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Wasa- yes Ni is a volatile metal but I honestly think that that volatile trading range is stepping up to new parameters, it's previous perception was as an ancillary industrial metal and now it is also seen as a critical "green" mineral. Future lows will be a lot higher than previously experienced . JM will be fully aware that the most profitable thing he can do at the moment is do nothing (finance news excluded) The mineral exploration/commodity/mining sector is just beginning to see the effects of a huge surge in demand which will propel even the weaker players (HZM is very strong) GLA
pickedpeck thanks, very interesting.
I guess also we are highly leveraged to nickel price (as costs are relatively fixed minus exchange rates et al, whereas nickel we know is a volatile metal). But better to have C1 ~$7k because that of course produces a huge range of profitability.
It follows that NPV will fluctuate reasonably widely with changing nickel price but as you say you add discount (or opportunity) if you think it will rise.
This gearing is obviously highly played out by a single/pure play miner (and I mean commodity here rather than number of mines or jurisdictions) like Horizonte. For the minute putting Cobalt to one side.
Taken all those factors then you have to say 'right place at the right time' we are. The numbers are staggering even before we really factor in 'what if' with Vermelho. Thanks for the analysis.
One other thing. Nickel price is currently attached to a rocket. Cash price now over $16k/t , Dec 22 price $16.5k up nearly $1k on the week just about $2k since the start of October. At this rate we may see $18k/t in November, the $14k base case is looking more and more irrelevant.
Wasa - simply put, NPV is a proxy for project, and in this case company, value. You discount against it for risks and uncertainties, and add a premium for opportunities like commodity price growth. I am presuming that's why the new emphasis on NPV calculators on the HZM website.
The only reason we are not being currently valued anywhere near NPV is the finance and equity risk. As soon as that goes away then (in theory) the NPV becomes real and we should be up up and away.
NPV takes account of capital requirements, includes a discount rate currently set at 8% for HZM which is a proxy for cost of finance. That may be a little high, we may be able to get finance at significantly lower rates post Covid and from ECAs. More offtake agreements may seem like a good idea now, but selling future production at today's price might mean a lower future return.
Even so we have an IRR in the models of mid 20s to 30 plus depending on Ni price, several multiples of the discount rate. Something pretty disastrous would have to happen to the Ni price in order for us not to be massively profitable even under the worst finance construct.
That of course would require the market to price us at NPV based on current nickel price (and not base case $14k/t). You are of course saying the market if pricing correctly should forward price us on expected nickel price in the years of production therefore a higher NPV but of course there is discount to uncertainty to the future nickel price (presumably this is baked into the NPV calculation though).
It will be very interesting to see how it plays. Not many weeks to find out, hopefully!
Thanks pickedpeck, amazing stuff, I hope you're right.
My maths (please correct if wrong): 0.7x NPV @16k/t (I think you are using Araguaia P1+P2 estimate here) gives me mcap ~£600m which gives me sp ~30p with 2bn shares.
You're also saying that in effect the dilution % doesn't matter a huge amount in the grand scheme of things because the NPV is currently so huge relative to the mcap that whatever % gets diluted (and we all hope it is small) there will be a significant shareprice rerating event.
None of this yet adds any value for Vermelho.
Wow, simply put wow, if you're right. We should see 20-30p then in Q1/Q2 (say it takes a couple of months for the dust to settle and financing is done on time) and I guess many present investors here believe this based on the estimates.
I had a similar range in my investment case but I expected it 2023-25. I'll be really happy with Q1 Q2 next year, fizzy wine all round if we see anything like 20-30p. Thanks for your numbers.
Wasa - I think we should move much closer to NPV at finance (70-80% once the dust has settled), and move past NPV as we enter production in a rising Nickel commodity market. 1.2x Araguaia NPV wouldn’t be unreasonable at production assuming Nickel is still on an upward trend.
I think we are held back right now on the uncertainty around equity value and dilution in the whole finance package. That makes the actual valuation and debt position open to question. Once the uncertainty is removed and the actual price/NPV ratio is clear we will see a sharp rise as institutional investors will see the program as much more derisked.
As PIs we are ok with speculating on 30-50% equity dilution as the final price/NPV will make the dilution a positive effect given the size of the NPV. It is also possible that equity dilution will be much smaller given the multiple funding options, anything better than 50% and we are all big winners from here.
At what point (realistically) are you expecting to see that NPV based valuation? At finance, or at production?
I haven't invested in a miner through the whole lifecycle but my guess would be we don't see the full valuation at NPV until production (or thereabouts) so question becomes what is a realistic % of the valuation to realise at finance complete? 50%? Less/more?
Just talked myself into another 200,000.
We all know valuation of something in the future is really bloody hard otherwise there would never be any money to make in an efficient market. However, ignoring basic facts is pretty unforgivable in any financial review assessing an investment.
FCF in the billions from a friendly jurisdiction nickel district sustainably serving both the stainless and battery markets for 30 years or so, compared to a 100m company valuation surely deserved a bit of a mention.
Do you think they understand that the valuation of a mining company is typically a PREMIUM to the NPV at current commodity prices due to the forecast commodity price increase?
HZM valuation of Araguaia should now be $1.1Bn at $16k/t , with a premium applied as we all expect Ni to go to $22-25k/t + over the next five years. At Ni $22.5k/t NPV for Araguaia is $2.3Bn!!!
As soon as the equity portion of finance is closed and the money is all in place the valuation of the company should fall between those two NPVs, even if you ignore Vermelho.
Taking the average gives a company valuation for Araguaia of $1.7Bn , £1.3Bn .
Assuming equity moves the shares in issue up to 2Bn then that translates as a valuation for just Araguaia of 65p a share. Even the lower NPV of $1.15bn and a worse case 2.5Bn shares translates as a company valuation of 35p a share.
A 5 x share price multiple as a worst case, with 10 x as an expected case, with Vermelho as a larger project added in this could be 25 x today's price.
Of course the wider industry knows this, and will very likely buy HZM out before those valuations are fully realised. When will govern how much of the bigger prize current investors get.
The idea that Yahoo or MF could suggest investors today may have missed the boat is utterly ridiculous.
'Horizonte Minerals has made significant progress with getting financing for its two big Brazilian projects – Vermelho and Araguaia.'
Errrrr.................
'I think a lot of the value is tied to the future of electric vehicles (EV) and to the market leader in that industry, Tesla.'
Errrrrr.................
'Essentially, investing in Horizonte Minerals is a play on the EV market'
Errrrr................
Or that it is stainless and makes a lot of money in just about any nickel market....
The Yahoo / Motley Fool article is badly thought out. It doesn't talk about or estimate future valuation, or highlight what risk / reward leverage there is.
'What could the future value of the company be?' is not a question this article addresses at all.
https://spongeshare.com/research/horizonte-minerals-research-note/
Worth a read before you buy (or sell).
https://uk.finance.yahoo.com/news/investors-missed-boat-horizonte-minerals-080826650.html
also look at KEFI for gold. GLA