TIDMHZM
RNS Number : 2206U
Horizonte Minerals PLC
01 April 2021
NEWS RELEASE
1 April 2021
FINAL RESULTS FOR THE YEARED 31 DECEMBER 2020
Horizonte Minerals Plc, (AIM: HZM, TSX: HZM) ('Horizonte' or
'the Company') the nickel company focused on Brazil, announces its
final results for the year ended 31 December 2020.
Highlights:
-- Strong cash position of GBP10.9 million as at 31 December
2020 maintained and supplemented post year end through a GBP18
million placing in February 2021.
-- Significant progress made on the overall Project Finance
package for the development of Araguaia.
-- A syndicate of five international financial institutions
mandated for a US$325 million senior debt facility to part fund the
development of Araguaia.
-- BNP Paribas, ING Capital LLC, Mizuho Bank, Ltd., Natixis (New
York Branch), and Société Générale will act as the Mandated Lead
Arrangers.
-- Non-binding, conditional term sheet agreed with one major cornerstone equity investor.
-- Value engineering for the Araguaia project completed
resulting in a number of improvements to enhance operational
performance whilst remaining in line with 2018 Feasibility Study
capex and opex values.
-- Appointment of Sepanta Dorri to the Board as Non-Executive Director.
-- Key appointments made across the operational and corporate teams in London and Brazil.
-- Inaugural Sustainability Report published on 17 August 2020.
The Company recognises the importance of conveying its efforts and
achievements around the areas of environmental stewardship, social
responsibility and corporate governance to its various stakeholders
as it moves towards construction at Araguaia.
-- The Company has continued to support local communities around
its projects through the provision of food parcels and health and
hygiene guidance in response to the Covid pandemic.
Post Period Events:
-- Successful completion of a GBP18 million fundraise with predominately new institutions.
-- Appointment of BMO Capital Market Limited as joint broker.
-- Appointment of Michael Drake as Head of Projects.
-- Award of power line licence to cover the full power
requirement of the Araguaia project at nameplate capacity.
For further information, visit www.horizonteminerals.com or
contact:
Horizonte Minerals plc info@horizonteminerals.com
Jeremy Martin (CEO) +44 (0) 203 356 2901
Anna Legge (Corporate Communications)
Peel Hunt (NOMAD & Joint Broker)
Ross Allister
David McKeown +44 (0)20 7418 8900
BMO (Joint Broker)
Thomas Rider
Pascal Lussier Duquette
Andrew Cameron +44 (0) 20 7236 1010
About Horizonte Minerals:
Horizonte Minerals plc is an AIM and TSX-listed nickel
development company focused in Brazil. The Company is developing
the Araguaia project, as the next major ferronickel mine in Brazil,
and the Vermelho nickel-cobalt project, with the aim of being able
to supply nickel and cobalt to the EV battery market. Both projects
are 100% owned.
CHAIRMAN'S STATEMENT
In a year of unprecedented challenges for us all, I am delighted
to report that not only has Horizonte reached significant business
and project level milestones but, most importantly, our management
team and all our staff have kept safe and well.
The health and well-being of our employees and wider team is our
number one priority, and as we continue to tackle the COVID-19
pandemic our dedication to providing a safe and productive
workplace will remain at the forefront of our decision-making
process. The pandemic has completely changed the way in which we
work. Some of these changes we will all be keen to see the end of
but, others we will take forward, as we have learnt how to work
more effectively, more respectfully and more sustainably.
Operational milestones
Horizonte is on a path to become a significant nickel producer.
We are currently in the midst of the transition from being an
explorer/developer to becoming a developer/producer. This
transition is enabled by securing suitable funding, and this has
been our focus for 2020. Araguaia will our first project into
production, followed closely by the Vermelho project. The
combination of our projects, in conjunction with the looming
significant supply deficit in the nickel market, positions
Horizonte as a unique opportunity for investors.
During the year the senior management team, working closely
alongside Endeavour Financial, has made significant progress in
advancing the project financing for Araguaia. This financing
package comprises multiple components, and these are all
progressing simultaneously. The completion of this funding will be
transformational for Horizonte, and we look forward to updating the
market on our progress later in the year.
The Vermelho project continues to progress. Our Social and
Environmental team has spent the year collecting relevant data for
baseline monitoring in preparation for the Environmental and Social
Impact Assessment. This assessment is a key requirement for
permitting and the feasibility study. With demand from the EV
battery market accelerating exponentially, we will be seeking to
expedite development of the project.
Growing our team
In addition to progressing our projects, it is critical that
Horizonte develops as a major business entity. Most importantly
this is about securing the best and most appropriate people
required for a company with a large, scalable production profile.
During the year we have hired 11 of the industry's top talent in
the areas of project development, project operation and capital
markets. I was also delighted to welcome Ms. Sepanta Dorri to the
Board as a Non-Executive Director. As the Vice President, Corporate
Development at Teck Resources, Sepanta brings a wealth of
experience and a fresh perspective to our Board. She has already
made a meaningful contribution to the implementation of our overall
strategic objectives. Sepanta is our first female board member, and
her appointment marks an appointment milestone in promoting and
facilitating gender diversity throughout all levels of the Company
as we work to build a more representative team. We currently have a
41% female workforce.
Changing the way we work
The COVID-19 pandemic has forced us to work differently, as we
adapted to working predominately remotely both from the corporate
office in London and the operations in Brazil. During a phase in
the Company's development where all teams need to be in constant
contact with multiple stakeholders, this has been a challenge.
However, it has been a challenge that we have adapted to and
overcome, enabling the Company to continue to reach the milestones
necessary to progress. It is testament to the dedication and
agility of the entire team that we have been able to report on
another successful year in the face of the adverse impacts of the
global pandemic.
A positive outcome of these changes has been a greater need to
focus on well-being. Led by the senior management team, we have
implemented further measures to ensure we are protecting and
promoting the health, safety and well-being of our workforce. A
greater use of technology has also enabled us to come together as a
company more effectively. During the year, we hosted multiple all
company video conference calls to update each other on each team's
progress and provide a constructive forum for all employees to ask
questions and raise concerns. Whilst we have all missed human
interaction, 2020 has taught has how to work more flexibly and more
effectively. For example, the senior management team has
participated in several international investor roadshows without
the need to travel to multiple cities around the world. The savings
made, both in time and money, are significant compared to what
would have been spent attending in person. This is therefore one of
the changes we will consider carefully once the pandemic has
passed.
Supporting our communities
In addition to our employees, engagement with our communities
has been critical this year. Our social team has worked tirelessly
throughout the year to support our local communities in a
COVID-safe manner. Advice and guidelines on how to stay safe have
constantly changed throughout the year, but Horizonte has been
proactive in ensuring our communities received and understood the
correct measures in line with the World Health Organisation and the
Brazilian Ministry of Health. We have also provided and distributed
hundreds of food packages in partnership with the welfare
departments of each municipality, to the most vulnerable families
in our communities. This work continues into 2021. Horizonte would
usually participate in many community engagements and social
initiatives throughout the year. Whilst measures required to stop
the spread of COVID have significantly limited these activities,
the social team has continued to engage with and listen to our
local communities, virtually where possible or at a safe physical
distance where required. We look forward to returning to our normal
level of participation in the community later in 2021.
Sustainability reporting
In August 2020, we published our maiden standalone
sustainability report for activities during the financial year
2019. A report such as this is a huge undertaking, and therefore a
rarity from junior pre-production companies. We believe this early
commitment to sustainability reporting sets Horizonte apart and
clearly demonstrates our pledge to the highest levels of
sustainability performance. The report outlines our objectives in
the areas of environmental stewardship, social development and
corporate governance, as well as highlighting the significant work
we have undertaken to date. We are committed to publishing a
Sustainability Report alongside our Annual Report on an annual
basis. This increased reporting schedule encapsulates our core
values of transparency and accountability, sustainability and
innovation.
The nickel market
Sustainability and innovation have been at the top of the
political and media agenda for most of 2020, as all countries work
to "build back better" after the COVID pandemic. This has pushed
nickel into the commodity limelight. Nickel is a key base metal for
building more sustainable societies due to its use in stainless
steel and new battery technology. The World Bank reported in its
"Minerals for Climate Action: The Mineral Intensity for the Clean
Energy Transition" whitepaper that the production of metals such as
nickel and cobalt could increase by nearly 500% by 2050 to meet the
growing demand for clean energy technologies. In September 2020,
Tesla CEO Elon Musk confirmed that high nickel-content batteries
are the future for low-cost, long-range electric vehicles at
Tesla's Battery Day. The large stainless steel market and the
rapidly expanding battery market are predicted to create a large
supply deficit in the nickel market by 2040. Horizonte is one of
very few nickel stories ready to supply this deficit, and our
projects have the ability to supply both the stainless steel and
battery markets.
Outlook
Firstly, I would like to thank Alex Christopher for his many
years of service to the Board of Horizonte, and to welcome again
Sepanta Dorri and all our other new members to the team in 2020.
Secondly, I would like to applaud the hard work, dedication and
resilience of all our team members led by our CEO, Jeremy Martin.
The COVID-19 pandemic was unfortunately not an isolated event in
2020, it has continued in to 2021 and we will continue to feel its
effects well into the medium term. However, with the accelerating
rollout of a number of vaccines we are hopeful for a more certain,
less interrupted year in 2021.
