Exploration and discovery in Brazil

Transcription

1 Exploration and discovery in Brazil In this report... Redemption for the Devils Metal Big Nickel...Serious Gold Questions & Answers with CEO Jeremy Martin 1

2 Dr. Michael Green is an independent mining analyst specialising in small cap stocks and has acted as a consultant to a number of stockbrokers. He has been active in the smaller company sector since Feature sponsor Redemption for the Devil s metal Dr Michael Green examines the fundamentals of the nickel market Nickel is a shiny silvery-white metal which does not tarnish in air. The metal has been used since 3,500BC but it was not until 1751 that the chemical element itself was isolated. Apparently the element s name means Old Nick and stems from German mining mythology as the old timers unable to recover copper from copper-nickel ores saw it as the Devil s metal. The metal is used mainly in corrosionresistant alloys with 59% of world nickel production disappearing into stainless steel for use in anything from cookware and kitchen appliances through to watches and surgical instruments. Another 21% goes into other steel alloys and super alloys; with 11% used in plating and coins. Nickel is found as either a sulphide or a laterite. Currently 58% of world nickel production comes from sulphides even though it represents just 27% of the global reserves. The world is fast running out of nickel sulphide because these ores are fairly straight forward to process. The future supplies of nickel will rely on the mining laterites as these now represent the majority of the world reserves. Laterites are mainly found on the surface in tropical areas where weathering serves to concentrate the grade of the nickel. In the main such deposits are very large tonnage low grade deposits close to the surface making them ideal for open pit mining. It is harder to liberate nickel from laterites which has forced some producers to resort to expensive techniques such as high pressure acid leaching. Not all laterites are the same and much depends on the proportions limonites and saprolites, which are the two nickel ores in laterites deposits. Limonites are highly enriched in iron as magnesium and silica have been leached out lie in a layer above saprolites is the silicate type of the ore. In some places, limonites have been pretty well eroded away which is good news for miners as there is a well-proven process for the treatment of saprolite-dominant laterites which is smelting to produce ferronickel that is sold directly to stainless steel producers. More than 70% of the estimated world nickel reserves of 80 million tonnes comes from just over a handful of countries which are: Australia (32%), Brazil (11%), New Caledonia (9%), Russia (8%), Cuba (7%) and Indonesia (5%). Brazil is fast growing nickel producers but it is not really that surprising as the country remains under explored despite being strongly pro-mining. New nickel mines are popping up in the emerging nickel Carajas District in Para State in North Brazil. Here the majors such as Anglo America, Xstrata and Vale have been granted mining licences. The latest nickel mine into production was Vale s Onca Puma in 2011 which is using smelting to produce ferronickel and represents the fourth such operation in Brazil that is using this tried and tested method. They could well be joined by Horizonte Minerals whose saprolite dominant Araguaia project has all the making of becoming a world class ferronickel class project. Not bad for a junior that has a market capitalisation of just 42 million. At the beginning of 2006 the price of nickel stood at $7 a pound but within eighteen months the price had climbed to over $24 per pound on the back of strong demand from rising stainless steel production. However the credit crisis and the economic downturn saw prices slump to $4 a pound in Since then the continued urbanisation of developing economies like China, India and Brazil have helping to drive world demand for nickel which climbed to $12.50 a pound in The nickel price sits around the $8.80 level but with strong fundamentals at play here it looks set to climb comfortably higher. To meet forecasted demand, more than 90,000 tonnes of new nickel capacity needs to come on stream every year, much of this is to meet China insatiable appetite. The increased demand will be met from laterites projects and it is now expected that they will account for 50% of world nickel production by the end of There have been difficulties in bringing new projects on stream which is not surprising given that many rely on new technologies. Delays in new production coming to market coupled with the fast growing nickel Exchange Traded Funds (EFT) market which could soak up supplies and boost. It probably with such thoughts in mind that Numis in September upped its expectation that nickel would trade at an average of $11.25 per pound in That has now been topped by Societe Generale that is now forecasting nickel prices averaging over $12 per pound. Links to sources of further commodity information LME nickel price chart International Nickel Study Group US Geological Survey Mineral Commodity Summaries Nickel pubs/commodity/nickel/ 2 3

