PFS Results - Araguaia Nickel Project, Brazil

RNS Number : 0609D

Horizonte Minerals PLC

25 March 2014

 

Horizonte Minerals plc / Index: AIM and TSX / Epic: HZM / Sector: Mining

NEWS RELEASE

25 March 2014

Pre-Feasibility Study confirms economic and technical viability for Araguaia Nickel Project, Brazil  

____________________________________________________________________

25 March 2014- Horizonte Minerals Plc, (AIM: HZM, TSX: HZM) ('Horizonte' or 'the Company'), the nickel development company focused in Brazil, announces results from the recently completed NI 43-101 compliant Pre-Feasibility Study ('PFS') at its 100%-owned Araguaia Nickel Project ('Araguaia' or 'the Project') located south of the Carajas mining district in northern Brazil.  All $ values in this release are USD

Araguaia PFS Highlights

·    Strong economics:

·    Post tax US$519 million NPV₈ and 20% IRR based on 900ktpa single line, 15,000tpa nickel('Ni') in  ferronickel ('Fe-Ni') product (Base Case - preferred route)

·    Post tax US$1,204 billion NPV₈ and 21% IRR based on 2.7Mtpa twin line plant('Option')

·     Long term Life of Mine ('LOM')

·    25 year mine life (Base Case)

·     Low cost operation

·    C1 cash costs of US$4.16/Ib (US$9,166/t) over LOM (first quartile of cost curve)

·    Significant free cash flow generation

·    Projected generation of US$1,766 billion post tax over the 25 year mine life

·    Reduction in capital expenditure from the PEA

·    Base Case shows pre-production capital figure of US$582 million

·    Short capital payback

·    4.4 years (Base Case)

·    High Grade

·    1.76% Niaverage feed grade for the first 10 years of production (Base Case)

·    Flexibility to ramp up production

·    Substantial NI 43-101 resource base consisting of 71.98Mt grading 1.33% Ni (Indicated) and 25.35Mt at 1.21% Ni (Inferred) allows operational flexibility

·    Base Case designed to allow for the addition of a second process line to increase overall nickel production

·    Proven process route

·    Will produce ferronickel via the proven and low risk pyro-metallurgical process using Rotary Kiln Electric Furnace technology ('RKEF') (60 year old technology utilised by 20 plants worldwide)

Commenting, Jeremy Martin, Horizonte's CEO said; "The completion of the PFS is a major project milestone and demonstrates the robust economics of Araguaia as a leading nickel development project globally.

"Two operational scenarios were evaluated as part of the PFS which has demonstrated that Araguaia offers flexibility to be developed at multiple scales.  Our preferred route to production is the smaller Base Case with an after tax NPV₈ of US$519 million and a IRR of 20%, which utilises a single line RKEF process plant running at 900,000tpa with 15,000t targeted annual production of nickel in Fe-Ni product.  The large scale Option offers production upside with an NPV₈ of US$1,204 million and 21% IRR based on 2.7Mtpa twin line RKEF process plant. 

"The Base Case has been selected as it maximises financial returns whilst minimising both technical risks and capital exposure.  The lower capital required is at a level that the Company has the ability to finance and is more in line with current market trends (low capex: high returns).  In addition there is considerable upside should we choose to add an extra process line to produce more nickel in the future.  The project economics are robust with the average feed grade for the first 10 years of 1.76% Ni placing the deposit in the upper quartile for grade globally.  The Option demonstrates that the project is also viable at a much larger production capacity should the Company bring in a partner to develop the project.

"Not only is Araguaia proven to be economically and technically viable but it is also worth noting that the project is ideally located in an established mining district.  The region offers good road and rail networks with accessible transportation routes to port, access to low cost hydroelectric power and support from regional authorities. In addition, the use of the Rotary Kiln Electric Furnace is a tried and tested method of producing ferronickel.

