HIGHFIELD RESOURCES LIMITED — Interim / Quarterly Report 2021

Apr 29, 2021

ASX Release

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30 April 2021

QUARTERLY ACTIVITIES REPORT FOR THE THREE MONTHS ENDED 31 MARCH 2021

Muga Mining Concession Process

• As previously announced (refer ASX release 1 March 2021, “Muga Project Permitting Update”), by the end of February 2021 the Company had submitted answers to the fifth and final section of the Mining Concession documentation for its Muga Project:

• The scope of section 5 covers the restoration and emergency plans, the backfilling process and water management.

• While the sections 1 to 4 were mainly reviewed exclusively by the relevant mining Authorities in Madrid, Aragón and Navarra (“the Mining Authorities”), section 5, given its scope, has required the review of several other Spanish government entities.

• In March 2021, following the Company’s final submission, the Mining Authorities had requested a review of different parts of section 5 by the Ebro Water Agency, the three environmental departments of Navarra, Aragón and Madrid, and the Emergency Services Department in Navarra.

• Since the quarter end, the thorough review by the various government entities has progressed satisfactorily for the Project. The Ebro Water Agency and the two environmental departments of Madrid and Navarra have submitted positive reports to the Mining Authorities. The Navarra Emergency Services Department has also approved the Emergency Plan for Muga. The Company is now awaiting the environmental department of Aragón to finalise its report, which the Company understands is close to completion.

• Additionally, the Company has been advised that the Mining Authorities have finalised their review of those queries raised during the public exposition carried out in August 2020. The public exposition related exclusively to the restoration plan that is also part of the scope of section 5.

• No material issues have been raised by the Mining Authorities as a result of these reviews.

• The Company has been advised that once the report from the environmental department of Aragón is received and if no further clarification is required by the Authorities, the next step is to send the text of the Mining Concession document to the Central Government’s lawyers for its final legal review prior to the Mining Concession award being issued.

• Cash at bank as at 31 March 2021 was: A$15.8m.

• The Company has put in place several initiatives to preserve cash until the grant of the Mining Concession:

• It has continued with the temporary reduction of 50% of all Highfield’s management and staff’s working time and salaries until the Mining Concession is granted. A similar reduction has been applied to all consultants.

Highfield Resources Limited

ACN 153 918 257 ASX: HFR

Issued Capital

329.6 million shares 22.82 million options

Registered Office

169 Fullarton Road Dulwich, SA 5065 Australia –––––––––––––––––– T. +61 8 8133 5000

Head Office

Avenida Carlos III, 13 - 1°B, 31002 Pamplona, Spain ––––––––––––––––––

T. +34 948 050 577 F. +34 948 050 578

www.highfieldresources.com.au

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• In line with staff, the directors of the Board have also implemented a reduction in their total remuneration by 50%.

• The Company has negotiated with its main Project vendors that the Notices to Proceed (NTPs) to build the key equipment will only be made after the Mining Concession is granted, in such a way so as to preserve cash while not compromising timely delivery of the equipment.

• In addition, given that the current priority for the Company is the development of the Muga Project, the Company is currently not actively pursuing exploration activities in other areas although it continues to negotiate extension of existing permits with the mining authorities.

• As announced on 5 March 2021 (refer ASX release 5 March 2021, “Government of Navarra releases Social Baseline Study”), an independent Social Baseline Study commissioned by the Government of Navarra concluded that the Muga Mine could significantly boost the economies of rural Navarran communities, and significantly reverse the severe depopulation and unemployment affecting the surrounding communities.

Highfield Resources CEO, Mr Salazar, said:

“ The final fifth section of the Mining Concession review has needed extra effort as it required several other government entities to be consulted on the restoration, emergency and water plans. Credit to the team and the administrations that, despite the number of parties involved, this part of the process is close to being resolved.

