Highfield Resources : Quarterly Activities Q4 2021

QUARTERLY ACTIVITIES REPORT

ASX: HFR

28 January 2022

31 DECEMBER 2021 QUARTERLY ACTIVITIES REPORT

HIGHLIGHTS

• Muga Project's Ore Reserve ("ORE") estimate updated and geological characteristics reconfirmed with 104.3 Mt at a mean grade of 10.2% Potassium Oxide (K2O)1.
• Muga Project's compelling economics also reconfirmed following the completion of the updated Feasibility Study2:

1. 30 year mine life;

1. NPV8 of €1.9 billion and 25% IRR;

1. 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; and

• 1. At full production, EBITDA of around €400 million per year.
• Construction agreement negotiations with Acciona progressed. In parallel, an open book tendering process for the construction works is being undertaken by both companies.
• Inflationary risk mitigation continued with another purchase contracts signed with Eriez to supply column cells.
• The process to obtain the construction licences is ongoing as two positive reports from Aragón have been received while the Company is expecting a decision about the split of the electricity works licence in Navarra ahead of the main licence for the plant.
• Comprehensive due diligence process, co-ordinated by Endeavour Financial, undertaken during the quarter. Draft term sheet by a potential syndicate of lenders progressed. Target debt sizing to start Phase 1 construction is around €300 million.
• Cash at bank as at 31 December 2021 was: A$22.24 million

1. (refer ASX release 23 November 2021, "Updated Ore Reserve Estimate - Muga Project")
2. (refer ASX release 8 December 2021, "Muga Feasibility Study - Updated")

Highfields Resources	Head Office
ACN 153 918 257	Avenida Carlos III, 13 - 1°B 31002 Pamplona, Spain | [phone]
ASX: HFR	Registered Office
www.highfieldresources.com.au
169 Fullarton Road, Dulwich, SA Australia | [phone]

QUARTERLY ACTIVITIES REPORT

Highfield Resources CEO, Mr Salazar, said:

"The Company was able to reconfirm ore reserves even after including all restrictions from the mining concession and also reconfirmed the compelling economics of the Project. Strong future expected Project cash flows supports an ambitious debt level target. The Company has mitigated recent inflationary risk with early procurement of plant equipment. We are working with Acciona negotiating the construction agreement and collaborating with consultants to complete the exhaustive due diligence for the banks. We continue to work with the administrations to obtain the construction licences. Another important quarter as we are advancing on all fronts to get Muga into construction."

ACTIVITIES IN THE MUGA PROJECT DURING THE QUARTER

Overview

Following the grant of the mining concession in July 2021, Highfield Resources' ("Highfield" or "the Company") flagship Muga Project ("Muga" or "the Project") is progressing towards construction. The Company continues the negotiation of the construction agreement, preparing the documentation and negotiating different financing alternatives and advancing the construction licences. As part of this progress plan, the update of the ORE and the feasibility study have been concluded, and key long lead equipment has been contracted.

Muga Project: Engineering and Construction Update

The Company is making progress in the negotiation of the construction agreement with its construction partner, Acciona Construcción SA ("Acciona"). At the same time the Company together with Acciona are running a tendering process, on an open book basis, for the construction works.

The Company has signed an additional contract for the purchase of equipment for the processing plant. This contract has been signed with Eriez Flotation Division Canada Inc ("Eriez"), with a total value of €1.1 million and provides the column cells for the secondary flotation which increases the grade of the KCl (potassium chloride) concentrate. The Company expects to sign the final remaining two agreements for plant equipment during the current quarter.

Muga Project: Permitting Update

The townhalls of Sanguesa (Navarra) and Undués de Lerda (Aragón) are responsible for the construction licences for the processing plant and the mine gate respectively. As part of the local licencing procedure, both townhalls have requested secondary reports from the governments of Navarra and Aragón to provide further support to their process. A positive report has already been received from the Aragón administration and another one from the Province of Zaragoza, reassuring the Undués de Lerda townhall on the conditions and process to advance the mine gate licence. At the same time, the Company has been in discussions with the Navarra administration to split the electricity works from the main construction licence of the processing plant and a decision is expected in the next few weeks. Although receiving the electricity works licence early is not essential for the project, it would allow the construction of the electricity line ahead of the main construction of the project and the use of electricity from the grid rather than from generators with significant savings in costs and CO2 emissions.

