Member Info for pickedpeck

I think Araguaia Phased I will fund Araguaia Phase II and Vermelho, and then they both fund Serra do Tapa. That's a five year view, but at that point EPS starts to look more like 30p, I'd expect a five year dividend view i.r.o. 1/3 of the EPS, so by 2025 and nickel peak demand / price we should be seeing a dividend possibly in the region of 10p if you can wait that long, and nothing catastrophic happens in the meantime.
The major reason I don't think that will happen, much as I would like it to, is that it is too compelling and there will be a take out way before that point by a global player. Teck and Glencore have their stakes as start points and would obviously want a say in a take out.
The valuation of the take out is entirely dependent on the time it happens, but unfortunately for me it is a when not an if.

If we were just mining Cobalt and didn't have any Nickel at all that's still $5Bn of resource in the ground. Of course the nickel is the major play and adds $50bn worth of material in the ground at today's price. The fertiliser side product just adds to the sustainability message.
Nickel is of course a tight supply controlled material, and with demand for both stainless steel and battery cathode material spiking then the consensus price of $16.5k a tonne could potentially be left a long way behind.

Serra do Tapa - auto text driven by the man from del monte...

Just a reminder for the newer investors in HZM among us, we are focused on Araguaia and sometimes Vermelho, but a year ago the company announced this:

13/08/2019

Horizonte Minerals Plc, (AIM: HZM, TSX: HZM) (‘Horizonte’ or ‘the Company’) the nickel development company focused in Brazil which is developing the Araguaia project as Brazil’s next ferro-nickel mine and the Vermelho nickel cobalt project for the electric vehicle (EV) battery market, is pleased to announce an initial NI 43-101 Mineral Resource Estimate for the Serra do Tapa nickel deposit (Serra do Tapa or the project).

Highlights:

-The Serra do Tapa Mineral Resources, in the Measured and Indicated category, are 70.3 million tonnes grading 1.22% nickel (at 0.9% nickel cut off);
-The Company’s 100% owned aggregate Mineral Resource inventory shows a 30% increase in tonnage with the addition of the Serra do Tapa deposit;
-A significant portion of high grade saprolite within the deposit is amenable to the Rotary Kiln Electric Furnace (RKEF) process route to produce ferro-nickel, potentially providing a further high-grade feed source for the Araguaia project;
-The Company’s 100% owned Measured and Indicated Mineral Resources now total 280 million tonnes with 3.5 million tonnes (7.6 billion Ibs) of contained nickel and 155 thousand tonnes (3.4 million Ibs) of contained cobalt; and
-Horizonte now owns one of the world’s largest inventory of undeveloped nickel and cobalt Resources globally, in a mining district with well-developed infrastructure.

So in simple numbers...
Mine build cost $440m
Cash at hand £15.6m , call it $20m for the sake of a round number , $420m left to find
$325m debt structure announced last week, $95m left to find.

If 100% of the remaining $95m balance for the mine build was raised at today's share price (lets say 4.5p) that would mean about 1.6Bn shares at today's price would be issued against the current 1.446Bn listed.

So with the mine built and producing and the maximum possible dilution in place to raise the outstanding capital required would mean a mkt cap of about £140m at 4.5p a share before anyone would lose from today's share price. Would a mine producing 14k tons of nickel a year with another three assets in development really only be worth £140m? I would have thought more like £500m by that point... 16.5 p a share post the maximum dilution.

Of course that's the worst possible case.

Equity may be issued at a higher price, Glencore are in at 10p I believe.
Further offtakes seem very likely as indicated by JM. Offtakes are good for everyone, for the buyer it locks in a price, for HZM it provides no dilution capital.
Local banks may want a part of the debt slice increasing the proportion from the $325m already announced.
Major shareholders (Teck and Glencore) would almost certainly want to provide an offtake agreement rather than see their capital eroded.
Its possible to imagine the remaining $95m may be raised without significant dilition, but for the sake of argument lets say they get offtakes for $45m and need $50m via equity. Via a placing those new shares may go for 10p.. 13c a share, 500m new shares to take the total to 1.946Bn shares.. If you accept the £500m valuation post mine build then that's about 25p a share.

So worst case in 2 years post mine build is 16p a share, reasonable case 25p a share.

Optimistic case... well none of the above factors in Vermelho, or Serra del Tapa. Or a rapidly inflating nickel price for a higher IRR. Or even lower equity dilution than the 500m. Or a longer timescale when the mine is a year or two into production, debt is reduced, offtakes paid down, vermelho is in build stage, Phase II is in build, and Serra del tapa is post PFS.

Bring on the dilution.

Not many real chances to make good money by making money do good. This has to be one of the most compelling stories on the markets right now. I am hoping this mornings sharp rise is due to investors doing their diligence over the weekend. Compared to recent surges in other junior miners this one is real and has legs, and is mining a material in demand for the coming electric revolution. Compare this to say GGP with a mkt cap at £500m and you have to scratch your head at the current disparity.

Good innit.

