Horizonte Minerals (LSE:HZM) sat at 4.36p on Thursday after confirming its Vermelho project as a ‘large, high-grade resource, with a long mine life and low-cost source of nickel sulphate for the battery industry’.
The confirmation came as the business released the results of a pre-feasibility study (PFS) for the asset, which is based within the leading mining state of Para in north-east Brazil. The work, which Horizonte says will support further development of Vermelho towards a full feasibility study, estimated that the property would have a 38-year mine life generating total cash flows after tax of $7.3bn.
Elsewhere, the PFS gave Vermelho an IRR of 26pc and an estimated base case post-tax NPV of $1.7bn against an initial capital cost estimate of $642m. Horizonte’s market cap currently sits at 462.1m. These figures assume a conservative flat nickel price of $16,400/t throughout Vermelho’s entire life of mine. By applying Wood Mackenzie’s long-term nickel price forecast of $19,800/t, Horizonte says that the project’s IRR increases to 31pc and its NPV to c.$2.3bn.
Finally, the work put Vermelho’s estimated annual production at 25,000ts of nickel and 1,250ts of cobalt when operating at full capacity. This translates into a cash cost of $8,020/t of nickel, defining the project as a low-cost producer.
The firm added that it expects Vermelho to deliver ‘significant socio-economic benefits’ for the Para state, including more than 1,800 direct jobs in construction and more than 600 during operation.
When combined with its flagship Araguaia ferronickel project, also based in Para, Horizonte now has a combined NPV of more than $2.5bn across its portfolio at current nickel prices. A recent feasibility study gave Araguaia an initial 28-year mine life generating free cash flows after taxation of $1.6bn, with an IRR of more than 20pc on an initial capital cost of $443m. What’s more, the project offers sufficient mineralisation to extend mine life and has been designed to allow for a second process plant that would double output.
Chief executive Jeremy Martin said he was ‘delighted’ with Vermelho’s progress, highlighting the asset’s production of battery-grade cobalt sulphate – a critical component in the electric vehicle (EV) battery industry.
‘The consumer-driven EV market is trending towards both sustainability and ethically sourced materials, including nickel and cobalt, and we see both of the Company’s projects in Brazil as being attractive to end-users who are focused on traceable, ethically sourced materials,’ he said.
‘The nickel market fundamentals continue to be positive for the short to long term, driven by robust demand from stainless steel growth and anticipated increase in 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 Vermelho.’
He added that the firm will now move to identify partners and secure funding that can support Vermelho’s continued development.
‘We will look to the replicate the success achieved by the Coral Bay Nickel Corporation where the company is currently producing around 20,000 tonnes per year of nickel utilising a twin line HPAL plant. This was a low capex plant which has been operating successfully for the last 15 years,’ he said.
‘With a combined contained nickel inventory of over 4 million tonnes and the obvious synergies that come with having two world-class projects within 85 kilometres of each other in a stable and mining-friendly jurisdiction, we have further cemented the Company as having one of the largest undeveloped nickel portfolios in the world. With financing discussions underway to commence the construction of Araguaia and Vermelho demonstrating significant economic potential, Horizonte is well-positioned, owning two high-quality projects at an advanced stage.’