• Unlike Nitrogen, farmers can skip one to two years of application of potassium without large impact to yield
(although they generally need to make up the shortfall in subsequent years)
• It is often the first to be removed in periods where costs must be cut, but this cut is rarely sustained11
6. Why is there current price weakness?
Despite declining MOP prices, producers in Canada benefit from falling C$
250
270
290
310
330
350
370
390
410
430
0.65
0.70
0.75
0.80
0.85
0.90
GM
OP
Price /
tonne
CA
D :
US
D E
xchange R
ate
CAD:USD (LHS)
MOP FOB Vancouver US$ (RHS)
MOP FOB Vancouver C$ (RHS)
5.9% price increase
in C$ terms
10.2% price decrease
in US$ terms
December
2014
March
2015
June
2015
September
2015
44.3%50.6%
49.7%51.4%
PCS
Gross
Operating
Margin at
Vancouver
47.4%
November
2015
Recent declines in MOP price
have outpaced the devaluation of
the C$
Source: Argus, X-Rates, PotashCorp Annual Report 2014
NB: Assumes PCS cash cost to Vancouver is constant in C$ terms over the period. Margin is calculated relative to spot price from Argus.
Gross Margin = FOB Vancouver Price – Cash Operating Cost; Cash Operating Cost to Vancouver = COGS + Freight + Royalties + G&A
12
7. What is Highfield’s strategic position?
Unrivalled
Freight and
Logistics
Advantage
Domestic Market
Position
• Highfield’s potash travels 40% less distance than Canadian potash to Brazil, NOLA and East Coast USA
• Highfield is among the lowest cost producers delivered to these markets – on par with the Russians and
Belarussians
• Highfield can confidently target any customer in any market offering both price and contract incentives
• Customers are very happy to see new production outside the three major producing countries
• Highfield is within trucking distance of 1.3Mtpa of MOP demand
• Third party logistics charges and freight costs means Highfield is the lowest cost producer to these regions
by a significant margin
• Highfield can compete both on price and flexibility, which is likely to have a positive margin impact
Total cash costs to high priced customers likely to drive outstanding margins
13
7. What is Highfield’s strategic position?
Highfield will be competitive with major global producers
PotashCorp Mosaic Highfield´s Muga Mine
To export port Vancouver Vancouver Bilbao (Spain)
Total Tonnes Produced - 2014 (millions of tonnes) 8.726 8.972 1.080
CAD$/tonne CAD$/tonne EUR/tonne
COGS (Incl Freight to port) 159.6 217.8 117.6
Royalty 29.5 18.8 0.0
SG&A 14.6 17.7 7.5
Sustaining Capex 35.9 52.5 5.0
Total Cash Cost to Export Port 239.6 306.8 130.1
Total Cash Cost US$ / tonne:
US$ : CAD$ - 0.70 167.7 214.7 130.11
US$ : CAD$ - 0.85 203.7 260.7 153.12
US$ : CAD$ - 1.00 239.6 306.8 185.93
Total Cost to Brazil US$ / tonne:
US$ : CAD$ - 0.70 197.7 244.7 150.1
US$ : CAD$ - 0.85 233.7 290.7 173.1
US$ : CAD$ - 1.00 269.6 336.8 205.9
Source: Company Annual Reports 2014, HFR Project Update 17 November 2015
1) EUR:US$ - 1.00 2) EUR:US$ - 0.85 3) EUR:US$ 0.70
14
8. Summary
15
• Potash supply and demand is well balanced
• Marginal unit of production, acting rationally, will meet demand as it is unable to displace most alternate production given
cost to customer structures
• Current price weakness is USD driven
• Similar to Australian gold producers, if your costs are in a currency that is depreciating faster than commodity price
declines your margins are maintained
• Highfield´s Muga Mine will be competitive with major global producers given royalty and logistics advantages
• Highfield has multiple high priced market options for the sale of its product
www.highfieldresources.com.au
REGISTERED OFFICE
169 Fullarton Road
Dulwich SA 5065
Australia
HEAD OFFICE
Avenida Carlos III, 13-15, 1B, 31002 Pamplona, Spain
T +34 948 050 577 | F +34 948 050 578
FURTHER INFORMATION
Anthony Hall - Managing Director T +34 617 872 100
John Claverley - General Manager T +34 607 748 435
Hayden Locke - Corporate Development T +34 609 811 257
17
Highfield Resources LtdPotash Project Fundamentals
Michael X. Schlumpberger – EGM Operations
November 2015
ASX Code: HFR
Highfield Resources Ltd.
