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

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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.

In December 2020, Horizonte said it had completed of the value engineering phase of project design, with improvements made to plant design and flow sheet to optimise operational performance.;

Under the new parametres, the capex and opex remain in line with the feasibility study estimates.

Key environmental and social programmes are now underway in preparation for construction phase. 

The company also said in December that the project finance process continues to progress, with a number of key milestones delivered. 

 

What the boss says: Jeremy Martin, chief executive

“Horizonte has made significant progress with the key workstreams required to commence construction at Araguaia, despite the challenges posed by the Covid-19 pandemic over the last 10 months,” said chief executive Jeremy Martin.

“The project funding package for Araguaia involves multiple components that are being negotiated simultaneously. We continue to engage with a number of prospective  investors, have recently negotiated a non-binding, term sheet with a major cornerstone equity investor, have reached an advanced stage with offtake agreements, received initial approval for a financing facility of up to R$200 million (around.$32mln) from Banco da Amazônia and are advancing workstreams with a syndicate of five international banks for the principal project finance package, as previously announced.”

He added: 

“In parallel, we have spent the past eight months undertaking a phase of value engineering to upgrade the Feasibility Study completed in 2018 and optimise certain aspects of the Project to a level where it is implementation ready.  This work has included development of a detailed Project Execution and Operational Readiness Plan.”

 

 

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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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