Horizonte Says Araguaia Nickel Economics Stack Up

Brazil-focused Horizonte Minerals (TSX:HZM,LSE:HZM) has released a feasibility study that it says supports the viability of its Araguaia nickel project in Pará state, despite a downward revision in numbers from a prefeasibility study released in 2016.

Horizonte says it is aiming its product at the stainless steel industry, but notes that increased demand for nickel (backed by the battery sector) should raise prices and support the project.

In its Monday (October 29) release, the company says its study shows that Araguaia will be a low-cost, long-life nickel project whose rapid development timeline will benefit from growth in the nickel market in the short to medium term.

The company has already obtained preliminary environmental licenses and a water permit for full-scale operations at the project, and is currently working on obtaining a construction permit. It reportedly expects to receive that in Q1 2019.

Horizonte CEO Jeremy Martin said that the feasibility study is the company’s most significant development milestones to date, noting that Araguaia is “one of the largest undeveloped ferro-nickel projects in the world, in a mining friendly jurisdiction, with good infrastructure and a compelling set of economics as defined in today’s feasibility study.”

He also said that the study “shows that Araguaia can be a significant low-cost supplier of nickel in the form of high-grade ferronickel to the stainless-steel industry, over the initial 28-year mine life the operation generates cash flows after taxation of US$1.6 billion, delivers an IRR of over 20 percent and sits on the lower half of the global cost curve.”

According to Martin, the feasibility study took longer than forecast in order to include a phase-two option “that would double the capacity to 29,000 tonnes per year of nickel.” Capacity is currently envisaged to be 14,500 tonnes per year of nickel contained within 52,000 tonnes of ferronickel.

A preliminary economic assessment exploring the phase-two expansion to 29,000 tonnes of production is being developed and Horizonte says it is expected to be published in late 2018.

The company says that the study was developed with a flat nickel price of US$14,000 per tonne in mind (for a NPV of US$401 million and an IRR of 20.1 percent). “Using the consensus mid-term nickel price of US$16,800 per tonne, the post-tax NPV increases to US$740 million with an IRR of 28.1 percent, reflecting the significant leverage that the project returns have to any future increase in nickel prices,” it says.

The estimated cash cost of nickel production at Araguaia is US$3.72 per pound (or US$8,193 per tonne), making it a low-cost producer, as nickel was valued at US$11,830 per tonne as of October 26 on the London Metal Exchange — a 2018 low.

Martin said that with the feasibility study in hand, Horizonte’s priority “is to secure project funding and to advance the early works packages. The project is unleveraged and is in a strong position with no agreed offtake, royalty or nickel streams, giving maximum value and flexibility going into the financing process.”

The project’s prefeasibility study, released in October 2016, reports a NPV of US$581 million using the same flat nickel price of US$14,000 — making Monday’s feasibility study a downward revision in numbers that doesn’t have some investors too happy.

The same October 2016 prefeasibility study also states Araguaia would have an IRR of 26.4 percent compared to the new IRR of 20.1 percent.

In London, investors weren’t so keen on the study given the promise of the feasibility study, with the company’s share price falling 9.78 percent to GBX 3.32 by market close on Monday.

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Securities Disclosure: I, Scott Tibballs, hold no direct investment interest in any company mentioned in this article.