 "In terms of the nickel market, the recent ban on direct shipping nickel ore from Indonesia has seen the commodity in the spotlight since the beginning of 2014 and has already had a significant impact on the nickel price.  There is anticipation of tightening on the supply side resulting in increased nickel prices in the mid to longer-term, at the time when we anticipate Araguaia being brought into production.  The market consensus believes that it will take several years for companies to build and commission process facilities in Indonesia, this together with the required supporting infrastructure, means the overall cost of production from such plants is not yet known, but likely to be higher than the current cost in China. Horizonte is well positioned to benefit from this with the positive PFS completed, we are one of the few junior companies developing a significant nickel project with a proven process route. 

"I would like to thank Snowden, the associated consulting groups and our internal team for producing a high quality PFS on time and on budget.   The Company's aim is to move into the Definitive Feasibility work programme as we advance Araguaia towards production."

Pre-Feasibility Study Overview

Key findings of two processing options:

	Base Case* 900kpta Single line	Option Case 2.7Mtpa Twin line
NPV8 post tax	US$519M	US$ 1.204Bn
IRR post tax	20%	21%
Nickel price	US$ 19,000 /t	US$ 19,000 /t
Initial mine life	25 years	22 years
Capital Costs - pre-production	US$582M	US$1.436Bn
C1 costs	US$4.16/Ib (US$9,166/t)	US$4.24/Ib (US$9,380/t)
Free cash flow over LOM (after capital payback)	US$1.766Bn	US$3.470Bn
Pay back period (After taxation)	4.4 years	3.9 years
Breakeven Ni price on NPV8 post tax	$ 13,977/t	$ 14,060/t
Targeted Production per annum	15,000tpa Ni	40,000tpa Ni
Average Ni grade - Year 1 to 10	1.76% Ni	1.57% Ni
Product grade quality	20% Fe-Ni	20% Fe-Ni

*Base Case 900kpta operations is Horizonte's preferred route to ferro-nickel production 

The PFS is a Canadian National Instrument 43-101 (NI 43-101) compliant Technical Report ('the Report') which has been prepared for the Company under the supervision of qualified persons within the meaning of National Instrument 43-101 Standards of Disclosure for Mineral Projects.  This report was prepared by Snowden Mining Industry Consultants Limited ('Snowden'), with the following groups involved in the preparation of contributory material: IGEO Mineração Inteligente Ltda (IGEO), KH Morgan and Associates (KHM) and Prime Resources (Pty) Ltd (Prime).  The Report summarises the geological, hydrological and engineering studies performed at a PFS level (± 25% accuracy) and used in the economic evaluation of the Project with the objective of proving the economic viability of Araguaia to produce ferronickel (Fe-Ni).   The 43-101 Technical Report is published on SEDAR (www.sedar.com) and is available to download from the Company's website (www.horizonteminerals.com).

The engineering design solutions offered in the Report are considered industry standard approaches.  The mining of nickel laterites is typically open pit with well-developed mining practices and earthmoving machine applications.  This study considers the open pit configuration for the exploitation of nickel laterites to establish the production of run of mine ('ROM') ore from seven open pits which supply a targeted 0.9 million tonnes per annum ('Mtpa') of ore to a processing and smelter facility that uses the RKEF process with the product being sold at the mine gate (Base Case).

Initially, two production scenarios were considered:

·   0.9 Mtpa (contractor operated)

·   2.7 Mtpa (contractor operated)

The Base Case of 0.9 Mtpa has been selected by Horizonte as the preferred route to production based upon its internal criteria to minimise the overall capital intensity and maximising economic returns of developing Araguaia. 

Importantly, the opportunity exists to increase production subject to additional engineering. The Base Case for this study assumes an ore processing rate of 0.9 Mtpa.  A plant construction period of two years has been assumed and the pre-production capital construction costs for the plant are incurred 30% in Year 1 and 70% in Year 2.  In addition, sustaining capital has been provided for over the 25 year life of mine and process plant.  To minimise capital, the Base Case also assumes contractor mining which includes ore haulage to the plant.  Supply chain factors have also been considered for in-bound and out-bound logistics for key consumables such as coal for smelter requirements.

