Another small cap gold - Horizon Gold (one to track)

Working through several small gold stocks in Australia, there is a pattern here.

Once they are in production, PE will be low (as much as 1-2X). It feels like gold equity investors are betting on: i) gold price to stay where it is, ii) these small cap can raise money to finish their capX, iii) wait say 2 years.

Thus, the big bet is gold price can stay around where it is (if not higher). If this is the bet, these small cap gold stocks are prospective (potentially lucrative).

Horizon Gold is a junior gold miner in Western Australia. Market cap is in line with other small gold stocks at $200M or so.

What is interesting to me is HRN is a quiet stock in Hotcopper. So it feels somewhat under covered/appreciated.

Its main project is Gum Creek in WA. It was an operating gold mine until 2005 @ 6g/t. We know there is gold there. Since then, gold price has surged >5X or so. It has a good size resource of 2.3M oz @ 1.9g/t. In terms of MV vs. resource, it is in line with other junior miners but towards the low end of its peers (see pic3).

In 2026, it is spending $20M to do more drilling. The co believes there is more gold to be found. In time, the co thinks the resource can have as many as 3-5M oz of gold.

Despite the drilling investment, Horizon is NOT an explorer story anymore. It is about to shift into the next phase of that of a developer. 

The feasibility study is due by June.. We will have more details on the economics of Gum Creek soon enough.

Timing ? Next 6-12 months, it needs to get the various permits sorted. Co's view is permitting should be straight forward enough (local floral study etc etc). No tricky native title to negotiate. If all goes according to plan, the mine can commence production around mid 2028.

Here are the key numbers.... The capX will likely be around $300M. Horizon needs to raise around $100M and the remaining $200M will be debt financed.

Initially, the company is targeting yearly production of 100K oz p.a... BUT the next phase of the program will see production step up to 150K oz. First phase of the project is an open pit mine. In the future, Horizon will develop its underground mine as well.

All in cost is around $2500 when the mine is at full capacity.

Mine life is 10 years but co is confident it can extend further (say 15 years).

An important topic to work through is potential dilution of as much as 50%.... It has a majority shareholder of 60%... Management will work hard to minimize dilution. One idea being worked through is the co (having the permits in place for two of its smaller sites/ores) nay start "smaller scale" mining and get the ores processed elsewhere to get the cash flow. Toll cost is around $100/ton (up from $50 a few years ago)... If it goes down this route, it will mine if high grade ores first.

Let's run some numbers.... When it is producing 100K oz a year, we are looking at sales of A$600M or so. All in cost is $2500. We are looking at profit of as much as $3500/oz. From the $350M, we need to pay HQ cost + tax + interest expense. Horizon can generate free cash flow of $2-300M a year at some point (maybe even higher when gold price picks up again).

Management team are mining engineers. CEO and exploration manager spent time at Resolute (another gold miner $2.7bn in MV with mines in Africa). 

In summary, Horizon is one to watch/track. It has potential to significantly upgrade its resource to as much as >3M oz. It will be interesting to see how it is going to fund its capX. BUT if we think long term.... $200M MV + $100M fund raising... + $200M in debts... Investors get to own 3M oz (say it can recover 2.4M oz = $14bn). Plus retail investors are NOT that actively involved.... It is not un-interesting.....