Horizonte Minerals dips despite confirming flagship site as a ‘low-cost, long-life nickel project’ (HZM)

By Richard Mason

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Horizonte Minerals (LSE:HZM) dipped to 3.5p today despite a feasibility study (FS) confirming that its flagship Araguaia project in Brazil will be a low-cost, long-life source of ferronickel for the stainless-steel industry. The study, which CEO Jeremy Martin called ‘the most significant milestone in the company’s development to date’, gives Araguaia an initial 28-year mine life with enough additional resources to extend this further.

The project is expected to produce an average of 14,500ts of nickel a year, with an opportunity to double this through the construction of a second Rotary Kiln Electric Furnace process line. A preliminary economic assessment for this expansion is now underway, with publication expected late this year.

Assuming a flat nickel price of $14,000/t for the entire life of mine, Araguaia has an estimated post-tax NPV of $401m and a 20.1pc internal rate of return (IRR). Using the consensus mid-term nickel price of $16,800/t, this figure increases to $740m with an IRR if 28.1pc. Horizonte added that it is optimistic about nickel prices moving forward, claiming that demand is expected to grow at around 5pc over the next three to five years, boosted by the stainless steel and electric vehicle markets.

Finally, the project has a capital costs estimate of $443m and a processing cash cost of $3.72/lb of nickel. Horizonte said this defines the project as a low-cost producer. Moving forward, the business has obtained a preliminary environmental licence and water permit for full-scale operation at Araguaia and is on track to get a construction licence in the first quarter of next year.

Martin called the results of the feasibility study the ‘culmination of a long journey’ and ‘one that not many companies successfully achieves. What’s more, the firm said it expects the ‘compelling economic and technical results’ from the study to support project financing, offtake agreements and future development milestones. Regardless, Horizonte’s share price was down 5.4pc as at the time of writing, giving it a market cap of c.£48.9m.

Martin added: ‘Horizonte owns one of the largest undeveloped ferro-nickel projects’ in the world, in a mining friendly jurisdiction, with good infrastructure and a compelling set of economics as defined in today’s FS. The FS shows that Araguaia can be a significant low-cost supplier of nickel in the form of high-grade ferronickel to the stainless-steel industry, over the initial 28-year mine life the operation generates cash flows after taxation of US$1.6 billion, delivers an IRR of over 20% and sits on the lower half of the global cost curve.

‘The completion of the FS has taken longer to complete than originally forecast. The schedule change was to ensure that the quality of the engineering and other deliverables were to a high standard, and to include the option, within the design, to add a second line that would double the capacity to 29,000 tonnes per year of nickel. With the completion of the FS the priority now is to secure project funding and to advance the early works packages. The Project is unleveraged and is in a strong position with no agreed offtake, royalty or nickel streams, giving maximum value and flexibility going into the financing process.

‘The nickel market fundamentals are positive for the short to long term, driven by robust demand from stainless steel growth and strong electric vehicle (EV) penetration rates. Physical LME metal inventories continue to be drawn down to levels not seen in the last five years. This combined with a lack of new major projects scheduled to come online in the short term means that this is an opportune time to develop Araguaia.’

Author: Daniel Flynn

Disclosure: The author owns shares in the company mentioned in this article

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Horizonte Minerals

Author: Richard Mason

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

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