Twelve months ago Jeremy Martin, the chief executive of nickel and gold exploration group Horizonte Minerals (LON:HZM), oversaw a major tie-up with industry giant Teck Resources (TSX:TCK) that promised to transform the AIM listed company. The move involved Teck handing over control of its Araguaia nickel project in the Carajas mineral district of northern Brazil in return for a 50% stake in Horizonte. Since then, Horizonte has merged Araguaia with its own Lontra nickel project and met every milestone in its plans to establish a 100 million ton resource at the site. In turn, drilling is now under way on the company’s Falcao gold project, where it is working in partnership with another mining giant, AngloGold Ashanti (NYSE:AU). In addition to a series of resource updates, the company has found time to complete a substantial fundraising, expand its licence holding and complete a listing on the Toronto Stock Exchange.
Jeremy, the last 12 months have seen some significant changes at Horizonte Minerals, particularly at your Araguaia nickel project in Brazil. What have been the important milestones?
Well, going back to last year, we closed the deal in August with Teck and in October we started the main resource drilling programme. We have got six drill rigs active on the project at the moment, so it is a big drill programme down there. In January we signed a royalty agreement with Anglo Pacific, which was another milestone in the project, and that is where they can effectively acquire a 1.5% net smelter royalty (NSR) for $12.5 million, so that’s good downstream funding potential. We then raised £8.3 million in February, which allowed us to really ramp up everything across the board down in Brazil. In March we released our maiden resource of 76 million tons at 1.35% nickel, which was ahead of expectations in terms of size and grade. We have just got our TSX listing and in July we completed the final acquisition of three additional target areas, one with some resources on, from TSX-listed Lara Exploration (TSX:LRA).
So we have basically hit all of the milestones on time. The resource upgrade is due out in Q4, and that will be the 100 million tons target, which is all looking good. We have got some high grades coming out of the project, there have been a number of releases out over the last month with over 2% nickel in several of the zones, which is extremely encouraging. We have got metallurgical test work underway, we have got Xstrata Process Solutions looking at the traditional processing routes and Wardell Armstrong are contracted to do the PEA (preliminary economic assessment) and the environmental baseline.
So, we are moving very quickly through the resource drilling phase and early next year we will have the preliminary economic assessment out where you will actually start to be able to see some economics around this: NPV figures, what it is going to produce and some clear routes on the process side, which is really where it starts to become a very meaningful opportunity.
Your deal with Lara Exploration in July expanded your land position around Araguaia, giving you 100% control of the Vila Oito and Floresta nickel laterite projects. Why was that important and was it something you had always intended to do?
The areas that we acquired from Lara Resources were actually an extension to two of our known areas of mineralisation. So it was a logical progression to tie up those two areas of ground. It gives us some instant drilled off resources and it gives us some additional upside targets to follow up on. So that was always Stage III of the consolidation exercise. It was obviously an all-share deal, it was a favourably priced deal and we considered it to be accretive to where we are going.
Was it a straightforward deal to complete and do you have ambitions to expand further in the region?
We have done previous transactions with Lara elsewhere in Brazil so we know the management there well. We were actually talking to them at the same time as Teck and they were waiting to see where the Teck deal was before they actually committed to any particular partner, so it was a bit of chess game to see who went where. There are a couple of other areas that we’re looking at that would be strategic to us, so there are other areas that we have got our sights on.
The option royalty agreement with Anglo Pacific theoretically gets interesting when you have finished pre-feasibility at Araguaia. Have you got a timetable in mind for that?
Exactly. Basically it’s an option that is triggered on a positive pre-feasibility study. We will deliver the pre-feasibility study and then Anglo Pacific will have 60 days to decide if they are going to actually buy the option for the $12.5 million or, if they elect not to buy the option, then it drops away. The idea is that the funding would then pay for a large part of the feasibility study.
We are looking at the PEA, which is effectively the scoping study, to complete in Q1 next year. Then in late Q1 we will start the pre-feasibility study and that will be complete in Q4 next year. A lot of the work-up areas, such as the environmental baseline, we are already doing now so it is a seamless run-in from scoping study into pre-feasibility rather than having to stop and start all the work off the bat.
