Member Info for wasarunner

We were unlucky with interest rates and inflation and suspect that made the second round financing necessary. Our senior debt is moving eith LIBOR which although it doesn't seem to exist any more must be a shedload higher than when we secured the debt. But if it is expensive to raise debt money to finance mines -> less mines get built -> product becomes more expensive generally. I am pleased we managed to get finance done between covid and the war as in hindsight the window of opportunity was not that long.

I've re-read the convertible debt details ($65m - $50m Orion, $15m La Mancha). Horizonte can only redeem them after the 5th anniversary of the grant - so not before around end of 2026. Orion/La Mancha can convert up to the end of Tranche A of the senior debt facility which is 10.5 years so around 2032. I guess I was looking at when Orion / La Mancha convert but as far as I can tell they get no advantage by converting before Horizonte can redeem, as the loans are accruing interest up to that point (so they will end up with more shares if they don't convert). So we can't see Orion/La Mancha converting as being a key de-risk point (i.e. they now consider their investment less risky) because they are under no obligation to do so before 2026 and are likely to sit on it as debt.

By 2026 the landscape could be radically different of course - Horizonte may have had an offer accepted for the whole company or, Vermelho may have been JV'd.

If Horizonte could have bought the loans back (bearing in mind the loans have been diluted now by the second fund raise so the 8p shareprice they were granted is more likely to be around 5p now / £1 in new money) they could have bought the loans back with relatively little production - $65m is only 3kt nickel equivalent around current prices. Including accrued interest this dilution looks around 60m more shares in issue so around +20% on top of existing share capital. Would have been nice to buy back 1/5th of the company for $65m but I don't think it will happen I think they will convert.....

For Strummers point - yes volume is non existant - for a £400m+ mcap company you wouldn't expect smallish PI buys/sells to move the price much but once the institutions are holding (72%+ of the co) and not buying or selling the PI trades do have a disproportionate effect. But this will change a lot when institutions take closer order I think. My theory remains they just don't like to buy before mine commissioning is de-risked and production starts but -> they'll miss the boat IMO.

We need more institutional buying esp if Cannacord are offloading. Maybe Fidelity have stopped (or paused) for now? Either way we are heading towards a very interesting newsflow period with the Araguaia 2 DFS due next quarter, mine build complete and commissioning. Even if the rerate only comes when production starts (Q1 next year) it should be a good one with the current value sitting at 0.4x NAV. We saw the move up from 90p-100p area was very rapid once there were buyers I'm expecting a similar move to kick off at some point up to £2 and above.

>>pay my mortgage which has just tripled or hold my HZM

What, everyone hasn't already sold their house to buy more HZM? (I do jest but I kind of did in a roundabout way do exactly that...it looks like it sort of could work out but the next 6-12 months are key obviously...)

Fair enough Jabba and no worries - we want the same thing trust me on that one! Progress of course and yes, it is frustrating. Great if you have confidence and can add at these levels but the thing about these levels of course is -> they don't inspire confidence! My average is somewhere around 3p. Here's hoping for progress still think we need Blackrock to move first and it seems to have gone quiet on that front for time being....

Rhetorical question, obviously

New posters talking the share down. Wonder why.

Cannacord still selling perhaps? They won't have infinite left to sell. Quite chunky trades too - I bought on Monday and got the same price for all my shares so definitely shares available at the moment (at least the quantities I'm biying).

Answers to all these questions in less than 12 months.....

Theorist I think only the following matters for us really:

1. Is what we're producing a decent quality product and what is the cost of production and what product is it competing against.

2. For all the ferronickel output (not converted) this is unequivocally yes. Araguaia can produce high quality ferronickel at lowest quartile cost, as can Vermelho - in fact the grades at Vermelho are better than Araguaia from when I read the PFS.

Then it gets more interesting of course:

3. What's the advantage of producing matte to supply the battery market, what is the cost of doing so, and at that point the matte is competing against nickel sulphate and other nickel matte product and finally

4. Is it worth building HPAL at Vermelho to produce nickel sulphate via that route (given the large capex and large risk, is there a return on that).

