Great publicity

Highfield a bargain now, if analyst forecast rings true

Australian Financial Review
PUBLISHED: 7 hours 45 MINUTES AGO | UPDATE: 7 hours 45 MINUTES AGO PUBLISHED: 18 Jun 2014 PRINT EDITION: 18 Jun 2014
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Trevor Hoey
Emerging potash play Highfield Resources could replicate its substantial share price re-rating in the first two weeks of May after last week’s announcement that it had raised $32 million at a minimal discount to its last trading price of 52¢.
Cornerstone investor EMR Capital subscribed for 25 million shares at 51¢ a share, accounting for $12.75 million of the raising. But this could be a bargain compared with where Highfield will be trading come 2018 if Foster Stockbroking is on the mark. It expects a valuation of $5.63 a share could be justified, based on peer comparisons.
An additional 40 million shares are being placed to Australian and offshore institutional investors at 48¢ a share. Particularly in the resources sector, companies are having to raise capital at steep discounts to their trading prices, so this will be seen as an endorsement of the quality of Highfield’s projects in Spain.
The funds will be used to fast-track activities at its three potash projects, particularly focusing on the development of its Javier project, where construction is targeted to begin in 2015. Highfield has completed a highly favourable prefeasibility study (PFS) at Javier and is progressing towards the completion of a definitive feasibility study (DFS) that should be finalised by the end of 2014.
Analysts at Foster responded positively to the capital raising, noting it featured a very strong response from institutional investors, who saw it as an opportunity to secure a meaningful position on the register following the release of the recent PFS at Javier, the most advanced of Highfield’s three projects.
The broker expects Highfield shares to continue to re-rate through to the DFS and permitting phases at Javier. Foster also believes further derisking of the project could lead to corporate activity.
Managing director upbeat

Managing director Anthony Hall was also upbeat about developments, saying the extent of support demonstrated confidence in the robust nature of its projects. Other analysts are also speaking highly of Highfield’s potash projects, with Taylor Collison recently placing a buy recommendation on the stock with a 12-month price target of $1.06, nearly double last week’s closing price.
Foster has only just latched on to the company, initiating coverage towards the end of May with a buy recommendation and a price target of $1.10. Apart from the compelling economics emerging from the PFS and delivering impressive resource sizes and grades, Foster highlighted the benefits of having projects in a First World country such as Spain with infrastructure advantages and proximity to key markets in Brazil and Europe.
The broker noted that significant infrastructure is already in place, which is expected to lead to lower relative capital expenditure and ongoing operational expenditure, factors that are expected to enhance margins beyond early estimates. Canada is one of the most prominent potash-producing regions, but Foster estimates Highfield will have an US$80-a-tonne freight advantage in exporting to Brazil, a substantial importer.
Highfield already sits on the low end of the cost curve compared with other global projects including those in production. One of the key advantages is that the resource is relatively close to surface, which should allow Highfield to move to production using traditional underground mining operations.
By comparison, other producers predominantly have to implement shaft-mining solutions to access mineralisation, a procedure that requires significant upfront development costs and more intensive operational expenditure.
The Javier project has a 20-year mine life with the likelihood of further extensions as exploration progresses. Based on the PFS it is expected to start production in the first half of calendar year 2017 and generate earnings before interest, tax, depreciation and amortisation (EBITDA) of $US235 million ($250 million) in 2017-18.
Foster forecasts are broadly in line with the PFS, but it also has estimated maiden EBITDA of $US93.6 million in 2016-17. With the PFS featuring a net present value of more than $1 billion and an internal rate of return of nearly 50 per cent the figures speak for themselves. The broker also conducted some analysis in terms of the company’s possible valuation come 2018 taking into account peer performances.. THIIS Article was in the Australian 2 days ago and i have always said could well be the Jewell in the crown. This stock was unknown 2 months ago now the institutions are getting in on the action