Cana20 Feb 2024 10:33
Horizonte Minerals (HZM | Under Review ): Another grim update. HZM’s revised plan for first production at its Brazilian Araguaia nickel project makes fairly tough reading. Revised capex estimate now sits at US$1,004m some 87% higher than the previous estimate of US$537m set by the previous management team, and inflated guidance of US$700-800m (also from the previous team). This puts the cost to completion at US$454m which does not include US$52m in outstanding liabilities to trade creditors. The timeline to completion and production of first metal has also been pushed out to 1H26 (specifically 1Q26) with an 18-month commissioning, from our previous forecast of 1H25 with a 15-month commissioning ( this feels like a “full house” on “Bad News Bingo”) . HZM has also brought on G Mining Services (GMS) to execute the completion of Araguaia, with GMS employees to be seconded to HZM through commissioning and directly paid by HZM. Graham Crew to will also step in as the COO, who was previously the CTO at La Mancha Resource Capital and COO at Golden Star. The positives here are the extended and more realistic timeline to completion as well as the staffing changes to meet both capex and timelines set. The negatives are the estimated over US$500m cost to completion for Araguaia line 1, uncertain funding sources and significant shareholder dilution at the current share price. There is also the additional question of how to deal with the existing and any further debt at HZM to complete both lines 1 and 2 at Araguaia. While it is good to have the capex and timeline now revised, the quantum of capex for Araguaia line 1 leaves us highly sceptical on residual equity value if funded all by new equity. We leave HZM under review until the final financing solution for Araguaia is disclosed in 1H24.
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