We very much appreciate the recent public shows of support for the Muga Project by the President of Navarra in a recent meeting with Highfield management and in her recent visit to the mine area. We also very much welcomed the publication by the Government of Navarra of the Social Baseline Study.

With the path to finalise the review of the restoration and remediation plans clear, we look forward to a swift conclusion of the Mining Concession process for the Muga Project.”

Activities in the Muga Project during the Quarter

Overview

The Company’s flagship Muga Project (“Muga” or “the Project”) is targeting relatively shallow sylvinite beds, across approximately 60km[2] located in the Provinces of Navarra and Aragón. The Muga Mine is planned to commence mining at a depth of approximately 350 metres from surface and is therefore ideal for a relatively low-cost conventional mine.

Muga Project: Engineering and Construction Update

As previously announced, the engineering consultancy firms released to Highfield the detailed design for the Project on 15 December 2020, in line with the plan. The Company’s technical team has been analysing and reviewing the documentation to ensure the design meets the objectives of the Project and identify any potential improvements.

During the quarter the Company prepared a HAZOP (Hazard and Operability Analysis) report which covers the operational risk assessment and performance stress tests of the final designs.

Highfield plans to finalize these analyses while the Project is pending the grant of the Mining Concession. As soon as the Concession is granted, the Company plans to share the information with its construction partner, Acciona, and progress with the negotiation of the construction agreement and the project implementation.

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Muga Project Sales and Marketing Update

Highfield has already signed non-binding MOUs representing more than its full Phase-1 production capacity for potash and salt. During the quarter, the Company continued to engage with traders, potential offtake partners and logistics partners which are interested in a more strategic participation in the Project.

Muga Project Financing

As part of its debt financing strategy the Company has continued to work closely with Endeavour Financial to identify potential lenders, as well as preparing for the engagement with lenders and the due diligence that will take place following award of the Mining Concession.

The Company also continues to engage with key brokers and strategic partners as it prepares to secure the equity portion of the financing at some stage after the receipt of the Mining Concession.

Corporate

The Project is well advanced and currently does not require any further major development work until the final stage of the Mining Concession process is completed. Nevertheless, the Company will maintain its vigilant monitoring of its cash position to ensure that it continues to maintain a healthy cash balance and will not require any additional capital until after the Muga Mining Concession is granted.

On 18 February 2021 (refer ASX release 18 February 2021, “Director Retirement”) non-executive Director, Mr James (Jim) Dietz, decided to retire and step down from the Highfield Board.

Mr Dietz was planning to retire from the Board at the next AGM, however he advanced his retirement decision in order to support the Company in its current cash preservation efforts.

On 30 March 2021 (refer ASX release 30 March 2021, “Annual Report to Shareholders”) the Company released its Annual Report for the financial year ended 31 December 2020. The report also included the Company’s Sustainability Report which reports on its environmental, social and governance activities and arrangements in accordance with the standards set by the international independent organisation, GRI.

Cash Position

As at 31 March 2021, the Company had A$15.8 million in cash. The main payments during the Quarter related to equipment, G&A and the engineering and detailed designs received in December 2020. With the exception of some pending engineering fees, no major payment for the Muga Project is required in the second quarter of 2021 prior to the Mining Concession award.

Vipasca Tenement Area

The Vipasca Permit Area (“Vipasca”) is located adjacent to Muga and given its geological characteristics has always been considered as a natural continuation of the Muga deposit. Therefore, the efforts of the Company have been focused on the identification of resources at Vipasca, especially in the eastern sector, the closest sector to Muga, while progressing in the knowledge of the geological structure of the other areas of the permit.

The interpretation of the geological information obtained in recent years at Vipasca has made it possible to evaluate and discard the central and western sectors of the tenement. As a result of the recent drilling campaign developed in 2019 (see Figure 5), they are not seen as favourable areas for develop exploration works. The results of the geological works carried out shows that the potash unit is too deep in those areas, situated at least more than 1100 meters depth.

