An assessment of a second stage expansion of the planned Araguaia nickel project, in Brazil, has delivered compelling economic results, with a base case net present value (NPV) of $741-million and an internal rate of return (IRR) of 31.8%, Aim- and TSX-listed Horizonte Minerals reported on Wednesday.
The base case is using a nickel price forecast of $14 000/t, but the company pointed out that the consensus mid-term nickel price of $16 800/t, pushed up the after-tax NPV for the Stage 2 option to $1.26-billion.
The expansion option is included as an opportunity in the National Instrument 43-101 technical report that Horizonte filed for the Araguaia project. The company in October announced the results of its feasibility study for the project, which allowed for the future construction of a second rotary kiln electric furnace (RKEF).
This expansion, or Stage 2, will potentially double Araguaia’s production capacity from 14 500 t/y of nickel to 29 000 t/y.
Stage 2 assumes operating at Stage 1 production rate of 900 000 t/y for three years, after which free cash flows would be reinvested to expand the plant to 1.8-million tonnes a year by the addition of a second line.
“For this scenario the upfront preproduction capital cost remains unchanged at $443-million and the incremental capital expenditure to build the Stage 2 expansion, is anticipated to be financed out of operational free cash flow. The feasibility design of the RKEF plant and all associated infrastructure was configured to allow a second RKEF line to be added at a future time, as such the Stage 2 expansion benefits from the existing utilities and infrastructure expenditure. Significant items such as the powerline, water pipeline, overall process plant site, utilities, and slag storage facility already have sufficient capacity built in during the Stage 1 planning to meet the desired production increase,” said CEO Jeremy Martin.
The results of the Stage 2 study shows that Araguaia’s resources could support the increased capacity over 26 years, with the first ten years averaging 1.81% nickel, which the company stated placed the project on the upper range of the global grade curve.
“The recent weakness in nickel prices appears to be a reflection of macroeconomics and does not appear to have impacted wider consensus of the positive future potential of the nickel market. Demand versus supply deficits remain forecast for the short term. Inventories on the LME continue to fall with significant new supply required for the stainless steel market, which is growing at 5% year-on-year, with new demand driven from the electric vehicle (EV) battery sector. Araguaia is anticipated to come on line in 2021 and be placed in the lower quartile on the laterite C1 cost curve (year 1 to year ten) of $3.08/lb of nickel, making it one of the lower cost new nickel projects,” said Martin.
Araguaia, as a saprolite resource, will produce ferronickel for the stainless steel industry. The deposit also has a limonite mineral resource, which could be treated to produce products suitable for the EV battery market.
Horizonte traded at 2p a share on the Aim on Wednesday, down 6% on the previous day’s closing price.