A2 DFS will either include matte conversion option (or not) and Vermelho DFS will either consider RKEF (+matte) or HPAL, or both. So there is really quite a lot of unknown at the moment but I'm pretty sure the Horizonte management are all over the options and the most exciting bit, for me, is that we should find out all the answers to all these questions in

Araguaia 1 and Araguaia 2 (without the matte conversion) are actually directly competing with NPI - which is an inferior product I believe than ferronickel but can be used in similar scenarios - stainless steel etc. The key for Araguaia was always to be competitive in this market because Indo can produce NPI nearly at will and this was the huge oversupply scenario for nickel in the 2010s leading to those low prices of $11k/t etc. I asked this very early in my conversations with Horizonte - would be we competitive like for like our Ferronickel vs Indonesian ferronickel and because of where we sit on the cost curve this was unequivocally a yes. In the meantime we have fixed our cheap hydro power meaning a low opex for the years ahead while a lot of Indo production is subject to coal prices as their power comes from coal. So Araguaia should remain competitive against a flood of possible ferronickel/NPI out of Indonesia and this was key for me to invest here.

I find this quite good it explains the different types (and the conversions possible):

https://s2.q4cdn.com/343762060/files/doc_downloads/2021/Does-Matte-Matter-Sept-2021.pdf

I believe we only have Laterite, (and no Sulphide) sources of nickel at both Araguaia and Vermelho. At both sites we have Limonite (which is amenable to HPAL, RKEF, or RKEF + nickel matte conversion) and Saprolite (which is amenable to RKEF or RKEF + nickel matte). HPAL produces nickel sulphate + cobalt, RKEF produces ferronickel, matte conversion produces an intermediate product which can be further refined to convert to batteries. Matte conversion is the only way to get from non-limonite ferronickel to nickel suitable for batteries, I believe.

So the difference between Vermelho and Araguaia is the proportion of limonite and saprolite (which are listed on the website on the project pages), I think at Vermelho limonite is like 50% whereas at Araguaia a lot lower percentage. So this makes Vermelho the place to do hpal at all (or not at all) as presumably at Arauguaia it isn't cost effective to separate the limonite and process it through HPAL as there isn't enough of it.

Ferronickel and NPI (nickel pig iron) are classed as class 2 nickel which typically also trades at a discount to the main LME nickel price which I think is for class 1/ refined nickel. If nickel sulphate is also trading at a discount to pure nickel then I think it is because of oversupply by Indo/China. I think the discount/premium is very volatile as it was at a premium during/pre covid. I asked this question on the last but one investor presentation because I was concerned that with the flooding of 'cheap' hpal projects in Indo Vermelho might be up against competition where you don't want to be competing on a difficult build, high capex project against an oversupply scenario. The latest presentation confirms they are thinking carefully over the route.

For me the geo-political situation is the one that will be key - will we see China 'hoard' its supplies and will the west prefer western producers and then which way will Brazil go. It seems to me that with the high ESG Horizonte are specifically targetting western consumption of the produced nickel which, looking ahead, is probably the way to go even if there is some extra ESG cost of getting there.

If any of the above are wrong please correct, I'm not a chemist!

There has to be a chance that La Mancha prefer 100% of +$1bn FCF/yr and not 30% I hadn't considered that. Always assumed if a bid came it would be from a miner. I'm not sure the advantage to La Mancha of keeping this listed is not if they want to collect the distribution for 30 years. Why not make the offer now/soon when they know the first mine is built. Would Glen sell to them is the question but Glen don't have enough shares to outright block the bid. Perhaps having it listed suits them for some other reason though and they are happy with 30% of a large number. Time will tell.

>>Still amazed that the possible rewards and diminishing risks here are not pulling in a lot more investors

PIs - want to make money in 3-6 weeks not 3-6 years

IIs - want to see Horizonte complete the first mine build because before this point they may feel there is too much risk. But by the time the mine is built and with the upside you outline they will only be able to buy their shares from PIs who are happy with their £3-4 and don't have the 3-6 year time horizon and they won't have enough shares to buy. So I think new institutions really risk missing the boat here.

