Horizonte Minerals (TSX:HZM,ASX:HZM) has unearthed compelling economic results from an assessment of a second stage expansion at its planned Araguaia nickel project located in Brazil, the company announced on Wednesday (December 12).

The report for the second stage estimates post-tax net present value (NPV) of US$741-million and internal rate of return (IRR) of 23.8 percent using the base case nickel price forecast of US$14,000 per tonne. The company noted that using the consensus mid-term nickel price of US$16,800 per tonne, the after-tax NPV for the stage 2 option would increase to US$1.26-billion and the IRR to 31.8 percent.

“The stage 2 expansion would potentially increase annual nickel production from 14,500 tonnes per annum to 29,000 tonnes per annum whilst demonstrating economies of scale for both operating and capital costs,” said CEO Jeremy Martin.

Additionally, the expansion option is included as an opportunity in the National Instrument 43-101 technical report that Horizonte filed for the Araguaia project. In October, the miner announced the results of its feasibility study (FS) for the project, which allowed for the future construction of a second rotary kiln electric furnace (RKEF).

“The FS design of the RKEF plant and all associated infrastructure was configured to allow a second RKEF line to be added at a future time, as such the stage 2 expansion benefits from the existing utilities and infrastructure expenditure,” stated Martin. 

The company also noted that stage 2 assumes operating at stage 1 production rate of 900,000 tonnes a year for three years. Following the three years, free cash flows will be reinvested to expand the plant to 1.8-million tonnes a year as Horizonte adds a second line.

“For this scenario the upfront pre-production capital cost remains unchanged at US$443-million and the incremental capital expenditure to build the stage 2 expansion, is anticipated to be financed out of operational free cash flow,” explained Martin.

“Significant items such as the powerline, water pipeline, overall process plant site, utilities, and slag storage facility already have sufficient capacity built in during the stage 1 planning to meet the desired production increase,” he added.

According to Horizonte, results from the stage 2 study show that Araguaia’s resources could support the increased capacity over 26 years, with the first 10 years averaging 1.81 percent nickel.

Martin noted that despite the recent decline in nickel prices, they do not appear to have impacted wider consensus of the positive future for the nickel market.

“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 percent year-on-year, with new demand driven from the electric vehicle (EV) battery sector,” said Martin.

Adding, “Araguaia is anticipated to come on line in 2021 and be placed in the lower quartile on the laterite C1 cost curve (year 1 to year 10) of US$3.08 per pound of nickel, making it one of the lower cost new nickel projects.”

Araguaia is positioned to produce ferronickel for the stainless steel industry. The deposit also has a limonite mineral resource, which could be treated to produce products suitable for the EV battery market.

As of 11:43 a.m. EST, Horizonte was flat, trading at C$0.03.

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