We continue to be grateful for the support of our shareholders,
and we are pleased to see increasing interest in the Horizonte
story from new investors and strategic partners. Horizonte has
reached an exciting phase of its journey, and we believe we are
able to offer a unique and compelling investment opportunity.
Finally, I would like to thank fellow Board members for their
contributions through the year.
David Hall
31 March 2021
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF HORIZONTE MINERALS
PLC
Opinion on the financial statements
In our opinion:
-- the financial statements give a true and fair view of the
state of the Group's and of the Parent Company's affairs as at 31
December 2020 and of the Group's loss for the year then ended;
-- the Group financial statements have been properly prepared in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006;
-- the Parent Company financial statements have been properly
prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006 and as
applied in accordance with the provisions of the Companies Act
2006; and
-- the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
We have audited the financial statements of Horizonte Minerals
PLC (the 'Parent Company') and its subsidiary (the 'Group') for the
year ended 31 December 2020 which comprise the consolidated
statement of comprehensive income, the consolidated statement of
financial position, the company statement of financial position,
the consolidated statement of changes in equity, the company
statement of changes in equity, the consolidated statement of cash
flows, the company statement of cash flows and notes to the
financial statements, including a summary of significant accounting
policies.
The financial reporting framework that has been applied in their
preparation is applicable law and international accounting
standards in conformity with the requirements of the Companies Act
2006 and, as regards the Parent Company financial statements, as
applied in accordance with the provisions of the Companies Act
2006.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs
(UK)) and applicable law. Our responsibilities under those
standards are further described in the Auditor's responsibilities
for the audit of the financial statements section of our report. We
believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Independence
We remain independent of the Group and the Parent Company in
accordance with the ethical requirements that are relevant to our
audit of the financial statements in the UK, including the FRC's
Ethical Standard as applied to listed entities, and we have
fulfilled our other ethical responsibilities in accordance with
these requirements.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the
Directors' use of the going concern basis of accounting in the
preparation of the financial statements is appropriate. Our
evaluation of the Directors' assessment of the Group and the Parent
Company's ability to continue to adopt the going concern basis of
accounting included:
-- Review of the Group's cash flow forecast to December 2023,
considering the reasonableness of underlying assumptions by
reference to historic cost spend and our understanding of
management's commitments and expenditure plans for the two
projects. We also made enquiries of management as to which costs
categories could be discretionary in timing and amount.
-- Verification of cash balances close to the date of sign off,
which included the proceeds of the post year end equity fund
raising.
-- Discussion with management and assessing the reasonableness
of their assessment of the possible impact of the continuing
COVID-19 pandemic on the going concern status of the Group.
-- Considered the adequacy of the disclosures made by management
in respect of going concern status of the Group, including
additional information in respect of the possible impact of
COVID-19 on the going concern status of the group.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Horizonte Minerals Plc's ability to continue as a going concern for
a period of at least twelve months from when the financial
statements are authorised for issue.
Our responsibilities and the responsibilities of the Directors
with respect to going concern are described in the relevant
sections of this report.
Overview
Coverage 94% (2019: 95%)of Group total assets
80% (2019: 83.5%) of Group net loss
2020 2019
Carrying value
of exploration ü ü
and evaluation
Key audit matters assets and
mine development
property
Valuation
of royalty ü ü
funding arrangement
Recognition ü
and valuation
of contingent
consideration
Recognition and valuation of contingent
consideration is no longer considered
to be a key audit matter because all
contingent consideration was recognised
in 2019 and there were no significant
changes in the estimates for the valuation
during 2020.
---------------------------------------------
Group financial statements as a whole
Materiality
GBP750,000 based on 1.5% of total assets
(2019: GBP 619,000 based on 1.5% of
total assets reduced for significant
cash relating to fundraising just before
the year end).
---------------------------------------------
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the
Group and its environment, including the Group's system of internal
control, and assessing the risks of material misstatement in the
financial statements. We also addressed the risk of management
override of internal controls, including assessing whether there
was evidence of bias by the Directors that may have represented a
risk of material misstatement.
Our group audit scope focused on the group's significant
subsidiaries, being Araguaia Niquel Mineracao Ltda, Nickel
Production Services BV and Horizonte Nickel (IOM) Ltd, which were
subject to a full scope audit together with the parent company. In
addition, Trias Brasil Mineracao Ltda, Champol (IOM) Ltd and were
subject to specific audit procedures on the significant risk areas.
The Group audit team performed the audit of the parent company and
the subsidiaries, other than those significant components located
in Brazil which were audited by the BDO network member firm in
Brazil.
The remaining components of the group were considered
non-significant and these components were principally subject to
analytical review procedures, together with additional substantive
testing over the risk areas detailed above where applicable to that
component.
Our involvement with component auditors
The Group audit team was actively involved in the direction of
the audits and specific audit procedures performed by the component
auditor along with the consideration of findings and determination
of conclusions drawn. As part of our audit strategy, we issued
group audit engagement instructions and discussed the instructions
with the component auditor. A senior member of the group audit team
reviewed the component audit files and discussed the audit findings
with the component auditor and local management . For the two
principal operating subsidiaries in Brazil the group audit team
also performed audit procedures in respect of the significant risk
areas.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified, including those which had the greatest
effect on: the overall audit strategy, the allocation of resources
in the audit, and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these
matters.
Key audit matter How the scope of our audit
addressed the key audit matter
The group holds the We have reviewed management's
Carrying Araguaia mine development impairment assessments for
value of property carried at both projects and our procedures
exploration a value of GBP30,706,818 included the following :
and and the Vermelho exploration
evaluation and evaluation asset We considered whether management's
assets and carried at a value assessments of impairment
mine of GBP 6,062,624. had been carried out in accordance
development with the requirements of
property Each year management the accounting standards.
are required to assess
See notes whether there are * We reviewed the feasibility studies prepared by
4.1, 10 any indicators that independent consultants for consistency with
and 11 to the mine development management's representations and assessed the
the property and exploration competence and independence of the experts used by
financial and evaluation asset management.
statements could be impaired.
Management have carried
out a review for indicators * For the Araguaia project, this assessment is
of impairment and supported by the externally prepared feasibility
have not identified study published in October 2018, which indicates a
any indicators. post-tax net present value of $401m at a discount
rate of 8%.
Reviewing indicators
of impairment and
assessment of carrying * For the Vermelho project, this assessment is
values require significant supported by the externally prepared pre-feasibility
estimates and judgements study published in October 2019, which indicates a
and therefore we identified post-tax net present value of $1.7bn at a discount
this as a key audit rate of 8%.
matter.
* For the Araguaia project we considered if key
assumptions had changed unfavourably since the date
of publication of the study. Nickel price is a key
input assumption and the study's results used a long
term nickel price of $14,000 per tonne. In December
2020 the long term consensus price was higher, at
$16,200 per tonne.
* For the Vermelho project we considered if key
assumptions had changed unfavourably since the date
of publication of the study. The study's results used
a long term nickel price of $16,400 per tonne. The
December 2020 the long term consensus price, at
$16,200 per tonne, was 1.2% lower.
* Both projects will incur certain operating costs in
Brazilian Real and therefore the US$/Brl exchange
rate is an input assumption. During 2020 the
Brazilian Real depreciated significantly, which has a
positive impact on economics of the projects as the
revenue is denominated in USD.
* We agreed the validity of licences held by the Group
to the Brazilian Government's DNPM website. We also
reviewed the correspondence, contracts and other
documents regarding the licenses to confirm that the
Group has the relevant rights for its activities in
the stated areas for Araguaia and Vermelho.
* We evaluated the adequacy of the disclosures in
respect of the assessment of impairment indicators
for the exploration and evaluation asset and
impairment assessment of the mine development project
against the requirements of the accounting standards.
Key observations:
Based on our work we concur
with management's assessment
of the carrying value of
the Group's exploration and
evaluation asset and mine
development property.
------------------------------------------------------------ -----------------------------------------------------------------
Valuation In the prior year Our procedures in relation
of Royalty Horizonte entered to the valuation of the royalty
Funding into a US$25m royalty funding loan and embedded
Arrangement funding agreement derivatives are set our below.
See notes with Orion Mine Finance
18 and 4.4 in exchange for future In respect of the host loan:
royalty payments linked
to the future revenues o We tested the valuation
of the Araguaia project. model prepared by management,
The royalty agreement checking that the model's
includes a buyback methodology was in agreement
option enabling Horizonte with the royalty agreement
to reduce the royalty and IFRS requirements and
rate and other cash that the assumptions were
payment options (the in agreement with management's
call, make whole and justifications and explanations.
put options) for part We also checked the arithmetical
reduction in the royalty accuracy of the amortised
rate, which require loan model.
the occurrence of
certain events. . o We critically assessed
management's key assumptions,
The accounting for including long term nickel
this agreement is price, nickel price inflation
complex and therefore and the adopted royalty rate,
management obtained which is determined by the
advice from an independent date of commencement of construction.
expert. The accounting We made our assessment by
analysis concluded reference to independent
that the agreement sources of data and supporting
is a hybrid contract documentation held by the
that contains a non-derivative Group.
host loan and prepayment
options in the form In respect of the fair value
of embedded derivatives of the buyback option:
which should be separated o We reviewed the option
for accounting purposes. valuation methodology adopted
The embedded derivatives to check that the features
are initially recognised of the option had been appropriately
at fair value and modelled and we also confirmed
subsequently revalued with management that the
at each period end. modelling is in line with
Management has engaged their understanding of the
an independent expert option features.
to calculate the fair
value of the buyback o We checked that the key
option. The fair value assumptions used were in
calculation utilised agreement with those used
Monte-Carlo simulation for the valuation of the
methodology. host loan. The nickel price
volatility is an additional
The call, make whole key assumption for the option
and put options can valuation. We recalculated
only be exercised the nickel price volatility
if two specific events using independently sourced
occur, being: data and it was in close
* A change of control and; proximity to that used by
management.