3 since been added, there is a logical thought process that could, at some future point, see its gold operations hived off into a separate vehicle, with Horizonte retaining a strategic interest, thus allowing the main company to remain purely focused on nickel operations. For Horizonte, nickel dominates its portfolio and prospects look excellent with price forecasts to continuing to rise. The big buyers are of course the Chinese stainless steel manufacturers so the price is closely correlated with its economic cycles. But demand is expected to hold up and prices to stay well above the USA$7,000 per tonne cost Jeremy Martin envisages for Araguaia. Date May 2012 Price 9.75p Market Cap 28m Code HZM Listing AIM/TSX Shares in issue 288m Following exceptional progress at Araguaia last year, Mr Martin has a clear development path and is working to a timetable of a Bankable Feasibility Study (BFS) in 2013 and production by Horizonte had as many as seven rigs active in 2011, drilling 13,204 metres and advancing the project to a stage that puts it in the upper quartile globally on grades and size. The newly-defined estimate is for an indicated and inferred resource at just over 100 million tonnes grading 1.29% nickel, with high-grade zones totalling 24 million at 1.6%. That size is important as it meets the criteria for profitable economies of scale. Within the next few months a Preliminary Economic Assessment is expected to be ready and will, according to stock broking firm finncap, provide an unrisked valuation, at a substantial multiple of the company s current market capitalisation. Even on a highly conservative basis, with a 70% risk discount, finncap comes up with a sum-of-the parts valuation of 24.4p a share on the basis of Araguaia alone. Big Nickel...Serious Gold It may be many a junior exploration company s ambition to one day grow into a world-class player. But whilst few stand any real prospect of this happening, Horizonte Minerals, a Brazil-focused nickel and gold explorer, could well have what it takes! Horizonte has strong strategic partners, supportive shareholders, and a major (and expanding) top-class nickel project that is expected to be low-cost to mine and process. As a diversified business it also has advancing gold interests; all located within a low-risk operating environment with excellent infrastructure and robust growth. Very early in its development Horizonte s management team s strong track record won it the backing of not just one but two major mining companies. These have become partners in its Brazilian projects, and the company also has further support from some heavy-weight investors. The mining partnerships are with Canada s giant Teck Resources and South Africa s AngloGold Ashanti and substantial investors include Teck and the very canny London-based minerals royalties group Anglo Pacific. There are very good reasons for Teck s close interest in Horizonte: Rationalising its operations after the Global Financial Crisis, Teck designated its Brazilian TeckCominco subsidiary with its world-class Araguaia nickel laterite project as non-core and sold it to Horizonte in The transaction was effected via a reverse take-over in which Teck took a stake and now holds 44% of Horizonte s equity. No one likes having to sell at the bottom, and for Teck at the time the decision to divest itself of such a prospective asset must have been a rather painful one. But through Horizonte s stewardship Araguaia continues to advance with strength and Teck still retains a key strategic interest. Add in the two gold projects on which Horizonte is working with JV partner AngloGold, and finncap moves the valuation up another 4.4p. The bottom line is, including 2011 year-end cash, a target of over 30p a share. Before the risk discount, the figure is as high as 87p!So it is with some justification that Mr Martin maintains that the market does not yet recognise Horizonte s substantial asset base. Comparing the company to other nickel laterite groups, he points out that, whereas Horizonte s market value is US$0.02 per lb contained nickel in situ, Mindoro Resources in the Philippines, with a resource of only 30.7 million tonnes and grading 1.09%, is put at AU$ 0.04 per lb. Arguably Horizonte s closest peer is TSX-listed Anfield Nickel comments finncap, whose project in Guatemala has a market value of US$0.07 per lb. We believe that Horizonte will be valued at the same US$0.07 cents per lb metric or higher during the Preliminary Economic Assessment phase, the broker adds. Another