Highfields Resources
ACN 153 918 257
ASX: HFR	2

www.highfieldresources.com.au

QUARTERLY ACTIVITIES REPORT

Muga Project Financing

During the quarter, the Company continued to work with its Financial Advisor, Endeavour Financial, to secure 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 €300 million to start construction of Phase 1. The due diligence is progressing well and the plan is to have the term sheet with the banks in the first quarter of 2022. A comprehensive due diligence process has been undertaken during the quarter, including a site visit by consultants covering technical, environmental and social assessments of the Muga project. The corresponding due diligence reports are being finalised and will be critical to provide reassurance to the banks in the debt financing process.

The receipt of the Mining Concession, the strong market fundamentals and the recent increase in the share price is continuing to drive interest in the Company and provide impetus to the Company's engagement with its key brokers and strategic partners in the context of reviewing alternative strategic financing options, prior to the start of construction works.

Exploration

There were no significant developments during the quarter in the Pintanos and Sierra del Perdón tenement areas. The current priority for the Company is the development of Muga.

Cash Position

As at 31 December 2021, the Company had A$22.24 million in cash. The main payments during the quarter were made to sign purchase contracts for long-lead plant equipment, which also entails the delivery of detailed engineering for the equipment to complement the plant design. G&A expenditure and other minor permitting related payments were done during the quarter.

Payments to Related Parties

As outlined in section 6 of the attached Appendix 5B, payments to related parties of the entity and their associates, totalling A$238,000, relate to fees and salaries paid to executive and non-executive Directors during the quarter.

Outlook and Strategy - Plans for March 2022 Quarter

Preparation for the Construction phase:

• Finalise construction agreement with our construction partner, Acciona.
• Finalise strategy for the debt and other sources of capital and equity financing for Muga with shareholders, brokers, investors, banks and other financial parties in collaboration with Endeavour Financial.
• Continue to progress construction licences with town-halls (local councils) in Navarra (Sanguesa) and Aragón (Undués), including a decision about the possibility of splitting the grant of the licence of the electricity works ahead of the main plant licence.

This announcement has been authorised for release by the Directors of Highfield Resources Limited

	-ENDS-
Highfields Resources
ACN 153 918 257
ASX: HFR	3
www.highfieldresources.com.au

QUARTERLY ACTIVITIES REPORT

For more information:

Highfield Resources Limited

Ignacio Salazar - Chief Executive Officer

Ph: [phone]

Olivier Vadillo - Investor Relations

Ph: [phone]

Australia based queries:

Alex Cowie - NWR Communications, Director Ph: [phone]

Highfields Resources
ACN 153 918 257
ASX: HFR	4

www.highfieldresources.com.au

QUARTERLY ACTIVITIES REPORT

ABOUT HIGHFIELD RESOURCES

Highfield Resources is an ASX listed potash company which is focussing on the construction of its flagship low cost, low capex Muga Project in Spain having been granted the Mining Concession in July 2021.

Muga is a unique project - with shallow mineralization with no aquifers above it there is no need to build a shaft. There is quality and readily accessible infrastructure already in place in the region and importantly, the Muga Project is located in the heart of a European agricultural region which has a clear deficit in potash supply.

Highfield's potash tenements (Muga-Vipasca, Pintanos, and Sierra del Perdón) are located in the Ebro potash producing basin in Northern Spain, covering an area of around 262km2.

Figure 1: Location of Muga-Vipasca, Pintanos, and Sierra del Perdón Tenement Areas in Northern Spain

Highfields Resources
ACN 153 918 257
ASX: HFR	5

www.highfieldresources.com.au