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Interim Results
Horizonte Minerals Plc, (LSE:HZM) (TSX:HZM) the exploration and development company focused in Brazil, announces its unaudited financial results for the six months ended 30 June 2014 and the Management Discussion and Analysis for the same period.
Overview:
· Significant progress has been made in advancing the 100% owned Araguaia Nickel Project (‘Araguaia’) as the next major nickel project in Brazil
· Strengthened balance sheet – raised £5.4 million in July 2014
· Pre-Feasibility Study (‘PFS’) completed March 2014 proving robust economics of Araguaia as a leading high grade nickel project based on excellent infrastructure and a proven and low risk pyro-metallurgical process using Rotary Kiln Electric Furnace technology (‘RKEF’)
o Post tax NPV₈ of US$519 million and 20% IRR based on 900ktpa single line, 15,000tpa nickel (‘Ni’) in ferronickel (‘Fe-Ni’) product over 25 year life of mine (‘LOM’) (Base Case – preferred route)
o Post tax NPV₈ of US$1.2 billion and 21% IRR based on 2.7Mtpa twin line plant, 40,000tpa Ni in Fe-Ni product (‘2nd Option’)
o Low cost operation – C1 cash costs of US$4.16/lb (US$9,166/t) over LOM (first quartile of cost curve)
o Significant free cash flow generation – projected generation of US$1.8 billion post tax over the 25 year LOM
o High Grade – 1.76% Ni average feed grade for the first 10 years of production (Base Case)
o Substantial NI 43-101 resource base consisting of 71.98Mt grading 1.33% Ni (Indicated) and 25.35Mt at 1.21% Ni (Inferred) at a 0.95% Ni cut-off grade allows operational flexibility and production ramp up
· Awarded the Seal of Priority from the local Pará State’s Department of Industry, Commerce and Mining (SEICOM) to help fast-track the development of Araguaia
· Filed Social Environmental Impact Assessment (‘SEIA’) with Pará State Environmental Agency in Brazil – targeting issue of the Preliminary Licence by Q1 2015
· Positive nickel market; with the implementation of the Indonesian nickel ore ban the nickel price has increased in 2014 from US$13,200/t in January to current levels around US$19,000/t
Chairman’s Statement:
I am delighted to report on the exceptional progress your Company has made during the first half of 2014 in delivering on significant value accretive milestones as we continue to advance Brazil’s next major nickel project, Araguaia. With a positive nickel market outlook ahead and a strong team both at Board and management level with proven track records in the South American mining and nickel space, it is our objective over the next 24 months to successfully fast-track Araguaia through to completed Feasibility Study.
To this end, we have had a highly active period which has seen us complete a 43-101 Pre-Feasibility Study in March 2014 on time and within budget which demonstrated the robust economics of Araguaia over two operational scenarios as a leading nickel development project globally; update our resource base to 71.98Mt grading 1.33% Ni (Indicated) and 25.35Mt at 1.21% Ni (Inferred) to provide operational flexibility and production ramp up potential; Complete and file our Social and Environmental Impact Study; and receive a ‘Seal of Priority’ from the local Pará State’s Department of Industry, Commerce and Mining, which highlighted Araguaia as a project of strategic importance to the country and state and enlisted as part of an incentive plan to help fast-track the development of Araguaia.
In July 2014, post period end, a £5.4 million placing was successfully completed which has further strengthened both the balance sheet and, importantly, Horizonte’s supportive shareholder base which includes Teck Resources, Henderson Global Investors and Anglo Pacific. This additional capital means we are well positioned to deliver on Araguaia’s next development stages as we take it through to the Feasibility Study stage by early 2015.
Araguaia:
Araguaia is a wholly owned advanced nickel project located in Pará State, south of the Carajas Mining District in northern Brazil. The project is ideally located in an established mining district, offering good road and rail networks with accessible transportation routes to port, access to low cost hydroelectric power and support from regional authorities.
