Horizonte in strong cash position with lockdown end in sight (HZM)

Brazil-focused Horizonte Minerals (LSE:HZM; TSX:HZM) has revealed that it is in a strong position to trade out of the current lockdown with £17 million cash on hand - £11 million ahead of the same period last year. 

The London-headquartered nickel developer said in a quarterly report for the three months to 31 March 2020 that it was “well-funded” to advance its key prospect in the state of Para in the north of Brazil. 

The 100%-owned Araguaia project is considered Brazil’s next major ferronickel mine. Feasibility studies put the mine’s lifespan at 28 years, with 52,000 tonnes of ferronickel produced annually for a total production run worth $1.6 billion. Civil engineer Pedro Rodrigues dos Reis joined the Horizonte team in October 2019 to advance Araguaia as project director. 

Work is underway to take Araguaia from the study stage to being “implementation ready”, said Horizonte. All major workstreams are continuing as planned, it said, while project financing is on schedule with “no negative effects” as yet seen from the pandemic. By the time Araguaia comes into production in 2022, the price of nickel is expected to reach $16,150/t, according to market analysts. 

The AIM and TSX-listed firm did report some short-term headwinds, including an increase in its pre-tax losses from £482,000 to £1.02 million for the period, due to a lack of revenue coming through in lockdown. But due to a weakened dollar, the company reported operational profits rising to £266,988 in the three months to 31 March 2020 compared to a £574,000 loss in the same period last year.

Market strong

The nickel market has remained buoyant since the Covid-19 pandemic breakout, driven by some long-term trends and some newer factors. Across 2019 the annual nickel price clipped to its highest since 2014. 

Why? Well, there has been significant supply reduction because of the Indonesian government making the surprise move to bring forward an export ban from January 2022 to January 2020. On the demand side, interest in rapidly growing electric vehicle markets continues. The metal is highly prized for its use in lithium-ion batteries that power electric vehicles and is being consumed in ever larger quantities. According to metals market analysts Roskill between now and 2029:

The push for automotive electrification is set to provide a dramatic upside to nickel. Its outlook is supported not only by the rapid volume of growth of the electric market, but also owing to the increased intensity of use of nickel, as part of efforts to improve the energy density of batteries and extend driving range. 

“[Over the next decade] Roskill forecasts that nickel use in batteries will grow from around 3%-4% of nickel demand, to account for as much as 15% to 20% of the market.” 

Horizonte’s share price has recovered strongly from recent lows in the wider market crash. In fact, it has added 70% since late March to hit 2.82p in early May trading.

Author: Mark Sheridan

The Author does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the piece.

MiningMaven Ltd, the owner of MiningMaven.com, does not a position in the stock(s) and/or financial instrument(s) mentioned in the piece.

MiningMaven Ltd, the owner of MiningMaven.com, has not been paid for the production of this piece by the company or companies mentioned above.

MiningMaven.com and MiningMaven Ltd are not responsible for the article's content or accuracy and do not share the views of the author. News and research are not recommendations to deal, and investments may fall in value so that you could lose some or all of your investment. Past performance is not an indicator of future performance

 

Stimulus measures and a strong balance sheet favour Horizonte Minerals in trying times (HZM)

The future of many junior miners has become rather less clear over the last few weeks in the face of falling commodity prices and uncertainty around when investor demand, cash, and liquidity will return to the market. However, Brazil-focused nickel player Horizonte Minerals (LSE:HZM) could present an exception to this trend.

Horizonte’s flagship asset is Araguaia, a tier-one ferronickel mining project located south of the Carajas mining district in north-east Brazil’s Para state. A stage two expansion case devised in a 2018 feasibility study gave the property a 26-year mine life, generating cash flows after tax of $2.6 billion with a $741 million net present value and a 23.8% internal rate of return. The company is also developing the Vermelho nickel-cobalt project in Brazil, which it plans to use to supply nickel and cobalt to the electric vehicle battery market.

The first critical ace in the hole for Horizonte is its funding situation. Although construction on Araguaia is ready to begin – it had not commenced before the Covid-19 outbreak was deemed a pandemic. This means the company will not have to spend cash on continuing or halting production during the outbreak either for financial or health and safety reasons. Handily, this leaves the company fully-funded for the rest of the year. This is an enviable position that few junior miners can currently boast.

It is also worth noting that Horizonte recently announced that it remains committed to progressing discussions around financing Araguaia’s ultimate construction into a mine in spite of the Covid-19 outbreak. It got the ball rolling here last August, when it revealed a $25 million royalty funding agreement for the property with Orion Mine Finance – one of the world’s most prominent mining investors.

Macro forces

Elsewhere, Horizonte is positioned strongly from a macro perspective. Putting aside recent market events for one moment, the firm plans to supply nickel to both the electric vehicle (“EVs”) and stainless-steel industries from its two projects. These are two huge sector opportunities. JP Morgan sees EVs accounting for 30% of global vehicle sales in 2025 compared to 1% in 2016. Meanwhile, the global stainless steel market is forecast to grow at a 6.3% CAGR through to 2027 and looks set to benefit from stimulus packages directed at construction materials.

