Sometimes, littered amongst heaps of broken dreams and emptied wallets, the world of junior mining throws up examples of how the sector can and should work – of how a small speculative investment in a geological idea or concept can end up creating serious wealth for those with the vision and guts to get in early.
Greatland Gold is one such example.
And now, Horizonte Minerals PLC (AIM:HZM, TSX:HZM, OTC:HZMMF) looks like being another.
In a way, the Horizonte story is even more impressive.
As an asset class, gold hasn’t really been out of favour since the early 2000s.
But nickel, which Horizonte bet the farm on more than a decade ago, has had some serious highs and lows.
In the glorious days of yore, before the current century was even a decade old, nickel hit a now-mythical US$50,000 per tonne. It subsequently crashed to below US$10,000, rose again to close to US$30,000 in 2011, and then slumped for most of the rest of the subsequent decade.
But the nickel price is once again moving upwards, bouncing around at close to five year highs, and not surprisingly, Horizonte’s share price is too.
It’s surely no coincidence that it’s against the backdrop of a near 30% rise in the nickel price in the past 12 months, that Horizonte has been able put together the US$197mln component of the funding required to get its huge Araguaia project in Brazil built.
One of the lessons here is that if you stay the course and right out the ups and downs of the market, you can make it all the way from discovery to production.
But it’s not the only lesson.
Horizonte’s always been well connected in the mining industry. Throughout the years it’s maintained a good relationship with Teck Resources, one of its original backers.
It’s kept up relations with Glencore too, the successor company to Xstrata, from which Horizonte acquired the sizeable northern component of Araguaia.
Glencore has known the company and the project all along, and it’s not surprising to see it come in for US$7mln of the new equity.
The others on the honour roll represent some of the biggest names in mining investment, and include La Mancha, which famously backs Endeavour Mining amongst other things, and Orion finance, which has its fingers in lots of pies.
Horizonte chief executive Jeremy Martin deserves lots of credit for keeping the show on the road all these years, for keeping all these lines of communication open, and for knowing just how good the cards he was holding in his hands really were.
Because financing a major project often involves a fair amount of poker-playing with potential partners and investors, as well as potentially hostile parties.
How good is your asset, really?
And how good are you?
These are the questions the people sitting across the table will be asking, and the future of your company and your investors’ money depends on how you can answer them.
Poker playing is especially helpful when you know you haven’t got the wherewithal to take a project all the way.
But when you have, as Horizonte appears to do, you still have to play your cards right to bring everybody’s money onto the table.
Maybe Horizonte’s management would have been willing to sell the company or the project prior to construction. But only at the right price.
If that price wasn’t offered, when you hold cards in your hands as good as Araguaia in a rising nickel market, you can get on and build.
Will this project still be owned by Horizonte in five years’ time, once the construction is complete and the de-risking process done and dusted?
That’s an interesting question. But by then the company ought to be worth an order of magnitude more than it is today, and note that the shares have already more than quadrupled in value over the past five years.
So mining investment can pay off, but timing, the quality of the asset, and the quality of the management, as ever, remain the key factors.