comparison underlining Horizonte s undervaluation is the vast gap between that US$0.02 in situ figure and prices paid in nickel deals. Jeremy Martin names some that even in the dire days of nickel a couple of years ago at US$5,000, saw values of US$1.67 (Sherrit s acquisition of 40% of Ambatovy) and US$0.23 (Vale s purchase of Canico s Onca Puma project). This year Jeremy Martin is promising good news flow on the gold portfolio as well as nickel. So, there are likely to be more quantum leaps in the value accumulating here for investors. Dates for your diary! Check out our list of upcoming events Jeremy Martin, Horizonte s CEO, called the deal transformational, and with some justification since it has enabled Horizonte to join Araguaia to its own nearby Lontra nickel prospect forming a giant 100%-owned flagship project of substantial scale. Until then Horizonte was equally focused on gold, having set up Joint Ventures (JV s) with AngloGold Ashanti and Australianlisted Troy Resources. Although another JV with AngloGold has 4 5

4 HORIZONTE MINERALS QUESTIONS AND ANSWERS WITH CEO JEREMY MARTIN MM. For investors new to the Horizonte Minerals story can you summarise the background to the company? JM. Back in 2006, when we launched Horizonte on AiM, it was apparent that there was a shortage of good late stage projects positioned for the major miners to acquire in order to replenish their resources and reserves. Another mismatch in the industry was that even mining giants had more early stage projects than their skilled-manpower and cashflow could handle. We had no doubt that this presented a prospective opportunity in the market for a strong and knowledgeable management team. So we set about forming one to work in a part of the world we knew well, Brazil. We also have excellent relations with two committed major mining partners, namely Teck Resources and Anglo Gold Ashanti, who are key to what we are building. MM. What are the company s key strategic objectives? JM. The company is focussed on creating value by advancing our exploration projects in tandem with joint ventures with major mining companies, providing mid-term cash flow. To read the full interview scan with your smartphone using a QR Code Reader app - or go to this link... Nickel MM. Can you summarise why you consider Brazil to be a good environment for exploration and development and why nickel is a viable in-demand sector? JM. Brazil is a country with huge under-explored areas, even though its annual mineral production now totals US$35 billion. Conditions there are very favourable for foreign miners, with a government which is pro foreign direct investment and there is an established and highly supportive mining code. Operating on the ground is easy, with established infrastructure. Nickel attracted us as demand is robust and is expected to continue to be so as it is used mainly in the stainless steel industry. Asia is overwhelmingly the major consumer with Chinese demand forecast to rise by 12 percent a year for the next few years. MM. You recently updated your nickel resource at the Araguaia nickel project to million tonnes inferred and indicated. Can you tell us why this resource update was important in terms of tonnage achieved and underlying nickel grade? JM. There are two key factors here, by increasing the overall tonnes to 100Mt that puts the project in the upper quartile of global assets in terms of size and grade and it then sits in a small peer group of assets that are not owned or being developed by Major mining companies. MM. How well equipped, from a knowledge and finance perspective, is Horizonte Minerals, to follow a pathway to value for Araguaia? JM. With a strong cash position of 5 million we are well placed to meet our commitments in 2012 and as we work towards completing our prefeasibility study at Araguaia in We are also looking to further consolidate our land position around Araguaia with the aim of increasing our resource potential and maximising our exposure in a country with significant nickel production, as demonstrated by Vale and Anglo American s new nickel mines in the region. Read the full interview here Media partner What is Mining IQ? Launched in March 2011, Mining IQ is a mining learning and information portal and an international online community focused on providing mining professionals with industry knowledge, multimedia content and an online networking and communication platform. Mining IQ is a one stop shop for mining content and I find that the articles and features contained within it are accurate, well written, valuable and very relevant to today s issues and challenges. ArtIcLes VIdeOs POdcAsts WhIte PAPers sector reports Q&A s surveys Your gateway to 1000s of free mining resources Over 7,500 members and counting... Join the conversation...become a member today! MiningMaven is the go to resource for the private investor with a keen eye on the mining exploration and natural resources Sector. As well as writing about the sector and specific companies, MiningMaven conduct regular interviews with management, allowing investors to stay abreast of companies progress. MiningMaven also host web events and road shows offering investors the opportunity to meet the companies, learn more about the sector and hear from industry experts. For more information visit us at where you can sign up for our free Newsletter. 6 7

