Horizonte Minerals (LON: HZM) (TSE: HZM) shares are now down 82% since the shock announcement earlier in the week. At which point we might think well, there’s nickel there, 4/5ths off the price, that must be worth it! But no, mining doesn’t work that way. Once there’s a roadblock for a mine then everything gets reconsidered. To the point that long term and large shareholders are in fact selling out even at these depressed prices. Precisely and exactly because the one problem that derails current and extant plans can and does lead to that recalculation of all of the plans.
As we’ve said before about Horizonte Minerals: “There are two reasons for the vast share price change in reaction to an only 35% change in capital costs. The first is simply that of course the mine’s economics now change. If we need 35% more capital then that’s 35% directly out of the bottom line revenue in the plan. That’s going to be a big chunk of predicted profits. So, that’s no good. But more than this it’s when the new numbers have been revealed. They’re already boots on the ground, building stuff. Which, to put it crudely, makes them easy meat for any passing financier. They’ve got to have the extra money given the amount already sunk into the project. So, the price that can be charged for the extra money will be high.”
There’s another issue here too.
Horizonte Minerals share price from Google Finance
Since the first set of numbers, those used to raise the money to get this far, the nickel price has fallen. Nickel mines are just worth less than they used to be. Perhaps far worse here is that everyone’s realising what EVs are going to do to the pgms prices. The biggest, by far, usage of platinum, palladium and rhodium (that last especially important here) is in catalytic convertors for ICE cars. EVs don’t use them. Further, catalytic convertors are recycled at end of life and the pgms recovered. That is, give it 5 or 10 years and there’s going to be a vast wave of pgms hitting the market from recycling while there’s near to no being used to make more cats for new ICE vehicles. Prices are going to crash, aren’t they?
Now, this has been true and will be true - but the market realisation of it has been happening these past few months. So, now, while Horizonte has to rework all of its calculations and raise more money this is now foremost in investor minds.
This doesn’t mean that Horizonte is dead, certainly not. But it does mean that even at 80% off it’s not an obvious, nobrainer, bargain. So don’t leap in as if it is obviously such. It might even be, but not obviously.
