Highfield Resources Limited (HFR) Earnings Call Transcript & Summary

I am here in the room in Pamplona with Olivier Vadillo who is the Head of our Marketing and Investor Relations and also present is Susana Bieberach, who is Head of Public Affairs and Communications, who I think most of you know all well. It's great to be here with the team and to be able to address our shareholders who have been very patient and announce some good news, some great news in fact. So we obviously had 2 announcements yesterday. So I'd like to go through high level the China Minmetals announcement and also the short-term funding transaction from EMR. I'd also like to address the organizational change, which we're currently going through and also address some Q&A. Now we've had some questions sent through to us. So we'll address some of those. We can't address all of them, but we'll try to address the ones that certainly we feel are the most important and that you guys have all shown interest in. So just from the China Minmetals transaction, I'd like to run through that firstly. So as you see, Highfield Resources signed a nonbinding letter of intent with Qinghai Salt Lake, which is a subsidiary of China Minmetals for proposed $300 million equity subscription. These funds are intended to advance the Muga potash project and pursue other strategic opportunities. It follows the previously announced transformative transaction with Yankuang Energy. Qinghai Salt Lake is China's largest potash producer with significant annual production capacity of about 5 million tonnes per annum and it's controlled by China Minmetals, the major state-owned enterprise, SOE, in the metals and mining sector. I think most of you will know China Minmetals or otherwise in Australia are known one of the subsidiaries of MMG that held various assets over time. It held Century for a while and has very large base metals and other Tier 1 assets around the world. So they're very, very experienced miners, producers, developers and with very, very big profits, which is fantastic. So both these entities bring significant operational experience, advanced technology and strategic investment capabilities into Highfield. So the potential USD 300 million equity injection represents substantial commitment to Highfield and in particular, the Muga project. So the Muga project, along with the 5 million tonnes per annum [indiscernible] project creates a globally diversified Tier 1 company. They are very focused on making this transaction happen. There's strong mandates within the SOE to expand the diversification and production of potash within Qinghai Salt Lake. The LOI is nonbinding, indicating the agreement is subject to further negotiation and due diligence. The Board of Directors and company's largest shareholder, EMR Capital, have affirmed their strong support to finalizing this deal. But now I'd just like to touch on -- and I'll come back to some Q&A around the transaction. In relation to the EMR facility, I further just like to say I can't thank EMR enough for supporting us along the way and providing this facility, which is nondilutionary, which I know a number of shareholders have expressed concern about further dilution to funding, but this is a pure standby loan facility of EUR 1.15 million, a principal amount of EUR 0.65 million that can increase to EUR 1.15 million in certain circumstances. EMR has also agreed to extend the maturity date of its convertible loan notes to -- I think it's to the earlier of 31 July '25 or unless the transaction is consummated with a binding MoU, which extends for a further 75 days. So I think the reality is behind that EMR has been very flexible in ensuring that, that liability is extended and gives us some runway to actually execute this transaction. So we're all aligned in terms of trying to close the NMG/[indiscernible] transaction. So the loan facility used to funds for working cap during the strategic period. The terms of the notes are a fixed coupon at market rates and a maturity date of 6 months from first drawdown. So I'd now just like to touch on some organizational issues. So you would have all seen that Ignacio has resigned from the company. So I came here over the weekend and have been with the team for the last 3 days and here working through with the whole team. I have spent time with all of our key employees and some external key stakeholders, including the Navarra government with Olivier and Susana. And I have to say that it's all very, very positive. It was fantastic to announce both the China Minmetals transaction and also the funding. And I think that there's actually some positive feelings around the change. So I have to say that from what I've seen, there's absolutely little to no effect on our progress of Muga, our progress of the MinMetals transaction and our ability to execute what we're trying to do. So we are looking to make some minor streamline changes here over the next few days. But what I can assure you is that we have the talent within this team. We don't need to go externally. We have the talent within this team to take this project through to completion with China MinMetals and then through to development. And obviously, at that point, once we close the transaction, we'll have funding and we'll expand the team to build the Muga mine.

