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Luke I think the nice thing here is it is already worth that (say 15p-20p if sold today) at current issued share capital. The next 2-3 years adds enterprise value I would say so a sale in 2-3 years you end up with a better sale price (in pence per share). My feeling is they just don't have the capacity to build Vermelho (if they did, and could, then the sale price goes through the roof, probs looking at 50p+ sp even including dilution). I also don't see them leaving Vermelho idle for 5 years while they complete phase1+phase2 Araguaia, say, over 5 years.
Partial sale of Vermelho is a possibility but what's the point? A big player, Glencore, Vale, Teck, would want 50kt capacity add, not 25kt/yr I would suspect. Big attraction to the buyer of the scale of resource here. And it makes sense to sell Vermelho at a point where it can go either way to suit the buyer - Ferronickel or EV.
Thanks wasarunner, I have always had circa 20p in mind, even when we only had Araguia. The nice thing is that a 20p offer may be years away, or days away, but with the big boys turning away from coal and oil investments in my opinion an offer is increasingly likely.
The size of your investment is in the ‘cor blimey’ category, though my risk adverse partner stopped me in my tracks this morning by suggesting perhaps they should buy more, obviously great minds think alike!
>>Araguaia NPV is $1.2bn including phase 1*
including phase 2, I meant.
Araguaia NPV is $1.2bn including phase 1 at Nickel at $16.5k/t (using the calculator on the Horizonte website). At a point where phase 1 is up and running, if there is interest from the buyer, Horizonte can leverage that in negotiations. Sure there is the capex to pay but we can say 'if you don't buy us we build phase 2 from free cash and NPV is $1.2bn'.
So if you were setting up the company for a sale, and don't have the resources to build Vermelho, in my view the sweet spot in the timing is at around phase 1 Araguaia complete - nickel is taking off, still time to build Vermelho by 2025 EV demand, you can use Araguaia phase 2 take it or leave it in the negotiations.
Leave a sale later and Vermelho isn't hitting the big boom in EV demand at production. A sale earlier and you might not get full value, but of course, if the buyers know what's coming they might sweeten the deal and get in earlier (though to de-risk they probably want phase 1 operational).
I think all things being equal (nickel demand, EV uptake, Araguaia project development) there is a very sweet spot for sale 2022-2023.
A takeout at $1bn, even diluted at 3bn shares is worth 25p. It is probably a relatively pessimistic scenario but most would probably take it from 3p today if it happens in 2-3 years. Less dilution, higher takeout price, phase 2 Araguaia, better nickel prices, Vermelho interest etc still all upside from these numbers.
My view is Horizonte will get Araguaia built, get Vermelho to permitted stage, and most likely at or around that point a buyer will land. Plus or minus a year (a year before production or a year after production).
Being a small company they don't have the resources (or probably skills) to do both builds. Having one working mine or thereabouts gives a very strong hand in negotiations. Wait for the start of the Nickel boom to sell, at a point where prices are north of $16k/t and looking to stay that way. What is the company worth at that point? A lot - Araguaia should be valued at much closer to NPV, and Vermelho is a huge potential asset to be developed by the buyer to feed the EV boom. Can't see it going for less than $1bn at that point. I see it as the most likely outcome - company gets sold in around the 2-3 years (plus or minus a year) timeframe.
Less likely is it goes on to build and operate both mines.
Less likely is it gets sold because can't finance Araguaia.
All IMHO.
I've got just over £650k invested here, much more money than I ever thought I'd have available and more than I thought I would invest. Just the way these things work out. Fraction over 20m shares at an average price of 3.27p.
I'm lucky that if it goes t***s up I have other means and not relying on this at all. They say only invest what you can afford to lose - it would hurt - but I can afford it. Upside massive IMHO and will come good. Demand is going to be there, the asset is proven (and not just by Horizonte, by Vale, Glencore etc before them) and going to be in demand. Companies are going to want to diversify geo risk they won't want it all to come from Indonesia and Philippines. Orion did the DD on Brazil, there is of course geopolitical risk but Brazil is generally favourable to mining (minus the odd disaster).
Just patience needed now. I can afford to wait in a bad market. I don't intend to sell any except to move between pots until Araguaia phase 1 production at the earliest. I think that is where the first proper payday is (or 6-12 months after start of production) but also, the next 3 years IMHO a massive window for a takeout. All to play for...