Horizonte Minerals poised for success in Brazil

The past 18 months have seen Horizonte Minerals (LON:HZM) lay the groundwork for success. The next year and a half will be pivotal to achieving those aims – and the newsflow will be coming thick and fast from here on in.

For most ambitious junior miners, the ultimate vindication of their strategy is tying up a deal with one of the majors.

Well, Horizonte under the guidance of boss Jeremy Martin has negotiated joint ventures with two marquee names – AngloGold Ashanti and Teck Resources. The agreements cover three of its projects.

The one involving Teck brings the Canadian firm on board as a 50 per cent shareholder and knits together two subscale nickel plays, creating a substantial project that could as it is develops prove transformational for Horizonte and its investors.

But here I’m getting ahead of myself. Horizonte was set up in 2006 to discover and develop opportunities in Peru and Brazil. The model didn’t really curry favour with a market more interested in juniors with a production story, or a JORC resource at the very least.

But Martin and his team have stuck to their guns admirably and are now reaping the rewards of that perseverance.
The company is now essentially focused on Brazil – and gold and nickel specifically. And it has targeted one particular part of the country – the Carajas region.

This is because Carajas is an established mining area with infrastructure such as road, rail and power, which makes it easier to take a project from discovery to production.

Martin played a shrewd hand putting together Horzonte’s Lontra nickel laterite area with neighbouring Araguaia to create a combined 100 million tonnes resource, which has the potential to grow significantly.

The assets were brought into the Horizonte portfolio for a knock-down 0.7 cents per pound of nickel in the ground.
Valuations of similar projects with equivalent or lower nickel grades are valued at between 1 cent and 6 cents per pound, giving a mean figure of 3 cent.

The fast-track development of Araguaia ought to help unwind this discount, which would have a major impact on the share price.

The dream result for Horizonte would be to emulate a feat achieved by Canico Resources when it sold its Onca Puma project just down the road from Araguaia.

Having spent US$20 million acquiring Onca Puma and the same again developing it, the Canadian outfit received US$750 million when it sold the mine five years ago.

Little surprise then that Horizonte is speaking to Paradigm, the broker that managed the Onca Puma sale, as the British miner plots a Toronto Stock Exchange listing planned for the first half of next year.

Away from nickel and Horizonte’s interests are focused on gold.

Its joint venture with AngloGold is a “generative programme” that will piggyback on Horizonte’s “technical and operational experience in Brazil”, Martin says.

Anglo has pledged to spend US$5.3 million over the next three years, with the junior partner receiving 49 per cent of any project the pair uncover.

To give you an idea of scale of Anglo’s ambitions it will hand complete ownership to Horizonte of any project that is below a minimum threshold of two million ounces.

“So it is a no cost maximum exposure exploration programme. It also gives Horizonte a rubber stamp of approval from a top tier major miner,” Martin told Proactive Investors.

Separately, the pair have another deal, this time worth US$4.5 million, to develop the Falcao gold anomaly. The earn-in will give Anglo 51 per cent of Falcao.

“Again Falcao is in Carajas and was discovered by BHP Billiton,” Martin says. “The gold anomaly is big – it is about 5.5 kilometres long by 3 kilometres wide.

“BHP did a very quick and wide spaced RC drill programme and each hole was about 1.2 kilometres apart. It was a wide spaced grid.

“One of those lines of holes ran anomalous gold from surface down to the bottom and some of the other holes had very high grades of gold in them.

“That all happened when BHP was pulling out gold in 2004. We had an access problem there too for 18 months.
“Anglo has pushed very hard to partner up on this project.”

There is just one more project – a 300 square kilometre block covering part of the Greenstone Belt in Carajas which has historic gold production.

There the company is partnered with Troy Resources, which is expected to acquire 100 per cent of the project after spending the required US$2.8 million developing it.

Horizonte would then earn a royalty after the mine goes into production, which offers the prospect of cash coming into the business – rather than leaking out of it.

The last time it updated the market, the group had around £5 million in the bank – enough to meet its near-term requirements, though it will inevitably need to replenish those coffers.

It may look to do this when the company is listed on the TSX, Martin says, although nothing as yet is set in stone.
A quote in Canada could help trigger a re-rating of the stock. That of course will depend on investors recognising the true value of Araguaia.

However, one thing the Canadians understand is the mining in Latin America.

There are around 40 firms listed on the exchange in Toronto that are based in the region. Compare that with the UK where there is probably a handful at most.

However Martin doesn’t see the listing as a panacea. He says: “We are very comfortable and we like being in London.

“But I think the TSX will be a complementary marketplace to be in.

“People look at Canada being the magical fix. We don’t believe that for one moment.

“But for all those reasons talked about it would seem to be a logical market to have exposure to.

“I would like to see us initially valued at 3 to 4 cents a pound (of nickel) in the ground and see this figure increase as we move towards Feasibility.”

Crucial to any share price appreciation will be the newsflow, which is expected to move up a notch in the next few months.

A lot of it will revolve around Araguaia, where an ambitious 8-10,000 metre drilling programme is already underway.

The 100 million tonnes already defined lies in six areas within the enlarged project, with another six to drill.
This initial programme will be completed in Q1with the first data expected in March, Martin says. 

“From the first stage we are aiming for 60-70 million tonnes. We will carry on drilling with stage two results out at the end of the second quarter, which is the 100 million tonne target,” he explains.

“Within the 100m tonnes we will aim for 30-40 per cent resource indicated and that will be the high grade zones at over 1.5pc. That’s the target.”

Partnering with the likes of AngloGold and Teck has an important upside: is it has plucked Horizonte from the ranks of the sub-£10 million also-rans of AIM and put it on the radar screen for many more fund managers.

Currently its market capitalisation is £35 million with shares up more than 85 per cent in the year to date.
“Getting out of the lower quartile in this way has been crucial,” Martin concludes.

“If we can bring the valuation up to the peer group average then that would have an enormous impact on our market cap.

“That takes us to a completely different place. It is all about delivering the milestones, adding to the value and working our way up the value curve.”