POTASH PROJECT FUNDAMENTALS
2
CONTENTS
1. Introduction
2. How is potash mined?
3. How is potash processed?
4. What to look for in a potash project
5. Why is capex generally so high in potash?
6. How does Highfield’s Muga compare on capex?
7. How does Highfield’s Muga compare on opex?
8. Case Study – Lanigan Mine
9. Summary
1. Introduction
3
• Potash is currently produced by one of:
Three Mining Methods: Underground Conventional, Solution, or Brines,
and one of:
Two Processing Methods: Flotation Circuit, or Crystallisation
• The election of these methods heavily influences capex and site opex and is, primarily, driven by geological factors
• The location of a project is another significant factor in both capex and opex
• These two major factors (geology and location), and a number of less integral factors, will ultimately determine the margin
achieved by any potash project
2. How is potash mined?
4
There are three methods for the extraction of potash “ore”
• Mineralisation accessed via shaft or
decline
• Access dependent on depth and
presence of aquifer units
• Mechanised mining equipment at the
mine face
• Machines include short walls,
continuous miners and road headers
• Conveyors or shaft hoists bring ore to
the surface for processing
• Most target sylvinite ores as these are
the best in terms of metallurgy
• Underground conventional mining
allows the use of flotation processing
which lowers capex
Underground Conventional
Source: PotashCorp
2. How is potash mined?
5
There are three methods for the extraction of potash “ore”
• Drilling both injection and production wells
to the targeted sylvinite horizon
• In some cases, directional (horizontal)
drilling is used to increase exposure of
injected liquid to potash seams with
technical challenges present at any depth
for different reasons
• Heated brines (generally) injected into
producing caverns
• The liquid preferentially dissolves the
potash layer
• Potash enriched brine is pumped back to
the surface for processing via hot
crystallisation or evaporation
Solution
Potash solution mining
Source: Paradox Potash Corp
Typical direction drilling schematic
Source: Agapito Associates, Inc.
Evaporation Pond
Production Well
Salar Surface
Brine bearing stratigraphy
2. How is potash mined?
6
There are three methods for the extraction of potash “ore”
• Potash (and other minerals such as lithium) enriched brines are pumped from
within the beds of salt lakes (salars) or inland seas like the Dead Sea
• Challenges with production rates of “ore” are primarily associated with porosity
and permeability of brine bearing stratigraphy
• Generally low capex and opex “mining” operations, especially those with
evaporation concentration potential
• Ongoing capex can be high if flow rates are low or variable leading to the
requirement for more production wells and more drilling annually
• Chemical composition of the brine increases the technical challenge in the
processing circuit and requires significant expenditure on geochemical
monitoring
Brine Pumping
Source: SQM Chile
2. How is potash mined?
7
76%
19%
5%
Underground Conventional Brines SolutionSource: Scotiabank, HFR Research
Estimated 2015 MOP Production by Mining Method
Most global potash operations are underground given economic drivers
• Except in the cases of large scale high evaporation
climate brine operations, underground conventional
mining delivers the best economic result by a
considerable margin
• A major risk item and additional cost that is
sometimes associated with underground operations
is brine inflows
• This is seen in a majority of Canadian mines and is
a major factor in the higher opex seen in Canadian
mines versus Russian and Belarussian mines with
lower grades (some with substantially lower
grades)
3. How is potash processed?
8
Flotation and crystallisation are two primary methods
Positives
• Lowest capex
• Lowest opex
• Shorter construction time
• Simple, proven process
• Off the shelf technology
Negatives
• Lower recoveries
• Generally not suitable for
non-evaporation brine
operations or solution mines
• Not all ores respond
favourably
Flotation Circuit
Flowsheet
3. How is potash processed?
9
Flotation and crystallisation are two primary methods
Positives
• Virtually 100% recovery of
potash from mined ore
• Suitable for most ores
• Proven process
Negatives
• Higher capex and opex
• High energy consumption
• Technically demanding
process
• Longer build time
• Proprietary technology
Crystallisation
9
Chart showing precipitation valuesCrystalliser
Table based on Highfield assessment
1) Company information
12
4. What to look for in a potash project
Location is as important as mineralisation in potash production
13
• Mineralisation is generally very deep and
typically underlies an aquifer unit meaning shaft
sinking requires freezing columns of water in
aquifer units
• In the case of solution mining, processing
generally requires a crystallisation plant
• Locations are remote and in regions of extreme
weather necessitating increased investment in
site infrastructure including storage and power
• The transport infrastructure from the remote
locations, which is typically capacity
constrained, requires significant investment
Most development stage projects have geological and locational challenges
5. Why is capex generally so high in potash?
*Based 2mmt-per-year conventional mine in Saskatchewan; costs could vary depending on conventional vs
solution mine, depth of ore body, geographic location, and other factors.
