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Horizonte Minerals firmly focused as Araguaia development gathers pace

Horizonte Minerals' rapid development of its Araguaia nickel deposit in Brazil has been a model so far and the group has no intention of taking its foot off the pedal.

Horizonte Minerals’ (LON:HZM) recent resource upgrade at its Araguaia nickel prospect marked a major milestone for the project.

It lifted the JORC compliant resource to over 100 million tonnes, a size comparable to rival nickel mines in Brazil. and confirmed it as a world class deposit.

Another equally significant milestone is coming up in the next few weeks when Horizonte releases the results of its metallurgical tests on Araguaia.

Chief executive Jeremy Martin said the metallurgy will confirm how Horizonte will get the Nickel out the ground.

Once received, it will enable the group to move forward to the pre-feasibility stage with a target of a full bankable study (BFS) by the end of 2013 or early 2014.
It could also spark a move to hive off the group’s gold projects in Brazil, where it is in a joint partnership with AngloGold Ashanti.

“Going forwards, as we start to get the right valuation for Araguaia there will be an argument in the next 12 -24 months to spin out the gold if the value proposition looks right” said Martin.

“As you move into BFS for Araguaia, the banks are not going to want to see a portfolio of gold assets with the Nickel business.”

“What we are doing is incubating the gold side and using it to build up the value.”

Getting a BFS for Araguaia would represent rapid progress for a project that only moved off the drawing board two years ago, but Martin said the group had hit its targets so far and is confident for further progress over the next 12 to 24 months. 

He explained that proving the metallurgy is as crucial in Nickel production as the resource itself. It is only when a miner can show it has a reliable method to process and produce the metal that investors sit up and start to take notice.

This is especially true of laterite deposits of Nickel, he adds.
A number of laterite schemes have faltered due to the technical difficulties of processing the ore.
Araguaia is a Nickel laterite deposit, but Brazil has a long history of mines producing Nickel from prospects just like Horizonte’s using a ferroNickel process.

The process produces a golf ball size pellet that contains 10- 25% Nickel and the rest iron, which can be sold direct to the stainless steel mills.

“It is a tried and tested, ninety year old method of producing ferroNickel and a process everyone around us in Brazil is using,” said Martin, 

Both the recently opened Nickel operations at Barro Alto (Anglo American) and Onca Puma (Vale) in Brazil use this process. Both are also a comparable size to Araguaia.

Martin adds that despite the concerns “Nickel laterite accounts for approximately 45% of world Nickel production, a figure that will rise to 50 to 55% over next two years,” 

Once the metallurgical test results come in, Martin expects the pace of Araguaia’s development to quicken with a preliminary economic assessment (PEA) scheduled for the end of March or early April.

By 2013, Martin also expects to have completed a pre-feasibility study alongside a full environmental baseline, detailed pilot plant testing with possibly even a full bankable feasibility study later that year.

He believes as Horizonte ticks off these milestones, Araguaia’s potential will be more fully reflected in the company’s market value.

Just as the company has benchmarks for developing a project, investors have similar markers in valuing a fledgling Nickel venture.

Horizonte is currently being valued at about 2c per pound of Nickel in the ground, which puts it at the bottom of the 2-8c average for current projects under exploration.

Similar sized projects with a PEA in place are being valued at about 6c per pound.

On that 6c basis, Horizonte would be worth about 30p per share and have a market value of £90 million according to broker finnCap.

Nickel companies with a completed pre-feasibility study trade between 8-15c per pound, according to Martin, while those with a bankable feasibility study can be valued at anything between 15-25c per pound.

Onca Puma was acquired by Vale for 23c per pound or a total value of C$870 million, having originally been bought as an exploration prospect for $20 million.

Once a bankable feasibility study is ready, Araguaia will seemingly be in a similar position.

“We are moving our resource up to close to size of that. It is in the same part of Brazil and the same type as the mines around us.”

Canadian group Teck holds has a 44% stake in Horizonte and a sale to a major or move for it to take full control are possibilities eventually.

Martin, though, does not rule out Horizonte itself taking the project to producer status. 

Barro Alto cost $1.3 billion to bring into production, but Araguaia may cost under $1 billion and at that level Martin says bringing it on stream is possible, albeit with Teck’s financial support and possibly a third partner coming on board.

He said that Barro Alto has two furnaces with two kilns but the group is assessing if Araguaia could manage with just one.

For now, though, the focus is getting the project through to BFS stage.

“Our approach is to get it to bankable and take it forwards from there”, Martin said.

Horizonte listed in Canada last year and once the metallurgical report is published the group will embark on a major push to make investors in Toronto aware of the story.

“With Nickel laterite, people really want to see you have de-risked it. It’s all very well having a resource but that doesn’t prove you can take it out of the ground.”

But being in Brazil makes it all a lot easier he says.
“The skill base is there, the price benchmarks are there and consultants who have worked on other Nickel projects are also based there. Overall, Brazil is a great jurisdiction to be a Nickel miner.”

“Aragauia is also not anywhere near the Amazon and sits under arid scrubland owned by a number of big cattle grazing farms. “

Horizonte has £5.8m in the bank which will allow it to run through 2012 and keep up its recent pace without going back to the marketplace. 

“This is a long lead time project, what we don’t want is to take the foot off the work pedal.”

Quick facts: Horizonte Minerals PLC

Price: 7.45 GBX

Market: AIM
Market Cap: £107.98 m

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