Horizonte Minerals (LON:HZM) has completed the pre-feasibility study on its Araguaia nickel project in Brazil. Jeremy Martin, the company’s chief executive, discusses the details with Proactive Investors’s Charlotte Kan.
CK: Could you quickly take us through the PFS highlights ?
JM: We’re very pleased to announce the findings of the pre-feasibility study.
The headline numbers for the base case, which is a 900 000 tonne a year mining operation, give a net present value of around USS $520 mln, an IRR [rate of return] of 20% and a long mine life of 25 years.
The C1 cash costs are around $4.16, which puts it in the lower quarter globally. There’s a payback of around four and a half years.
Another key factor is that free cash flow after all the capex and taxes are paid is around $1.7 bn. It’s a significant cash flow generating project.
CK: The process you expect to deploy takes a lot of risk off the table; tell us about the RKEF and why this is important to Araguaia.
JM: It’s one of the major selling points of the project. There are a number of nickel projects out there that don’t have a proven process route.
We are very different to all of these other companies. We do have a proven process route.
The process is called Rotary Kiln Electric Furnace. It’s a 60-year-old technology. There are 20 operations using it globally, today. It’s low technological risk, which is a major, positive contributing factor to the project.
You produce a product called ferro-nickel, iron and nickel. It’s a metallic product. It will have around 20% nickel in the product.
You can sell it directly to the stainless steel mills. It’s an extremely attractive end product.
The process is relatively simple. The material is mined; it goes into the rotary kiln and then into the electric arc furnace where it’s heated up to around 1500 degrees.
The iron and nickel is tapped from the bottom and all of the other material goes out as inert slag.
It is a major step away from our peer group.
CK: Now you have completed the pre-feasibility study, what’s next for the company?
JM: There will be a period of pre-bankable work, which will be a large-scale pilot campaign and additional work on the permitting.
The aim is towards the end of this year, at some point in Q4, to award the bankable feasibility contract.
That will run for around 12 to 18 months and then the next major phase will be completion of the bankable and award of the construction contracts.
CK: Yours isn’t the first project in this area. There is the neighbouring deposit and the development at Onca Puma. This looks like a great address, both in terms of prospectivity and infrastructure.
JM: Where we are in Brazil has always been one of the major contributing factors to the project.
We’re in a region called Para State; it’s a mining district. It’s got the main Carajas region, where Vale have their iron ore projects and there are copper mines. The whole state has been developed on the back of the mining infrastructure.
We have good low cost hydro electric power supplied from the Tucurui Hydro Electric dam that was built by the government in the early 1990’s.
We’ve got a new north/south railroad to the east of the project. The local town, which is 20 kilometres away, has around 45,000 people. So all the key factors that you need to develop a mining project are already in place.
You talked about Onca Puma. That is another major nickel laterite project, about 120 kilometres north of us.
It will use RKEF technology. Baro Alto, which is Anglo American’s new nickel mine that opened 18 months ago, also used the RKEF technology.
We’re in a well supported district for infrastructure and we have a number of very similar types of assets around us in production.
CK: Can you see consolidation in the area?
JM: I think the two projects we’ve talked about would not be potential consolidation targets, but there are other advanced assets, mainly north of us, that we would view as a favourable target.
It would create one of the largest, highest grade nickel projects in Brazil, if not globally. It’s definitely exciting.
I think what this pre-feasibility study does is demonstrate that Araguaia is a high grade project, supported with good infrastructure. It has a proven process route and it is now in, probably, the upper quartile in terms of assets, globally. It’s got robust economics around the base case and the option wto ramp up production.
We’re in a good district in terms of infrastructure and support from the government for developing new projects. We’ve also got a good group of major shareholders, the lead being Teck Resources, with 43%.
The other key factor is what’s happened in Indonesia this year. In January they put a ban in place on direct shipping material. Indonesia currently accounts for about 70% of all the nickel supplied, or nickel ore supplied to China. If this ban holds, we could see a significant increase in nickel pricing this year into next year.
So, we really are very well positioned to benefit from a) the nickel market and b) the quality of the project going forward.