Taken 1m shares in #HZM over past 3 days, av. 3.96p – £57.3m mkt cap. Current net cash position of ~£29m, 50% of cap.
Two 100% owned Nickel pre-production assets in Brazil:
Araguaia - construction ready, sourcing development capex.
Vermelho - PFS just completed, DFS next.
#HZM Araguaia: at $16.4k Ni, project has a post tax NPV of $1.2bn, v development capex of $443m. 2.7x is a very heathy ratio – IRR comes in at 30.7%.
Co has secured a 2.25% royalty deal with mining financier, Orion, for $25m cash. Orion will likely provide further devel. capex.
#HZM Vermelho: at $16.4k Ni, project has a post tax NPV of $1.7bn, v development capex of $652m. Again, very healthy. IRR of 26.3%.
Whilst Araguaia is a FeNi deposit, Vermelho is NiCo – i.e. geared towards providing for a major macro trend, the electric vehicle revolution.
#HZM wants to develop Araguaia on its own, reaching 29ktpa output in five years. It's currently in talks with project financiers (investors and debt providers alike).
For Vermelho, it sounds like a partner will be brought on board at project level to fund the DFS.
For me, the market has paid too much attention to the drop in Ni over the past 7 weeks, from a peak of $18.7k to $16.1k this week.
Ni rocketed by over 50% from end June to start Sept. It was always going to cool off.
It's back up to $16.8k already and in a clear uptrend.
#HZM
#HZM valuation: Orion’s royalty agreement implies a valuation for Araguaia alone of ~10p. Personally I think it should be on a 15% to 20% of Stage 1 post tax NPV ($691m) at present, which implies a range (at $16.4k Ni) of 7.2p to 9.6p.
#HZM valuation: Vermelho should command a valuation of 5% to 7% of project NPV at this post PFS stage, given its strategic importance – on a global scale – to the EV revolution. That implies a range of 6.0p to 8.3p.
My base case for #HZM right now is thus 13.2p. Bull case 17.9p.
However, it should be noted that it is almost universally agreed that Ni is going to push up much higher in the next few years.
At $20k Ni, the combined NPV of the two projects (fully developed) would be $4.3bn.
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