Horizonte Minerals (LSE:HZM) dipped 3.3pc to 2.1pc today after filing the feasibility study for its flagship Araguaia project with Brazil's government. The nickel development firm said it has handed over the study to Brazil's Para state in line with government standards.
In October, the study confirmed Araguaia as a low-cost source of ferronickel for the stainless-steel industry. It also classifies the site, due to come online in 2021, as a tier one project with a large high-grade scalable resource and a long mine life.
According to the study, Araguaia has an initial 28-year mine life, during which it will generate cash flows after taxation of $1.6bn. It has an estimated post-tax net present value (NPV) of $401m and an internal rate of return (IRR) of 20.1pc using a base case nickel price forecast of $14,000/t. This NPV increases to $740m when using the consensus mid-term nickel price of $16,800/t.
Horizonte expects Araguaia to produce an average of 14,500 tonnes of nickel a year, housed within 52,000 tonnes of ferronickel. Against this, the project has a capital cost estimate of $443m. This includes $65.3m of contingencies.
Crucially, Horizonte has also designed the study to accommodate a second process line. This 'stage two expansion' could double Araguaia’s production capacity to 29,000 tonnes a year. Its introduction assumes a stage one production rate of 900kts a year for three years. After this period, Horizonte would reinvest free cash flows to extend the plant's capacity to 1.8Mts per year. If this takes place, then Araguaia will have a 26-year mine life and generate cash flows after tax of $2.6bn. Meanwhile, its NPV and IRR would hit $741m and 23.8pc respectively using base case nickel prices.
Jeremy Martin, chief executive of Horizonte, said he was ‘pleased’ to file the study. He added: ‘We have always maintained that Araguaia has a high grade scalable mineral resource with only a small part utilised for the single line plant. As demonstrated in the Stage 2 expansion the resource can comfortably support the increased capacity for over 26 years with the first 10 years averaging 1.82% nickel which places Araguaia on the upper range of the global grade curve even with the increased mining rate.’
‘The successful completion of the Feasibility Study and the positive economics from the Stage 2 expansion all confirm that Araguaia is a tier 1 asset demonstrating flexibility and scalability with compelling economics. The Company is well funded as we work to advance Araguaia to the construction stage and start to advance our second 100% owned Vermelho Nickel Cobalt project as part of the company's strategy to become a leading nickel development Company. I look forward to updating the market on progress as we move into 2019.”
He adds that he thinks a recent decline in nickel prices reflects macroeconomics rather than demand fundamentals: ‘Demand versus supply deficits remain forecast for the short term. Inventories on the LME continue to fall with significant new supply required for the stainless-steel market which is growing at 5% year on year, with new demand driven from the EV battery sector.’
Author: Daniel Flynn
Disclosure: The author owns shares in the company mentioned in this article