* Commencement of major construction work after 31 o The option valuation is
March 2021. sensitive to the nickel price
volatility. Based on the
features of the option management
Management assessed considered volatility based
the probability of on five years historic nickel
both of these events prices to be appropriate.
arising to be remote We calculated an alternative
and have determined reasonable volatility based
the valuation of these on ten years and it was in
options at the inception close proximity, being 0.3%
of the loan and at lower than the five year
the year end to be volatility.
not material.
o We assessed the competence
Judgement was required and independence of the valuation
in determining the expert used by management.
accounting treatment
of the royalty funding o We discussed the valuation
agreement and the with the expert and management
approach to valuing to ensure that we understood
the options. The valuation the methodology that they
of these financial had adopted and the rationale
instruments also required behind it.
management to make
a number of key estimates. In respect of the call, make
Accordingly, the accounting whole and put options:
for the royalty funding
agreement is considered We discussed with management
to be a key audit their basis for concluding
matter. that the probability of the
events allowing exercise
of these options was remote.
We corroborated this by reference
to press announcements, internal
board minutes and other operational
documentation and concluded
that their assessment was
appropriate and supported
by the evidence.
Key observations:
Based on our work, we concur
with the judgements made
by management in accounting
for the royalty agreement
and that the valuation methodology
adopted for the host loan
and the options is appropriate.
------------------------------------------------------------ -----------------------------------------------------------------
Our application of materiality
We apply the concept of materiality both in planning and
performing our audit, and in evaluating the effect of
misstatements. We consider materiality to be the magnitude by which
misstatements, including omissions, could influence the economic
decisions of reasonable users that are taken on the basis of the
financial statements.
In order to reduce to an appropriately low level the probability
that any misstatements exceed materiality, we use a lower
materiality level, performance materiality, to determine the extent
of testing needed. Importantly, misstatements below these levels
will not necessarily be evaluated as immaterial as we also take
account of the nature of identified misstatements, and the
particular circumstances of their occurrence, when evaluating their
effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality
for the financial statements as a whole and performance materiality
as follows:
Group financial statements Parent company financial
statements
2020 2019 2020 2019
GBP GBP GBP GBP
-------------- ----------------- -------------- -------------
Materiality 750,000 619,000 675,000 557,000
-------------- ----------------- -------------- -------------
Basis for 1.5% of total 1.5% of total 90% of Group 90% of Group
determining assets assets reduced materiality materiality
materiality for significant
cash relating
to fundraising
just before
the year
end,
-------------- ----------------- -------------- -------------
Rationale We consider total assets Calculated as a percentage
for the benchmark to be the most significant of Group materiality for
applied determinant of the Group reporting purposes.
Group's financial performance
for users of the financial
statements, given the
Group's mine development
focus.
--------------------------------- -----------------------------
Performance
materiality 562,500 464,250 GBP506,250 GBP417,750
-------------- ----------------- -------------- -------------
Basis for 75% of materiality based on consideration of
determining factors including the level of historical errors
performance and nature of activities.
materiality
----------------------------------------------------------------
Component materiality
We set materiality for each component of the Group based on a
percentage of between 5% and 44% (2019: 5% to 80%) of Group
materiality dependent on the size and our assessment of the risk of
material misstatement of that component. Component materiality
ranged from GBP35,000 to GBP330,000 (2019: GBP27,000 to
GBP489,000). In the audit of each component, we further applied
performance materiality levels of 75% of the component materiality
to our testing to ensure that the risk of errors exceeding
component materiality was appropriately mitigated.
Reporting threshold
We agreed with the Audit Committee that we would report to them
all individual audit differences in excess of GBP13,500
(2019:GBP10,800). We also agreed to report differences below this
threshold that, in our view, warranted reporting on qualitative
grounds.
Other information
The directors are responsible for the other information. The
other information comprises the information included in the Annual
Report of the Directors and Financial Statements other than the
financial statements and our auditor's report thereon. Our opinion
on the financial statements does not cover the other information
and, except to the extent otherwise explicitly stated in our
report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing
so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge
obtained in the course of the audit, or otherwise appears to be
materially misstated. If we identify such material inconsistencies
or apparent material misstatements, we are required to determine
whether this gives rise to a material misstatement in the financial
statements themselves. If, based on the work we have performed, we
conclude that there is a material misstatement of this other
information, we are required to report that fact.
We have nothing to report in this regard.
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work
performed during the course of the audit, we are required by the
Companies Act 2006 and ISAs (UK) to report on certain opinions and
matters as described below.
Strategic In our opinion, based on the work undertaken
report and in the course of the audit:
Directors' * the information given in the Strategic report and the
report Directors' report for the financial year for which
the financial statements are prepared is consistent
with the financial statements; and
* the Strategic report and the Directors' report have
been prepared in accordance with applicable legal
requirements.
In the light of the knowledge and understanding
of the Group and Parent Company and its environment
obtained in the course of the audit, we have
not identified material misstatements in the
strategic report or the Directors' report.
Matters on We have nothing to report in respect of the following
which we matters in relation to which the Companies Act
are required 2006 requires us to report to you if, in our
to report opinion:
by exception
* adequate accounting records have not been kept by the
Parent Company, or returns adequate for our audit
have not been received from branches not visited by
us; or
* the Parent Company financial statements are not in
agreement with the accounting records and returns; or
* certain disclosures of Directors' remuneration
specified by law are not made; or
* we have not received all the information and
explanations we require for our audit.
------------------------------------------------------------------------
Responsibilities of Directors
As explained more fully in the statement of Directors'
responsibilities, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give
a true and fair view, and for such internal control as the
Directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the Directors are
responsible for assessing the Group's and the Parent Company's
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis
of accounting unless the Directors either intend to liquidate the
Group or the Parent Company or to cease operations, or have no
realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
Extent to which the audit was capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including
fraud is detailed below:
- We obtained an understanding of the Group's activities and
considered the laws and regulations of the UK and Brazil to be of
significance in the context of the Group audit. In doing so, we
made inquiries of management and the Audit Committee, considered
the Group's control environment as it pertains to compliance with
laws and regulations and considered the activities of the Group. We
determined the most significant laws and regulations to be
Companies Act 2006, elements of the reporting framework, tax
legislation and the Brazilian environmental regulations.
- We communicated relevant identified laws and regulations and
potential fraud risks to all engagement team members and component
auditors, and remained alert to any indications of fraud or
non-compliance with laws and regulations throughout the audit.
- We made inquiries of management and the Board and reviewed
Board and Committee minutes to identify any instances of
irregularities or non-compliance.
- We agreed the financial statement disclosures to underlying
supporting documentation and performed detailed testing on accounts
balances which were considered to be at a greater risk of
susceptibility to fraud.
- In addressing risk of management override of control, we
performed testing of general ledger journal entries to the
financial statements, including verification of journals which we
consider exhibit higher fraud risk characteristics based on our
understanding of the Group. As part of our testing of management
override of controls we performed procedures on accounts subject to
greater management estimate including the valuation of the royalty
funding arrangement and carrying value of exploration and
evaluation assets and mine development property, refer to key audit
matters above.
Our audit procedures were designed to respond to risks of
material misstatement in the financial statements, recognising that
the risk of not detecting a material misstatement due to fraud is
higher than the risk of not detecting one resulting from error, as
fraud may involve deliberate concealment by, for example, forgery,
misrepresentations or through collusion. There are inherent
limitations in the audit procedures performed and the further
removed non-compliance with laws and regulations is from the events
and transactions reflected in the financial statements, the less
likely we are to become aware of it.
A further description of our responsibilities is available on
the Financial Reporting Council's website at:
www.frc.org.uk/auditorsresponsibilities. This description forms
part of our auditor's report.
Use of our report
This report is made solely to the Parent Company's members, as a
body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to
the Parent Company's members those matters we are required to state
to them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Parent Company and the
Parent Company's members as a body, for our audit work, for this
report, or for the opinions we have formed.
Stuart Barnsdall (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London
United Kingdom
31 March 2021
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2020
Year ended Year ended
31 December 31 December
2020 2019
Notes GBP GBP
---------------------------------------------------------------------------------- ----- ------------ -----------
Administrative expenses 6 (2,949,736) (2,563,880)
Charge for share options granted - (326,413)
Changes in estimate for contingent and deferred consideration 17 - 598,660
Fair value movement (424,500) -
Gain/(Loss) on foreign exchange 751,313 (56,266)
Operating loss (2,622,923) (2,347,899)
Finance income 8 236,986 110,036
Finance costs 8 - (933,351)
---------------------------------------------------------------------------------- ----- ------------ -----------
Loss before taxation (2,385,937) (3,171,214)
Income tax 9 108,526 -
---------------------------------------------------------------------------------- ----- ------------ -----------
Loss for the year from continuing operations attributable to owners of the parent (2,277,411) (3,171,214)
---------------------------------------------------------------------------------- ----- ------------ -----------
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Currency translation differences on translating foreign operations 16 (8,151,944) (2,626,939)
---------------------------------------------------------------------------------- ----- ------------ -----------
Other comprehensive loss for the year, net of tax (8,151,944) (2,626,939)
---------------------------------------------------------------------------------- ----- ------------ -----------
Total comprehensive loss for the year attributable to owners of the parent (10,429,355) (5,798,153)
---------------------------------------------------------------------------------- ----- ------------ -----------
Loss per share from continuing operations attributable to owners of the parent
---------------------------------------------------------------------------------- ----- ------------ -----------
Basic and diluted loss per share (p) 21 (0.157) (0.219)
---------------------------------------------------------------------------------- ----- ------------ -----------
The above Consolidated Statement of Comprehensive Income should
be read in conjunction with the accompanying notes.
