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Horizonte Minerals set to become a major player in Brazilian nickel scene

Snapshot

  • Construction permit granted for Araguaia ferronickel mine
  • Feasibili​ty study estimates value (NPV) at US$401mln
  • Building starts once funding of US$443mln is arranged
  • Vermelho project has NPV of US$1.7bn following PFS 
Araguaia mine

Quick facts: Horizonte Minerals PLC

Price: 6.52 GBX

AIM:HZM
Market: AIM
Market Cap: £95.66 m
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What it does

Araguaia

The Araguaia ferronickel project is in Para State, Brazil.

Phase 1 will see the production of 14.5kt/year of nickel in ferronickel form, with the potential to increase that to 29kt/year through additional capex spending of US$199mln.

The first production should be in 2022 with the mine scheduled to run for 28 years.

Capital expenditure for phase I was estimated at US$443mln in last year’s feasibility study with cash costs of US$3.77/lb.

That feasibility study showed Araguaia to have a post-tax net present value of US$401mln and an internal rate of return of 20.1%.

Vermelho

Vermelho, a nickel-cobalt project in the eastern part of the Carajás mining district, was acquired by Horizonte in December.

A pre-feasibility study in October projected a 38-year mine life, with total cash flows over that time estimated at some US$7.3bn after tax.

The PFS established a base case valuation of US$1.7bn (net present value) and estimated an internal rate of return of 26%.

At full production, the mine would produce an average of 25,000 tonnes of nickel and 1,250 tonnes of cobalt each year, via a high-pressure acid leaching process.

Nickel 

Estimates of higher future nickel prices underline the significant value in its projects at Araguaia and Vermelho in Brazil, Horizonte believes.

Concerns remain about supplies of the metal when electric vehicle production fully hit its stride says Horizonte, with the consensus price around US$16,400/t.


 

How it is doing

In August, Horizonte Minerals PLC (LON:HZM)(TSE:HZM) agreed with five banks tasked with raising the US$325mln required to get work underway at the group's Araguaia ferro-nickel project.

BNP Paribas, ING Capital, Mizuho Bank, Natixis, and Société Générale will act as arrangers for the debt facility, which is expected to be closed by the end of the year with aim of starting construction early 2021.

As at the end of June it had £15.6mln in the bank. In the half-year to June 30, 2020, Horizonte's losses rose to £2.7mln from £1.1mln a year ago.

 

What the boss says: Jeremy Martin, chief executive

"The mandating of five international financial institutions, with strong mining and metals track records, for the arrangement of a large senior debt facility is a significant achievement for Horizonte.”

“The interest of top-tier financial institutions further validates Araguaia's status as a tier-one nickel project and will be the first of our two 100% owned nickel projects to move to the construction phase. This major milestone moves us closer to our goal of becoming a nickel producer."

 

 

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What the broker says

House broker Peel Hunt started coverage of the miner in September with a 'buy' recommendation and a target price of 14p. Analysts forecast potential for underlying earnings (EBITDA) to reach nearly £90mln by 2025.

“We see HZM as a medium risk, but strong growth prospect for greater exposure to nickel and (eventually) cobalt,” they commented.

“We expect further announcements on Araguaia Stage 1 funding in the coming six months, and also expect further nickel price momentum in the coming two years. Araguaia’s strong cash flow profile from Stage 1 should enable HZM to self-fund Stage 2 by Years 3-4 of production.”

 

Inflexion points

  • Funding agreed for construction of Araguaia

  • Bankable feasibility study at Vermelho

  • Technology advances in nickel battery usage in electric vehicles and energy storage

 

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