Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Glencore-backed Horizonte Minerals has failed to secure financing to complete its nickel mine in Brazil following soaring costs and rising investor concern that Indonesia is flooding the market for the electric vehicle battery and steelmaking ingredient.
The London-listed group said in a statement on Monday that it was now exploring a sale, liquidation, or raising financing at the subsidiary level, following an 87 per cent increase in the estimated cost to build the Araguaia nickel mine, to more than $1bn.
However, the company warned that it “does not believe that any of these options are likely to recover any value for the company’s shareholders”.
Shares in the company sank a further 84 per cent to 0.4p in early trading on Monday, having been worth more than £1.30 in September, before the cost overruns and delays were announced the following month. At that time the group had a market capitalisation of more than £400mn.
The collapse in the debt restructuring negotiations and fundraising marks a setback for Horizonte’s three largest shareholders: trading house Glencore, and mining finance specialists La Mancha Resource Capital and Orion Resource Partners.
The catastrophic situation for Horizonte has underlined the challenge for nickel projects outside of Indonesia — the world’s largest producer — to get up and running.
Horizonte said the majority of the 39 parties that entered into non-disclosure agreements for financing had cited the unfavourable nickel market as the reason for opting against backing the project.
“The board and management are extremely disappointed by the results of our effort to attract financing into the company,” said Karim Nasr, interim chief executive of Horizonte.
“The lack of prospects in a recovery of the ferronickel market considering Indonesian supply dynamics have impeded the confidence of investors in earlier stage projects with high capital intensity,” he added.
The Araguaia nickel mine in Paras state in northern Brazil aimed to produce 29,000 tonnes of nickel per year for the stainless steel industry — a small project compared with the huge industrial complexes being erected in Indonesia.
Jim Lennon, a veteran nickel market analyst at Macquarie, said at a recent seminar that he could see less than 100,000 tonnes of nickel from new projects outside of Indonesia entering the market in the next three to four years. That compares with 3.5mn tonnes of annual supply expected this year, according to Macquarie.
Existing nickel producers such as BHP and First Quantum in Australia and Glencore in New Caledonia have been forced to shut down or cut production to cope with lower nickel prices after a wave of supply from Indonesia has hit the market.
The project’s issues mark a further setback for mining’s reputation in London as a safe place to secure returns on investor capital, at a time when Glencore is coming under pressure to move its primary listing location away from the UK to secure a higher valuation.
Read the full article here