Horizonte – the calm before the storm?

Back in June I wrote my research note on Horizonte Minerals a company I have been invested in for a good few years now. I’ve always had a good feeling aout this company and have had to be patient to see returns.

One thing I have learnt is you can’t always predict how quickly you’ll see a return but if you stick with an investment you are confident in despite lack of perceived market interest, you should be rewarded.

Since I posted my note which is available here the share price has seen a healthy increase from just sub 3p to a recent high just shy of 9p – a nice 200% riser in a little over 2 months!

We are now at an interesting juncture. Clearly there has been profit taking, to be expected but alongside this, clearly new entrants have been coming into the stock and a healthy flush around the 7p level has offered some nice consolidation (a healthy thing)

The project financing is gathering pace with the first set of banks mandated to secure the senior debt financing piece. The info graphic below from Horizonte nicely summarises the roadmap prior to construction start anticipated Q1/21. This is getting very ‘real’ now!

Looking at the above, we can expect Brazilian banks to join the debt syndication which could seemingly be the next news item to drop and a clear clue in the graphic that the equity piece could well be dominated by existing large mining shareholders Teck and Glencore. Another clue being Teck recently appointed a senior exec to the Horizonte board.

We may well see an off-take agreement mixed in with the above too, hinted at by the company.

I’d expect financing to be closed-out by end of year at which point the project is majorly de-risked and fundamentals firmly come into play.

You can see that since the start of June when I did my note and mentioned I thought that nickel would see a nice move to the upside, nickel along with other base metals has indeed rallied. All great news for the Araguaia and longer-term Vermelho project economics!

Personally I think there is a long way to go for nickel, you can read my rationale in my Horizonte research note but essentially a weaker dollar, stimulus and a higher incentive pricing needed should all drive an upwards move in my opinion. On that subject, both of Horizonte’s projects offer very low C1 costs by comparison to other projects.

Horizonte look set to achieve the end game, something not many junior miners will achieve due the dynamics of the junior markets. It’s a testament to Management who have picked up assets early in the cycle and at the bottom of the market.

House Broker initiates coverage…

Peel Hunt the house broker agree having initiated coverage this week with an initial 14p price target and 33p un-risked price target. Given the stage that Horizonte are at, closure of the financing package should logically put the share price at the upper end of this price range offering investors significant upside from todays 7p share price level.

The elephant in the room is if nickel enjoys a price rise like it did back in 2006/7 when it hit in excess of $50k per tonne

I haven’t done the exact maths on what Araguaia and Vermelho would return in FCF over LOM at a $50k/t nickel price but I can tell you it should be in the Tens of Billions!

Opportunity knocks !

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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