Consolidated Statement of Financial Position
Company number: 05676866
As at 31 December 2020
31 December 31 December
2020 2019
Notes GBP GBP
--------------------------------------------- ------ ------------- -------------
Assets
Non-current assets
Intangible assets 10 6,220,872 7,057,445
Property, plant & equipment 11 30,839,947 32,260,544
37,060,819 39,317,989
--------------------------------------------- ------ ------------- -------------
Current assets
Trade and other receivables 270,540 134,726
Derivative financial asset 18 1,756,553 2,246,809
Cash and cash equivalents 12 10,935,563 17,760,330
--------------------------------------------- ------ ------------- -------------
12,962,656 20,141,865
--------------------------------------------- ------ ------------- -------------
Total assets 50,023,475 59,459,854
--------------------------------------------- ------ ------------- -------------
Equity and liabilities
Equity attributable to owners of the parent
Share capital 13 14,493,773 14,463,773
Share premium 14 41,848,306 41,785,306
Other reserves 16 (12,818,874) (4,666,930)
Retained losses (22,112,503) (19,835,092)
Total equity 21,410,702 31,747,057
--------------------------------------------- ------ ------------- -------------
Liabilities
Non-current liabilities
Contingent consideration 17 5,927,025 6,246,071
Royalty Finance 18 22,053,341 20,570,411
Deferred tax liabilities 9 - 212,382
--------------------------------------------- ------ ------------- -------------
27,980,366 27,028,864
--------------------------------------------- ------ ------------- -------------
Current liabilities
Trade and other payables 17 632,407 683,933
632,407 683,933
--------------------------------------------- ------ ------------- -------------
Total liabilities 28,612,773 27,712,867
--------------------------------------------- ------ ------------- -------------
Total equity and liabilities 50,023,475 59,459,854
--------------------------------------------- ------ ------------- -------------
The above Consolidated Statement of Financial Position should be
read in conjunction with the accompanying notes.
The Financial Statements were authorised for issue by the Board
of Directors on 31 March 2021 and were signed on its behalf.
David J Hall Jeremy J Martin
Chairman Chief Executive Officer
Company Statement of Financial Position
Company number: 05676866
As at 31 December 2020
31 December 31 December
2020 2019
Notes GBP GBP
------------------------------------------- ----- ------------ ------------
Non-Current Assets
Investment in subsidiaries 26 2,348,142 2,348,042
Loans to Subsidiaries 27 64,692,156 55,413,147
------------------------------------------- ----- ------------ ------------
67,040,298 57,761,189
------------------------------------------- ----- ------------ ------------
Current assets
Trade and other receivables 96,196 135,376
Cash and cash equivalents 12 5,308,954 17,393,773
5,405,150 17,529,149
------------------------------------------- ----- ------------ ------------
Total assets 72,445,448 75,290,338
------------------------------------------- ----- ------------ ------------
Equity and liabilities
Equity attributable to equity shareholders
Share capital 13 14,493,773 14,463,773
Share premium 14 41,848,306 41,785,306
Other reserves 16 10,888,760 10,888,760
Retained losses (13,186,690) (16,564,099)
Total equity 54,044,149 50,573,740
------------------------------------------- ----- ------------ ------------
Liabilities
Non-current liabilities
Contingent consideration 17 5,927,025 6,246,071
5,927,025 6,246,071
Current liabilities
Trade and other payables 17 694,110 735,518
Loans from subsidiary 11,780,164 17,735,009
12,474,274 18,470,527
------------------------------------------- ----- ------------ ------------
Total liabilities 18,401,299 24,716,598
------------------------------------------- ----- ------------ ------------
Total equity and liabilities 72,445,448 75,290,338
------------------------------------------- ----- ------------ ------------
The above Company Statement of Financial Position should be read
in conjunction with the accompanying notes, profit for the period
was GBP3,377,409 (2019: GBP 2,037,780 loss). As permitted by
section 408 of the Companies Act 2006, the statement of
comprehensive income of the Parent Company is not presented as part
of these Financial Statements.
The Financial Statements were authorised for issue by the Board
of Directors on 31 March 2021 and were signed on its behalf.
David J Hall Jeremy J Martin
Chairman Chief Executive Officer
Consolidated Statement of Changes in Equity
For the year ended 31 December 2020
Attributable
to owners of
the parent
========== ======================== ==========================
Share Share Retained Other
capital premium losses reserves Total
GBP GBP GBP GBP GBP
----------------------------------- ---------- ---------- ------------ ------------ ------------
As at 1 January 2019 14,325,218 41,664,018 (16,990,290) (2,039,991) 36,958,955
----------------------------------- ---------- ---------- ------------ ------------ ------------
Loss for the year - - (3,171,214) - (3,171,214)
Other comprehensive income:
Currency translation differences
on translating foreign operations - - - (2,626,939) (2,626,939)
----------------------------------- ---------- ---------- ------------ ------------ ------------
Total comprehensive income
for the year - - (3,171,214) (2,626,939) (5,798,153)
----------------------------------- ---------- ---------- ------------ ------------ ------------
Issue of ordinary shares 138,555 121,288 - - 259,843
Issue costs - - - - -
Share-based payments - - 326,413 - 326,413
----------------------------------- ---------- ---------- ------------ ------------ ------------
Total transactions with
owners, recognised directly
in equity 138,555 121,288 326,413 - 586,256
----------------------------------- ---------- ---------- ------------ ------------ ------------
As at 31 December 2019 14,463,773 41,785,306 (19,835,092) (4,666,930) 31,747,057
----------------------------------- ---------- ---------- ------------ ------------ ------------
Loss for the year - - (2,277,411) - (2,277,411)
Other comprehensive income:
Currency translation differences
on translating foreign operations - - - (8,151,994) (8,151,944)
Total comprehensive income
for the year - - (2,277,411) (8,151,944) (10,429,355)
Issue of ordinary shares 30,000 63,000 - - 93,000
Issue costs - - - - -
Share-based payments - - - - -
Total transactions with
owners, recognised directly
in equity 30,000 63,000 - - 93,000
----------------------------------- ---------- ---------- ------------ ------------ ------------
As at 31 December 2020 14,493,773 41,848,306 (22,112,503) (12,818,874) 21,410,702
----------------------------------- ---------- ---------- ------------ ------------ ------------
A breakdown of other reserves is provided in note 16.
Company Statement of Changes in Equity
Attributable
to equity shareholders
========== ========================= =======================
Share Share Retained Merger
capital premium losses reserves Total
GBP GBP GBP GBP GBP
-------------------------------- ---------- ----------- ------------ ---------- -----------
As at 1 January 2019 14,325,218 41,664,018 (14,852,732) 10,888,760 52,025,264
Profit and total comprehensive
income for the year - - (2,037,780) - (2,037,780)
Issue of ordinary shares 138,555 121,288 - - 259,843
Issue costs - - - - -
Share-based payments - - 326,413 - 326,413
-------------------------------- ---------- ----------- ------------ ---------- -----------
Total transactions with owners,
recognised directly in equity 138,555 121,288 (1,711,367) - (1,451,524)
As at 31 December 2019 14,463,773 41,785,306 (16,564,099) 10,888,760 50,573,740
-------------------------------- ---------- ----------- ------------ ---------- -----------
Profit and total comprehensive
income for the year - - 3,377,409 - 3,377,409
Issue of ordinary shares 30,000 63,000 - - 93,000
Issue costs - - - - -
Share-based payments - - - - -
-------------------------------- ---------- ----------- ------------ ---------- -----------
Total transactions with owners,
recognised directly in equity 30,000 63,000 3,377,409 - 3,470,409
-------------------------------- ---------- ----------- ------------ ---------- -----------
As at 31 December 2020 14,493,773 41,848,306 (13,186,690) 10,888,760 54,044,149
-------------------------------- ---------- ----------- ------------ ---------- -----------
The above Statements of Changes in Equity should be read in
conjunction with the accompanying notes.
