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Cash-strapped nickel developer Horizonte Minerals (AIM: HZM) (TSX: HZM) has agreed a $20 million interim funding package from that will allow for critical construction streams to advance at its flagship Araguaia project in Brazil.
Comprising a majority of the funding package is a senior secured loan facility from its three biggest shareholders Orion, Glencore and La Mancha, who have each committed $5 million for a total of $15 million. The remaining portion of funding will be the release of $5 million by OMF Fund III (Cr) Ltd.
The three lenders will rank pari passu with the company’s senior lenders and benefit from the same security package, Horizonte said, adding that the loan will have a maturity date falling 102 months from December 7, 2022, and bear interest at 15% per annum.
Furthermore, the existing senior lenders have agreed to waivers that include deferral of interest due at December 31, 2023, to the end of February 2024 in addition to any breaches or events of default under the senior debt facilities.
According to Horizonte, the funding package constitutes a related party transaction under AIM rules, and as such, the company’s independent directors (excluding those connected to La Mancha) considered that the terms of the funding are “fair and reasonable insofar as its shareholders are concerned.”
In addition, OMF Fund III has demonstrated its further support to the project through the release of an additional $5 million currently secured at Vermelho, Horizonte’s other project in Brazil. Following the closing of the funding package, $11 million will remain segregated for the development of Vermelho, where ongoing studies continue to advance.
“We are pleased to see the continued support from our cornerstone shareholders through this $20 million funding package. This funding package is a demonstration from the company’s largest shareholders on their commitment towards finding a solution to complete the Araguaia nickel project construction,” interim CEO Karim Nasr commented.
The latest funding package ensures that the company has the liquidity to advance the required re-estimation work at Araguaia, which will be necessary to implement a full funding solution for the project labelled as Brazil’s next major ferronickel mine.
The project’s feasibility study outlined an open pit laterite mining operation that will produce 14,500 tonnes of nickel per year, with future potential of doubling the capacity. Over the initial 28-year mine life, the Araguaia mine will generate free cash flows after taxation of $1.6 billion, returning an IRR of over 20% on an initial capital cost of $443 million.
As previously announced, Horizonte’s cornerstone shareholders and senior lenders are continuing to undertake their respective due diligence as part of securing full funding. It is expected that this due diligence process and review will be finalized in the first quarter of 2024, with a full funding solution targeted for the following quarter.
Shares of Horizonte Minerals surged by more than 50% late afternoon on Wednesday, giving the company a market capitalization of C$62 million.