I'm guessing that was our seller clearing the last of their holding into the news. They will have held the price flat whilst the over hang was cleared at a fixed bid. I'm hoping that the seller that's been around for the last month or six weeks is now fully clear, it's most likely Lombard Odier, not sure whether it was a fund or their private bank on behalf of a high net worth individual but I'd speculate likely the latter. Plenty of people doing distressed sells to prop businesses up.

Either way those who have taken the opportunity at this price or below will be the beneficiaries of that distress. This price is artificially low and won't stay so for long. The discount against Araguaia NPV should have reduced significantly today, and Vermelho getting built rather than carved out.. Still trying to figure out the relevant valuation as every calc I do comes back with wild answers.

Interesting times.

Graham, you're right it's not what we were hoping for. I was hoping for an announcement of debt, off takes and insight into the degree of equity dilution, and how much of Vermelho would be given away to secure Araguaia funding.

What we have instead is a lot better. More of the mine funding will be debt based, in a low interest environment that's great news, its also great news that it minimises likely dilution - I am still trying to redo my maths on this - it's even better news as it declares intent to build Vermelho. I even like that the news is going to come in pieces.

So yes it's not what we expected, it's actually much better. This much debt could easily be cleared in the first three years of mine production.

If I had more cash available I would be buying more off this news. The earlier the entry the bigger the percentage return, but this is going to go a very long way up over a two year news stream window.

Wasa - agreed. I was fearful that Vermelho wouldn’t be retained (the bigger and fatter golden goose), but this surely now has to be valued in at least now. With no or low dilution this could land anywhere.

Wasa - with this much as a debt facility it is possible that a lot of the rest could be dealt with via offtakes. We may see very minimal dilution.

Early_Bird - that £90m May well be smaller as the Real has moved down against the dollar it is likely at least some of the build costs will be reduced. Orion or others may help bridge that gap.

The RNS also has a statement of intent about Vermelho, as in they now have the statement of intent to build the mine and it is not a chip needed to help raise the capital to build Araguaia. That in itself is also huge news.

Despite the obvious cynicism at play here KEFI holders should know it is possible for a small mkt cap miner with no revenue but some great undeveloped assets to raise debt in the current market.

As an example of what’s possible check out the HZM RNS this morning. Two undeveloped mines, similar stage to KEFI, mkt cap £48m (A bit higher) , just announced a $325m debt facility to help build the first mine. Minimises dilution (there will be some) and maximises shareholder value.

KEFI can get a similar deal in the current market. To suggest it is impossible is ridiculous.

Dilution will happen, but shareholders won’t be diluted to zero or Harry himself will be there be of the biggest losers.

Just to show how far this whole battery thing is going... I'm lucky enough to have a boat that I've been bringing back to life whilst sailing. Its got an old Perkins diesel engine in it that is getting to the end of its life. Its now economically viable and practical to replace my diesel engine with electric propulsion using very similar batteries to the Pylontech ones I thought about for the house. There is a case study for a conversion here: https://electricyacht.com/conversion-stories/pleione-conversion/ . £15k or so to go all electric, I am seriously thinking about it.

Now imagine the same principle being applied to buses, camper vans, trucks, trains... I don't think most cars would be viable for retrofit at the moment as short life / relatively low value assets, but you get the point hopefully. If the economics are good enough for battery power retrofit to work on an old boat what else could they work on?

By the way, I know there are already electric trains, but anyone involved in the electrification of the west coast line will tell you fitting overhead cables is no fun. Imagine a train towing a tender carriage full of batteries... Would that be cheaper than a major infrastructure project for transmission lines?

I've just fitted solar, a power wall, and an (unrelated to this debate) and air source heat pump to my house. The house is a sprawling 1850s stone built 7 bedroom thing in the countryside.

I've now got a couple of months worth of data. Since installation I've drawn 91 KWh from the grid, exported 124 KWh back to the grid, used 451KWh in the house, and generated 524KWh from the solar. The numbers don't zero out for a number of reasons... mainly that the powerwall is now fully charged and was also fully charged before metering was switched on. My system is set up for solar only and not on a time base to draw down cheap charge overnight. Its the summer so the solar is doing ok, in winter power will be way down. The interesting bit for me is that the above is now just all my electric power, but hot water too, and again the heating has been off as it is summer!

In short over the summer months it has made my house a net exporter to the grid and removed the need to buy heating oil (no mains gas in the area) at all. I need a full year of data to properly work out the ROI, but I am also getting RHI for the heat generated via a government incentive scheme.

The power wall holds about 13.5KWh of usable power, but you can chain them together. You could also go the much cheaper route of using Pylontech batteries and 2.4-3.3KW/h capacity each, you can chain as many as six I believe.

This made sense for my type of house now, but would probably make sense for other house types at different points. Over 7 years I will be somewhere between £25 and £35k better off than using oil and conventional electricity including fully paying for the system.

I don't have an electric car yet, but with the current system I would have a 60KWh a month contribution to the electric running costs assuming I stopped exporting to the grid. I could obviously run it all another way to feed more to the car.

All of that involves a considerable amount of Nickel moving into my house and complete change in my personal power consumption.