Location and Infrastructure

The Araguaia nickel project is located on the south-eastern border of Pará State with Tocantins State, approximately 40 km north of Conceição do Araguaia (population of 45,557), south of the main Carajas Mining District.   The project has good regional infrastructure including a network of Federal highways and roads,with access to low tariff hydro-electric power.  The port city of São Luís provides the primary supply chain facility for in-bound and out-bound logistics for bulk material handling of coal and potentially Fe-Ni product.

The project can be reached by air from São Paulo via Palmas, the capital of Tocantins State situated to the east of Rio Araguaia.  Local flights are supported by airports at Palmas (Tocantins State), and Redenção via Belém/Marabá.  From Palmas it is a further 400 km drive on sealed highways to the main Araguaia field office in Conceição de Araguaia. 

Mineral Resources

Mineral Resources for the Araguaia Nickel Project, as at March 2014 by material type (0.95% Ni cut-off grade) are

Araguaia	Category	Material type	Tonnage (kT)	Density (t/m3)	Contained Ni metal (t)	Ni (%)	Co (%)	Fe (%)
Sub-total	Indicated	Limonite	11,560	1.35	137,790	1.19	0.127	36.50
Sub-total	Indicated	Transition	24,110	1.19	346,920	1.44	0.060	19.87
Sub-total	Indicated	Saprolite	36,310	1.32	473,960	1.31	0.034	11.82
Sub-total	Inferred	Limonite	8,830	1.34	100,310	1.14	0.097	35.85
Sub-total	Inferred	Transition	9,340	1.28	122,040	1.31	0.053	20.34
Sub-total	Inferred	Saprolite	7,190	1.41	84,370	1.18	0.033	12.07
TOTAL	Indicated	All	71,980	1.28	958,660	1.33	0.058	18.48
TOTAL	Inferred	All	25,350	1.34	306,730	1.21	0.063	23.40

1.         Totals may not add due to rounding.  Mineral Resources are inclusive of Mineral Reserves

2.         The resource classification scheme adopted by Snowden was based on the following:

·          Mineralisation was classified as Indicated where the drilling density was 100 mE by 100 mN (or less).

·          Mineralisation delineated using a drilling density larger than 100 mE by 100 mN and up to about 150 m spacing was classified as Inferred.

·          Mineralisation delineated using sparse spacings was not classified.

3.         Mineral Resources reported for the PFS deposits were prepared under the supervision of Qualified Person Mr. Andrew F. Ross an employees of Snowden. 

4.         Mineral Resources (Inferred) for the other deposits in the project (not considered for the PFS) were prepared by Dr. Marc-Antoine Audet and were reported in Audet, M A, et all (2012).

5.         The Indicated Mineral Resources are inclusive of those Mineral Resources modified to produce Mineral Reserves

35,200m of core drilling (HQ) (1,412 holes) has been completed to date on the Araguaia project (Phase 1 to 3 resource drilling programmes).

It should be noted that the Mineral Resource statement above does not include estimates for other prospects within the Project area (Morro, Southern, Oito West and Pequizeiro East) due to insufficient drill information at this stage. 

The Project's resource inventory is sufficient to support significantly larger scale mining operations underpinning the Base Case 900 Ktpa up to the 2.7Mtpa Option.

Mineral Reserves

The estimation of Mineral Reserves used estimates of Indicated Mineral Resources for the Project.  A Mineral Reserve estimate of 21.2Mt (dry) at an average grade of 1.66% Ni was estimated.  The detailed breakdown of the Mineral Reserve by deposit is presented below.  This Mineral Reserve is calculated for the Base Case only.

