Horizonte Minerals (LSE:HZM) was awarded a critical construction licence for its flagship ferronickel project in Brazil yesterday. The news helped shares in the nickel development company advance by as much as 8.9pc to 2.3p.
The construction licence, known locally as the Licença de Instalação (LI), applies to Horizonte’s 100pc-owned Araguaia ferronickel project. It was granted by SEMAS, the Brazilian Para State Environmental Agency. It gives Horizonte the permits required to construct a rotary kiln electric furnace processing plant at Araguaia. This means it is now fully permitted for construction to begin.
Horizonte called the news a ‘major de-risking step’ for Araguaia, with chief executive Jeremy Martin adding that it represents a ‘major milestone’ for the business.
‘Subject to funding, the company is now in a position to commence construction with the necessary environmental permits approved, including water abstraction permits issued in 2018 together with the newly issued LI,’ said Martin.
‘The LI allows development to commence on the RKEF process plant and associated infrastructure. The award of the LI has been delivered on time and on budget with the Horizonte team working closely with SEMAS, other State agencies and the local communities. Consistent with our objective to provide long-term sustainable value for our shareholders, employees and communities, we developed integrated solutions focused on environmental protection, water efficiency and socio-economic development.
Today’s approval follows the release of a feasibility study results for the asset in October. These were filed with the Para state government two months later.
The study confirmed Araguaia as a low-cost source of ferronickel for the stainless-steel industry. It gave the project an initial 28-year mine life, during which it will generate cash flows after taxation of $1.6bn.
Meanwhile, 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 development 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 expansion takes place, then Araguaia will have a 26-year mine life and generate cash flows after tax of $2.6bn. Meanwhile, the asset’s NPV and IRR would hit $741m and 23.8pc respectively, using base case nickel prices.
Horizonte is also the owner of the Vermelho project in Brazil, which it describes as one of the largest, highest-grade undeveloped laterite nickel-cobalt resources globally. The site contains a measured and indicated resource of 167.8MMts, estimated to house 1.68MMts of nickel and 94,000ts of cobalt.
In yesterday’s update, Martin said the progress at Araguaia combined, the potential on offer at Vermelho, and the attractive nickel market backdrop combine to set Horizonte up well for the rest of the year:
‘The LI and FS results combined with the positive fundamentals around the nickel market positions Horizonte well for 2019, with the construction-ready Araguaia project to supply the ferronickel market and our second project, the Vermelho nickel-cobalt project, being advanced to supply the Electric Vehicle battery market. We look forward to updating the market over the coming months, at what is an exciting time for the Company.’
Author: Daniel Flynn
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