Highfield Resources : Muga Feasibility Study - update

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ASX ANNOUNCEMENT

ASX: HFR

8 December 2021

MUGA FEASIBILITY STUDY:

COMPELLING ECONOMICS RECONFIRMED FOLLOWING ADVANCED

ENGINEERING

HIGHLIGHTS

Highfield Resources (ASX: HFR) ("Highfield" or the "Company") is pleased to provide an update to the Muga-Vipasca Potash Project ("Muga" or the "Project") Feasibility Study that reconfirms the compelling economics of the Project.

• NPV8 of €1.89 billion and 25% IRR
• Sensitivity analysis using current flat real spot prices for the whole life of mine results in a post- tax NPV8 of €2.8 billion and a 42% IRR
• At full production, EBITDA of around €400 million per annum
• Economics resulting in a 30-year mine life
• The Feasibility Study is based on significantly more advanced engineering and procurement: in the current Study, 86% of the capex estimate is based on signed contracts, firm offers and updated prices. Compared with 59% in the previous feasibility study update from 2019
• Higher degree of confidence in the updated capex numbers with:

• 1. phase 1 capex of €398 million o phase 2 capex of €209 million
• The Company continues to work with its Financial Advisor, Endeavour Financial, to secure an appropriate financing for Phase 1. Based upon its assessment of the Muga Project and following positive feedback on a draft term sheet by a potential syndicate of lenders, the Company is targeting debt sizing of around €300m to start construction of phase 1.

Cautionary Statement. The production target set out in this update is derived from Proved and Probable Ore Reserves, additional Measured, Indicated and Inferred Mineral Resources from the Muga-Vipasca tenement as well as the Exploration Target at the Vipasca and Muga Sur tenements. There is a low level of geological confidence associated with Inferred Mineral Resources and there is no certainty that further exploration work will result in the determination of Indicated Mineral Resources or that the production target itself will be realised. The potential quantity and grade of an Exploration Target is conceptual in nature, there has been insufficient exploration to determine a mineral resource and there is no certainty that further exploration work will result in the determination of mineral resources or that the production target itself will be realised. The technical parameters underpinning the Mineral Resource in the market announcement dated 30 March 2021 and the

Highfield Resources	Head Office
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ASX ANNOUNCEMENT

Exploration Target in the market announcement dated 23 November 2021 continue to apply and have not materially changed.

Ignacio Salazar, CEO, commented: "We are delighted to announce an up-to-date Feasibility Study for the Muga Project. Potash is a great commodity with very strong global prices and exceptional long- term fundamentals. This Feasibility Study Update reconfirms Muga's outstanding economics, and the effect on revenue of current spot prices would multiply returns. The updated numbers have been prepared with a significantly higher degree of confidence following all the engineering and procurement work of the last few months. With supportive shareholders, potential strategic investors and a significant debt capacity, Highfield is well positioned to finance Muga. The team is ready to progress Muga into construction and realise the intrinsic value of this Project."

Mine plan

The 2021 Mine Plan is based on the Proved and Probable Ore Reserves as well as the abutting Exploration Target as per the ASX announcement released on the 23 November 2021 (refer ASX, "Updated Ore Reserve Estimate - Muga Project") and the additional Measured, Indicated and Inferred Mineral Resources audited by SRK Consulting ("SRK") as per the ASX release on 30 March 2021 (refer ASX, "Annual Report to the stakeholders").

The summary description of Ore Reserves, Mineral Resources and Exploration Target for the Muga Project are included in Appendix 1.

The revised mine plan used in this updated Feasibility Study was developed by Highfield with technical mine planning support from the Spanish mining engineering consultants, IGAN Consulting Group. The portion of the plan that supports the Ore Reserve has been reviewed by SRK who incorporated various capital and operating cost sensitivities into their assessment so as to confirm its robustness.

Table 1 below describes the various sources that are included in the 2021 Mine Plan.

TABLE 1: SOURCE OF 2021 MINE PLAN TONNES

	Reserves, Resource or	Sources of tonnes included in
	Exploration Target	the 2021 Mine Plan
	Million		Million
	Tonnes	Grade %K2O	Tonnes	Grade %K2O
Proved and Probable Ore Reserves	104.3	10.2	104.3	10.2
Measured and Indicated Resources	30.9	11.8	11	12.9
Inferred Mineral Resources 1	45	10.3	16	10.8
Exploration Target2	80 to 130	8-10	43	10

The Inferred Mineral Resources1 and Exploration Target2 tonnes included in the Mine Plan relate to areas which achieve minimum thickness and grade and are prospective for extraction with the current

1. There is a low level of geological confidence associated with Inferred Mineral Resources and there is no certainty that further exploration work will result in the determination of Indicated Mineral Resources or that the production target itself will be realised..
2. The potential quantity and grade of an Exploration Target is conceptual in nature, there has been insufficient exploration to determine a mineral resource and there is no certainty that further exploration work will result in the determination of mineral resources or that the production target itself will be realised.