Mineral Reserve for the Araguaia Nickel Project, Snowden as at March 2014

Class	Deposit	Ore Dry Mass (kt)	Ni (%)	Fe (%)	Al2O3 (%)	SiO2/MgO
Probable	Baião	3,500	1.67	17.41	4.58	2.56
Probable	Pequizeiro	9,300	1.70	15.58	5.39	2.56
Probable	Pequizeiro West	380	1.57	20.38	4.63	4.29
Probable	Jacutinga	960	1.81	15.13	2.96	2.11
Probable	Vila Oito East	2,450	1.55	15.97	3.73	2.22
Probable	Vila Oito	3,580	1.63	14.61	3.63	2.05
Probable	Vila Oito West	1,020	1.59	19.35	4.25	3.32
Total Probable		21,200	1.66	16.01	4.59	2.44
Proven		NIL	N/A	N/A	N/A	N/A
Total Probable		21,200	1.66	16.01	4.59	2.44

1.        The Mineral Reserves are included in the reported Indicated Mineral Resources

2.        The Minerals reserves were developed using a value of refined Nickel of $15,000/t a mining cost of $3/t for ore and $9/t for waste, a processing cost of $127.8 /t of feed and a G&A costs of $11.20/t of feed. Additionally, specific constraints with respect to the grade and ratio of certain compounds that the process technology could tolerate were applied.  Pit slopes were limited to a maximum overall slope angle of 35 degrees.

Mining

Araguaia will utilise typical open pit mining methods across seven pits with Base Case production scheduled to mine on average 3.3 Mtpa in order to deliver 900 ktpa of ore to the plant for 25 years.  All seven pits were designed through a standard process of pit optimisation, waste dump design and pit design.  The pit design used smoothed pit shells from the pit optimisation and altered for the removal of small satellite pits.  The Project was scheduled on the basis of panels.  A total of 43 panels for the project were designed and scheduled.  Within each panel, a number of "bins" are generated on the basis of rock type and nickel grade.  The production schedule was completed in quarterly increments over the life of the project.

A number of processing constraints were applied to the schedule which included a 13 month processing feed quantity ramp up period, and specific process feed grade constraints throughout the life of the project:

·   Fe grade between 15.0% and 16.5%

·   Al₂O₃ content between 4.0% and 5.5%

·   SiO_2/MgO ratio between 2.2 and 2.6.

Each of the deposits is proposed to be mined with typical truck and excavator mining.  Although the primary fleet requirement changes throughout the life of the project a typical configuration is 6 x 48 t operating weight ('OW') excavators, 3 x 50 t OW front end loaders, 17 x 40 t rated payload ('RP') articulated off-highway trucks and 2 x 30 t RP on-highway trucks for longer inter-pit haulage.  This fleet is supported by the usual array of support and ancillary equipment.

Processing

The Project will produce ferronickel via the proven pyrometallurgical process of Rotary Kiln Electric Furnace technology ('RKEF'). This is a 60 year old low risk technology with 20 plants operating worldwide today.  The Base Case assumes a single line RKEF installation for 900ktpa (dry) ore, producing approximately 15,000tpa nickel as Fe-Ni.  The overall process flow block diagram can be accessed on the Company's website.

The initial process stages encompass ore preparation, where the ore is sized to match the subsequent metallurgical process requirements.  Kiln dust is recycled to the process before the secondary crushing stage in a roll crusher with an 80mm gap.  The ore is then homogenised, partially dried and fed to the kiln with the addition of metallurgical coal.  In the kiln, the ore is completely dried and calcined to remove chemically combined moisture, and partially pre-reduced.  Calcined material is transferred into a single 50 MW electric furnace for the separation of the metal and slag at high temperatures.  The metal is conveyed in ladles to the refining stage.  The refined oxidised slag is granulated with water, while the reduced slag is transported molten and disposed of in a specific site.  The final Fe-Ni product is granulated with water, screened, dried and stockpiled prior to dispatch to the market.  The average nickel grade over the life of project is estimated at 20% Ni in Fe-Ni.  The Base Case is for a 25 year Life of Mine with ore processing capacity of 900 ktpa and 674 ktpa slag production respectively. 

