Elon Musk has a message for Horizonte, he wants more Nickel!

I’ve held Horizonte Minerals (HZM) for a long period of time now, must be around four years or so from when I first researched the company. You can read my full research note here and my views on where I think Nickel could be going if the right dynamics play out.

Given the bumpy ride we have had as resource investors the last few years I’ve scaled my position up and down accordingly often trading the ranges too. As a larger market cap it’s easier to do.

That said I’ve been slowly increasing my core position in Horizonte as a) the company have continued to deliver every milestone and b) because I think we are approaching an inflexion point for the company and the nickel market.

As I suggest in my research note, there are plenty of dynamics to consider with Nickel so one has to go in eyes wide open.

That said, the same is true for most base metals and commodities.

I would strongly recommend a look at the company presentation which gives a wealth of detail on both projects and the nickel market.

So today I further scaled up my position in Horizonte significantly. I’ve been watching the book and with the recent change of Broker (Numis exiting the resource space) a bit of shuffling has been evident but I’ve liked the price action and believe Horizonte looks ready for a move.

I’ve made no secret of the fact I think the company are undervalued from my recent research note when the company were at 2.9p but even so today at 4p (£55m market cap)

You only have to do a few peer comparisons, factor in £17m in the bank post Orion deal and look at what is left in terms of enterprise value for two advanced Tier 1 Nickel assets that have scale are lowest quartile cost and can serve two strong markets (stainless steel and EV)

So, I’d be lying if I didn’t also admit that my decision to significantly increase today wasn’t also swayed by this mornings headline that Elon Musk is calling for for Nickel to be produced. Reuters article here.

This to me was un-surprising but a truly welcome confirmation of what I’ve been thinking and in fact what Horizonte CEO Jeremy Martin has been saying. New projects coming to market or to be re-started need higher nickel incentive prices – probably in the realms of $18k/t+ (At that price by the way both Horizonte projects would throw off $13bn in FCF) yes you heard that right $13bn.

Where does this leave Horizonte who have two tier 1 assets (one fully permitted and construction ready on closure of financing) with AISC for both projects around the $8-9k/t range? In a great position in my opinion and of course the low costs are driven by high grades.

So when you have one of the worlds largest motor manufacturers making a point of sending a message to the nickel mining industry saying that big off-take contracts are there for the right projects – I’m listening.

Lucky for me I know a boat load about Horizonte having followed the story and the quality of the assets they have. You’ll hear plenty of people shouting about juniors with interests in nickel assets as nickel continues its ascent (which I expect it to) but consider it takes circa eight years to take a nickel project from inception, resource definition, through PFS/DFS and the permitting process. This is exactly where Horizonte are and with production circa 1-2 years away (on closing financing) they could be set to hit the sweet spot.

It’s not enough to have a nickel deposit, it’s going to need to be ready for the next cycle and in my opinion Horizonte are one of a very few number of options available certainly on the London market, but probably globally.

We are seeing first signs of majors positioning with the likes of Eurasia Mining trading at a whopping £500m market cap off the back of potential sale of assets and Arc Minerals penning an exclusivity agreement with Aglo American on their copper prospects.

What surprise could Horizonte deliver given a similar project to Horizonte’s Araguaia (Onca Puma) sold for $850m back in 2005 during the nickel bull run. Oh, by the way between Vermelho and Aruguia Horizonte have the equivalent of three Onca Pumas as the CEO highlighted recently !

I’m off for a nice family holiday next week so shall be watching from the sidelines, the markets are very interesting right now so I doubt my phone (mobile office) will be too far away!

Disclaimer

Research Notes and Blogs prepared by @TheMoneySponge. These should not be taken as investment advice and accuracy in statements cannot be guaranteed. These are to assist other researchers who may wish to research further and serve as a starting point. I may hold a position in the company 

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