Which businesses could benefit from Brazil’s new pro-mining president?
This week has seen controversial far-right politician Jair Bolsonaro emerge victorious in Brazil’s presidential election. With the polarising former army captain attracting much support for his pro-business agenda, including pledges to stimulate the country’s mining sector, we look at the AIM firms that could benefit from his election.
Bolsonaro, who has been called the ‘Trump of the Tropics’, won 55.2pc of the country’s vote against left-wing candidate Fernando Haddad. He will take over leadership of the world’s fourth-largest democracy at the beginning of next year.
The president-elect won over voters with his pledges to fight crime and corruption as well the social conservatism and pro-market policies on offer at his Social Liberal Party. However, his detractors have raised concerns over his pro-gun stance, populist approach to politics and previous comments on race, women, and homosexuality.
Despite his aggressive rhetoric, the new leader has won support in some areas of the international business community for his promise to realign Brazil with more advanced economies. Part of his pro-business stance includes pledges to reduce make it easier for mining and resources players to operate in Brazil. Indeed, he plans to open up more of the Amazon rainforest to farming, mining, and hydroelectric dams, make it easier for significant mining extraction projects to get approval, and loosen environmental restrictions.
While environmental groups have heavily criticised Bolsonaro, he has received considerable backing from those who say Brazil’s rules on deforestation and land management are too laborious. Regardless of your view, his victory appears to have struck a chord with international resources investors; Brazilian state-owned oil firm Petrobras and mining giant Vale have both risen on his win.
As Anna Prusa, a former U.S. State Department official put it to CBC: ‘It could be a good time to be a mining investor in Brazil. Bolsonaro has said pretty publicly he would like fewer restrictions … he is a recent convert to market liberalism.’ So, putting opinions of Bolsonaro himself to one side, could the president-elect’s victory benefit any stocks on the AIM market?
One obvious potential beneficiary of Bolsonaro’s election is Jangada Mines, a natural resources company developing an advanced platinum group metals project in north-eastern Brazil called Pedra Branca. According to Jangada, Pedra Branca has a potential net present value of $192m, an internal rate of return of 67pc and a payback period of 1.6 years. The firm is also completing a bankable feasibility study (BFS) around an earlier estimated average annual production of 64,000ozs PGM+Au, 2.2Mlbs nickel, 1.2Mlbs copper, 44,000lbs cobalt and 30,000ts chrome on site.
Jangada took a 14pc hit last month when chairman Brian McMaster faced criticism for raising funds at 3p a share to advance the BFS, despite previously stating he would rather fund it himself at 5p a share. Total Market Solutions discussed the issue with McMaster in an article earlier this month.
The business has gone on to announce several significant updates since this setback. For example, it identified high-grade economic nickel and copper sulphide mineralisation immediately beneath the existing PGM and base metal resource. It also revealed that it had received a critical environmental licence necessary for trial mining. Jangada now plans to apply for a trial mining licence with the Departamento Nacional de Produção Mineral.
The introduction of Bolsonaro’s mining-friendly government could help Jangada as it continues through these regulatory hurdles on the way to reaching production. With shares still sitting below last month’s placing price, this could be another positive for those who still believe in the firm’s long-term potential.
Another potential beneficiary could be Horizonte Minerals, which is developing the Araguaia nickel laterite project in Brazil’s Carajas mineral district. The business is planning an open mining pit operation at the site targeting 900,000 tonnes of ore per annum. It expects this to produce 14,500ts of nickel a year contained in 52,000ts of ferronickel that, according to a 2016 pre-feasibility study, could generate free cash flow of more than $1bn over a 28-year mine life.
Horizonte is also the owner of the Vermelho project in Brazil, which it describes as one of the largest, highest-grade undeveloped laterite nickel-cobalt resources globally. The site contains a measured and indicated resource of 167.8MMts estimated to house 1.68MMts of nickel and 94,000ts of cobalt.
Having already drifted considerably this year, shares in Horizonte have been battered over the last few days, falling from 3.7p to their current 2.3p. This followed the release of the feasibility study results for Araguaia, which gave the project an estimated post-tax NAV of $401m and an estimated IRR of 20.1pc, based on a flat nickel price of $14,500/t. This is lower than an estimated IRR of 26.4pc contained in a previous study.
However, earlier this week, chief executive Jeremy Martin told Reuters: ‘We had some private investors that were looking for higher returns than the study delivered, but the reality is that the numbers it has delivered are robust and respectable for a project of this size.’ In line with this, the project was found to have a post-tax NAV of $740m and an IRR if 28.1pc when using the consensus mid-term nickel price of $16,800/t.
Nickel prices have drifted lower this year but it remains one of 2018’s more resilient metals. If you remain a believer in the long-term nickel price boom driven by EV growth and stainless-steel demand, then Horizonte could look attractive at its current price – especially with Vermelho in the pipeline. With both projects yet to enter production, Bolsonaro’s pro-resources and pro-business agenda can only be positive.
Jair Bolsonaro has promised pro-business policies. Done in the right way
The author was remunerated but does not hold shares in the companies