Consolidated Statement of Cash Flows
For the year ended 31 December 2020
31 December 31 December
2020 2019
Notes GBP GBP
----------------------------------------------------- ----- ----------- -----------
Cash flows from operating activities
Loss before taxation (2,385,936) (3,171,214)
Finance income (236,986) (110,036)
Finance costs - 933,351
Charge for share options granted - 326,413
Exchange differences (751,313) (77,072)
Change in fair value of contingent consideration - (598,660)
Change in fair value of derivative asset 424,500 -
----------------------------------------------------- ----- ----------- -----------
Operating loss before changes in working capital (2,949,735) (2,697,218)
Increase in trade and other receivables (135,814) (110,483)
Increase/(decrease) in trade and other payables (51,526) 403,758
----------------------------------------------------- ----- ----------- -----------
Cash used in operating activities (3,137,075) (2,403,943)
----------------------------------------------------- ----- ----------- -----------
Income taxes paid (51,071) -
Net cash used in operating activities (3,188,146) (2,403,366)
----------------------------------------------------- ----- ----------- -----------
Cash flows from investing activities
Purchase of exploration and evaluation assets - (3,992,757)
Purchase of property, plant and equipment 11 (4,153,198) (238,701)
Interest received 151,459 110,036
----------------------------------------------------- ----- ----------- -----------
Net cash used in investing activities (4,001,739) (4,121,422)
----------------------------------------------------- ----- ----------- -----------
Cash flows from financing activities
Proceeds from issue of royalty funding - 18,241,205
Proceeds from issue of ordinary shares 93,000 -
Net cash generated from financing activities 93,000 18,241,205
----------------------------------------------------- ----- ----------- -----------
Net increase/(decrease) in cash and cash equivalents (7,045,814) 11,715,130
----------------------------------------------------- ----- ----------- -----------
Cash and cash equivalents at beginning of year 17,760,330 6,527,825
Exchange gain/(loss) on cash and cash equivalents 221,047 (482,625)
----------------------------------------------------- ----- ----------- -----------
Cash and cash equivalents at end of the year 12 10,935,563 17,760,330
----------------------------------------------------- ----- ----------- -----------
The above Consolidated Statement of Cash Flows should be read in
conjunction with the accompanying notes.
Company Statement of Cash Flows
For year ended 31 December 2020
31 December 31 December
2020 2019
Notes GBP GBP
----------------------------------------------------- ----- ------------ -----------
Cash flows from operating activities
Profit/(loss) before taxation 3,428,478 (2,037,780)
IFRS9 Expected credit loss (credit)/charge (3,814,254) 440,579
Finance income (72,155) (78,420)
Finance costs 445,065 344,952
Charge for share options granted - 326,413
Exchange differences (1,491,383) (64,047)
Change in fair value of contingent consideration (764,109) (598,660)
Depreciation - -
Operating profit before changes in working capital (2,268,358) (1,666,961)
Increase/(decrease) in trade and other receivables 39,180 (116,049)
(Decrease)/Increase in trade and other payables (41,409) 250,387
----------------------------------------------------- ----- ------------ -----------
Cash flows generated from operating activities (2,270,587) (1,532,625)
----------------------------------------------------- ----- ------------ -----------
Taxes paid (51,071) -
----------------------------------------------------- ----- ------------ -----------
Net Cash flows from operating activities (2,321,658) (1,532,625)
----------------------------------------------------- ----- ------------ -----------
Cash flows from investing activities
Loans to subsidiary undertakings (10,363,054) (4,353,284)
Interest received 72,155 78,420
----------------------------------------------------- ----- ------------ -----------
Net cash used in investing activities (10,290,899) (4,274,864)
----------------------------------------------------- ----- ------------ -----------
Cash flows from financing activities
Proceeds from grant of Royalty - 18,241,205
Proceeds from issue of ordinary shares 93,000 -
Issue costs - -
----------------------------------------------------- ----- ------------ -----------
Net cash generated from financing activities 93,000 18,241,205
----------------------------------------------------- ----- ------------ -----------
Net increase/(decrease) in cash and cash equivalents (12,519,557) 12,433,716
Exchange gain/(loss) on cash and cash equivalents 434,738 (527,342)
Cash and cash equivalents at beginning of year 17,393,773 5,487,399
Cash and cash equivalents at end of the year 12 5,308,954 17,393,773
----------------------------------------------------- ----- ------------ -----------
On the 24 January 2019 the Company issued 13,855,487 shares as a
non cash settlement for $330,000 of deferred contingent
consideration
The above Company Statement of Cash Flows should be read in
conjunction with the accompanying notes.
Notes to the Financial Statements
1 General information
The principal activity of Horizonte Minerals Plc ('the Company')
and its subsidiaries (together 'the Group') is the exploration and
development of base metals. The Company's shares are listed on the
AIM market of the London Stock Exchange and on the Toronto Stock
Exchange. The Company is incorporated and domiciled in England and
Wales. The address of its registered office is Rex House, 4-12
Regents Street, London, SW1Y 4RG.
2 Summary of significant accounting policies
The principal accounting policies applied in the preparation of
these Financial Statements are set out below. These policies have
been consistently applied to all the years presented.
2.1 Basis of preparation
These Financial Statements have been prepared in accordance with
in accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 and in accordance
with International Financial Reporting Standards "IFRS" and their
interpretations as issued by the IASB. The Financial Statements
have been prepared under the historical cost convention as modified
by the revaluation of share based payment charges and the valuation
of derivative financial assets which are assessed annually.
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of
applying the Group's Accounting Policies. The areas involving a
higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the Financial
Statements, are disclosed in Note 4.
2.2 Going concern
The Group's business activities together with the factors likely
to affect its future development, performance and position are set
out in the Chairman's Statement on pages [4] and [5]; in addition
note [3] to the Financial Statements includes the Group's
objectives, policies and processes for managing its capital; its
financial risk management objectives; details of its financial
instruments and its exposure to credit and liquidity risk.
The Financial Statements have been prepared on a going concern
basis. Although the Group's assets are not generating revenues and
an operating loss has been reported, the Directors consider that
the Group has sufficient funds to undertake its operating
activities for a period of at least the next 12 months including
any additional expenditure required in relation to its current
exploration and development projects. The Group raised $26.2
million in February 2021 by way of issuing new shares and special
warrants that are convertible into equity upon the publication of a
short for prospectus in Canada. The funds held at the year end
along with those raised post year end means the Group has cash
reserves which are considered sufficient by the Directors to fund
the Group's committed expenditure both operationally and on its
exploration project for the foreseeable future. However, as
additional projects are identified and the Araguaia project moves
towards production, additional funding will be required.
The uncertainty as to the future impact of the Covid-19 pandemic
has been considered as part of the Group's adoption of the going
concern basis. In response to government instructions the Group's
offices in London and Brazil have been closed with staff working
from home, international travel has stopped and all site work for
the two projects has been restricted to a minimum level. However, a
number of the key project milestones are still advancing and are
currently on track being run by the teams in a virtual
capacity.
Whilst the board considers that the effect of Covid-19 on the
Group's financial results at this time is constrained to
inefficiencies due to remote working, restrictions on travel and
some minor potential delays to consultants work streams, the Board
considers the pandemic could delay the Araguaia project financing
timeline by a number of months (this will be dependent on the
duration of the effects of the Covid-19 virus across global
markets). However, the additional funding described above provides
sufficient financing to enable the Company to continue its
operations for at least 12 months should any additional cost arise
as a result of any potential deterioration in the global Covid-19
situation.
As a result of considerations noted above, the Directors have a
reasonable expectation that the Group and Company have adequate
resources to continue in operational existence for the foreseeable
future. Thus, they continue to adopt the going concern basis of
accounting in preparing these Financial Statements.
2.2 (b) Assessment of the impact of COVID-19
During the period of these financial statements there has been
an ongoing significant global pandemic which has had significant
knock on effects for the majority of the world's population, by way
of the measures governments are taking to tackle the issue. This
represents a risk to the Group's operations by restricting travel,
the potential to detriment the health and wellbeing of its
employees, as well as the effects that this might have on the
ability of the Group to finance and advance its operations in the
timeframes envisaged. The Group has taken steps to try and ensure
the safety of its employees and operate under the current
circumstances and feels the outlook for its operations remains
positive, however risk remain should the pandemic worsen or changes
its impact on the Group. The assessment of the possible impact on
the going concern position of the Group is set out in the going
concern note above. In addition, because of the long term nature of
the Group's nickel projects and their strong project economics
management do not consider that COVID has given rise to any
impairment indicators. The Group has not received any government
assistance.
2.3 Changes in accounting policy and disclosures
a) New and amended standards adopted by the Group
New standards impacting the Group that are adopted in the annual
financial statements for the year ended 31 December 2020, are:
Standard Detail Effective date
-------------------- ----------------------------------------------------------- ---------------
IFRS 7, IFRS 9, IAS Amendments regarding pre-replacement issues in the context 1 January 2020
39 of the IBOR reform
IAS 1, IAS 8 Amendment - regarding the definition of material 1 January 2020
-------------------- ----------------------------------------------------------- ---------------
The adopted amendments have not resulted in any changes to the
Group Consolidated Financial Statements.
b) New and amended standards, and interpretations issued but not
yet effective for the financial year beginning 1 January 2020 and
not early adopted
At the date of authorisation of these Consolidated Financial
Statements, the following new standards, amendments and
interpretations to existing standards have been published but are
not yet effective and have not been adopted early by the Group.