Significant exploration and development work has been undertaken by Horizonte since 2010 when we acquired the project from Teck Resources. We have completed 35,200m of resource drilling and metallurgical testwork which has demonstrated that Araguaia ore can be processed using the proven Rotary Kiln Electric Furnace (‘RKEF’) process in order to produce a saleable ferronickel product that meets the requirements of international stainless steel plants. A Preliminary Economic Assessment completed in 2012 highlighted the exciting potential of Araguaia as a world-class nickel deposit.
With the above in mind, Horizonte completed a PFS at Araguaia in March 2014, which further confirmed the excellent economics and mining potential of the Company’s flagship project. In line with the demands of the market, the study focused on maximising returns while minimising financial and technical risk and as such two operational scenarios were evaluated which demonstrated that Araguaia offers flexibility to be developed at multiple scales. Our selected route to production is the smaller Base Case with an after tax NPV₈ of US$519 million and a IRR of 20%, which utilises a single line Rotary Kiln Electric Furnace (‘RKEF’) plant, a proven process route, running at 900,000tpa with 15,000t targeted annual production of nickel in Fe-Ni product. The large scale Option offers production upside with an NPV₈ of US$1.2 billion and 21% IRR based on 2.7Mtpa twin line 40,000 Fe-Ni product RKEF process plant. Importantly the Base Case option brings the project to a capital level which is within reach of a junior mining company such as ours, whilst demonstrating the considerable upside that future expansion could bring.
The strong project economics of Araguaia are also supported by the high nickel grades demonstrated at Araguaia, with an average feed grade for the first 10 years of 1.76% Ni, placing the deposit in the upper quartile for grade globally. Add to this the extremely low C1 cash costs of US$4.16/lb (US$9,166/t) and significant free cash flow generation projected to be US$1.8 billion post tax over the 25 year LOM on the Base Case Scenario, it is clear that Araguaia offers a compelling investment case.
Having now completed our PFS our next major development objective is to advance Araguaia through to the Feasibility Study Stage during 2015. With this in mind we successfully filed our Social and Environmental Impact Assessment (‘SEIA’) in June 2014. The completion and filing marked a significant de-risking step for the project, as we worked with local stakeholders, communities and government agencies. The report is currently being reviewed by the Pará State Environmental Agency, and post the public hearing, we should receive full approval in Q4 2014/Q1 2015.
The work programmes that will be completed in preparation for the Feasibility Study include infill drilling to define a Measured Resource, the collection of a bulk sample for feed into a large scale continuous pilot plant tests for further de-risking the project and optimising the RKEF process flow sheet, the incorporation into the bulk sampling of a trail mining programme, advanced engineering, geotechnical and water management studies.
Nickel:
Having reached a two year high of almost US$22,000 a tonne in May 2014 nickel is the best performing metal this year to date. This increase from c.US$13,000/t at the beginning of the year follows the ban on direct shipping nickel ore from Indonesia, as well as concerns regarding Russian supply. If the ban in Indonesia continues to be fully implemented it is expected to remove 18% to 20% of world nickel supply from the market resulting in bullish forecasts on nickel futures, with the Bank of America Merrill Lynch forecasting prices easily reaching US$25,000 per tonne in 2015.
With this in mind, Horizonte is in a strong position to deliver its Feasibility Study during 2015 and deliver significant value uplift over the next 24 months as it progresses the project towards development at a time when our high-grade Araguaia ore will be in demand in a favourable nickel market.
Outlook:
Araguaia is a leading nickel project globally in terms of size and grade which offers strong economics, a proven process route, and excellent infrastructure. Your company is led by an experienced Board and management team with significant experience in both South America and the nickel resource space and has the ability to bring Araguaia into production at a crucial time for the nickel market when demand will outstrip supply.
I am delighted that Horizonte has a solid track record of delivering milestones on time and on budget and having already completed the PFS this year which demonstrated robust economics we are well funded following our recent placing to move into the Full Feasibility stage. I would like to take this opportunity to thank the dedicated Horizonte Board of Directors, Management team and shareholders for your continued support and I look forward to providing further updates as we continue to develop Brazil’s next major nickel mine.
David J. Hall
Chairman
