Highfield Resources Limited (HFR) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Highfield Resources Limited ASX Conference Call [Operator Instructions] I would now like to hand the conference over to Mr. Ignacio Salazar, CEO and Managing Director. Please go ahead.

Thanks, Salome. Good afternoon, good morning, everybody. This is our quarterly presentation. Of course, we want to concentrate on the main events of the quarter, obviously, the transaction that we announced recently. So I am planning to go in at... [Technical Difficulty]

Ladies and gentlemen, we've temporarily lost connection with the presenter on the line. Please continue to hold, and the conference will resume shortly.

Sorry about that. It looks like the phone dropped -- the call dropped, sorry, about that false start. So let me once again start from the beginning. Hi, everybody. This is a conference on the quarterly results from Highfield. I plan to follow a free format but we'll make a reference to the corporate presentation from this morning, just in case you have that handy, but otherwise don't worry, I will try to make it friendly to follow anyway without that presentation. But -- if I -- I mean, obviously, move to progress so far, what we have in Slide 6 to cover our overall sort of total report for the last year and a bit. As I think everybody is well aware, Muga, fully permitted at the beginning of 2023, around March, April with the license of Sanguesa, major milestone for the company after so many years. Obviously looking for that. And that we follow quite quickly, successful expropriation process in a sort of fast track, we achieved that from the government of Navara. Construction, you've seen a lot of progress, the latest ones have been this quarter, signing the construction agreements with Acciona, and with EPOS-TUNELAN for the civil work and the ramps. Economics, we updated as well a few months ago, obviously, concern in the market about inflation pressures, we kept numbers very similar to -- in our prior update and very strong economics for Muga, as you well know, close to EUR 2 billion market cap. And obviously, most of the action has been on the financing side. Everybody, I think, aware of quite a bit of the financing already, advanced since more than a year ago with EUR 320 million from the project finance banks. I think a very strong part of the project just to count on those -- on that financing from the banks. And we were looking for a strategic solution for the company. And this is probably the last point that you've seen that slide, that transformational deal that we announced a few days ago. Obviously, a bit of work more to do, but we are obviously very excited, very happy. It's a deal that will provide full funding solutions. So it's not I mean, very much the idea was to have a strategic partner and then go back to the market and then that it's more work. I think with this, we feel that move is fully funded and ready to go and more. And I will talk about that not only move up because this becomes a lot more when you add Southey and the potential of the company to the future. So that's -- I mean just to put where we are today a bit in context over the last few months. I simply -- please, check in the presentation, move to Slide 8, is that chart we've been showing for quite a while with the debt, the trade finance, the lease from Macquarie is well secured. I didn't mention that. And then the gap that we have there was what we have now announced USD 220 million, around EUR 200 million. That is what we were chasing already in that sense with the current investors. We know that the deal is completed. And obviously, I mean, subject to the rest of the work that we need to do, but very much completing all this process to put in a position to start the bulk of the construction of Muga. In Slide 9, simply there is more detail about the transaction that we announced. It is an LOI for the time being, although it's been months of work and is very -- we feel very advanced, and that's why we felt the need to communicate to the market. And in that sense, we also are confident that all parties are working together to get to a conclusion, final documentation, et cetera. But the LOIs and as far as we have agreed are covering the key points of that, what the deal will look like. Again, the EUR 220 million and the funding of Muga completed and that is, as I said already, covering all that we need for Muga to do the construction. And very important is a deal with several investors. One of them, the key one, Yankuang was -- we communicated that in our recent announcement, has committed to $90 million again out of the $220 million. I mean depending on how things develop in the future, that is interest from others. I mean this is, well, work in progress in the sense that there is potential for other investors as well, but very much the other investors that we have already engaged with and agree an LOI with them add up to the remainder $130 million. So that is already, let's say, confirmed the $220 million from those that we have, but again, there might be more investors joining. All of these investors, obviously, Yankuang, very well-known especially in the Australian market, they being the company behind the setup of Yancoal Australia, hopefully, something an experience, very successful in terms of value creation, as you are probably very well off and something that we hope to replicate as well. So very, very -- a lot of other value potential to be created from synergies. Yankuang is the one that we can name at this moment in time, but some of the others as well. So I don't -- I'm not tired to make the point that this is really a strategic deal in the sense that it's not simply a couple of investors putting money, is also synergies, a potential for the company, well, to develop a lot further and to transform itself, as we have explained, I think, is no exaggeration to say that. On the -- apart from the funding part of this deal, there is the second leg of the deal is the bending of Southey, and I will explain a bit more a bit later. That is an asset owned by Yankuang or Yancoal Canada, which is a subsidiary of Yankuang. Obviously, in the Canada Saskatchewan Basin, which is, well, very well sort of global top jurisdiction for potash with projects, very, very strong projects in the vicinity of Southey. So a very high-quality project. And the plan is the team I mean, just to develop that is obviously a bigger project. But I think a very sensible plan to move Muga into construction. I mean, work with the team and make the team stronger as the construction goes through, and then embark after that on the -- well, in the meantime, with the development of Southey. Once you have a team in place that can develop that with a lot more guarantees. I mean the company is moving only with Muga to a position of 500 people staff. So obviously, a lot -- it has been my experience as well in the past, a lot more sensible strategy moving forward for both assets. So it is -- happy to explain that in a bit more detail. I think a very sensible strategy, Yankuang has seen that as the future for Southey. We also believe on that. And that is, in my mind, the way to go to reach both assets. Also, open a lot of opportunities for them. And at the end of the day, unlock the massive value that I really believe are in both Muga and Southey by moving forward and building the mines. So that is in -- of course, there is a couple of elements that we are in very advanced discussions, but subject still to internal approvals, obviously, the value of Southey, the value of the shares, there is an element, of course, very important, Yankuang will become the major shareholder. So there is a transfer of control and obviously an expectation in value related to that. But this is, let's say, for the time being and the progress we have as much as we can release to the market, but looking forward to the -- hopefully very short, the update on the deal as we move forward and as far as we can communicate. I will not go in detail again about the Muga and regionals. I probably jumped to those, checking the presentation to the end of that one where we, again, go back to how I think we're trying to say, how Highfield or the new Highfield will look like after this deal. I mean this will be a company in -- and this is -- sorry, Slide 19 of the presentation. This will be a company with assets in Tier 1 jurisdictions in Europe and Canada. I mean in the mining industry we know we can go a lot worse than that. And with very high-quality assets, very complementary from my point of view and also not in index in geographically, strategically, from a marketing perspective, but as well on the development -- on the development sort of sequence as well. Muga, very much in the middle of the market, very with access in this commodity very important. And Southey in a very top quality jurisdiction with very, very high-quality resource base. And I said very complemented in the sense that we can do first Muga build on that effort and then embark with a lot more solid footing in to Southey as well. Team that has demonstrated well, the capacity to put Muga to where we have put it now are absolutely ready from all angles, permitting, construction, readiness and dealing with obviously purchasing and contracting and finally financing into construction. Just to see -- and as I said, that we'll only become stronger as we move forward with the construction of Muga, plus not to underestimate the support of new shareholders now with a very -- well, capital to obviously develop projects like Muga or Southey access to markets and the synergies of all sorts that will provide, obviously, a lot of a stronger platform for growth. And well, basically, as we all know, dealing with a product by potash future trend commodity, with our various fundamentals in the long run. And so all of that is -- puts the new Highfield. I have to stress this will be a company different to the one we had in a very different platform. I think we will compare at the time once obviously, all of this is development in construction at the level -- we will become at the level of EuroChem and not far away from ICL or K+S, a company with that -- this sort of profile of various assets, leaving aside all the potential, as you know, on Southey extra, plus Phase 2 of Muga plus some of that extra potential. And again, I should stress the point of the experience of Yancoal Australia for those of you who know in terms of all the capacity to generate value for shareholders as well and replicate that the story in the potash business. So there is our final Slide 20, talking a bit more about Southey, solution mining potash project, very much like with those in that area, very well-known technology, obviously, with a lot of mining expertise around working in the past through all these projects, and with a very, very high-quality resources. There's no doubt about that and a relatively very well-proven technology of mining. Key element, of course, in Canada, is very different to Muga, we'll be access to markets. And well, Asia, China, et cetera, are the key elements here. And I think if you add the quality of Southey plus access to the Asian market with the sort of partners that we will have, plus capital availability to develop such a -- well, in CapEx intensity project, I think you have the ingredients to make a huge success of a project with this quality. So very much -- very excited with this opportunity. Maybe to conclude on these. Next steps, obviously, as you can appreciate, we try to update the market as much as we can considering where we are. We are obviously more advanced, but obviously, it's not that maybe what right now is there because every day obviously we make a step forward. But I'm very much what is spending in internal approvals in the different Chinese investors and Yankuang and potentially some other international investors that might join. As I said, we have sort of with the current investors secured the $220 million, but this flexibility about how that will develop. But basically, going through the internal approvals, our internal approvals in HFR and that will allow us to get to the facilities agreement. And in that sense, we are optimistic that can go pretty quickly. And following that, there is obviously this is a transaction, you have to, I'm sure appreciate that is massive for HFR. So that implies going to an independent expert report that we are -- have engaged and working with to produce a report and present to the shareholders in an AGM for them to approve or not. Obviously, the deal. Hopefully, we can convinced of the merits of this deal. And also, there is -- after final documentation and parallel with getting that AGM approval, there will be approvals in the different jurisdictions, Australia and in China, of course, and Spain and Canada. So not something that we feel is a major concern, but until you go through the process, you cannot -- I think you have reasons to believe this makes a lot of sense for all parties. We see this very much as a win-win not only for the companies involved, but also from the point of view of the jurisdictions in both. So very, very excited. We think this is -- after probably quite a lot of effort going through this process. I think this probably was beyond our expectations in the sense that it's not only the funding of Muga, which was obviously the key objective is there, but it's also transforming the company into a lot more than what the Highfield used to be. So I think I will -- try to be concise and to the point, and I will leave -- open now back or go to the operator if -- happy to take any questions. Anything that -- well, questions or comments from the people, they're sending through the call.