Capital Cost Estimates

Item	$ million
Plant direct	376.088
Plant indirect	38.206
Owners costs	18.313
Infrastructure	56.034
Slag storage facility	5.242
Social	6.000
Mining	5.000
Contingency at 15%	76.092
First fills and spares	1.200
Total pre-production capital costs	582.176

The capital cost estimates have been complied with an accuracy level of ±25%

Operating Cost Estimates

Item	$ million	$/tonne - ore
Mining (contractor)	552.998	26.08
Processing	2,641.667	124.57
Off-site overheads	99.000	4.67
Total operating costs	3,293.665	155.32

Economic Analysis and Sensitivities

Base Case economic model headline results before taxation

Item	Unit	Value
Net Cashflow	$M	2,433.9
NVP8	$M	730.1
IRR	%	22
Production payback period	years	4.1

 Base Case economic model headline results after taxation

Item	Unit	Value
Net Cashflow	$M	1,765.9
NVP8	$M	519.2
IRR	%	20
Production year payback	years	4.4

Base Case economic model inputs

Item	Unit	Value
Pre-Production period	Years	2.0
Life of project production	Years	24.75
LOM ore mined and processed	kt	21,206
LOM waste mined	kt	60,050
LOM Average Ni grade	%	1.66
LOM Average Fe grade	%	16.01
LOM Average Ni recovery	%	93.0
LOM Average Fe recovery	%	37.9
LOM Average product Ni grade	%	20.3
LOM Average product Fe grade	%	79.7
Plant throughput	Mtpa	0.9
LOM Ni Price	$/t	19,000
LOM Fe price	$/t	150

The LOM Ni price of US$19,000 was adopted following a review of multiple information sources including; a report produced by Consensus Economics Inc. in December 2013 and is based on forward price estimations from 19 analyst and banking groups, together with analysis of average nickel prices over the past 10 years combined with industry benchmarking.

Pre Tax Sensitivity table for NPV₈

The sensitivity analysis determines how the NPV₈ is affected with changes to one variable at a time while holding the other variables constant. The pre tax results of the Base Case sensitivity analysis are presented the table below.

	-20%	-10%	-5%	0%	5%	10%	20%
Grade Ni	231	480	605	730	855	980	1229
Grade Fe	715	723	726	730	734	738	745
Mining reserves	678	723	728	730	750	773	813
Recovery Ni	231	480	605	730	855	918	918
Recovery Fe	715	723	726	730	734	738	745
Price Ni	231	480	605	730	855	980	1229
Price Fe	715	723	726	730	734	738	745
Pre-production capital	836	783	757	730	704	677	624
Production capital	734	732	731	730	729	728	726
Mining cost	774	752	741	730	719	708	686
Processing cost	922	826	778	730	682	634	538
Overhead cost	750	740	735	730	725	720	710

Social & Environmental

Horizonte Minerals have been working towards the completion of the SEIA application with work designed to meet World Bank Guidelines for social and environmental management standards.  All baseline studies have been completed. They include climate, air quality, noise, soils, fauna-flora, hydrology, geohydrology, protected areas, traffic socio-economics, cultural heritage, and resettlement.  It is the Companies intention to file the SEIA with SEMA/PA (Secretaria do Estado de Meio Ambiente) in Q3 2014.  The public consultation process will be finalised by the end of Q2 2014.

Permitting

Horizonte Minerals has in place: an Exploration Licence for the property which is valid until 26 February 2016; an Operating Licence (for exploration), which is valid until 21 May 2014 with extension pending SEMA/PA on 17 January 2014.  A request for renewal of the Water Licence was submitted to SEMA/PA on 04 December 2013.