Includes escalation, contingency and owner costs.
**Dependent on geographic location, access and distance to port. Includes railcars, utility systems, port
facilities, etc.
***Based on publicly reported costs of recent purchases.
Source: AMEC, PotashCorp
Fantastic geology and location deliver a unique capex response
6. How does Highfield’s Muga compare on capex?
Access to Mine
• Double decline access to relatively shallow mineralisation starting at depths to
surface of less than 250m with no major aquifer units
• No requirement for expensive deep shafts through aquifers
Item Commentary
US$200m
Est. Saving
Processing Plant
• Sylvinite ore flotation circuit delivering 1.08m tonnes of granular K60 product per
annum
• No requirement for expensive crystallisation plants
US$300m
Logistics• Four lane national highway to choice of two major existing ports
• No requirement for 100´s of kms of roads or new portsUS$150m
Utilities• Grid electricity and network water available
• No requirement for non grid energy, diesel storage, water storage etcUS$100m
Labour
• Access to unlimited highly skilled labour within close proximity to site at average
rates less than 50% of comparable Canadian rates
• No requirement for labour camps and expatriate workers
US$100m
14
$50
$108 $27
$30
$19
$45 $13
$46
$14
$44
$-
$25
$50
$75
$100
$125
$150
$175
$200
Rocanville Muga
Cash Costs to Brazil (US$) - per tonne of MOP
G&A and Sustaining Capex
Shipping
Transport to Port
Royalties
Mining & Processing
7. How does Highfield’s Muga compare on opex
15
The lowest cost potash mine in Canada has 75% of its cash cost to Brazil non-mine related
Muga makes US$44/tonne MORE than PotashCorp’s BEST mine delivered to the
largest seaborne market
Source: PotashCorp Scotia Bank Conference Presentation, PCS Annual Report 2014, Highfield Resources1) Converted from Euros to USD using 1.08 USD: EUR exchange rate; CAD to USD using 0.80 USD:CAD2) PCS 2014 Annual Report
$44/tonne MARGIN benefit for MUGA
75
% o
f co
sts
no
n-m
ine
rela
ted
8. Case Study – Lanigan Mine
Geologically, Lanigan is a world class potash mine and is one of the best in Canada
Project Metric Data
Theoretical Capacity
(MOP)3.8Mtpa
Operating Capability
(MOP)2.2Mtpa
Depth 1,000 metres
K20 Grade to Mill 20.2%
Average Seam Thickness 5 metres
Recovery Rate
80%-90%
Combination flotation and
crystallisation
16
45% of its estimated cash costs delivered to Vancouver are in transport and royalties
1) Highfield estimates
2) PotashCorp Annual Report 2014, estimates from consolidated accounts applied to potash segment
Cost ItemUS$ / tonne
MOP
Mining1 $40
Processing1 $30
Transport (Vancouver)2 $30
Cash Operating Cost $100
G&A2 $13
Royalties2 $27
Sustaining Capex2 $33
Delivered Cash Cost $173
• Sustaining Capex is likely to be higher than $33/tonne
due to age of mine and distance of ore from shaft
• G&A likely to be higher than $13/tonne due to the remote location
• Additional cost to deliver to Brazil, NOLA and other markets
• Not competitive with Uralkali or Belaruskali
17
8. Case Study – Lanigan Mine
Port of
Vancouver
Lanigan
9. Summary
18
• Potash is currently produced by one of:
Three Mining Methods: Underground Conventional, Solution, or Brines,
and one of:
Two Processing Methods: Flotation Circuit, or Crystallisation
• The election of these methods heavily influences capex and site opex and is, primarily, driven by geological factors
• The location of a project is another significant factor in both capex and opex
• These two major factors (geology and location), and a number of less integral factors, will ultimately determine the margin
achieved by any potash project
www.highfieldresources.com.au
REGISTERED OFFICE
169 Fullarton Road
Dulwich SA 5065
Australia
HEAD OFFICE
Avenida Carlos III, 13-15, 1B, 31002 Pamplona, Spain
T +34 948 050 577 | F +34 948 050 578
FURTHER INFORMATION
Anthony Hall - Managing Director T +34 617 872 100
John Claverley - General Manager T +34 607 748 435
Hayden Locke - Corporate Development T +34 609 811 257
Highfield Resources LtdDeveloping the Muga Mine
John Claverley – General Manager
November 2015
ASX Code: HFR1
Highfield Resources Ltd.
