Cash-strapped Horizonte secures US$20M to advance Araguaia nickel project in Brazil

Nickel developer Horizonte Minerals (AIM: HZM; TSX: HZM) has tapped Glencore (LSE: GLEN), Orion Mine Finance Management and London-based La Mancha Resource Capital for $US20 million to advance the Araguaia project in Brazil.

The US$5 million each in loans from Horizonte’s three biggest shareholders joins US$5 million from New York-based Orion’s Fund III and is due in 2030 subject to 15% in annual interest, Horizonte said on Wednesday. The company’s senior lenders agreed to defer an existing interest payment due Dec. 31 to Feb. 29. 

“We are pleased to see the continued support from our cornerstone shareholders,” interim CEO Karim Nasr said in a release. “This funding package is a demonstration from the company’s largest shareholders on their commitment towards finding a solution to complete the Araguaia nickel project construction.”

Horizonte bought the project in the Carajás mining district of Pará state in north central Brazil from Glencore in 2015. It could be developed as an open-pit laterite mine initially producing 14,500 tonnes of nickel a year with potential to double output, according to a 2019 feasibility study.

Horizonte began construction in May last year, received state operating permits this past July and had planned as recently as then to start production early next year. Capital costs increased by 12.6% to US$537 million, according to an Oct. 2022 release. An August company presentation doesn’t mention capital costs but says industry standard C1 operating costs are estimated at US$6,794 per tonne of nickel, among the lowest quarter of similar projects. 

The Araguaia mine may generate an after-tax free cash flow of US$1.6 billion over an initial 28-year mine life with an internal rate of return of more than 20% on an capital cost of $US443 million, according to the feasibility study. The project has 119.3 million measured and indicated tonnes grading 1.27% nickel for 1.53 million tonnes contained metal. 

The Fund III contribution comes from Vermelho, Horizonte’s other project in Brazil, where US$11 million remains for its development. Horizonte bought Vermelho from Vale in 2017 and released a pre-feasibility study two years later considering a $US652 million capital cost. It may generate an after-tax free cash flow of US$7.3 billion and an internal rate of return of more than 26%. 

Shares of Horizonte Minerals rose 7¢ on Wednesday in Toronto to close at 22¢ apiece before falling 1¢ by mid-Thursday, valuing the company at $58.7 million.