As a consequence, the Company has relinquished the central and western areas of Vipasca, while preserving the eastern sector, as it can be seen in Figure 1.

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Figure 1: Vipasca’s relinquishment. The striped area is the area relinquished, while the area without a frame is the area which has been retained

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Relinquished Area
Retained Area
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The Company therefore relinquished the central and western sectors at Vipasca, while preserving the eastern sector closest to Muga. In this area some interesting potash mineralisation have been recognized, which are believed to be increasing the potential of the Muga - Vipasca deposit.

Pintanos Tenement Area

The Pintanos tenement area, comprising the three permits of Molineras 1, Molineras 2 and Puntarrón (see Figure 2) is adjacent to the Muga Project and covers an area of 65km[2] . Mineralisation commences at around 500 metres depth. The Company is building on a substantial database of historical potash exploration information that includes seven drill holes and ten seismic profiles completed in the late 1980s.

Highfield re-initiated the application process for the drilling permit at Molineras 2, following the conclusion of the public consultation period in 2019. Subsequently, the Company responded to all comments received during the consultation period and continues to await the award of the permit. The Company’s application for the Puntarrón permit also remains outstanding.

The current priority for the Company is the development of Muga.

Sierra del Perdón Tenement Area

The Sierra del Perdón tenement area (“SdP”) comprising the three permits of Quiñones, Adiós and Ampliación de Adiós (see Figure 2 and Figure 4) is located south east of Pamplona and covers approximately 120km[2] . SdP is a brownfield target which previously hosted two potash mines operating from the 1960s until the late 1990s, producing nearly 500,000 tonnes of potash per annum.

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There is potential for potash exploitation in new, unmined areas in the SdP area.

The Company was advised in the fourth quarter of 2018 that the second three-year extension application for the Adiós and Quiñones permits had been rejected by the mining department of the Government of Navarra. The Company appealed this decision in 2019 and has so far not obtained a resolution. In the fourth quarter of 2020, the Company was advised that the second three-year extension application for the Ampliación de Adiós permit was rejected by the mining department of the Government of Navarra. The Company appealed this decision in the last quarter of 2020, in line with the ongoing process of the other two SdP permits. Based on local Spanish legal advice, the continued lack of a resolution to the appeal is not seen as a reflection on the merits of the appeal, nor does it represent a significant change with an adverse effect on the entity. The drill hole AA-02 that was planned in 2020 has been delayed until final resolution of these appeals.

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$99,000, relate to fees and salaries paid to Directors during the quarter.

Outlook and Strategy - Plans for June Quarter 2021

• Conclude the final step of the Mining Concession approval process in combination with all relevant Mining Authorities.

• Continue to focus on cash preservation and cash management to maintain a strong financial position.

• Re-focus post Mining Concession activities on preparation for the Construction phase:

• Progress discussions with shareholders, brokers, investors, banks and other financial parties in preparation for the debt and equity financing for Muga in collaboration with Endeavour Financial.

• Share final engineering detailed designs of the Muga project and negotiate construction agreement with our construction partner, Acciona.

• Continue to progress construction licences with town-halls (local councils) in Navarra (Sanguesa) and Aragón (Undués)

The Company’s AGM will be held virtually on 27 May 2021. Details are contained in the Notice of Meeting which has been released to the ASX and is also on the Company’s website.

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

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For more information:

Highfield Resources Limited

Ignacio Salazar CEO Ph: +34 948 050 577

Olivier Vadillo Investor Relations Ph: +34 609 811 257

Australia based queries:

Michael Weir Citadel Magnus – Director, Partner Ph: +61 (0) 402 347 032

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About Highfield Resources

Highfield Resources is an ASX listed potash company focused on moving its flagship low cost, low capex Muga Project in Spain into the construction phase. Once in production, the Project is forecast to be one of the highest margin potash mines in the world.

The engineering and design work is ready and the Company is currently progressing the last stage of the Mining Concession.

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 262km[2] .