DEVELOPING THE MUGA MINE
2
CONTENTS
1. Introduction
2. What is the approvals process in Spain?
3. Highfield approvals update
4. Why will Highfield get approved?
5. Summary
1. Introduction
3
• Permitting a mining project is a time consuming and highly intensive process no matter where you
operate
• Spain has an undeserved reputation as being a more difficult jurisdiction in which to permit mining
projects
• Spain has a long mining history, is pro-mining and very pro-investment
• The Spanish regulatory and permitting system:
• Is a transparent and well documented process
• Is protected by a strong regulatory framework
• Has idiosyncrasies which require local understanding
• Issues encountered often relate to a lack of commitment to the community or a lack of local experience
of those running the process
2. What is the approvals process in Spain?
EXPLORATION PERMIT INVESTIGATION PERMIT MINING CONCESSION
4
2. What is the approvals process in Spain?
CO
NS
TR
UC
TIO
N
AP
PR
OV
ALS
MIN
EE
NV
IRO
NM
EN
TAL
Memoria
Resumen
Response to
Memoria
Resumen
Environmental
Impact Study
EIS Review
and Approval
Environmental
Impact
Declaration
Restoration Plan
Environmental Risk Analysis and Valuation
Field Studies as required
Basic Mining
Project
Review and
ApproveMining Concession
Granted
Construction License
Project
Construction License
Granted
Activity License
Project
Activity License
Submitted
Activity License
Granted
Mineral Resource Utilisation
Mine Plan and Details
H+S, Ventilation, Dewatering etc.
Plant design and details
Buildings and Facilities Design and Details
Welfare, H+S, Fire Protection details
Activity License granted at
end of Construction
Construction License will not be granted before Concession Awarded
Environmental Authorization for Plant (if required)
Community Consultation Process
3. Where is Highfield in the process?
MIN
EE
NV
IRO
NM
EN
TAL
Memoria
Resumen
Response to
Memoria
Resumen
Environmental
Impact Study
EIS Review
and Approval
Environmental
Impact
Declaration
Restoration Plan
Environmental Risk Analysis and Valuation
Field Studies as required
Basic Mining
Project
Review and
ApproveMining Concession
Granted
Mineral Resource Utilisation
Mine Plan and Details
H+S, Ventilation, Dewatering etc.
Environmental Authorization for Plant (if required)
Community Consultation Process
February 2016
April 2016
- Strong local community support for the Muga Potash Mine
- Highfield responses to submissions from community consultation process completed 15 October 2015
- Letters of support to the Central Government received from local councils of all towns impacted by Muga
- Submissions with Central Government Environmental Authority for review
- Positive Environmental Declaration (“DIA”) expected by February 2016, mining concession by April 20166
