Numis Securities, Research Reports

Marvellous Muga (By Numis Securities)

March 30, 2015

Muga’s DFS is out and the results are good. Highfield’s NPV (10%) has increased by 34% to $1.42bn and IRR is now at an extremely attractive 52%. The results are a big improvement on the PFS, envisaging a larger, twin-decline 1.12Mtpa potash project with a lower all-in cost of $135/t and highly profitable 66% EBITDA margin. Total capex is up 15% to $354m, as expected, but remains one of the lowest capital intensity projects in the world. Construction start-up remains on track for Q4, subject to permitting, and this is clearly a project which will get built in our view. A conventional shallow, low cost mine in a low-risk jurisdiction is a rare commodity and the DFS further affirms our view that this is one of the best potash projects out there. We maintain our BUY recommendation and increase our TP to A$3.00, from A$2.20. The stock is trading at a cheap 0.5x P/NAV, which is heavily risk-adjusted. Lots of further upside remains in the company and despite the strong share price, we believe there is plenty of value still to be had. One to own.

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