So now if we can just move to some of the Q&A. So in particular, we've received some various questions. I suppose the first one is in relation to the time line of the $300 million equity subscription. And as you can probably appreciate with our dealings with Yankuang, I don't want to say how long, but these things do take time in dealing with a state-owned enterprise and that has to do with central [indiscernible] and other regulatory approvals. These things do take a little bit of time. So it's currently nonbinding. So it means, obviously, there's further negotiation and due diligence. But we -- Olivier, Susana and I received email this morning about timing for site visits, et cetera, as you would not be surprised, which is next week and the following week after that. So I don't know how much time I'll be needing to spend here. But we'll keep the market informed and material updates on the timing, and we'll let you know as and when we can, but we're very happy to be able to announce the LOI. So in relation to that question around how the LOI compares to the Yankuang Energy transaction. So in the event of any potential conflicts between that original transaction, which is binding and the proposed transaction, and Yankuang EMR intend to negotiate and enter into any required agreement to resolve all obstacles that may impede or delay the progress of the transaction. So at the end of the day, I think all parties will be flexible to try and ensure that we can maintain the existing terms of the transaction. Obviously, the Saudi project has a value on it and we'll need to ensure that, that value sticks. And in relation to the terms that we're entered into that surround the value of the Saudi project, we will also be endeavoring to stick to that, but there's obviously some work to be done along with the diligence. So on the LOI, what are the key risks associated with this being converted to a binding agreement? Well, again, as it is nonbinding, there is a risk that it may not be reached. But as I have said, that China Minmetals has an internal mandate to increase the production from 5 million tonnes to a significant amount more. And their plans to diversify globally is absolutely paramount to their objectives. So like with any transaction, if a company has a desire to do it, they will do everything they can to do that. And we've seen the way they've moved thus far very quickly since engaging with them. So look, we're confident there's a lot of work to do. They have some regulatory hurdles to go through. We don't feel that any of the regulatory hurdles are an impediment. We already have -- for Yankuang, we already have [ Perth ] and China approval and we're well on the path with Spanish approval. So we don't see any issues around that. But as I said, these things do take a little bit of time. So I had a question in relation to Qinghai Salt. And I think we've covered most of it, but yes, I think we've covered most of the Qinghai. I sort of in reflection in my introduction, I think we've got a list of something like 17 people from Qinghai that are looking to come to site. And they are technically very experienced. I mean they are actually producing 5 million tonnes of potash per annum. There's no one in Australia doing [indiscernible]. And this is the sort of production that we're seeing out of Saskatchewan soon. So this is a sizable experienced company that has the ability and in particular, to give you all comfort, the desire to actually make this transaction happen. We don't spend 17 people that are very technically orientated and strategically operated site unless they were committed. So that's a little bit more about Qinghai Salt. And look, you can jump on China Minmetals website. That's a public website. I'm not sure if Qinghai Salt actually mention there. No, okay. So anyway, as we can, and we will share more information as we can in due course. But 5 million tonne producer of potash, 40,000 tonnes of lithium carbonate as well. And I touched on China Minmetals. And as I said, you can jump on their website and have a bit of a look around that. So regarding Ignacio's resignation and the project continuity, question just around how will this impact the Muga project and/or the LOI? So the Highfield Board and EMR remain absolutely committed to finalizing this deal, as you can hear from my comments and for the Muga project. And what I do have to say, and every time I come here, I'm more and more impressed with the individuals that we have in this team. And it's a great opportunity for all of them to step up. And we've had some fantastic meetings over the last couple of days in some what we call town halls and the team's really eager and more than capable of stepping up and completing the project. So as I said, there's no need for change in this organization. We have all approvals and we're going to make sure that this project gets up and running and the LOI move through to binding.

[indiscernible] and explain the situation and we're concerned that it does not impact [indiscernible]

That's a good point, Oli. Yes. So before the announcement went out, obviously, they are -- China Minmetals and Yankuang are fully briefed and understand the change with the CEO and would not have signed the LOI if they didn't want to proceed with the transaction. And we're comfortable that the team that we have in place is capable of executing this. So that's a really good point. So just in relation to that, just some questions around is the project still on track despite the leadership change? I think I've addressed that, I mean, yes, obviously, still a lot of work to do. I think EMR has got unwavering support for us and the changes -- the minor changes we will are undertaking at the moment. So yes, I think that that's sort of covered. The question on the EMR facility just around the purpose. So look, the loan is intended to cover working cap and G&A standby there. We've actually spent quite a bit of time with our finance team and our strategic team focusing on our cash flow going forward. And in the last few days, we've actually made some really good progression in understanding our cash flow and trying to extend our runway. So we're pretty confident we've got a pretty good runway. Obviously, still some work to do around that. But there's some streamlining around our cash that we can do, and that's underway. So that EMR facility is fantastic because standby there. It gives us some security and some confidence to keep going on the path that we're going down. Some questions on the conditions for the extension of the convertible note. I think, look, all I can read out is that the maturity date will be extended to the early of the 31st of July, subject to a 75-day extension of the binding term sheet entered into Qinghai Salt Lake by the 30th of June and the date on which the Yankuang Energy transaction terminates, which that's happened. So that's been fantastic being able to push that out. It's a real positive for us. And then look, I think there's been some questions around EMR support. And look, I'd personally like to say they have been -- to provide an unsecured debt security that's nondilutionary just shows how committed they are at the moment and always have been. And they're fully supportive of the team that we have here and the strategic value of Muga and you should also note, too, that there's a very strong relationship and respect between China Minmetals and EMR. You all know Owen has a long history within the resources industry and Owen with his tenure at Oxiana and then OZ Minerals and then some of those assets obviously went into MMG. So there's a huge amount of respect between those 2 firms. So I can't thank EMR support enough in relation to the financing and also in relation to our strategic initiatives. So look, those are some of the key questions. I'm sure you've all got a bunch more other questions that we haven't addressed. But they are sort of the key ones we have. Please, I think you've got Elvis and Olivier's number, send us questions, we'll try and answer them all. If we need to do another call, happy to do so. We'll try and update you as much as possible. I think we've all been very patient. I have to say perhaps a load of information to date. We certainly are looking to change that as much as we can within the confines of the listing rules and our disclosure obligations. But we thank you for that. I'm glad to see a bit of a bounce in the share price today. I hope that continues. I can't see why you wouldn't be buying shares with these sort of announcements. And hopefully, we get some arbitarges into the stock. So look, that's all from me. I don't think there's a live Q&A on it here. Is there Oli?

No.

Okay. So look, thanks very much, and we look forward to keeping you updated.

Goodbye.