Next Phase of Project Development

The next stage to the Project development will be to proceed to a Feasibility Study. This is expected to include:

·    Infill drilling to define a Measured Resource

·    Additional metallurgical test work to include large scale piloting

·    Trial mining

·    Completion of the Social and Environmental Impact Assessment combined with work to obtain the Mining Licence Permit

·    Detailed engineering, logistics and infrastructure studies

* * ENDS * *

For further information visit www.horizonteminerals.com or contact:

Jeremy Martin	Horizonte Minerals plc	Tel: [phone]
David Hall	Horizonte Minerals plc	Tel: [phone]
Joanna Weaving Matthew Robinson	finnCap Ltd (Corporate Broking) finnCap Ltd (Corporate Finance)	Tel: [phone] Tel: [phone]
Felicity Edwards Lottie Brocklehurst	St Brides Media & Finance Ltd (PR) St Brides Media & Finance Ltd	Tel: [phone] Tel: [phone]

About Horizonte Minerals:

Horizonte Minerals plc is an AIM and TSX-listed nickel development company focused in Brazil, which wholly owns the advanced Araguaia nickel laterite project located to the south of the Carajas mineral district of northern Brazil.  

The Company is developing Araguaia as the next major nickel mine in Brazil, with potential production by 2017.  

The Project, which has excellent infrastructure in place including rail, road, water and power, has a current NI 43-101 compliant Mineral Resource of 71.98Mt grading 1.33% Ni (Indicated) and 25.4Mt at 1.21% Ni (Inferred); and a Probable Reserve base of 21.2Mt at 1.66%Ni at a 0.95% nickel cut-off.

A Pre-Feasibility Study has been completed which underpins the robust economics of developing a mine with a targeted 15,000tpa nickel in ferro-nickel output with a 20% Fe-Ni product over a 25 year mine life utilising the proven pyrometallurgical process of Rotary Kiln Electric Furnace technology.  At these production rates, the project has a NPV of US$519m at a and an IRR of 20%, with a capital cost of US$582m which puts this project in the lowest quartile of the cost curve. 

Horizonte is well funded and has a strong shareholder structure including Teck Resources Limited 42.5%, Henderson Global Investors 15.1%, Anglo Pacific Group 9.2%.

 

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION

Except for statements of historical fact relating to the Company, certain information contained in this press release constitutes "forward-looking information" under Canadian securities legislation. Forward-looking information includes, but is not limited to, statements with respect to the potential of the Company's current or future property mineral projects; the success of exploration and mining activities; cost and timing of future exploration, production and development; the estimation of mineral resources and reserves and the ability of the Company to achieve its goals in respect of growing its mineral resources; and the realization of mineral resource and reserve estimates. Generally, forward-looking information can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved". Forward-looking information is based on the reasonable assumptions, estimates, analysis and opinions of management made in light of its experience and its perception of trends, current conditions and expected developments, as well as other factors that management believes to be relevant and reasonable in the circumstances at the date that such statements are made, and are inherently subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking information, including but not limited to risks related to: exploration and mining risks, competition from competitors with greater capital; the Company's lack of experience with respect to development-stage mining operations; fluctuations in metal prices; uninsured risks; environmental and other regulatory requirements; exploration, mining and other licences; the Company's future payment obligations; potential disputes with respect to the Company's title to, and the area of, its mining concessions; the Company's dependence on its ability to obtain sufficient financing in the future; the Company's dependence on its relationships with third parties; the Company's joint ventures; the potential of currency fluctuations and political or economic instability  in countries in which the Company operates; currency exchange fluctuations; the Company's ability to manage its growth effectively; the trading market for the ordinary shares of the Company; uncertainty with respect to the Company's plans to continue to develop its operations and new projects; the Company's dependence on key personnel; possible conflicts of interest of directors and officers of the Company, and various risks associated with the legal and regulatory framework within which the Company operates.

Although management of the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements.

 

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