5 Biographies - Horizonte Minerals David J. Hall Executive Chairman 30 years in exploration & development on projects and mines in over 50 countries. Previous positions include Chief Geologist for Minorco SA; consultant geologist for Minorco South America; and Exploration Manager for AngloGold South America. Involved in discoveries in South America & Europe. Corporate roles in number of public and private companies. Jeremy J. Martin Chief Executive Officer Extensive exploration experience in South America, the Caribbean. Mining experience in Europe, managing one of Europe s largest open pit gold mines in Sweden. Involved in the formation of a number of AIM and TSX listed companies and has completed several high value mineral project transactions. Paul Nagerl General Exploration Manager in Brazil 24 years experience in the mineral resource industry including international experience. He has strong technical expertise along with extensive Brazilian mining experience including the establishment of Falconbridge Brazil Ltda in South America. Furthermore he was involved in managing exploration leading to the discovery of the Serra de Tapas nickel laterite deposit and the development and management of nickel laterite deposits in Guatemala that were sold to BHP Billiton. F. Roger Billington Technical Director Ex head of Falconbridge nickel laterite exploration worldwide. Project development including senior roles in the discovery and evaluation of the Touba-Biankouma nickel laterite deposits (Côte d Ivoire), the Koniambo nickel laterite deposit (New Caledonia), the Sechol nickel laterite deposit (Guatemala) and the GlobeStar nickel laterite deposit (Dominican Republic). Allan M. Walker 26 years of energy and natural resource banking experience, focussed in Latin America. Currently running a private equity Clean Energy fund for the Cargill group and previously ran the energy and project finance groups for Standard Bank in London and CSFB Garantia in Sao Paulo. Owen Bavinton 40 years experience in the mining and minerals exploration sector, most recently with mining major Anglo American plc. Since 1998 he has been Anglo American s Senior Vice President of Exploration and since 2003 its Group Head of Exploration and Geology, overseeing and advising on acquisitions and exploration programmes of Anglo American s key projects. He was instrumental to such discoveries as the Jacare nickel deposit in Brazil and Los Sulfatos copper project in Chile, and was also involved in numerous evaluations and Feasibility Studies, including the Barro Alto nickel project which is now in production and Morro sem Bone nickel project both in Brazil. Alexander N. Christopher 27 years experience in mineral exploration and mining. His current position is General Manager New Ventures within Teck s corporate development group. For the last 10 years he has focussed on the junior mining sector, partnerships, property transactions and Teck s junior mining equity investments. William Fisher Graduated as a geologist in 1979 and has extensive industry experience in both exploration and mining positions worldwide working for Karmin Exploration, Boliden AB, GlobeStar Mining Corp. and Aurelian Resources and currently PC Gold, RX exploration, and Treasury Share this article Follow us on Twitter The Company featured here has sponsored the cost of producing this MiningMaven Special Feature. All figures quoted have been obtained from the Company s websites and/or publically available sources. Errors & omissions excepted. All written content represents the views and opinions of MiningMaven, has been prepared for information and educational purposes only and should not be considered as investment advice or a recommendation to buy shares in the company featured. All opinions expressed are those of the author/s and unless otherwise stated should not be construed as being made on behalf of the featured company. From time to time MiningMaven principals may take equity positions in a featured company. Readers are advised to do their own extensive research before buying shares which, as with all small cap exploration stocks, should be viewed as high risk. Investors should also seek the advice of their investment adviser or stockbroker, as they deem appropriate. MiningMaven is a division of Catalyst Information Services Ltd registered in England: