Following the Brazil-focused company’s first-quarter report, the broker issued a short note to clients highlighting that medium-term nickel market fundamentals remain strong, with analyst consensus prices of US$16,150 per tonne versus US$16,188/t in December.
For analyst Yuen Low, the key takeaway from the quarterly report were that the period-end cash balance was £17mln compared to £17.8mln at the end of last year.
Low noted that the project financing process for the flagship Araguaia ferronickel project in Brazil was reported to be “currently running to schedule with no negative effects” from coronavirus, albeit Horizonte cautioned that there could be a delay if lockdowns continue “for a longer period of time”.
Work on Araguaia continues to be focused on advancing the level of engineering from Feasibility stage level to being implementation-ready.
The analyst said he and many other industry watchers “have long shared the view that nickel prices should be significantly higher in the medium term, the billion dollar question being exactly how much higher”.
Re-capping, he noted that after October 2018’s feasibility study on Araguaia’s Stage 1 and scoping-level estimates of a Stage 2 expansion in December 2018 would see production of 29ktpa of nickel over a 26-year minelife.
At a flat nickel price of US$14,000/t, post-tax NPV8% of US$741m and an internal rate of return 23.8%.
At a nickel price of US$16,800 per tonne, NPV and IRR would be US$1.26bn and 31.8%, respectively, Low noted.
On top of this, last October’s pre-feasibility study on Vermelho, Horizonte’s 100%-owned second project, estimated post-tax NPV8% and IRR at US$1.7bn and 26%, respectively, assuming a nickel price of US$16,400/t plus a US$2,000/t sulphate premium and a cobalt price of US$34,000/t.