Cast your minds back.
There once was a time when Horizonte Minerals PLC (LON:HZM)(TSE:HZM) owned a gold project in Brazil (yes it did), as well as what looked like some promising nickel assets, a time when the company’s management had multiple other projects on the go - as any good executive in the junior mining space might do - and when the company’s overall market capitalisation amounted to little more than a few million pounds.
But those days are long gone.
Financing talks for the company’s Araguaia ferro-nickel project in Brazil got underway in earnest towards the end of last year, as BNP, ING, Mizuho, Natixis and Societé Générale all swung into action to help put a US$325mln debt facility in place.
These are serious names for what’s become a very serious undertaking.
Memories of the gold project are now distant and fading away completely. The Horizonte executives, including the driving force, chief executive Jeremy Martin, are almost exclusively focused on the Brazilian nickel business, and the company itself has earned the respect of the market, measured in the only way anyone really understands – valuation.
It’s now worth just over £118mln, based on its sizeable resource base and following a strong uptick on last year’s financing news and a turnaround in sentiment towards nickel itself. But although the share price graph looks attractive enough if you’re glancing back to where Horizonte came from, there’s also the prospect of an even greater iteration of growth ahead.
Because in a sense, Horizonte is still less than half way along on its journey. The direction of travel is now clear enough: with Araguaia, and then following on behind, the correspondingly attractive Vermelho nickel-cobalt project, the company looks set to propel itself firmly into the ranks of the top twenty nickel producers in the world by production.
With these two projects combined, the company plans ultimately to produce up to 60,000 tonnes of nickel per year, which will put it up at around the same level as Anglo American (LON:AAL) produces.
Brazil’s mining champion will always be VALE (NYSE:VALE) of course, but VALE’s real strength remains in the iron ore space. To be sure, some years back it expanded into nickel quite aggressively. But it ended up faced with a choice: to focus either on Goro in New Caledonia, one of the largest nickel deposits in the world, or on the previous flagship asset, Vermelho, highly promising with a rich cobalt credit, but on a relative scale somewhat smaller.
Perhaps not altogether to the current satisfaction of VALE shareholders, the choice was for Goro, and Vermelho was allowed to pass into the hands of Horizonte, where it now nestles comfortably inside the portfolio of development assets, running around 18 months or so behind Araguaia.
Which asset is the better of the two?
Perhaps an academic question, given how much value there is in both, but some analysts think Vermelho just edges it.
Jeremy Martin himself takes a more pragmatic approach.
“We have 100% of two Tier-1 nickel assets,” he says.
“They are low cost and high grade. We’ll be producing ferro-nickel from Araguaia, and nickel-cobalt sulphate from Vermelho. We’ll be producing 28,000 tonnes from line one and line two at Araguaia, and between 28,000 and 30,000 tonnes from Vermelho, from just under 400mln tonnes of total nickel resource.”
Given that the nickel price has been on the move of late, partly on the back of rising demand for its use in electric vehicles, this is not a bad position for Horizonte to be in. Both assets lie in the neighbourhood of a well-known mining region, where the permitting process, though rigorous, is not onerous. What’s more, since most of the power in the region comes from hydro, Horizonte will be able to tick its carbon emissions boxes like no other major producer of nickel.
With all that in mind, it’s not altogether surprising to learn that a cornerstone equity investor has already been lined up for when the Araguaia financing finally comes together, and that Martin is pretty confident that the deal will close off fairly soon.
From the cornerstone investor’s point of view, the attractions are pretty clear.
There aren’t too many comparisons to be made, given how thin on the ground major nickel project developments are these days. But one company that’s been through a process similar to Horizonte is Nickel Mines Ltd (ASX:NIC), which has assets in Indonesia. It’s now worth over A$3bn on the Australian exchange, having nearly quadrupled in value over the past two years or so.
Will Horizonte repeat the trick?
Well, there are a few hurdles to get over yet, but the numbers are certainly there to back up such a proposition. The modelling shows that line one of Araguaia alone should deliver up US$2.4bn in free cash flow, with cash costs in the lowest quartile. And for its part, Vermelho looks set to deliver upwards of US$7bn of free cash over its projected 30 year life.
“It’s going to happen,” says Martin.
That’s what he said at the beginning of the story too. But now the reality looks right around the corner, and the valuations are starting to reflect that.
“It’s a rare journey for a junior explorer to take its own discovery and transition into a developer,” he says.
But a rewarding one.