Vermelho — one of the largest and highest-grade undeveloped laterite nickel-cobalt resources in the world — will generate $7.3 billion in total cash flow over 38 years, Horizonte Minerals (TSX: HZM; LON: HZM) says.
The company acquired the Brazilian asset last year from Vale (NYSE: VALE) for US$8 million in cash — US$2-million upfront, and the balance on production.
The project will produce nickel and cobalt sulphate for the battery industry, and a prefeasibility study (PFS) released in October outlined a US$1.7-billion, after-tax net present value (NPV) at an 8% discount rate, and 26% internal rate of return (IRR) at a US$16,400-per-tonne, base-case nickel price.
“If you flex those economics to current long-term pricing at US$19,800 per tonne, the NPV goes to US$2.4 million and the IRR to 31.5%,” says Jeremy Martins, the company’s cofounder and CEO. “It’s a very cash-generative asset.”
The PFS puts initial capex at US$652 million, and estimates that at full production Vermelho would produce an average of 25,000 tonnes of nickel and 1,250 tonnes of cobalt per year using a high-pressure acid leach (HPAL) process.
Over the nearly four-decade mine life, Vermelho would produce 924,000 tonnes of nickel contained in nickel sulphate, 36,000 tonnes of cobalt contained in cobalt sulphate, and 4.5 million tonnes of kieserite — a by-product and form of fertilizer.
The project would use a hydro-metallurgical process consisting of a beneficiation plant, where the mineralized material would be upgraded before being fed to a HPAL and refining plant, which would produce the sulphates.
Martins says Horizonte wants to replicate the success at Coral Bay Nickel Corp.’s HPAL plant in the Philippines, where the company has churned out 20,000 tonnes of nickel per year using a twin-line HPAL plant — a low-capex operation that has operated for the last 15 years.
Japan’s Sumitomo Corp. is Coral Bay Nickel’s major shareholder and operator of the mine, Martins says, and would be the ideal partner for Vermelho down the road.
Horizonte will have to find a strategic or joint-venture partner to codevelop Vermelho, Martin says. “We’re flexible on what that structure would look like,” he says, but it has to be the best fit.
“We’re getting a lot of inbound interest from the battery-manufacturing arena, and we think the timing is right to bring in a partner, but the terms have to be right. We are acutely aware it has significant intrinsic value, and we need to make sure any partners allow us to capture that value ourselves. If the structure doesn’t allow that, we’ll advance it to the next stage ourselves.”
But Vermelho is actually Horizonte’s second development priority. The first, 85 km away, is its flagship Araguaia nickel project. Martins and his team hope to start construction there in mid-2020, depending on market conditions.
At the end of August, Horizonte signed a US$25-million royalty agreement with Orion Mine Finance. Under the deal, Orion will provide an upfront cash payment of US$25 million in exchange for a 2.25% royalty on Araguaia. The royalty only applies to the first 426,429 tonnes of contained nickel within the final product (ferronickel) produced and sold. This is equivalent to the nickel production estimated over the life-of-mine for Araguaia in the Stage 1 feasibility study.
The company also has seven banks working on financing deals, and Martins hopes to have a debt package finalized before July 2020.
“At the moment nickel prices and nickel fundamentals are looking compelling for the short- to medium-term, and there’s a lot of interest in the nickel space,” he says. “There are very few high-grade, low-cost and large-scale nickel opportunities that are ready in the development marketplace today.”
Araguaia would produce nickel for the stainless steel industry, which still accounts for 70% of the world’s consumption of the metal.
A feasibility study in October 2018 outlined an open-pit laterite operation delivering ore from a number of pits to a central processing plant using a single line rotary kiln electric furnace (RKEF) to extract ferronickel from the ore.
After an initial ramp-up, the plant is expected to reach full capacity of 900,000 tonnes dry ore feed per year to produce 52,000 tonnes ferronickel containing 14,500 tonnes nickel per year over 28 years.
The initial mine life generates after-tax free cash flow of US$1.6 billion based on a nickel price of US$14,000 per tonne. The project could be built for initial capex of US$443 million.
The project has been designed to allow for a second RKEF process plant, which would double Araguaia’s ferronickel output.
With Araguaia and Vermelho, Martin says, Horizonte controls 100% of the district, and, if both were to start commercial production, the company would rank “in the top-10 largest nickel producers in the world.”
Martin notes that Horizonte finds itself with two enormous nickel projects at a “pretty exciting time” in the industry.
Nickel inventories on the London Metal Exchange are at their lowest level in the last seven years, he says, having moved from 500,000 tonnes of nickel in 2012 to today’s 90,000 tonnes.
At the same time, there is “robust” demand from the stainless steel market as well as from the emerging battery market for electric vehicles, which he says is likely to move from 3 million to 4 million electric cars on the market today, versus the projected 30 million to 40 million cars forecast by 2030.
While demand for the metal grows, he adds, “we have had 10 years of historic nickel price lows and very little capital coming into the nickel space.”
Finally, Indonesia’s decision in September to ban exports of nickel ore from January 2020 — two years earlier than expected — will have a huge impact, Martin says.
The Southeast Asian nation is the world’s largest nickel ore producer.
“Potentially over the next two years there will be a loss of around 200,000 tonnes of nickel ore supply,” Martin says. “So with the combination of dwindling inventory and lack of direct shipping ore out of Indonesia, we’ll see some very interesting pricing on nickel in the short- to medium-term.”
(This article first appeared in the November 11-24, 2019 edition of The Northern Miner).