Figure 2: Location of Muga-Vipasca, Pintanos, and Sierra del Perdón Tenement Areas in Northern Spain

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Figure 3: Artist impression of the Muga project

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Table 1: Summary of Mineral Interests as of 31 March 2021

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Location: All permits are located in Spain.

Holder: All permits are held by Geoalcali S.L.U., a 100% owned Spanish subsidiary of Highfield Resources Limited.

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Figure 4: Location of Sierra del Perdón drill holes

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Figure 5: Location of Vipasca drill holes

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COMPETENT PERSONS STATEMENT FOR MUGA POTASH PROJECT

This report was approved by Mr Ignacio Salazar, CEO of Highfield Resources. The information in this report that relates to Ore Reserves is based on information prepared by Dr Mike Armitage, the Chairman of SRK Consulting (UK) Limited. Dr Mike Armitage is the Competent Person who assumes overall professional responsibility for the Compliance Opinion. The information in this report that relates to Mineral Resources, Exploration Results and Exploration Targets is based on information prepared by Ms Anna Fardell. Senior Consultant at SRK Consulting (UK) Limited, and Mr Tim Lucks Principal Consultant at SRK Consulting (UK) Limited.

Dr. Mike Armitage is employed by SRK Consulting (UK) Limited. The information in this report that relates to Exploration Results, Mineral Resources or Ore Reserves is based on information compiled under the direction of Dr. Mike Armitage, who is a Member the Institute of Materials, Metals and Mining (“IMMM”) which is a ‘Recognised Overseas Professional Organisation’ (“ROPO”) included in a list promulgated by the Australian Securities Exchange (“ASX”) from time to time.

Dr. Mike Armitage has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’.

Dr. Mike Armitage consents to the inclusion in this report of the matters based on this information in the form and context in which it appears.

Ms. Anna Fardell is a Resource Geologist employed by SRK Consulting (UK) Limited, and has at least five years’ experience in estimating and reporting Mineral Resources relevant to the style of mineralisation and type of deposit described herein. Ms. Fardell is a registered member of the Australian Institute of Geoscientists (6555) and is considered a Competent Person (CP) under the definitions and standards described in the JORC Code 2012.

Ms. Anna Fardell consents to the inclusion in this report of the matters based on her information in the form and context in which it appears.

COMPETENT PERSONS STATEMENT FOR MINERAL RESOURCES AND EXPLORATION TARGETS OTHER THAN MUGA MINERAL RESOURCES.

This report was approved by Mr Ignacio Salazar, CEO of Highfield Resources. The information in this report that relates to Mineral Resources, Exploration Results and Exploration Targets is based on information prepared by Mr José Antonio Zuazo Osinaga, Technical Director of CRN, S.A. and Mr Manuel Jesús Gonzalez Roldan, Geologist of CRN, S.A.

Mr José Antonio Zuazo Osinaga is a licensed professional geologist in Spain, and is a registered member of the European Federation of Geologists, an accredited organisation to which Competent Persons (CP) under JORC 2012 Code Reporting Standards must belong in order to report Exploration Results, Mineral Resources, Ore Reserves or Exploration Targets through the ASX.

Mr José Antonio Zuazo Osinaga has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as CP as defined in the 2012 edition of the JORC Australasian Code for the Reporting of Exploration Results, Mineral Resources and Ore Reserves.

Mr José Antonio Zuazo Osinaga and Mr Manuel Jesús Gonzalez Roldan consent to the inclusion in this report of the matters based on their information in the form and context in which it appears.