[Operator Instructions] Your first question comes from James Bullen with CG.

Congratulations on the deal. Just looking here, I mean, your cash balance is now at $10 million. Do you expect that to be sufficient to get to close here and not have to slow down on whatever works required at Muga to hit your time lines?

Yes. James, so basically, we are now -- and that is maybe something else we are -- it's not only everything up to Highfield. We are dealing with Yankuang plus several other investors plus -- so it depends how quickly we can move. Obviously, we are now in a position where 100% of the effort going into this deal is not a lot more in activity. As far as we make sure that we are fully ready to kick off as soon as the deal is completed, we go for that. So there is -- and by the way, not only is the partners or the parties into this deal, but after that, the approval from the different jurisdictions. So we keep, as usual, minimizing expenditure is no need, I think it's very important. This deal also has been received here in Spain by the authorities. They see a lot of progress going on. So there is an understanding that these things take a bit of time. So I mean, we should be okay for the time being, but obviously, it depends on how long do we need to get through this, which is not 100% in our control.

Understand. And just, I guess, we're disappointed. This is a European project and the heartland is an agricultural region. You've got great support from European banks, but there was no strategic European investor coming in here. I'm just trying to rationalize that in my head why there wasn't an attractive enough proposition for European strategics.

Yes. Well, there was, but maybe there was more in the deal that we have at hand. At the end of the day, when I look at the deal we have at hand, so I really see this very strategic and very -- I said that already, very win-win on all angles. We have both -- look at both projects. I mean Yankuang had project -- has a project in Southey, which is amazing project, a lot of potential, but not going. So -- and we have Muga, that is, we believe, a very amazing project with a lot of potential, very interesting, but we were not -- typical situations. And this deal will unlock both of them, generate a lot of value on the projects themselves and more. We will get a very strong shareholder base with capital to support this growth. And at the end of the day, it's about synergies and value creation, et cetera. Some other European auctions, well, didn't get all these ingredients together, well, obviously not because otherwise, we would have followed other ones. There is, as you say, well, in principle, you look at that looking only at Muga, do you think it is a partner to complement in Europe and then you -- well, this has gone beyond Europe and Muga has grown globally because, as I said, the fact that you do a smaller project. First, I am a firm believer -- well, I think Yankuang has been the one who believed on that. But if they were going to ask my opinion, firm believer that rather than hire a few consultants and do some work in a big project in the middle of nowhere, sorry, Canada, then you have a team that is developing and is -- it is a lot more safer, more solid way to do complex projects, both Muga, any mining project is very complex. So I am a firm believer of that strategy. At the end of the day, that was more than anything else, Yankuang is thinking that was the way to go. I'm very happy they were thinking that way. But I think it's many reasons why when you take new shareholders, the team in Muga, growing significantly by building Muga, not by doing studies about how somebody else needs to build something. And with a huge project like Southey, at the end of the construction of Muga, et cetera, and then you take the ICL markets, and this has gone beyond -- I take your point and your question, James. But I think that is looking from an only Muga perspective, this has become bigger than that.

Okay. Yes. I appreciate that, Ignacio. And a difficult final question. Do you have a line in the sand in terms of the equity position of Highfield Resources after the completion of this $220 million equity injection?

Yes. We've got a lot of discussions and negotiations. I mean, we are holding a bit because both sides needs to go through the internal approvals, but we have a clear understanding where do we want to go. I think from the point of view of Highfield, we know Yankuang knows, we have to go through our shareholder approval. So everybody has been keen to make this, as I said at the beginning, I mean it, win-win for all parties. Really every party has their own interest in mind, but make sure that, I think the potential is a lot of value to be created from this. We need to make sure we share the best possible way. You need to have both. First of all, you create value and then you distribute the best way possible. So I think we have a clear view and be understood by the parties, not that we have that in the back pocket. And I think we look at that, and that's why we feel so confident that things are moving, and we are so focused to get things progressing. We seem to -- we are optimistic, things will develop in the way we've been, in fact, discussing and negotiating so far.

