Shares in Horizonte Minerals (LSE: HZM) have been flying up for most of this year. Although they have recently steadied for a breather. The big question now is: will they shoot back up again soon, or are the biggest gains in the past?
The Horizonte Minerals’ share price this year
So far this year the share price has gone from around 3.85p down to a low of nearer 1.5p and hit a high approaching 9p. Emphasising the volatility, it doubled in price in August, but at the time of writing it’s back nearer 7p. Like some other AIM shares it’s been on a rollercoaster ride. But is it a ride investors like me should try to join? I think that’s the million dollar question.
I think a lot of the value is tied to the future of electric vehicles (EV) and to the market leader in that industry, Tesla.
The EV market wave is just starting to swell
The EV market place is still in its infancy really. The wave is only just gaining some momentum at the moment. It could be a long time until it breaks. Companies like Horizonte Minerals might be able to ride the wave for a long time and make massive returns for investors who are brave enough to jump in early. But of course, it might not.
One of the key events drawing attention to the need for nickel (which Horizonte Minerals mines) was Tesla’s Battery Day. That event showcased how demand for the metal will increase because of its application in electric vehicles – a future growth industry.
Some expect that nickel demand could rise sixfold within a decade. If that means demand exceeds supply then you’d expect prices to rise, which would boost profits and margins for the miners.
Essentially, investing in Horizonte Minerals is a play on the EV market. It’s one for the brave, but long term, the shares could potentially do very well.
Progress in Brazil
Horizonte Minerals has made significant progress with getting financing for its two big Brazilian projects – Vermelho and Araguaia. In August, it agreed terms with five banks to raise the US$325m that’s required to get work under way at the group’s Araguaia ferro-nickel project.
Araguaia is likely to start producing in 2022, with the mine scheduled to run for 28 years. Positive updates on getting the mine up and running could boost the share price in the short term.
A study of the Vermelho mine has projected a 38-year mine life, with total cash flows over that time estimated at some US$7.3bn after tax. At full production, the mine would produce an average of 25,000 tonnes of nickel and 1,250 tonnes of cobalt each year.
The miner is still loss-making, but it has huge future potential. If one was a brave investor it could be a share to invest in early in the hope of positive future updates that could massively boost the long-term value of the firm.
Andy Ross owns no share mentioned. The Motley Fool UK owns shares of and has recommended Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.