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Rule 5.5

Appendix 5B

Mining exploration entity or oil and gas exploration entity quarterly cash flow report

Name of entity

HIGHFIELD RESOURCES LIMITED ABN Quarter ended (“current quarter”) 51 153 918 257 31 March 2021

Consolidated statement of cash flows	Current quarter $A’000	Year to date (3 months) $A’000
1. Cash flows from operating activities 1.1 Receipts from customers 1.2 Payments for (a) exploration & evaluation (if expensed) (b) development (c) production (d) staff costs (e) administration and corporate costs 1.3 Dividends received (see note 3) 1.4 Interest received 1.5 Interest and other costs of finance paid 1.6 Income taxes paid 1.7 Government grants and tax incentives 1.8 Other (GST/VAT refunded) 1.9 Net cash from / (used in) operating activities	(113) (592) (265) (6) 286	(113) (592) (265) (6) 286
	(690)	(690)
2. Cash flows from investing activities 2.1 Payments to acquire: (a) entities (b) tenements (c) property, plant and equipment (d) exploration & evaluation (if capitalised) (e) investments (f) other non-current assets	(2) (3,224)	(2) (3,224)

ASX Listing Rules Appendix 5B (01/12/19) + See chapter 19 of the ASX Listing Rules for defined terms.

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Appendix 5B

Mining exploration entity or oil and gas exploration entity quarterly cash flow report

Consolidated statement of cash flows	Current quarter $A’000	Year to date (3 months) $A’000
2.2 Proceeds from the disposal of: (a) entities (b) tenements (c) property, plant and equipment (d) investments (e) other non-current assets 2.3 Cash flows from loans to other entities 2.4 Dividends received (see note 3) 2.5 Other (provide details if material) 2.6 Net cash from / (used in) investing activities
	(3,226)	(3,226)
3. Cash flows from financing activities 3.1 Proceeds from issues of equity securities (excluding convertible debt securities) 3.2 Proceeds from issue of convertible debt securities 3.3 Proceeds from exercise of options 3.4 Transaction costs related to issues of equity securities or convertible debt securities 3.5 Proceeds from borrowings 3.6 Repayment of borrowings 3.7 Transaction costs related to loans and borrowings 3.8 Dividends paid 3.9 Other (provide details if material) 3.10 Net cash from / (used in) financing activities
4. Net increase / (decrease) in cash and cash equivalents for the period
4.1 Cash and cash equivalents at beginning of period 4.2 Net cash from / (used in) operating activities (item 1.9 above) 4.3 Net cash from / (used in) investing activities (item 2.6 above) 4.4 Net cash from / (used in) financing activities (item 3.10 above)	20,202 (690) (3,226)	20,202 (690) (3,226)

ASX Listing Rules Appendix 5B (01/12/19) + See chapter 19 of the ASX Listing Rules for defined terms.

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Appendix 5B

Mining exploration entity or oil and gas exploration entity quarterly cash flow report

Consolidated statement of cash flows	Current quarter $A’000	Year to date (3 months) $A’000
4.5 Effect of movement in exchange rates on cash held 4.6 Cash and cash equivalents at end of period	(524)	(524)
	15,762	15,762
5. Reconciliation of cash and cash equivalents at the end of the quarter (as shown in the consolidated statement of cash flows) to the related items in the accounts	Current quarter $A’000	Previous quarter $A’000
5.1 Bank balances 5.2 Call deposits 5.3 Bank overdrafts 5.4 Other (provide details) 5.5 Cash and cash equivalents at end of quarter (should equal item 4.6 above)	15,762	20,202
	15,762	20,202
6. Payments to related parties of the entity and their associates 6.1 Aggregate amount of payments to related parties and their associates included in item 1 6.2 Aggregate amount of payments to related parties and their associates included in item 2 Note: if any amounts are shown in items 6.1 or 6.2, your quarterly activity report must and an explanation for, such payments
		Current quarter $A'000
		99
		include a description of,

The above payments relate to fees and salaries paid to Directors during the quarter.

ASX Listing Rules Appendix 5B (01/12/19) + See chapter 19 of the ASX Listing Rules for defined terms.