Must admit one of the reasons I diversified after the equity finance is I thought upside would be limited by a T/O. At what number hard to say but it may be that this can be bought for £3-4 not a bad return (from the equity price of £1.40 at which the equity finance came in). This is why I find the current situation more and more intriguing and I do believe it all hinges on what La Mancha want:

Looking at what La Mancha can have here, if the full build out pans out as pickedpeck says, La Mancha are looking at c. 20x on their equity investment price but more importantly, and perhaps as part of their strategy - they own 30% of +$1bn FCF/annum i.e. $300m/annum. That is greater than their total investment to date I believe so their own IRR becomes 100%+/annum and who doesn't like their investment back+ every year for 28-30 years?

I am really liking the language coming out of the investor calls. Reviewing optionality around which way to take Vermelho and it is also why I am excited by the A2 DFS - the funding options on that may give us a clue as to La Mancha's intentions here. For PIs who can stay aligned (I turn 50 next year and a 28-30 year investment returning 100%+ of my invested value would suit me very well indeed). Still think the biggest problem investors will have here is getting shares in quantity - they just aren't going to be available once the mine build is de-risked. Less of a problem for PIs but 'another Fidelity' will struggle to get 5%+ of the company I think because minus PIs who need their money out I just don't see who would sell. GLA

Salmonn your post made perfect sense as long as you (most times) substituted rkef for hpal. Which I did! I definitely agree with you and I have a friend who is a serious engineer say this also - best to avoid hpal for Horizonte. We will see...

Yep, I'm trying....5% and building.

So the only thing not moving at the mo is the SP. It seems the market values you at 0.4x PNAV at construction 65% complete no matter how on time and on budget it is. Nevertheless, on the gant chart a lot of construction activities complete this quarter and commissioning gets underway.

On the last investor update prior to this one JM said he expects two rerates - one at construction complete (I guess that might include commissioning) the other when we reach nameplate production. I guess those are 4-6 months and 10-17 months away (assuming nameplate is achieved in H2 2024).

Other sp catalysts then are the A2 DFS (later this year is hard to estimate so to be on the safe side call it Q4 2023 2-5 months) and Vermelho DFS (again conservatively H2 2024 10-17 months)

So I can see rerate events at 2-5 months, 4-6 months, 10-17 months x2 (with whatever gradual rerate in the meantime to reflect the diminishing risk of these events not happening). Institutions are normally quite savvy to what is coming so I would be surprised if the price doesn't run up ahead of these timeframes.

My target remains £2 end this year (A1 construction complete + A2 DFS), £3-4 end next year (A1 nameplate, A2 DFS/financed, V DFS). Upside from that end of next year if the deal on Vermelho is done IMO.

120kt x 28yr mine life is 3.36m tonnes - iirc horizonte's reserves are 3.5mt so it just about fits. If grades are an issue you spend a bit more time drilling for better ones.

I was thinking about this yesterday too - and pickedpeck has mentioned this on previous posts. You can grow your production profile at both Vermrelho and Araguaia by adding further rkef line(s). So if (La Mancha's) goal is to maximise npv over time, and they got time (as a long term investor) then build out two rkef lines initially at each mine gets you 60kt and one more at each mine added later gets you 90kt. Assume you have time to drill for further reserves while building your initial 4x rkef lines if total reserves/LOM is a challenge - horizonte do own a 'nickel district'. Or build a 3rd mine at Araguaia North/Serro do Tapa for the additional 2x lines. I think we have the potential for 90-120kt (6-8 lines) which from the graphic in the presentation yesterday would put us above Glencore in production and behind Vale as the only larger western producer. (Whether Vale would allow that to happen without making a bid of course - perhaps not).

Simplistically if you assign £2.50/sh value to each rkef line conservative number you can get £5 (a1+a2) £10 (a1+a2+v1+v2) and then £15, £20/sh if 2/4 further lines are completed. In practice the financing may not be that straightforward but it does suggest the holy grail of '10 bags' is available from the current price always assuming a bid doesn't land which I feel is more likely. We will see! Super excited about this investment and still slightly annoyed at myself at trimming my position to what I have but that's greed for you as I got plenty really. Gla