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What a time to be a nickel mine developer, particularly if you are sitting on a globally recognised undeveloped asset.

The price of the metal has advanced 60% in the year to date and is at levels last seen eight years ago.

It represents a perfect storm for Horizonte Minerals (LON:HZM), which has seen its shares double in value in that time-frame.

However, there is an argument – one supported by several City analysts – that Horizonte’s £66mln market capitalisation doesn’t reflect the mine developer’s full potential.

Two projects

For the uninitiated, the company owns two projects in Brazil: Araguaia and Vermelho.

Araguaia, a nickel laterite operation in the north of the country, is the most advanced.

Its feasibility study revealed the deposit could support rotary kiln electric furnace churning out 52,000 tonnes of ferronickel a year.

Over an estimated 28 year lifespan, the mine would generate US$1.6bn of cash, giving a 20% internal rate of return for an upfront capital cost of around £355mln.

Andrew Scott speaks to Horizonte’s Jeremy Martin 

The project has been designed to take a second furnace, which would double output.

Orion Mine Finance, an influential industry name, referred to Araguaia as “one of the leading nickel development projects globally” after it struck a US$25mln royalty deal with Horizonte.

Orion will no doubt be part of the funding mix as boss Jeremy Martin and the team look to put together cash needed to start digging and processing ore.

Royalty deal applauded

Jonathan Guy, an analyst at City broker Numis, said: “We view the royalty agreement as a positive for Horizonte, which shows third-party validation of the project from a respected mine finance organisation which should also be an influential supporter of the project going forward.

“The deal also provides much-needed cash in a non-dilutive structure which preserves upside from the upcoming Vermelho PFS [pre-feasibility study].”

Vermelho was acquired from the Brazilian mining giant Vale in 2017. The PFS is expected later this quarter. However, earlier work on the asset pointed to a nameplate capacity of 46,000 tonnes of nickel per year and 2,500 tonnes of cobalt.

Horizonte worth 20p a share, says Paradigm Capital 

Numis analyst Guy’s latest note on Horizonte values the company at 11p a share, or in total £160mln. Paradigm Capital reckons the shares are worth 20p each (25 cents), giving a market cap of £289mln.

“The royalty agreement with Orion is a significant first step toward fully financing Araguaia’s development, in our view,” said Paradigm analyst Jeffrey Woolley.

“Orion has a track record of US$1.5bn in successful financings and now becomes a partner at Araguaia.”