They won’t. But there is an argument that car ownership will drop like a stone too, urban 18 year olds already don’t want a car as Uber does 90% plus of what they need one for at a fraction of the daily cost of insurance, road tax, depreciation and parking. Now if your question was how will personal transport work post carbon economy ... cities will likely be a mix of car pooling / ride sharing and public transport with some personal vehicle ownership, whilst in suburbia the mix will be the other way round. Out in the sticks personal vehicle ownership will likely continue as today but with mostly EV rather than ICE power.
Oh, and saying you can’t charge at home because you live in a terraced house is like not that much different to saying ‘I can’t put petrol in my car at home’ , imagine the shift was happening the other way round. When there is a reason people find a way.
Bottom line is for a lot of people it will be about cost, then convenience, and then the planet. If it costs 1/5 of ICE to run an electric car how long before everyone wants one and will happily find a way? Mile for mile that difference is almost there now, just not everyone can afford a brand new car and numbers in the second hand market aren’t big enough yet to matter

So for resistance at 2P to be truly broken buyers at this price have to see a risk / reward equation which is attractive. Ignoring the rampers and derampers here (always present where there is a large spread x holding) what’s the balance of the opportunity?

Positives:

- two assets at different stages of development
- linked to rapidly inflating gold price
- potential link to very attractive copper price
- potential for split
- non finance agreements in place for primary asset
- management are shareholders and have same rewards as PIs
- asset NPVs at many multiples of current market valuation

Negatives

- large finance deal for primary asset not done
- uncertainty of path to production without finance
- long and winding journey to here denying confidence in management
- risky geographic domains - Africa and Saudi
- recent fund raise mid covid crisis at 1/3 of current price

The primary risk is that finance gets Kicked down the alley further using covid crisis as a rationale for bank uncertainty. Without Saudi that would see a drop back to sub 1p. However the Saudi Hawaiah asset gives a potential cushion, the JORC due this month could justify a higher market valuation on its own. When this was just TK there was massive risk of failure to deliver. Saudi doesn’t eliminate that risk, but does offset it with another route to value.

So my simplistic view (to be challenged) is TK value pre finance 1.25p , post finance 5p, mine built 12-20p. Saudi value pre-JORC 0.75p , post JORC maybe 1.5-2p, sale value 4-6p. I doubt Kefi will ever build a mine in Saudi. So maximum potential value in 2 years anywhere up to 25p a share. Maximum risk, no finance and no Saudi sale - 1.25 - 2p range.

Risk reward is low downside risk from this price for the two assets with a potential for 10x return if the promises turn out to materialise. That’s why people should buy at 2p, even 3 or 4 p still offers a great risk / reward ratio.

I suspect there is no way that Kefi will turn Hawaiah into a mine themselves, the minority stake when dealing with a Saudi partner would scare plenty of bigger fish, let alone one small enough to be bullied with impunity. The right thing to do is prove the resource and sell it to a much bigger player. If that happens then things may well get very interesting here, the cash transaction would have to be at least 10% NPV, maybe 20% in a rising market. That would be almost certainly bigger than the current mkt cap, and we would still have TK and a handy pile of cash to help develop it.

Took more than the predicted month to get into the mid 20s. 30p anyone? Seems likely now as gold has gone further than I thought, but even so I have reduced my position here now and taken the profits. If I have sold early I can regret at my lesiure having banked a decent gain.

My rationale despite the continuing rise of gold is around the floundering SA economy, it seems inevitable that PAF will be subject to some sort of government grab at some point particularly as the diamond miners are in free fall and not generating the tax revenue the government needs. I see the current shape the company in as great, which will unfortunately make it an even more tempting target.
https://www.thesouthafrican.com/news/finance/how-can-the-economy-recover-from-the-pandemic/

I am not ramping or saying these things are likely, but...

Post Hawaiah JORC could KEFI sell its minority stake and self fund the more of TK? For a cash sale how much would be raised? What would this do to the SP?

How about splitting the two projects into separate listings to realize the capital needed? KEFI Gold and KEFI Copper ? Would each listing have a viable mkt valuation based on the independent NPVs? Not long ago this was just about TK and no one was watching Saudi at all. They are different enough jurisdictions and markets that it would be a legitimate split. Harry would only be in charge of one of the businesses...

If they had to pursue both how much capital would need to be raised, and what would the effective dilution be? Too high to swallow, and too many moving parts for one minnow.

I propose for the consideration and debate of the LSE BB that we may see a split post JORC between Ethiopian operations and Saudi (not just H).

Just been looking at some correlations - like you do - and have to say Nickel price increase in $ is almost exactly correlating with the devaluation of the dollar against other key global currencies (£ , Euro, CNY etc) . Since May when the dollar peaked there has been approximately a 10% devaluation in the $, presumably as their economy continues to be hit hard by the incompetent handling of the pandemic there.

Having said that even in £ stirling nickel is rallying, passing £10k per tonne , but way off the peak price in Sep 2019 over £14k . Looking at the 1y nickel chart in a currency other than USD helps understand the reason we may not yet be flying as we should, but also helps reinforce the potential here.

Market cap is still only £26m, hardly racy. Only institution involved being RAB may be a reason for that, I'm not counting Spreadex or the nominee brokers.