4. Why will Highfield get approved?
An underground mine with decline access
Mine design studies and backfilling
Sylvinite ore
Comprehensive rehabilitation plan
MINIMAL VISUAL IMPACT
SUBSIDENCE UNLIKELY
NO TOXIC CHEMICALS OR WASTE
MINIMAL LEGACY
A Quality Project
7
NO RELOCATIONS REQUIRED
LIMITED ECONOMIC DISRUPTION
4. Why will Highfield get approved?
Located in an area of minimal habitation
Low intensity farming and grazing
Well located
8
4. Why will Highfield get approved?
Pedro Rodriguez
Development Director
Michael Schlumpberger
EGM - Operations
• Geologist with over 30 years experience in
Spain, including for senior management roles
for multi-nationals including Billiton, Navan-
Almagrera and Newmont
• Direct responsibility for permitting and delivery
of the Aguas Teñidas, Los Santos and
Mazzarón mines
• Mining Engineer with extensive underground
mining experience including over 21 years at
PotashCorp
• Operational responsibility for the expansion and
ongoing operations at PotashCorp’s Lanigan
underground mine
Lanigan potash mine
Source: PotashCorp
Aguas Teñidas mine in Huelva, Spain. Opened 2009
With an experienced development and operations team
9
4. Why will Highfield get approved?
Spanish Team, based in Spain
• Pamplona office with 50+ professionals
• All Senior Management based in Pamplona
Buy Local policy
• Local contractors and suppliers given priority
Extensive Community Responsibility
program
• Dedicated Foundation developed
• Over 15 community programs in operation
Committed to Spain
10
4. Why will Highfield get approved?
Committed to our four operational pillars
11
Safety first Delivering positive
social benefits
Spreading the
economic opportunities
to all stakeholders
Ensuring best
practice
environmental
outcomes
Josenea Project + OrganiK Nursery
Colaborating with Aspace in
Navarre & Aragon
Cultural Events Javier
Social Investment
Undués de Lerda
Tree nursery + Nafarroa OinezCultural Events Sangüesa
12
Santa
Bárbara
4. Why will Highfield get approved?
School Program Navarra & Aragon
Real Community Engagement
14
4. Why will Highfield get approved?
Progressively becoming more visible with well visited website in operation
15
4. Why will Highfield get approved?
We are serious about demonstrating our commitment to the community
• Established communication channels with stakeholders (Community engagement and reporting)
• Branding all initiatives
• Completed Sustainability Report in September 2015
Sustainability ReportSchool Kit: Crecer Juntos + Sanos The importance of Potash
OrganiK sign
The Foundation Mascot
5. Summary
16
Team experienced in the
permitting process
Understanding and
recognition of
environmental and political
sensitivities
Project Fundamentals
Buy local
Be local
• Key to have a team member who has “done it before”
• Pedro Rodriquez has been involved in the successful permitting of three mines in Spain
• Spain has a long mining history which comes with significant focus on environmental impacts
and mitigating environmental risk
• Highfield’s objective is to employ best available environmental controls to minimise risk
• Regulated by Law 22/1973, 21 Jul, Mining; Royal Decree 2857/1978, 25 Aug, General
Regulations for Mining Law 21/2013, 9 Dec, Environmental Impact Evaluation
• Underground mining with benign processing
• Minimal local impact – no displacement and low intensity farming
• Effective rehabilitation plan minimizing legacy
• Local team of delivery professionals
• Senior Management on site
• Advantaged by availability of local contractors and suppliers
Community Engagement
Plan
• The primary goal of any development must be the positive social and economic development
of the region in which the project operates
• This can be done directly by the development itself and indirectly via community initiatives
• Highfield has established the Geoalcali Foundation to deliver on its social objectives
www.highfieldresources.com.au
REGISTERED OFFICE
169 Fullarton Road
Dulwich SA 5065
Australia
HEAD OFFICE
Avenida Carlos III, 13-15, 1B, 31002 Pamplona, Spain
T +34 948 050 577 | F +34 948 050 578
FURTHER INFORMATION
Anthony Hall - Managing Director T +34 617 872 100
John Claverley - General Manager T +34 607 748 435
Hayden Locke - Corporate Development T +34 609 811 257
COMPETENT PERSON STATEMENT – RESOURCES
Information relating to resources was prepared by Mr Leo Gilbride, P.Eng and Ms Vanessa Santos, P.Geo, of Agapito Associates. The Competent Person for Resources
under JORC Code standards is Mr Leo Gilbride, P.Eng and Ms Vanessa Santos, P.Geo. of Agapito Associates of Colorado, USA. Mr Gilbride is a licensed professional
engineer in the State of Colorado, USA and is a registered member of the Society of Mining, Metallurgy and Exploration Inc. Ms Santos is a licensed professional geologist in
South Carolina and Georgia, USA, and is a registered member of the Society of Mining, Metallurgy and Exploration Inc.
The Society of Mining, Metallurgy and Exploration Inc is a JORC Code ‘Recognised Professional Organisation’ (RPO). An RPO is an accredited organisation of which the
Competent Person under JORC Code Reporting Standards must belong in order to report Exploration Results, Mineral Resources, or Ore Reserves through the ASX. Mr
Gilbride is the Vice President of Engineering and Field Services and Ms Santos is the Chief Geologist with Agapito Associates and both have sufficient experience to qualify
as a Competent Person for the relevant style and type of mineralisation and deposit under consideration of this release. Mr Gilbride and Ms Santos consent to the inclusion in
the report of the matters based on this information in the form and context in which it appears.