Standard Detail Effective
date
------------------------- ----------------------------------------------------------------- ----------
IFRS 7, IFRS 9, IFRS 16, Amendments regarding pre-replacement issues in the context 1 January
IAS 39 of the IBOR reform 2021
------------------------- ----------------------------------------------------------------- ----------
IAS 16 Amendments prohibiting a company from deducting from the cost 1 January
of property, plant and equipment amounts received from selling 2022
items produced while the company is preparing the asset for
its intended use
------------------------- ----------------------------------------------------------------- ----------
IAS 37 Amendments regarding the costs to include when assessing whether 1 January
a contract is onerous 2022
------------------------- ----------------------------------------------------------------- ----------
IAS 1 Amendment - regarding the classification of liabilities 1 January
2023
------------------------- ----------------------------------------------------------------- ----------
Management anticipates that all the pronouncements will be
adopted in the Group's accounting policies for the first period
beginning after the effective date of the pronouncement.
c) New accounting policy adopted
Following the commencement of the development of the Araguaia
mine project the Group has adopted a new accounting policy for
capitalisation of borrowing costs. The accounting policy is
described in note 2.6 below.
2.4 Basis of consolidation and business acquisitions
Horizonte Minerals Plc was incorporated on 16 January 2006. On
23 March 2006 Horizonte Minerals Plc acquired the entire issued
share capital of Horizonte Exploration Limited (HEL) by way of a
share for share exchange. The transaction was treated as a group
reconstruction and was accounted for using the merger accounting
method as the entities were under common control before and after
the acquisition.
Subsidiaries are entities controlled by the Group. Control is
achieved when the Group is exposed, or has rights, to variable
returns from its involvement with the investee and has the ability
to affect those returns through its power over the investee.
The Group considers all relevant facts and circumstances in
assessing whether it has power over an investee, including:
-- The contractual arrangement with the other vote holders of the investee.
-- Rights arising from other contractual arrangements.
-- The Group's voting rights and potential voting rights.
Consolidation of a subsidiary begins when the Group obtains
control over the subsidiary and ceases when the Group loses control
of the subsidiary. Assets, liabilities, income and expenses of a
subsidiary acquired or disposed of during the year are included in
the consolidated financial statements from the date the Group gains
control until the date the Group ceases to control the
subsidiary.
Other than for the acquisition of HEL as noted above, the Group
uses the acquisition method of accounting to account for business
combinations. The consideration transferred for the acquisition of
a subsidiary is the fair value of the assets transferred, the
liabilities incurred and the equity interests issued by the Group.
The consideration transferred includes the fair value of any asset
or liability resulting from a contingent consideration arrangement.
Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured
initially at their fair values at the acquisition date.
Acquisition-related costs are expensed as incurred unless they
result from the issuance of shares, in which case they are offset
against the premium on those shares within equity.
If an acquisition is achieved in stages, the acquisition date
carrying value of the acquirer's previously held equity interest in
the acquiree is remeasured to fair value at the acquisition date
through profit or loss.
Any contingent consideration to be transferred by the Group is
recognised at fair value at the acquisition date. Subsequent
changes to the fair value of the contingent consideration that is
deemed to be an asset or a liability is recognised in accordance
with IFRS9 either in profit or loss or as a change in other
comprehensive income. The unwinding of the discount on contingent
consideration liabilities is recognised as a finance charge within
profit or loss. Contingent consideration that is classified as
equity is not remeasured, and its subsequent settlement is
accounted for within equity.
The excess of the consideration transferred and the acquisition
date fair value of any previous equity interest in the acquiree
over the fair value of the Group's share of the identifiable net
assets acquired is recorded as goodwill. If this is less than the
fair value of the net assets of the subsidiary acquired in the case
of a bargain purchase, the difference is recognised directly in
profit or loss.
Inter-company transactions, balances and unrealised gains on
transactions between Group companies are eliminated. Accounting
policies of subsidiaries have been changed where necessary to
ensure consistency with policies adopted by the Group.
Investments in subsidiaries are accounted for at cost less
impairment.
The following 100% owned subsidiaries have been included within
the consolidated Financial Statements (consistent with the prior
year):
Registered Address Country of
Subsidiary undertaking Held incorporation Nature of business
-------------------------------- ---------- ------------------------------ --------------- -------------------
Horizonte Exploration Rex House, 4-12 Regents
Ltd Directly Street, London SW1Y 4RG England Mineral Exploration
1(st) Floor, Viking House,
Horizonte Minerals St Pauls Square, Ramsey,
(IOM) Ltd Indirectly IM8 1GB, Ilse of Man Isle of Man Holding company
1(st) Floor, Viking House,
St Pauls Square, Ramsey,
HM Brazil (IOM) Ltd Indirectly IM8 1GB, Ilse of Man Isle of Man Holding company
1(st) Floor, Viking House,
St Pauls Square, Ramsey,
Cluny (IOM) Ltd Indirectly IM8 1GB, Ilse of Man Isle of Man Holding company
1(st) Floor, Viking House,
St Pauls Square, Ramsey,
Champol (IOM) ltd Indirectly IM8 1GB, Ilse of Man Isle of Man Holding company
1(st) Floor, Viking House,
Horizonte Nickel St Pauls Square, Ramsey,
(IOM) Ltd Indirectly IM8 1GB, Ilse of Man Isle of Man Holding company
Atrium Building, 8(th)
Nickel Production floor, Strawinskylaan Provision of
Services B.V Directly 3127, 1077 ZX, Amsterdam The Netherlands financial services
CNPJ 07.819.038/0001-30
com sede na Avenida Amazonas,
2904, loja 511, Bairro
Prado, Belo Horizonte
HM do Brasil Ltda Indirectly - MG. CEP: 30.411-186 Brazil Mineral Exploration
CNPJ 97.515.035/0001-03
com sede na Avenida Amazonas,
2904, loja 511, Bairro
Araguaia Níquel Prado, Belo Horizonte
Metais Ltda Indirectly - MG. CEP: 30.411-186 Brazil Mineral Exploration
CNPJ 23.282.280/0001-73
com sede na Alameda Ezequiel
Dias, n. 427, 2 andar,
bairro Funcionários,
Município de Belo
Trias Brasil Mineração Horizonte, Estado de Minas
Ltda Indirectly Gerais, CEP 30.130-110 Brazil Mineral Exploration
-------------------------------- ---------- ------------------------------ --------------- -------------------
During the year two wholly owned subsidiaries of the group,
Lontra Emprendimentos e Participacões Ltda and Typhon Brasil
Mineração Ltda were closed down and their assets transferred to
other Brazilian subsidiaries.
2.4 (b) Subsidiaries and Acquisitions
The consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the Company
(its subsidiaries) made up to 31 December each year. Control is
recognised where an investor is expected, or has rights, to
variable returns from its investment with the investee, and has the
ability to affect these returns through its power over the
investee. Based on the circumstances of the acquisition an
assessment will be made as to whether the acquisition represents an
acquisition of an asset or the acquisition of asset. In the event
of a business acquisition, the assets, liabilities and contingent
liabilities of a subsidiary are measured at their fair value at the
date of acquisition. Any excess of the cost of the acquisition over
the fair values of the identifiable net assets acquired is
recognised as a "fair value" adjustment.
If the cost of the acquisition is less than the fair value of
net assets of the subsidiary acquired, the difference is recognised
directly in profit or loss. In the event of an asset acquisition
assets and liabilities are assigned a carrying amount based on
relative fair value.
The results of subsidiaries acquired or disposed of during the
year are included in the statement of comprehensive income from the
effective date of acquisition or up to the effective date of
disposal, as appropriate.
Where necessary, adjustments are made to the financial
statements of subsidiaries to bring the accounting policies into
line with those used by the Group.
Contingent consideration as a result of business acquisitions is
included in cost at its acquisition date assessed value and, in the
case of contingent consideration classified as a financial
liability, remeasured subsequently through the profit and loss.
2.5 Intangible Assets
(a) Goodwill
Goodwill represents the excess of the cost of an acquisition
over the fair value of the Group's share of the net identifiable
assets, liabilities and contingent liabilities of the acquired
subsidiary at the date of acquisition. Goodwill arising on the
acquisition of subsidiaries is included in 'intangible assets'.
Goodwill is tested annually for impairment and carried at cost less
accumulated impairment losses. Impairment losses on goodwill are
not reversed. Gains and losses on the disposal of an entity include
the carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to cash generating units for the purpose
of impairment testing. The allocation is made to those
cash-generating units or groups of cash-generating units that are
expected to benefit from the business combination in which the
goodwill arose, identified according to operating segment.
(b) Exploration and evaluation assets
The Group capitalises expenditure in relation to exploration and
evaluation of mineral assets when the legal rights are obtained and
are initially valued and subsequently carried at cost less any
subsequent impairment. Expenditure included in the initial
measurement of exploration and evaluation assets and which are
classified as intangible assets relate to the acquisition of rights
to explore, topographical, geological, geochemical and geophysical
studies, exploratory drilling, trenching, sampling and activities
to evaluate the technical feasibility and commercial viability of
extracting a mineral resource.
Exploration and evaluation assets arising on business
combinations are included at their acquisition-date fair value in
accordance with IFRS 3 (revised) 'Business combinations'. Other
exploration and evaluation assets and all subsequent expenditure on
assets acquired as part of a business combination are recorded and
held at cost.
Exploration and evaluation assets are assessed for impairment
when facts and circumstances suggest that the carrying amount of an
asset may exceed its recoverable amount. The assessment is carried
out by allocating exploration and evaluation assets to cash
generating units, which are based on specific projects or
geographical areas.
Impairment reviews for deferred exploration and evaluation
expenditure are carried out on a project by project basis, with
each project representing a potential single cash generating unit.
