Horizonte Minerals (LON: HZM) (TSE: HZM) shares are now down 90% and more over the past 6 months. They’ve lost 50% just overnight in fact, both of which are really rather impressive numbers. Not impressive in the direction we’d like of course, but impressive all the same. The basic problem here is that the mine just isn’t as impressive as it was previously thought to be. Well, that happens - but usually less than impressive mines get identified before anyone starts to construct an actual mine operation. So, everyone’s out just the exploration costs, not the construction. That’s not what happened at Horizonte, not what happened at all.
What did happen at Horizonte Minerals: “Horizonte Minerals (LON: HZM) (TSE: HZM) shares are down 45% in London this morning. HZM shares have fallen on the revelation that the Brazilian nickel mine is going to require lots more cash. That’s not quite how the company announces it but it is what they mean. It’s also not just that the project economics have changed, it’s the stage at which they’ve changed. They’re stuck over a barrel, with vast sunk costs and yet not able to get the project over the line without more money. That’s just one of those times when no one is nice and you do end up paying a lot for extra cash.” The specific problem was this: “This work, along with a comprehensive cost review, has resulted in changes to the design and execution scope, which are expected to increase the overall capital expenditure requirement by at least 35% (of current capex budget) and delay first production to Q3-2024.” Bith more capital required, and more working capital, at that half completed stage. The result there was the first halving of HZM stock prices.
Horizonte Minerals share price from Google Finance
It didn’t stop there either for Horizonte: “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.” That was our advice following another 50% fall.
Which brings us to today: “As of 10 November 2023, the Araguaia Project had total liquidity sources of US$169 million comprised of US$131 million undrawn on the Senior Debt Facility (subject to satisfying drawdown conditions) and a cash position of US$38 million which should provide sufficient working capital to around mid-December 2023 unless there are positive outcomes from conversations with suppliers, other cash preserving measures, or other financing solutions, which if successful should provide sufficient working capital until late Q1 24.” So, without new capital they’ve a runway of a few weeks to a few months. Which, in mining, is not long at all.
Well, OK, so the price drops another 50% - yes, again, third time! - on this news and Horizonte must be a bargain by now, right? Ah, but no, that’s not the way it works. So, he value of the operation as a whole is dropping with that share price. It also needs new capital. So, every time the share price falls another notch they have to sell even more of the company to raise that necessary capital. Dilution goes up with a falling share price.
We ourselves, we’re not wholly sure the project is even worth completing at the moment. So we’re not about to try and tell you when to catch a falling knife.