COMPETENT PERSON STATEMENT – RESERVES
Information relating to reserves was prepared by Mr. José Antonio Zuazo Osinaga, Technical Director of CRN, S.A.; Mr. Jesús Fernández Carrasco, Managing Director of
CRN, S.A. and Mr Manuel Jesus Gonzalez Roldan, Geologist of CRN, S.A. Mr. José Antonio Zuazo and Mr. Jesús Fernández, are licensed professional geologists in Spain,
and are registered members of the EUROPEAN FEDERATION OF GEOLOGISTS, an accredited organisation to which the Competent Person (CP) under JORC Code
Reporting Standards must belong in order to report Exploration Results, Mineral Resources, or Ore Reserves through the ASX.
Mr. José Antonio Zuazo is the Technical Director of CRN and he has sufficient experience which is relevant to the style of mineralisation and type of deposit under
consideration and to the activity which they are undertaking to qualify as a CP as defined in the 2012 Edition of the JORC Australasian Code for Reporting of Exploration
Results, Mineral Resources and Ore Reserves.
Mr. José Antonio Zuazo and Mr. Jesús Fernández consent to the inclusion in the release of the matters based on their information in the form and context in which it appears.
FORWARD LOOKING STATEMENTS
This presentation includes certain ‘forward looking statements’. All statements, other than statements of historical fact, are forward looking statements that involve various
risks and uncertainties. There can be no assurances that such statements will prove accurate, and actual results and future events could differ materially from those
anticipated in such statements.
Such information contained herein represents management’s best judgment as of the date hereof based on information currently available. The company does not assume
any obligation to update any forward looking statement.
Highfield Resources Ltd.
THE PROJECTS
3
CONTENTS
1. Introduction
2. Location – A key differentiating factor
3. The Projects
4. Highfield Value Proposition
5. Corporate Objective
6. What does success look like?
7. Summary
1. Introduction
4
Highway from within 7 kms of mine gate to port
Aerial photo of Port of Pasajes
Virtual image of proposed aboveground operations
Decline accessed underground mine with project economics
boosted by first world infrastructure and domestic markets
• Five 100% owned potash projects in northern
Spain.
• Producing potash basin where undergound
mines have operated via decline with simple
sylvinite flotation circuit processing.
• Muga Project has the lowest capex of any
development stage potash project.
• In production Muga will have first quartile
EBITDA margins
• Project pipeline share the characteristics
required for low capex, high margin mines and
offer significant upside potential
• Management team has proven mine building
experience in Spain and operating experience in
potash.
2. Location – A key differentiating factor
5
• All five projects located:
– Within the key European markets of Atlantic
France and Spain
– Within 150km of nearest export port
– Proximal to three key markets for MOP (USA,
Brazil, Europe)
• MOUs signed for port capacity with two Atlantic
ports
• Clear path to export with low capital expenditure
• First world infrastructure, first world geopolitical risk
profile
• No royalties
2. Location – A key differentiating factor
6
Highfield’s location is worth between c. $60 and c. $90 per tonne over Canadian producers
Royalties
Freight to Export
Port
G&A
Freight from Port
(Brazil)
Canada1 Russia2 Belarus3 Muga
$30 - 40
$30 - 50
$10 - 20
$30
Total $100 - 140
$5 - 10
$29 - 39
$15 - 20
$25
$73 - 94
$40 - 45
$15 - 20
$4 - 8
$25
$83 - 98
$0
$15 - 20
$5 -10
$20
$40 - 50
Non-Mine
Costs
Muga Mine
Advantage $60 - 90 $33 - 44 $43 - 48
1) Mosaic and PotashCorp Annual Reports 2013 and 2014, Highfield estimate on range
2) Uralkali 2014 Annual Report; Highfield estimate range
3) Goldman Sachs Research
Muga - Highfield’s most advanced, low capex, high margin potash development project
Source: ASX Announcement dated 17 Nov. 20158
3. The Projects – Muga Mine
Summary
• DFS completed in March 2015 based on geological information from 34 drill
holes and numerous seismic profiles
• Optimisation Study completed in November 2015 post two additional
exploration drill holes and numerous geotechnical drill holes
• Decline access into a conventional underground mine with technologically
proven flotation circuit processing plant
• Expected to produce 1.08Mtpa of granular K60 MOP per annum
• Mine life of 47 years life with substantial upside expected with ongoing
exploration
• Pre-production capex – €267 million (CY16 number) with 25% of direct costs
confirmed by contract pricing ex contingency
• Total cash costs to customer including sustaining capex - €140 per tonne
• North West Europe October 2015 Spot price - €300 per tonne
• Unlevered, post tax, NPV8 – US$2.04 billion
• Internal approvals received for project finance facility of €222m from
European financing banks
• MoUs signed with two Atlantic Coast ports for long term logistics solution
