At the end of 2009 we published our first article on Horizonte Minerals (LON:HZM) entitled ‘Oh Mr Martin what shall we do?’ pointing out what we saw as a serious disparity between the company’s valuation in the market compared to its underlying assets.
At the time Horizonte Minerals was truly a tiddler, with interests in both Gold and Nickel and had still some way to go in determining its ultimate corporate focus. That focus has since been firmly set as the Company is now progressing its 100% owned Araguaia Nickel project through the development stages towards its ultimate goal of full scale nickel production.
For a resource development company, forgoing diversification in order to focus on one specific project can be quite a risky strategy, more so when the cyclical nature of the market can often mean that the difference between failure and success is simply down to poor timing.
So with timing in mind, Horizonte have purposefully optimised the development schedule for Araguaia to run concurrently with the global nickel supply cycle; with maiden production targeted to commence at the point where global supply shortages are due to kick-in, providing the backdrop for a robust market and a sustainable high nickel price environment.
Last week saw the release of Horizonte’s final results and whilst such reports are not meant to offer much new information, they can offer an insight as to management’s confidence in the future potential of the business, carved out on the basis of a usually decent summary of actual events over the course of the year.
In the case of Horizonte, the major milestones noted include prefeasibility study (PFS) commencement, metallurgical test work, infill drilling to improve resource quality/categorisation and the underlying strong cash position. Significant steps were thus completed, with a focus on one project and the company’s desire to move Araguaia toward production.
As for Araguaia itself, the PFS is due for completion in the next couple of months. Serious nickel investors (and any third parties who might be looking in) will know that the valuation metric for this type of project very much hinges it’s the stage of development. Therefore, a successful and positive PFS should cause the inherent value of the project to increase materially. Given that the mineral exploration sector has been on its knees valuation wise, the timing of Horizonte’s PFS completion could prove to be most auspicious in what appears to be the early stages of a cyclical sector wide recovery.
In the specific case of nickel, Indonesia’s recently imposed ban on all direct shipping ore will add further fuel to the fire of the impending supply/demand balance shift expected in 2016, increasing the attractiveness of projects such as Horizonte’s Araguaia.
There is much to play for, particularly with the company share price sitting at 6.5p giving it a market capitalisation of around £26m. Compare this with the market value three years ago in early 2011 when the company had a share price of a little over 30p and a market value of £74m. Since then considerable progress has been made but due to the parlous state of markets recently, this has not been reflected in the valuation - well not yet at least.
The Horizonte story is one to watch, particularly through the coming months as the PFS is delivered and as the global supply/demand battle continues. A good place to start or update your research is the MiningMaven Horizonte Nickel Report released last December which can be accessed here.