In accordance with the requirements of IFRS 6, an impairment review
is undertaken when indicators of impairment arise such as:
(i) unexpected geological occurrences that render the resource uneconomic;
(ii) title to the asset is compromised;
(iii) variations in mineral prices that render the project uneconomic;
(iv) substantive expenditure on further exploration and
evaluation of mineral resources is neither budgeted nor planned;
and
(v) the period for which the Group has the right to explore has
expired and is not expected to be renewed.
See note 2.7 for impairment review process if impairment
indicators are identified.
Whenever the exploration for and evaluation of mineral resources
does not lead to the discovery of commercially viable quantities of
mineral resources or the Group has decided to discontinue such
activities of that unit, the associated expenditures are written
off to profit or loss. Whenever a commercial discovery is the
direct result of the exploration and evaluation assets, upon the
decision to proceed with development of the asset and initial
funding arrangements are in place the costs shall be transferred to
a Mine Development asset within property, plant and equipment.
(c) Acquisitions of Mineral Exploration Licences
Acquisitions of Mineral Exploration Licences through acquisition
of non-operational corporate structures that do not represent a
business, and therefore do not meet the de nition of a business
combination, are accounted for as the acquisition of an asset and
recognised at the fair value of the consideration. Related future
consideration if contingent is recognised if it is considered that
it is probable that it will be paid.
2.6 Property, plant and equipment
Mine development property
Following determination of the technical feasibility and
commercial viability of a mineral resource, the relevant
expenditure is transferred from exploration and evaluation assets
to mine development property.
Further development costs are capitalised to mine development
properties, if and only if, it is probable that future economic
benefits associated with the item will flow to the entity and the
cost can be measured reliably. Cost is defined as the purchase
price and directly attributable costs. Once the asset is considered
to be capable of operating in a manner intended by management,
commercial production is declared, and the relevant costs are
depreciated. Evaluated mineral property is carried at cost less
accumulated depreciation and accumulated impairment losses.
Short lived Property, plant and equipment
All other property, plant and equipment such as office equipment
and vehicles are stated at historic cost less accumulated
depreciation. Historic cost includes expenditure that is directly
attributable to the acquisition of the items.
Subsequent costs are included in the asset's carrying amount or
recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item
will flow to the Group and the cost of the item can be measured
reliably. Major repairs and maintenance are capitalised, all other
repairs and maintenance costs are charged to profit or loss during
the financial period in which they are incurred.
Depreciation and amortisation
Mine development property is not depreciated prior to commercial
production but is reviewed for impairment annually (see "Impairment
of assets" section below). Upon commencement of commercial
production, mine development property is transferred to a mining
property and is depreciated on a units-of-production basis. Only
proven and probable reserves are used in the tonnes mined units of
production depreciation calculation.
Depreciation is charged on a straight-line basis for all other
property, plant and equipment, so as to write off the cost of
assets, over their estimated useful lives, using the straight-line
method, on the following bases:
Office equipment 25%
Vehicles and other field
equipment 25% - 33%
The asset's residual values and useful lives are reviewed, and
adjusted if appropriate, at the end of each reporting period.
An asset's carrying amount is written down immediately to its
recoverable amount if the assets carrying amount is greater than
its estimated recoverable amount.
Capitalisation of borrowing costs
Borrowing costs are expensed except where they relate to the
financing of construction or development of qualifying assets.
Borrowing costs directly related to financing of qualifying assets
in the course of construction are capitalised to the carrying value
of the Araguaia mine development property. Where funds have been
borrowed specifically to the finance the Project, the amount
capitalised represents the actual borrowing costs incurred net of
all interest income earned on the temporary re-investment of these
borrowings prior to utilisation. Borrowing costs capitalised
include:
-- Interest charge on royalty finance
-- Adjustments to the carrying value of the royalty finance
-- Unwinding of discount and adjustment to carrying value on
contingent consideration payable for Araguaia
The capitalisation of adjustments to the carrying values as a
result of changes in estimates is an accounting policy choice under
IFRS and management have selected to capitalise.
All other borrowing costs are recognized as part of interest
expense in the year which they are incurred.
2.7 Impairment of non-financial assets
Assets that have an indefinite useful life, such as goodwill are
not subject to amortisation and are tested annually for impairment.
Exploration assets and property, plant and equipment are reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. An impairment loss
is recognised for the amount by which the asset's carrying amount
exceeds its recoverable amount. The recoverable amount is the
higher of an asset's fair value less costs to sell and value in
use. For the purposes of assessing impairment, assets are grouped
at the lowest levels for which there are separately identifiable
cash flows (cash generating units). Non-financial assets other than
goodwill that suffered an impairment are reviewed for possible
reversal of the impairment at each reporting date.
2.8 Foreign currency translation
(a) Functional and presentation currency
Items included in the Financial Statements of the Group's
entities are measured using the currency of the primary economic
environment in which the entity operates (the 'functional
currency'). The functional currency of the UK and Isle of Man
entities is Pounds Sterling and the functional currency of the
Brazilian entities is Brazilian Real. The functional currency of
the project financing subsidiary incorporated in the Netherlands is
USD. The Consolidated Financial Statements are presented in Pounds
Sterling, rounded to the nearest pound, which is the Company's
functional and Group's presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions or valuation where such items are re-measured. Foreign
exchange gains and losses resulting from the settlement of such
transactions and from the translation at year-end exchange rates of
monetary assets and liabilities denominated in foreign currencies
are recognised in profit or loss.
(c) Group companies
The results and financial position of all the Group's entities
(none of which has the currency of a hyperinflationary economy)
that have a functional currency different from the presentation
currency are translated into the presentation currency as
follows:
(1) assets and liabilities for each statement of financial
position presented are translated at the closing rate at the date
of that statement of financial position;
(2) each component of profit or loss is translated at average
exchange rates during the accounting period (unless this average is
not a reasonable approximation of the cumulative effect of the
rates prevailing on the transaction dates, in which case income and
expenses are translated at the dates of the transactions); and
(3) all resulting exchange differences are recognised in other comprehensive income.
On consolidation, exchange differences arising from the
translation of the net investment in foreign entities, and of
monetary items receivable from foreign subsidiaries for which
settlement is neither planned nor likely to occur in the
foreseeable future are taken to other comprehensive income. When a
foreign operation is sold, such exchange differences are recognised
in profit or loss as part of the gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition
of a foreign entity are treated as assets and liabilities of the
foreign entity and retranslated at the end of each reporting
period.
2.9 Financial instruments
Financial instruments are measured as set out below. Financial
instruments carried on the statement of financial position include
cash and cash equivalents, trade and other receivables, trade and
other payables, derivative assets, royalty finance liability and
loans to group companies.
Financial instruments are initially recognised at fair value
when the group becomes a party to their contractual arrangements.
Transaction costs directly attributable to the instrument's
acquisition or issue are included in the initial measurement of
financial assets and financial liabilities, except financial
instruments classified as at fair value through profit or loss
(FVTPL). The subsequent measurement of financial instruments is
dealt with below.
Financial assets
On initial recognition, a financial asset is classified as:
-- Amortised cost;
-- Fair value through other comprehensive income (FVTOCI) - equity instruments; or
-- FVTPL.
The group does not currently have any financial assets
classified as FVTOCI.
Fair value through profit or loss
This category comprises in-the-money derivatives. They are
carried in the statement of financial position at fair value with
changes in fair value recognised in the profit loss statement.
Amortised cost
Financial assets that arise principally from assets where the
objective is to hold these assets in order to collect contractual
cash flows and the contractual cash flows are solely payments of
principal and interest. They are initially recognised at fair value
plus transaction costs that are directly attributable to their
acquisition or issue, and are subsequently carried at amortised
cost using the effective interest rate method, less provision for
impairment.
Any gain or loss arising on derecognition is recognised directly
in profit or loss and presented in other gains or losses, together
with foreign exchange gains or losses. Impairment losses are
presented as separate line item in the statement of profit or loss.
A gain or loss on a debt investment that is subsequently measured
at FVTPL is recognised in profit or loss and presented net within
other gains or losses in the period in which it arises. On
derecognition of a financial asset, the difference between the
proceeds received or receivable and the carrying amount of the
asset is included in profit or loss.
Financial assets at amortised cost consist of trade receivables
and other receivables (excluding taxes), cash and cash equivalents,
and related party intercompany loans
Impairment provisions for receivables and loans to related
parties are recognised based on using the general approach to
determine if there has been a significant increase in credit risk
since initial recognition and whether the receivables and loans are
credit impaired. The methodology used to determine the amount of
the provision is based on whether there has been a significant
increase in credit risk since initial recognition of the financial
asset. For those where the credit risk has not increased
significantly since initial recognition of the financial asset,
twelve month expected credit losses along with gross interest
income are recognised. For those for which credit risk has
increased significantly, lifetime expected credit losses along with
the gross interest income are recognised. For those that are
determined to be credit impaired, lifetime expected credit losses
along with interest income on a net basis are recognised.
Cash and cash equivalents
Cash and cash equivalents are carried in the statement of
financial position at cost. For the purpose of the cash flow
statement, cash and cash equivalents comprise cash on hand,
deposits held at call with banks, other short term highly liquid
investments with a maturity of three months or less at the date of
purchase.
Financial liabilities
The Group classifies its financial liabilities into one of two
categories, depending on the purpose for which the liability was
acquired.
Fair value through profit or loss
The group does not currently have any financial liabilities
carried at Fair value through Profit and loss.