Muga By-Products K62 Project - An additional high margin, low capex potash project
Summary
• Scoping Study completed May 2015
• Conventional crystallisation plant to treat Muga Mine by-products
• Revenues from K62 MOP and high-purity vacuum salt
• Expected to produce approx 135ktpa K62 and 260ktpa vacuum salt
• Operational life to match Muga Mine life
• Total capex – US$124 million
• EBITDA first full year of production – US$56 million
• Unlevered, post tax, NPV8 – US$286 million
• Unlevered, post tax, IRR – 33.0%
Next Steps
• Further metallurgical test work
• Pre-feasibility study capital and operating cost estimates
• Environmental and general approvals
• Potential offtake partnering agreements
Location of crystallisation plant within Muga installations
Source: ASX Announcement dated 1 May 20159
3. The Projects – Muga K62 Project
Sierra del Perdón - Highfield’s second low capex, high margin potash development project
Summary
• Scoping Study completed April 2015
• Decline access, conventional underground mine
• Technologically proven process plant
• Expected to produce over 520ktpa of granular K60 MOP
• Minimum 20 year mine life with substantial upside expected with ongoing
exploration
• Total capex – US$233 million
• EBITDA first full year of production – US$120 million
• Unlevered, post tax, NPV8 – US$662 million
• Unlevered, post tax, IRR – 38.5%
Next Steps
• Detailed metallurgical test work
• Pre-feasibility study capital and operating cost estimates
• Environmental and Social Impact Assessment
• Commence environmental approvals process
Source: ASX Announcement dated 20 April 2015 10
3. The Projects – Sierra del Perdón
Pintano - Significant shallow JORC Inferred Resource with similar scale to Muga
Summary
• Contiguous with Muga Project
• Total project area of over 65km2
• Mineralisation starts at less than 500m below surface
• Inferred Mineral Resource* of 187 million tonnes at 11.2% K20
• Resource estimate covers less than 20% of total permit area
• Significant resource potential with ongoing exploration
• Potential for similar scale operation to Muga mine
• Benefits from the majority of the value drivers of Muga and Sierra del Perdón
Next Steps
• Exploration drilling and resource delineation
• Metallurgical test work program
• Move directly into Definitive Feasibility Study
Source: ASX Announcement dated 20 November 2013 11
3. The Projects – Pintanos
Vipasca - Outstanding exploration potential abutting Muga with substantially greater scale
Summary
• Permit area is contiguous with Muga Project
• Permit area of over 120km2
• TDEM and gravimetry shows continuity of the evaporitic horizon from Muga
• Significant high grade resource potential with ongoing exploration work
• Potential for similar scale operation to Muga
• Benefits from the majority of the value drivers of Muga and Sierra del Perdón
Next Steps
• Exploration drilling and resource delineation
• Metallurgical test work program
• Move directly into Definitive Feasibility Study
12Source: ASX Announcement dated 28 April 2015
3. The Projects – Vipasca
Izaga - Grass roots exploration with good indications from historical drilling
Summary
• New permits applied for April 2015
• Project area of over 100km2
• Clear continuation of sub-basin evaporitic units evidenced by outcropping
• Historical drilling completed with potash mineralisation encountered
Next Steps
• Initial geophysics
• First round exploration drilling
• Resource delineation
Source: ASX Announcement dated 28 April 2015 13
3. The Projects – Izaga
14
proposed slurry pipe
3. The Projects – Basin Wide Scheme
Proposed Basic Scheme – Potential for a holistic approach to processing and logistics
Capex
4. Highfield Value Proposition
15
Extr
action • Shallow mineralisation (less than 250m deep)
• No aquifers
• Decline access to mineralisation (all four potash mines in Ebro Basin have been accessed via a decline)
• Underground conventional mining
Pro
cessin
g
• Sylvinite mineralisation, simple metallurgy
• Proven flotation circuit for processing
• Significantly less dewatering required compared to solutionmining processes
Util+
Tra
ns
• Electricity connection to grid, water and gas networks
• Existing highways and railways
• Multiple close port options
• No capacity expansions required for ports or transportinfrastructure
Mark
ets • Access to relatively high price domestic markets (Spain and
France in particular)
• Competitive access to other premium markets of USA (NOLA and East Coast) and Brazil
Geopolit
ics
• Developed EU economy with positive geopolitical risk profile
• European commercial bank financing likely
• Access to highly skilled workforce
• “Much less than half” of global capex to production average
• Enables smaller upfront operation that can be cashflowfunded into a larger operation
Differentiated at every touch point
5. Objective – Significant Global Potash Producer
Highfield’s objective is to produce at least 2m tonnes of high margin MOP per annum by 2020
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
K60
MO
P P
rod
uct
ion
Per
An
nu
m
? ? ?
