Shares in Horizonte Minerals (HZM) reached circa 10p last month as confidence in its ability to fund its projects increased. Sentiment has recently turned to see the shares now available at a 7.5p offer price (7.2p when this article first appeared). However, its proposition still looks compelling and there are clear potential upcoming catalysts which could re-spark the shares materially higher.
The company 100% owns the Araguaia ferro-nickel and Vermelho nickel-cobalt projects located in the south of the Carajàs mineral district in northern Brazil. It emphasises it is looking to develop the former “as the next major ferronickel mine in Brazil” and that the latter “is being advanced towards feasibility stage with aim of producing nickel and cobalt sulphate for the EV battery market”. A feasibility study for Araguaia envisages a 28 year production schedule, a 31 month construction period and showed a post tax Net Present Value(8%) of $691 million. A pre-feasibility study for Vermelho envisaged a 38 year mine life and showed a post tax NPV(8%) of $1.7 billion. With also Araguaia fully permitted to start construction, why is the current market cap here circa £120 million, currently approx. $166 million?
Firstly, as the NPV numbers suggest, this is big project work for a company of this size – there’s an estimated $443 million capital cost for Araguaia alone and the company recently raised less than just £20 million. However, a syndicate of banks (BNP Paribas, ING, Mizuho, Natixis, New York Branch and Société Générale) has been mandated to arrange a $325 million project finance facility and a non-binding term sheet with a major cornerstone equity investor has recently been negotiated while discussions with potential offtakers have progressed. The company “anticipates the full project financing package for Araguaia will be completed in H1 2021, with construction commencing shortly thereafter”.
There is though still clear risk there and there are also the inherent risks of this type of project, including the stated NPV’s based on a nickel price of $16,400 per tonne – it is currently at circa $16,000. The company though emphasised some “lowest quartile cash cost” and macroeconomic recovery along with demand from a burgeoning EV battery market. Therefore, those risks also represent current opportunity. As the company secures final financing within the next few months the shares should jump sharply and as such, targeting 10p+ by the summer on project financing news perhaps boosted by improving sector sentiment, Buy.
Filed under: Horizonte Minerals, Block Commodities, Versarien, RA International, TomWinnifrith.com
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