Obviously it is a fairly substantial, and I would coin the term ‘world class’ asset and the aim is for us to get to the feasibility study in the shortest timeframe that we can. So we will be pushing through these milestones, making sure that we deliver on every milestone and that’s where the value really starts to step in as you move from resource drilling to scoping and from scoping to pre-feasibility and then to feasibility.
In the meantime you have got drilling under way at another of your projects, the Falcao gold project. What are your hopes for that?
The Falcao gold project is a joint venture with AngloGold Ashanti and we started a 3,000 metre drill programme on that just over four weeks ago. It is a very significant gold anomaly at over 4 kilometres long and there has been a lot of artisanal mining to the western extent of the area we are at. We know there is gold in the system; Anglo looked at this, they recognise this as a very significant system in that part of Brazil, and we anticipate the first 3,000 metres being complete by mid-September. I think if the first 3,000 metres are positive Anglo will move into a fairly heavy duty infill programme on the back of that. So that will also be exciting.
In the UK market it is very commonplace to have companies with a portfolio approach towards their assets and we are looking at other gold opportunities at the moment. In Canada, as an asset takes on the sort of valuations that Araguaia is going to, I think they like to see a company focused on one major development asset, specifically when you are talking about pre-feasibility and feasibility assets. So there may be a point down the line when we decide to spin out the gold assets into a separate listed vehicle but that will obviously depend upon development on the nickel and what the critical mass is in terms of value on the gold side. But it would be a nice upside for current Horizonte shareholders because they would automatically get shares in the new gold company.
The price of gold has generally maintained positive momentum this year and nickel is also reasonably high. You must be very satisfied to be concentrating on both of those commodities?
For nickel, we were recently around $24,000 per ton. Its high point, 18 months ago, was nearly $15,000 a ton and then mid financial crisis it went down to $9,000 to $10,000 a ton. I think everybody looking at the metals, including economic groups and some of the big banks, are looking long term at the $20,000 to $22,000 a ton mark, which is very good from our perspective. The region of Brazil that we are in is on the low end of the cost curve and on the high end of the grade curve so at those price ranges the type of asset that we have got looks very good in terms of economics and return on investment.
You raised £8.25 million in February at 25p, which was great timing given the market uncertainty that has affected AIM since then. Where has that fundraising positioned Horizonte?
That round of funding takes us through to the end of the preliminary economic assessment and obviously we will need to raise additional funds going into pre-feasibility and the feasibility study. What I would say is that when you look at our peer group today, when you simply look at what our peer group companies are being valued at per pound of nickel in the ground, the average across our group is around 6 cents per pound in the ground. Our peer group leader, which is a TSX company called Anfield Nickel (TSX:ANF), which is in Guatemala, has a resource of 45 million tons at 1.35% nickel and they are trading at 8 to 9 cents a pound. Today, our resource of 76 million tons at 1.35% is significantly larger than Anfield. We are in Brazil, which is a better operating jurisdiction, and we have the support of a major in terms of Teck. But we are trading at between 2 to 2.5 cents a pound today, so well below the peer group average of 6 cents.
We are obviously going to have a resource upgrade out in Q4 to 100 million tons and that will have a high grade core. That will put us in the upper quartile of global projects in terms of size and grade. With those milestones out, I would like to see us at least trading at that mid-range, the 6 cents per pound, and as we put some economics around it moving up to somewhere near where Anfield is at the 8 cents per pound range. So you can see today at 16p/2.5 cents per pound, if you move up to 6 to 8 cents a pound it has a very marked effect on where your share price can potentially move to.
I think 25p was obviously a high point earlier in the year and I think with the milestones and moving into the Canadian market and just basically bringing us up to the peer group average we should be in a more favourable position in terms of share price towards the end of the year.
Getting a quotation in Canada was always an important objective given your close connections with Teck Resources. How satisfied are you with that?
It was a fairly smooth transition into Canada. It was always going to be a compliance listing so we weren’t actually putting any stock into the Canadian market. As a result, liquidity is always going to be limited until we actually do put stock into Canada. We were out marketing recently and got a very favourable response. People like Brazil, people view this as one of the better nickel laterite, if not the leading nickel laterite story coming into the market place there. Plus, there isn’t another junior company out there that Teck holds 44% in. So I think all of those factors combined - Brazil, Teck and nickel - all make Canada a very complementary and logical place to be as well as keeping our London listing.
Jeremy, thank you very much for your time.
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