16
17
Production focus the opportunity to create signficant shareholder value
5. Objective – Production Focus
NPV Valuation
(US$)
Capex
(US$)
Muga Potash Mine1 2,036m 434m
Sierra del Perdón Potash Mine2 662m 233m
Muga Mine K62 Project3 286m 124m
Total 2,984m 791m
Other Projects:
Vipasca Potash Project ? ?
Pintanos Potash Project ? ?
Izaga Potash Project ? ?
Further K62 By-Products Projects ? ?
Sources:
1. ASX Announcement 17 November 2015
2. ASX Announcement 20 April 2015
3. ASX Announcement 1 May 2015
18
6. What does success look like?
Historically, forward EBITDA / EV multiples have been close to 10x
0x
5x
10x
15x
20x
25x
Intrepid Potash
Mosaic
Agrium
Arab Potash
Uralkali
ICL
PotashCorp
SQM
K+S
Average
Daily TEV/fwd EBITDA data
Source: Capital IQ
Historical average
= 9.4x
Potash producers trade as industrials on most markets
19
6. What does success look like?
Substantial exposed value with significant upside potential from additional assets
Projects in
Production
EBITDA1
(US$)
Forward
EV/EBITDA Multiple
Enterprise Value
(US$)
Enterprise Value
(A$)2
Muga3 $230 million
(2020)*
6x $1.38 billion A$1.84 billion
8x $1.84 billion A$2.45 billion
10x $2.30 billion A$3.07 billion
Muga and
Sierra del
Perdón (SdP)
$350 million
(2020)*
6x $2.10 billion A$2.80 billion
8x $2.80 billion A$3.73 billion
10x $3.50 billion A$4.67 billion
Muga, SdP
and K-62 by-
products
$406 million
(2021)*
6x $2.44 billion A$3.25 billion
8x $3.25 billion A$4.33 billion
10x $4.06 billion A$5.41 billion
1) EBITDA in first full year of production as per studies and optimisations released to the market
2) Exchange rate of 0.75 USD:AUD
3) Optimisation study for Muga released 17 November 2015
This table excludes
potential upside from:
- Muga Expansion
- Muga Exploration
Target
- Pintano
- Vipasca
- Izaga; and
- Salt by product
sales
* Current target dates for first full year
at full production
7. Summary
20
Logo of the Company’s Spanish Foundation that is currently delivering
several projects with local communities
• Highfield Resources is developing the Muga Potash Project, one of its five
100% owned potash projects in Northern Spain.
• The projects are in a producing potash basin
• The flagship Muga Mine Project has the lowest capex of any
development stage potash project.
• In production it will have first quartile EBITDA margins driven by
combination of high price end markets and low total cash costs to
customer.
• The projects share many characteristics required to be low capex,
high margin potash mines.
• A management team has been assembled with proven mine building
experience in Spain and in potash operations.
• There are few projects in any commodity that are as compelling as the
Muga Project.
www.highfieldresources.com.au
REGISTERED OFFICE
169 Fullarton Road
Dulwich SA 5065
Australia
HEAD OFFICE
Avenida Carlos III, 13-15, 1B, 31002 Pamplona, Spain
T +34 948 050 577 | F +34 948 050 578
FURTHER INFORMATION
Anthony Hall - Managing Director T +34 617 872 100
John Claverley - General Manager T +34 607 748 435
Hayden Locke - Corporate Development T +34 609 811 257