Horizonte Minerals Plc – Got US$325 million Financing for Brazil Ferro-Nickel Project

Horizonte Minerals Plc (LON: HZM) is an AIM-listed Nickel Development Company. The Company owns the advanced Araguaia ferronickel laterite project and the Vermelho nickel-cobalt project, located to the south of the Carajas mineral district of northern Brazil.

Recent News

On 12 August 2020, the Company announced that it had executed US$325 million senior debt facility mandate for the Araguaia ferro-nickel project in Brazil. BNP Paribas (BNPP), ING Capital LLC (ING), Mizuho Bank, Ltd. (Mizuho), Natixis, New York Branch (Natixis), and Société Générale will act as the MLA (mandated lead arrangers) for the senior secured project finance facility. The debt facility is targeted to close at the end of 2020.

Trading Update (Q1 FY2020)

On 12 May 2020, the Company provided a financial statement for the three months ended 31 March 2020 (Q1 FY20), with a strong cash position of £17.0 million. Nickel market fundamentals stay robust with a slight decrease in analyst consensus prices to US$16,150. The loss before taxation for Q1 FY2020 stood at £1.0 million, a huge increase in loss from a loss of £0.5 million in Q1 FY19. At the time of update, the project financing process was running to schedule with no negative effects.

Share Price Performance

 
1-Year Chart as of 13 August 2020, after the market close (Source: Refinitiv, Thomson Reuters)

Horizonte Minerals Plc’s shares were closed at GBX 4.15 on 13 August 2020, down by 2.35% against the last day closing price. Stock 52 week High and Low were GBX 7.00 and GBX 1.33, respectively.

From the technical standpoint, 14-day RSI is currently moving towards the overbought zone, which means there is a potential for a short-term correction in the stock price.

Key Risks

The performance of the Company is dependent on the production, which may be delayed due to the Covid-19 outbreak. Moreover, the delay in the delivery of material and equipment can lead to a higher cost of production.The volatile demand and supply conditions can adversely impact the commodity prices, and thus, the Group’s profitability.

Conclusion

The debt facility will cover a significant portion of the pre-production investment required to complete the first stage of construction for Araguaia. Since the Company is in the development phase, it does not generate any revenues, and all the operations are financed through the cash reserves and grants. The profitability margins have remained in the negative zone for the period. The Group operates in a challenging environment which requires continuous investment, sometimes at the cost of profitability, to stay ahead of competitors.

The Company’s P/E, P/CF and EV/EBITDA multiples are in negative zone as compared to the industry multiple. Currently, the stock is trading near the 52-week mid, suggesting that the upside potential might be limited.
Based on the above rationale, we have given a “Watch” stance on Horizonte Minerals at the closing market price of GBX 4.15 (as on 13 August 2020), while we look for any upcoming catalysts in the near term such as benefits from a healthy pipeline of commercial and development projects.

Empire Metals Ltd - Acquired a 75% interest in Eclipse Gold Mining Licence

Empire Metals Ltd (LON: EEE) is an AIM-listed Company, which is engaged in the exploration and development of gold and copper mining projects. The Company has operations in the UK, Austria and Georgia. In Georgia, the Company operates in JV with Caucasian Mining Group.

Recent News

On 12 August 2020, the Group has entered into an option agreement to acquire 75% interest in Eclipse gold mining licence in Western Australia from Philips Exploration Pty Ltd. The total cost to acquire six-month option is AUD$100,000 in cash. AUD$300,000 to be settled with the issue of 9.4 million Empire shares at 1.75 pence each and issue of 9.4 million warrants exercisable at 3 pence each.

On 3 August 2020, the Company provided an update on the drilling programme (Artemis Resources Ltd’s) at the Munni Munni Palladium Project in the West Pilbara. This update includes 6.5 metres at 1.68 grams of palladium per tonne of ore and adds 0.14 grams of gold per tonne from 41 metres. Munni Munni project is subject to a binding agreement between Artemis and Empire to acquire a 58.6% interest in Munni Munni Pty Ltd, an Artemis subsidiary and 70% beneficial owner of the project.

Financial Highlights (H1 FY2020)

On 30 July 2020, the Company provided an interim result for the six-month period ended 30 June 2020. In H1 FY20, the Company reported an operating loss of £215 thousand, which narrowed from an operating loss of £325 thousand a year ago. The profit for H1 FY20 was £257 thousand as Empire earned a profit of £471 thousand from JV. Empire. As on 30 June 2020, the Company had cash of £364 thousand. In February 2020, Empire raised £600 thousand through the issue of new shares.

Share Price Performance

 
1-Year Chart as of 13 August 2020, after the market close (Source: Refinitiv, Thomson Reuters)

Empire Metals Plc’s shares were closed at GBX 2.20 on 13 August 2020, down by 12% against the last day closing price. Stock 52 week High and Low were GBX 4.50 and GBX 0.725, respectively.

From the technical standpoint, 90-day RSI is currently moving towards the overbought zone, which means there is a potential for a short-term correction in the stock price.

Key Risks
The Group is exposed to various risk and uncertainties, including fluctuation of the interest rate, credit risk arising from failure by counterparties, liquidity risk due to the mismatch of maturities for assets and liabilities, and currency fluctuations pertinent to Australian Dollar, US Dollar and Sterling.Moreover, the volatile demand and supply conditions can adversely impact the commodity prices, and thus, the Group’s profitability.

Conclusion
The Company plans to start work on the Bolnisi Project in Georgia as it has received confirmation of the tenure from NAM (National Agency of Mines). As per the interim report, the Munni Munni is expected to have 1.14 million ounces palladium, 0.83 million ounces platinum, 0.15 million ounces gold and 0.07 million ounces rhodium. The Company expects to have increased growth in the remaining of 2020, and it is confident of sustaining the current economic situation. The acquisition with Eclipse gold mining is a great addition to the Group’s portfolio. However, the Company operates in a challenging environment which requires continuous investment, sometimes at the cost of profitability, to stay ahead of competitors.  Moreover, the Company’s share price is trading near a 52-week mid, which raises doubt over upside potential.

Based on the above rationale, we have given a “Watch” stance on Empire Metals at the closing market price of GBX 2.20 (as on 13 August 2020), while we believe that Eclipse gold mining acquisition will provide benefits to scale up business operations in the near term.

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