Horizonte Minerals (AIM, TSX: HZM) sank further this week after the company detailed additional funding that will be needed to complete the construction of its Araguaia nickel project in Brazil.
In an update on Thursday, the nickel developer said the total funding required is in the region of $567-$592 million, which is at least $100 million more than the cost-to-complete capital of $454 million estimated in its February 19 release.
The new cost estimate now includes $89 million for pre-production and ramp-up of the nickel mine, general and administration, and working capital required to bring the operation to positive cash flow. It also takes into account $25-$50 million related to transaction costs and a minimum cash contingency.
In addition to these costs, the company said it will need to reach a restructuring solution for the group’s existing liabilities, which, as of March 15, were approximately $418 million. These are comprised of $241 million in senior debt, a $27 million cost over-run facility, $68 million to trade creditors and $82 million of convertible loan notes.
Horizonte said it will also need a restructuring solution for its existing royalties arrangements. In 2019, the company signed an agreement with Orion Mine Finance for an upfront funding of $25 million to advance the Araguaia project. In return, Orion would receive a 2.25% royalty.
In Thursday’s news release, Horizonte said “it continues to hold discussions to restructure the group’s debt in conjunction with seeking a fully funded solution and is actively engaging existing and new potential investors.”
Horizonte’s lack of funds drew the concern of shareholders last fall, when it revealed that costs for the Araguaia project has increased by over a third and first production will be delayed. At the time, it had spent $429 million on Araguaia. The company started building the mine in May 2022, with the aim of producing up to 29,000 tonnes of nickel a year for the stainless steel market.
After announcing the project cost overrun, Horizonte saw its stock price plummet, going from C$2.22 a share in Toronto to trading at C$0.34 within the space of a week. Since then, its share price has continued to decline, now trading at its all-time low of C$0.03 with a market capitalization of C$8.1 million.
Evidently, efforts to raise more funds and alleviate the situation did little to boost investor confidence.
In December, the company secured an interim funding of $20 million, consisting of loans from its three biggest shareholders Orion, Glencore and La Mancha, to keep the Araguaia project alive.
Meanwhile, most construction activities at the nickel project have been paused while Horizonte seeks new sources of funding. Being developed as Brazil’s next major ferronickel mine, the project is subject to a feasibility study confirming the potential for a Tier 1 project producing 14,500 tonnes of nickel annually over a 28-year mine life.
