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Horizonte Minerals sees losses narrow as it capitalises on growing nickel demand (HZM)

Nickel firm Horizonte Minerals (LSE:HZM) saw losses narrow slightly last year as it made some significant steps towards generating revenue. The company made an operating loss of £1.45m in the year ended 31 December 2017, down from £1.53m in 2016, while losses before taxation in 2017 came in at £1.67m down from £1.75m in 2016.

Horizonte is not yet generating any revenues, but December saw it announce the purchase of its second major asset, a ready-made Brazilian nickel-cobalt project called Vermelho. Vermelho, purchased from Vale SA for a cash payment of $2m, is expected to contain more than one million tonnes of nickel and offer Horizonte an additional 46,000 tonnes of nickel production a year.

Last year also saw a number of developments at Horizonte’s other main site, Araguaia. Horizonte was awarded contracts for a feasibility study at Araguaia, which is well advanced and expected to complete in mid-2018. Horizonte also completed and filed a mine construction licence for Araguaia, announced a limonite mineral resource of 20.7mt, graded at 1.13pc nickel and 0.1pc cobalt and added three new concessions to the site in prospective locations.

As a result of a £9.2m fundraise completed in January – £7m of which was raised in the UK before year-end, the firm had a healthy cash balance of £9.4m at the end of 2017, up from £9.2m at the end of 2016. Horizonte said this leaves it fully funded for the next to years, allowing it to complete the feasibility study at Araguaia and a preliminary economic assessment for Vermelho.

Aside from company developments, Horizonte’s prospects were also boosted by rising nickel prices over 2017. Prices have continually recovered from the 13-year low of $7,750/t in early 2016, touching US$14,000/t in a recent rally, before settling back to approximately US$13,000/t at present. Prices have increased as a result of an expected increase in the use of batteries and electric vehicles (EV) as well as robust demand for things like stainless steel, nickel alloys and chemicals from China.

David J Hall, chairman of Horizonte Minerals, said: ‘Horizonte, with the advanced Araguaia ferro-nickel project moving towards the development phase and Vermelho’s potential to produce nickel sulphate and cobalt, is uniquely positioned to take advantage of the current demand forecast, in a space with little competition.

‘In September 2017, we announced a nickel-cobalt limonite resource at Araguaia with the potential to supply the EV battery market. Limonite resources are treated to produce products, such as nickel and cobalt hydroxides; suitable for supplying the EV battery market. We are therefore mindful of the future potential value of this resource in relation to the current mine plan so that it will be mined and stockpiled separately, with a view to extracting maximum value from the resource in the future.’

Future-proofed

In December, we wrote that Horizonte is a small cap business with large-cap prospects, pointing out that the market had barely reacted to the acquisition of Vermelho. This continues to be the case, with shares falling 0.3pc, or 0.01p, to 3.8p following the release of today’s results, down from 4.9p at the beginning the year and just above December’s 3.5p placing price.

The business has access to huge supplies of two metals, which are expected to be the biggest beneficiaries of the burgeoning electric car movement. Planned construction developments at Araguaia this year only look set to extend this further. It even enjoys the backing of mining giant Glencore, which is unheard of for a firm whose market cap barely pushes the £50m barrier.

As we have mentioned before, if Vermelho reaches its full potential, it could generate more than £1.1bn for Horizonte at a UBS’s forecasted Nickel price of $14,330 by as soon as this year. Meanwhile, at $14,000/t Nickel, Horizonte has said that Araguaia will generate around £1.4bn of free cash flow. These calculations may be rough, but the point is they tower over Horizonte’s current £54.2m market cap, making shares look very cheap at their current price.

Author: Daniel Flynn

Disclosure: The author of this piece owns shares in the company covered in this article.

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