Returning to the present day, it is no secret that the world has faced an unprecedented selloff in recent weeks. However, central banks are now stepping in to add massive liquidity and shore up shaky markets. The US Federal Reserve has announced what it called an “unlimited” buy up of mortgage-backed securities and corporate debt, the Bank of England has slashed interest rates to 0.1%, and the European Central Bank has announced plans to buy up to 750 million euros in government and private sector debt, as well as commercial paper, by the end of 2020. 

With this anchor in place, things look much more encouraging for the nickel market over the long-term – the timeframe of most interest to Horizonte. For example, Wood MacKenzie recently noted that while Covid-19 is having a severe near-term impact on nickel prices, there will be little to no impact in the longer term. As such, the analyst firm has maintained its long-term view on nickel. 

This is highly encouraging for Horizonte, which based its economics for Araguaia around a nickel price of $14,000 per tonne. This looked conservative in October, when the metal was trading at $18,000 a tonne. Using this figure in the stage 2 expansion case would have increased the project’s NPV(8) to $1.48 billion from $741 million, and its internal rate of return to 34.8% from 23.8%. Once commodities and nickel start to rebound, then this upside will once again become a serious possibility.

A strong position

The market situation now heavily favours juniors with little to no debt, which is where Horizonte stands out among its peers. Alongside this, a lack of ongoing cash burn at the construction-ready phase puts the firm in prime position to make the best gains when lockdown procedures come to a close and markets skyrocket as manufacturing and production spins back up again.

Author: Mark Sheridan

The Author does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the piece.

MiningMaven Ltd, the owner of MiningMaven.com, does not own a position in the stock(s) and/or financial instrument(s) mentioned in the piece.

MiningMaven Ltd, the owner of MiningMaven.com, has been paid for the production of this piece by the company or companies mentioned above.

MiningMaven.com and MiningMaven Ltd are not responsible for the article’s content or accuracy and do not share the views of the author. News and research are not recommendations to deal, and investments may fall in value so that you could lose some or all of your investment. Past performance is not an indicator of future performance.

 

Horizonte Minerals well positioned to see out coronavirus as Araguaia work continues (HZM)

Junior nickel player Horizonte Minerals (LSE:HZM) reassured investors that coronavirus is yet to have a significant impact on its operations on Tuesday.

The firm said it remains well funded to achieve its goals and see out the spread of COVID-19 – which was declared a pandemic by the World Health Organization earlier this month. To date, nearly 200,000 cases of the virus have been reported globally, claiming 7,500 lives and causing markets around the world to crash at levels not seen since the financial crisis.

As the world aggressively tackles the ongoing outbreak, we acknowledge there is growing uncertainty around economic growth and underlying business conditions,” said Horizonte. “While it would be inconsiderate to describe the situation as ‘business as usual’, we continue to work on the various workstreams required to achieve our stated goals.”

Among Horizonte’s goals is the development of its flagship Araguaia project to the construction-ready phase.

Araguaia is a tier-one ferronickel mining project located south of the Carajas mining district in north-east Brazil’s Para state. A stage two expansion case devised in a 2018 feasibility study gives the property a 26-year mine life, generating cash flows after tax of $2.6 billion with a $741 million net present value and a 23.8% internal rate of return.

These figures are based on a nickel price of $14,000 a tonne - well below the $18,000 a tonne the metal was trading at in October before its collapse in the face of falling stainless steel demand and coronavirus’ spread. Despite the short-term weakness, Horizonte believes that nickel market fundamentals remain “robust” for the medium-term and aligned with the planned start of Araguaia’s production.

The firm also hopes to progress discussions around financing Araguaia’s ultimate construction into a mine. It got the ball rolling here last August when it revealed a $25 million royalty funding agreement for the property with Orion Mine Finance – one of the world’s most prominent mining investors.

Alongside Araguaia, Horizonte is also developing the Vermelho nickel-cobalt project in Brazil, which it plans to use to supply nickel and cobalt to the EV battery market. A pre-feasibility study released in October last year confirmed the asset as a “large, high-grade resource with a long mine life and low-cost source of nickel sulphate for the battery industry”. Specifically, the work gave the project a 38-year mine life estimated to generate total cash flows after tax of $7.3 billion.

Elsewhere in Tuesday’s release, Horizonte its team on the ground in Brazil were well prepared to continue work safely.

“We have implemented strict health and safety policies specifically tailored to COVID-19,” said the firm. “To date, we have had no reported cases of the virus at any of our Brazil offices nor in London.”

Author: Daniel Flynn

The Author does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the piece.

MiningMaven Ltd, the owner of MiningMaven.com, does not a position in the stock(s) and/or financial instrument(s) mentioned in the piece.

MiningMaven Ltd, the owner of MiningMaven.com, has been paid for the production of this piece by the company or companies mentioned above.

MiningMaven.com and MiningMaven Ltd are not responsible for the article’s content or accuracy and do not share the views of the author. News and research are not recommendations to deal, and investments may fall in value so that you could lose some or all of your investment. Past performance is not an indicator of future performance