Horizonte Minerals (HZM.L, HZM.TO) has released the results of a new pre-feasibility study on its Araguaia nickel project in Brazil. The company’s base case scenario calls for an average production rate of just over 30 million pounds of nickel, helped by a high head grade of 1.96% nickel in the first ten years of the total 28 year mine life.
The initial capital expenditures actually remain relatively limited to $354M, and as the production cost (on a C1 basis) is just $3.15 per pound, the after-tax NPV8% using a nickel price of $5.5/lbs comes in at $328M whilst the after-tax Internal Rate of Return is 19.3%. Not sky-high, but acceptable. The sensitivity analysis shows how important the nickel price is for this project because if you’d use a nickel price of $14,000/t ($6.36/lbs), the IRR increases to 26.4% and the NPV almost doubles to $581M.
The discount rate also plays a huge role. Even though we fully agree with a discount rate of 8% for an operation in Brazil, it’s also important to notice the net free cash flow over the entire mine life is approximately $1.26B using a nickel price of $5.5/lbs.