As I write this blog I’m struggling with a MacBook as unhappy about the temperature in my house as my poor dog so this is going to be a slow blog to write!
In my recent blog Are Junior Resource Stocks about to Shine I mentioned that a few junior resource stocks could come in to focus given the recent move in commodities particularly base metals and PGM’s
Since then Arc Minerals have announced an exclusivity agreement with Anglo American relating to their potentially monster copper asset in Zambia (it’s about postcode!) something by the way applies to Goldstone Resources and their gold project and then news today announced by Horizonte Minerals of a $325m debt facility mandate with five international banks!
So lets talk about that Horizonte news then…
If you follow me you’ll know I’ve been a long time supporter of Horizonte Minerals and as some jovial chap on Twitter pointed out, there have been plenty of dog stocks that have out-performed Horizonte over the past few years! I’d point out that those said stocks could have equally lost you all your money which essenntially leads us back to your risk appetite, how you manage it, what your investment timescales are and research.
On the latter, you can find my in depth research note on Horizonte Minerals here. I also chat a bit about the nickel market and my views on it.
So the news just announced is another significant step forwards for shareholders and if you have tracked the company news over the last few years, another major milestone reached by an impressive management team that have continued to deliver.
Essentially Horizonte have now got a syndicate of five international banks that will source the $325m debt portion of the project financing. This follows the announcement late last year that Orion Mine Finance had taken a 2.25% royalty on Araguaia in return for £25m in cash which was sensible for Horizonte at this juncture to bolster company finances and not leave them backs against the wall!
The $325m debt portion covers c.74% of the project finance with the remainder to be sourced via equity and possible off-take agreements. In fact CEO Jeremy Martin hinted today that off-take deals are likely and could be announced in the near future, worth noting Glencore a significannt shareholder in Horizonte could feature in off-take and/or equity portions as could other large shareholders such as Teck Resources who only recently appointed a senior Exec to the Horizonte board.
The take-away at this point is that the ‘smart-money’ is backing the project and cumulatively is a significant de-risking step for shareholders in my opinion.
It’s also possible we could see a small consortium of Brazilian banks play a role in financing too, also hinted at by Jeremy in an interview today.
One thing that’s certain is investors should see a lot more news flow over the remainder of the year with progress on the financing, off-take deals and long-lead contract awards to start materialising. The aim will be to close out financing in its entirety by end of year and commence construction early 2021 given that Araguaia is fully permitted with construction license already awarded.
On the subject of news flow, lets not forget Vermelho, a high grade low cost, larger scale project that Horizonte are steering towards the EV battery sector. This is a 1.5m tonne contained nickel project with 90k tonnes of cobalt too.
You may have caught my recent blog Elon Musk has a message for Horizonte, he wants more nickel where he essentially said that big contracts are on the table for ethical and sustainable nickel miners, well Vermelho fits the bill with ethically sourced cobalt and low Co2 nickel production suitable for EV batteries
The focus is moving towards NMC batteries (Nickel, Manganese and Cobalt) offering enhanced performance over previous incarnations and guess what, they contain a lot more nickel.
So as much as the news today is focused on Araguaia and rightly so as that project alone translates to a cool $2.5 billion in free after Capex cashflow at todays nickel prices, lets not forget that Vermelho will likely even trump this project in terms of returns and its highly possible Horizonte could attract a JV partner near-term but if not they’ll have plenty of options including self financing from Araguaia cash flows if they so wish.
I remain bemused as to the current market cap of the company £60m, given the sequential de-risking steps that have been achieved and the projects returns from Araguaia alone but as with many junior mining stocks the share-price is a function of the market and ultimately value will out.
Research materials prepared based upon my own analysis and research. Accuracy cannot be guaranteed and research notes should not be taken as investment advice. Please always do your own research.