Congrats on the deal, again.

[Operator Instructions] Your next question comes from Mark Fichera with Foster Stockbroking.

Just a couple of questions from me. Just on the Yankuang deal. What could we expect in terms of maybe further announcements from Highfield regarding the deal progressing? Could there be, for example, further information on the identity of the strategic investors? And also, could there be some further data or information on the Southey project, given that's quite limited at the moment. Yes, just a feel for your particular announcements you may give to the market to provide and indicated how the negotiations are progressing.

Yes. So as I said already, it's a lot of several work streams running very fast or as fast as we can. And hopefully, further ahead than what we announced because some of the things you cannot announce simply other considerations and especially internal approvals, like the name of the other investor, for example. They didn't get to a point that they were prepared to do that. But obviously, we know they are there, and we have the agreements, et cetera, et cetera. So you're right. I think that where really the main big next step is the signing of the definitive agreement, which is particularly you, you're ready. There is an element there, of course, of the other investors that is -- so we are dealing with relatively complex structure at the end of the day because it's several people, it's not one to one. But everybody working with the same objective. And I think we have very clear -- as I said, it is a deal that makes a lot of sense for everybody. So that is what keeps us a lot of reassurance here is not something that we are squeezing a bit of money here. And it's a deal that makes -- we'll make it work if you are not going to find another deal that is going to have all the synergies. And so it has taken a lot of effort to get to this point. I think we've gone through the difficult discussions already before. Maybe that is another point I should stress. So now it's really going through the system, making -- I mean, we are talking about very big companies that we are dealing with. So it's not another junior or another -- but having said that, I'm very impressed with the responsiveness and the speed of the process. But at the same -- I work for Shell for 20 years. So I know -- I can fully understand that there are approvals and processes, the same way that in Highfield as well need to take place. So I think that is more what we are talking about rather than in sales, main -- sorry, to reply to your question, main one will be this definitive agreement, hopefully, is that we don't need a lot more. But in parallel, there will be other -- I cannot see that right now. Anything that we can update with the market in terms of the names of some of the investors, probably not. But okay, just filling the gaps that are pending. But I think what we would like to do is to get to the definitive agreement. So everything is then sorted, agreed and announced in that way.

Okay. Just one final follow-up. So in terms of that definitive agreement, in terms of a time line, what do you see is a likely time line? Or what do you see as realistic when that may drop?

So especially with Yankuang, we are moving extremely fast. And as I said, because I think all the difficult discussions have already taken place. I mean we've been on this for months already. So it's not something that popped up last month, and we are -- not at all. There are others, as I said, and that's what makes maybe a bit more difficult to forecast. But I think we are working under the assumption that the definitive agreements should happen very quickly. Very quickly. We see that -- and that is, to some extent, in our hand. After that, obviously, after that this goes to AGM and with independent expert report on the Highfield side, but then very much on the overall sites these approvals from the 4 jurisdictions I talked about: Australia, China, Canada, Spain. We will have to until -- let me make a point about that without trying to be prescriptive because let me say, we don't know until we go through this. And well, we've got a lot of experience of dealing with public administrations in Highfield but the logic here is that in Australia. Of course, we have the Yancoal Australia experience, and those were assets in Australia, and these assets are in Canada and Spain. So should we -- I mean, you may think a bit easier. China should be covered, hopefully, with our partners here. And Canada, obviously sensitive to Chinese investment. The only thing we are doing is to reduce Chinese investment by making this effort into Highfield but until we go through that we will not. And the Spain tends to be relatively easy. But having said that, timing is a lot harder to decide. So I think the definitive agreements in our control, we are planning to move very quickly. And if anything, is delaying will be, well, hopefully, administrative rather than anything else in the sense of internal approvals and things like that. But we see that with a lot of very clear path, let me put it that way, and then jurisdictions, I cannot really say. Hopefully, we move -- I think there are reasons -- common sense reasons to believe this should happen. And that's what I said every jurisdiction with their own interest in mind should see this as positive. But okay, until you don't do it, you don't really know.

There are no further questions at this time. I'll now hand back to Mr. Salazar for closing remarks.

Well, as you can see, we are very excited. Exciting times for us after quite a lot of process and to get to this point, as I already said, as well, we see a very clear path to funding for Muga. And as I already said, for -- and a lot more, hopefully. I think we -- this will become a company with the assets, quality assets with the team to develop and with the capital to make it happen. So you have everything that you need to make a success of a company of a mining project, a mining company. So very, very keen to get to this point and push forward. And obviously, we will keep updating the market as much as we can. And hopefully, very soon, we have news on this day and the way forward. And thanks a lot for your time and your interest in Highfield.

That does conclude our conference for today. Thank you for participating. You may now disconnect.