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Appendix 5B

Mining exploration entity or oil and gas exploration entity quarterly cash flow report

7. Financing facilities Note: the term “facility’ includes all forms of financing arrangements available to the entity. Add notes as necessary for an understanding of the sources of finance available to the entity. Total facility amount at quarter end $A’000 Amount drawn at quarter end $A’000 7.1 Loan facilities 7.2 Credit standby arrangements 7.3 Other (please specify) 7.4 Total financing facilities 7.5 Unused financing facilities available at quarter end 7.6 Include in the box below a description of each facility above, including the lender, interest rate, maturity date and whether it is secured or unsecured. If any additional financing facilities have been entered into or are proposed to be entered into after quarter end, include a note providing details of those facilities as well.	Total facility amount at quarter end $A’000	Amount drawn at quarter end $A’000

8. Estimated cash available for future operating activities	8. Estimated cash available for future operating activities	$A’000
8.1 Net cash from / (used in) operating activities (Item 1.9) 8.2 Capitalised exploration & evaluation (Item 2.1(d)) 8.3 Total relevant outgoings (Item 8.1 + Item 8.2) 8.4 Cash and cash equivalents at quarter end (Item 4.6) 8.5 Unused finance facilities available at quarter end (Item 7.5) 8.6 Total available funding (Item 8.4 + Item 8.5) 8.7 Estimated quarters of funding available (Item 8.6 divided by Item 8.3)		(690) (3,224) (3,914) 15,762 15,762
		4.03
8.8 If Item 8.7 is less than 2 quarters, please provide answers to the following questions: 1. Does the entity expect that it will continue to have the current level of net operating cash flows for the time being and, if not, why not?
	Answer:

Answer:

1. Has the entity taken any steps, or does it propose to take any steps, to raise further cash to fund its operations and, if so, what are those steps and how likely does it believe that they will be successful?

Answer:

1. Does the entity expect to be able to continue its operations and to meet its business objectives and, if so, on what basis?

Answer:

ASX Listing Rules Appendix 5B (01/12/19) + See chapter 19 of the ASX Listing Rules for defined terms.

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Appendix 5B

Mining exploration entity or oil and gas exploration entity quarterly cash flow report

Compliance statement

• 1 This statement has been prepared in accordance with accounting standards and policies which comply with Listing Rule 19.11A.

• 2 This statement gives a true and fair view of the matters disclosed.

Date: 30 April 2021

Authorised by: the Board of Highfield Resources Ltd.

(Name of body or officer authorising release – see note 4)

Notes

1. This quarterly cash flow report and the accompanying activity report provide a basis for informing the market about the entity’s activities for the past quarter, how they have been financed and the effect this has had on its cash position. An entity that wishes to disclose additional information over and above the minimum required under the Listing Rules is encouraged to do so.

2. If this quarterly cash flow report has been prepared in accordance with Australian Accounting Standards, the definitions in, and provisions of, AASB 6: Exploration for and Evaluation of Mineral Resources and AASB 107: Statement of Cash Flows apply to this report. If this quarterly cash flow report has been prepared in accordance with other accounting standards agreed by ASX pursuant to Listing Rule 19.11A, the corresponding equivalent standards apply to this report.

3. Dividends received may be classified either as cash flows from operating activities or cash flows from investing activities, depending on the accounting policy of the entity.

4. If this report has been authorised for release to the market by your board of directors, you can insert here: “By the board”. If it has been authorised for release to the market by a committee of your board of directors, you can insert here: “By the [ name of board committee – eg Audit and Risk Committee ]”. If it has been authorised for release to the market by a disclosure committee, you can insert here: “By the Disclosure Committee”.

5. If this report has been authorised for release to the market by your board of directors and you wish to hold yourself out as complying with recommendation 4.2 of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations , the board should have received a declaration from its CEO and CFO that, in their opinion, the financial records of the entity have been properly maintained, that this report complies with the appropriate accounting standards and gives a true and fair view of the cash flows of the entity, and that their opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively.

ASX Listing Rules Appendix 5B (01/12/19) + See chapter 19 of the ASX Listing Rules for defined terms.

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