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mine design. Regarding the Inferred Resources, specific areas with thickness greater than 1.6 m have also been considered given it has the potential to be mined with low profile equipment. The Measured and Indicated Resources included in the Mine Plan refer to the pillars in the exclusion zones under towns and the Bardenas Channel. Geoalcali considers that these could potentially be mined in the future if and once the backfilling provides enough support to demonstrate there will be no impact on the surface.

The 2021 Mine Plan assumes the delivery of approximately 1,000,000 tpa of Muriate of Potash ("MOP") over a mine life of 30 years3 comprising approximately 18 years of mine life from Ore Reserves and 12 years from additional Mineral Resources and the Exploration Target. The sequencing of the mine plan can be seen in Graph 1 below.

GRAPH 1: 2021 MINE PLAN SEQUENCING ROM TONNES PROCESSED

7,000

6,000

5,000

kt

4,000

3,000

2,000

1,000

0

Year 11

Year 13

Year 15

Year 17

Year 19

Year 21

Year 23

Year 25

Year 27

Year 29

Year 1

Year 3

Year 5

Year 7

Year 9

Ore Reserves

Measured/Indicated/Inferred Resources

Exploration Target

Mining

Underground access will be by twin parallel declines from surface (in pink in Figure 1 below), over a length of 2.6 km to a depth below surface of approximately 350 metres. The declines, approximately 25 metres apart along their length, are connected by three crosscuts. The West decline will be developed with a bolter-miner (see Figure 3 below) using continuous haulage systems to transport mined material to surface and the East decline with road-headers. The same type of equipment will be used to develop underground infrastructure including workshops and service areas such as emergency evacuation chambers, pumping stations and electrical rooms.

The potash seams are constrained by a minimum mining height of around 2 metres which is consistent with the planned mining equipment. The shallow dipping seams have been detailed designed, utilising

3 This production target must be read in conjunction with the cautionary statement on page 1 that "there is a low level of geological confidence associated with inferred mineral resources and there is no certainty that further exploration work will result in the determination of indicated mineral resources or that the production target itself will be realised" and that "the potential quantity and grade of an Exploration Target is conceptual in nature, there has been insufficient exploration to determine a mineral resource and there is no certainty that further exploration work will result in the determination of mineral resources or that the production target itself will be realised. The technical parameters underpinning the target in the market announcement dated 23 November 2021 continue to apply and have not materially changed."

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a set of two parallel roadways as the main development access, one for fresh air intake and access and the other for exhaust ventilation and both with conveyor belt materials handling systems. The mining method approach is a typical Room and Pillar ("R&P") panel layout. The room width is specified at 8 metres and the height and pillar size is determined by the total combined seam thickness, geotechnical constraints due to depth below surface and/or any equipment limitations (see "Production panels shallow dipping seams" in Figure 1 below).

The more steeply inclined potash seams in the north west of the deposit required an alternative mining approach to the R&P panel layout used for the shallow dipping seams, to minimise dilution and maximise extraction, taking into consideration the geotechnical constraints and equipment limitations. For that area, a panel has been designed and the extraction ratio has been applied considering geotechnical constraints due to the seam thickness, depth below surface and/or any equipment limitations (see "Production panels inclined seams" in Figure 1 below). An adaptation of the existing R&P method was considered for developing a practically achievable inclination for the roadways and mining rooms while maintaining the same production targets and utilising the same excavation, material handling and backfill approach.

The production will be supported by auxiliary machinery e.g. roof bolters to ensure roof stability in abnormal areas, and LHDs (Load Haul Dump loaders) to load and dump material to intermediate storage points. The pillar design has been assessed to provide an optimal extraction ratio while maintaining ground stability to ensure safe working and environmental conditions.

FIGURE 1: 2021 MINE PLAN DESIGN FOR MUGA

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FIGURE 2: CONVENTIONAL AND INCLINED ROOM AND PILLAR PATTERN MINING

Ore will be loaded directly from the road header or continuous miner to electrical cable tethered shuttle cars that will tram the ore to a crusher and then onto conveyor belts. At this point the ROM ore will be transported via a series of conveyors to the underground silos, and then to the surface via the East decline conveyor.

Road headers can be used in conjunction with continuous miners (see Figure 3 below) due to their increased ability to mine selectively at the mining face. This is especially important in terms of position, thickness and grade.

FIGURE 3: BOLTER MINER, CONTINUOUS MINER AND ROAD HEADER

Highfield Resources
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