Other financial liabilities
Financial liabilities are initially valued at fair value and
subsequently measured at amortised cost using the effective
interest method, except for financial liabilities designated at
fair value through profit or loss, that are carried subsequently at
fair value with gains and losses recognised in the profit and loss
statement.
The effective interest method is a method of calculating the
amortised cost of a financial liability and of allocating interest
expense over the relevant period. The effective interest rate is
the rate that exactly discounts estimated future cash payments
through the expected life of the financial liability, or, where
appropriate, a shorter period.
The Group's financial liabilities initially measured at fair
value and subsequently recognised at amortised cost include
accounts payables and accrued liabilities as well as the Group's
Royalty liability.
2.10 Taxation
The tax credit or expense for the period comprises current and
deferred tax. Tax is recognised in the Income Statement, except to
the extent that it relates to items recognised in other
comprehensive income or directly in equity. In this case, the tax
is also recognised in other comprehensive income or directly in
equity, respectively.
The charge for current tax is calculated on the basis of the tax
laws enacted or substantively enacted by the end of the reporting
period in the countries where the company and its subsidiaries
operate and generate taxable income. Management periodically
evaluates positions taken in tax returns with respect to situations
in which applicable tax regulation is subject to interpretation. It
establishes provisions where appropriate on the basis of amounts
expected to be paid to the tax authorities.
Deferred tax is accounted for using the liability method in
respect of temporary differences arising from differences between
the carrying amount of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation
of taxable profit. However, deferred tax liabilities are not
recognised if they arise from the initial recognition of goodwill;
deferred tax is not accounted for if it arises from initial
recognition of an asset or liability in a transaction other than a
business combination that at the time of the transaction affects
neither accounting nor taxable profit or loss.
Deferred tax liabilities are recognised for all taxable
temporary differences and deferred tax assets are recognised to the
extent that it is probable that taxable profits will be available
against which deductible temporary differences can be utilised.
Deferred tax assets are recognised on tax losses carried forward to
the extent that the realisation of the related tax benefit through
future taxable profits is probable.
Deferred tax liabilities are recognised for taxable temporary
differences arising on investments in subsidiaries and associates,
and interests in joint ventures, except where the Company is able
to control the reversal of the temporary difference and it is
probable that the temporary difference will not reverse in the
foreseeable future.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred tax assets and
liabilities relate to taxes levied by the same taxation authority
on either the same taxable entity or different taxable entities
where there is an intention to settle the balances on a net
basis.
Deferred tax is calculated at the tax rates (and laws) that have
been enacted or substantively enacted by the Statement of Financial
Position date and are expected to apply to the period when the
asset is realised or the liability is settled.
Deferred tax assets and liabilities are not discounted.
2.11 Share capital
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of new ordinary shares or
options are shown in equity as a deduction, net of tax, from the
proceeds.
2.12 Trade payables
Trade payables are obligations to pay for goods or services that
have been acquired in the ordinary course of business from
suppliers. Accounts payable are classified as current liabilities
if payment is due within one year or less. If not, they are
presented as non-current liabilities.
Trade payables are initially recognised at fair value and
subsequently measured at amortised cost using the effective
interest method.
2.13 Leases
All leases are accounted for by recognising a right-of-use
assets due to a lease liability except for:
> Lease of low value assets; and
> Leases with duration of 12 months or less
The Group only has such short duration leases and lease payments
are charged to the income statement.
2.14 Share-based payments and incentives
The Group operates equity-settled, share-based compensation
plans, under which the entity receives services from employees as
consideration for equity instruments (options) of the Group. The
fair value of employee services received in exchange for the grant
of share options are recognised as an expense. The total expense to
be apportioned over the vesting period is determined by reference
to the fair value of the options granted:
> including any market performance conditions;
> excluding the impact of any service and non-market performance vesting conditions; and
> including the impact of any non-vesting conditions.
Non-market performance and service conditions are included in
assumptions about the number of options that are expected to vest.
The total expense is recognised over the vesting period, which is
the period over which all of the specified vesting conditions are
to be satisfied. At the end of each reporting period the Group
revises its estimate of the number of options that are expected to
vest.
It recognises the impact of the revision of original estimates,
if any, in profit or loss, with a corresponding adjustment to
equity.
When options are exercised, the Company issues new shares. The
proceeds received net of any directly attributable transaction
costs are credited to share capital (nominal value) and share
premium.
The fair value of goods or services received in exchange for
shares is recognised as an expense.
2.15 Segment reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the Chief Executive Officer, the
Company's chief operating decision-maker ("CODM").
2.16 Finance income
Interest income is recognised using the effective interest
method, taking into account the principal amounts outstanding and
the interest rates applicable.
2.17 Provisions and Contingent Liabilities
Provisions are recognised when the Group has a present legal or
constructive obligation as a result of past events; it is probable
that an outflow of resources will be required to settle the
obligation; and the amount can be reliably estimated.
Provisions are measured at the present value of the expenditures
expected to be required to settle the obligation using a pre-tax
rate that reflects current market assessments of the time value of
money and the risks specific to the obligation. The increase in the
provision due to passage of time is recognised as finance cost.
Contingent liabilities are potential obligations that arise from
past events and whose existence will only be confirmed by the
occurrence of one or more uncertain future events that, however,
are beyond the control of the Group. Furthermore, present
obligations may constitute contingent liabilities if it is not
probable that an outflow of resources will be required to settle
the obligation, or a sufficiently reliable estimate of the amount
of the obligation cannot be made.
The company has contingent consideration arising in respect of
mineral asset acquisitions. Details are disclosed in note 4.2.
Restoration, Rehabilitation and Environmental Provisions
Management uses its judgement and experience to provide for and
amortise the estimated mine closure and site rehabilitation over
the life of the mine. Provisions are discounted at a risk-free rate
and cost base inflated at an appropriate rate. The ultimate closure
and site rehabilitation costs are uncertain and cost estimates can
vary in response to many factors including changes to relevant
legal requirements or the emergence of new restoration techniques.
The expected timing and extent of expenditure can also change, for
example in response to changes in ore reserves or processing
levels. As a result, there could be significant adjustments to the
provisions established which could affect future financial results.
Currently there is no provision as all restoration and
rehabilitation for activities undertaken to date in line with the
agreements for access to land. Once construction and mining
operations commence however this is anticipated to become more
significant.
Trade and other payables
Accounts payable and other short term monetary liabilities, are
initially recognised at fair value, which equates to the
transaction price, and subsequently carried at amortised cost using
the effective interest method.
3 Financial risk management
The Group is exposed through its operations to the following
financial risks:
-- Credit risk
-- Interest rate risk
-- Foreign exchange risk
-- Price risk, and
-- Liquidity risk.
In common with all other businesses, the Group is exposed to
risks that arise from its use of financial instruments. This note
describes the Group's objectives, policies and processes for
managing those risks and the methods used to measure them. Further
quantitative information in respect of these risks is presented
throughout these financial statements. There have been no
substantive changes in the Group's exposure to financial instrument
risks, its objectives, policies and processes for managing those
risks or the methods used to measure them from previous periods
unless otherwise stated in this note.
(i) Principal financial instruments
The principal financial instruments used by the Group, from
which financial instrument risk arises, are as follows:
-- Trade and other receivables
-- Cash and cash equivalents
-- Trade and other payables
-- Royalty finance
-- Derivative financial assets
3.1 Financial risk factors
The main financial risks to which the Group's activities are
exposed are liquidity and fluctuations on foreign currency. The
Group's overall risk management programme focusses on the
unpredictability of financial markets and seeks to minimise
potential adverse effects on the Group's financial performance.
Risk management is carried out by the Board of Directors under
policies approved at the quarterly Board meetings. The Board
frequently discusses principles for overall risk management
including policies for specific areas such as foreign exchange.
(a) Liquidity risks
In keeping with similar sized mineral exploration groups, the
Group's continued future operations depend on the ability to raise
sufficient working capital through the issue of equity share
capital. Liquidity risk arises from the Group's management of
working capital and the expenditure profile of the group. At
present is does not have any finance charges and principal
repayments that require settlement as the only liabilities it has
are contingent upon reaching production. There is however a risk
that the Group will encounter difficulty in meeting its financial
obligations as they fall due. The Group's policy is to ensure that
it will always have sufficient cash to allow it to meet its
liabilities when they become due. To achieve this aim, it seeks to
maintain cash balances (or agreed facilities) to meet expected
requirements for a period of at least 6 months. All cash, with the
exception of that required for immediate working capital
requirements, is held on short-term deposit.
The Board receives rolling 12-month cash flow projections on a
quarterly basis as well as information regarding cash balances and
(as noted above) the value of the Group's deposits. At the end of
the financial year, these projections indicated that the Group
expected to have sufficient liquid resources to meet its
obligations under all reasonably expected circumstances. The
liquidity risk of each group entity is managed centrally by the
group treasury function. Each operation has a facility with group
treasury, the amount of the facility being based on budgets. The
budgets are set locally and agreed by the board in advance,
enabling the Group's cash requirements to be anticipated.
The following table sets out the contractual maturities of
undiscounted financial liabilities:
Group
At 31 December 2020 Up to 3 Months Between 3 & 12 Months Between 1 & 2 Years Between 2 & 5 Years Over 5 years
----------------------- -------------- --------------------- ------------------- ------------------- ------------
GBP GBP GBP GBP GBP
Trade & other payables 632,407 - - -
Royalty financing
arrangement - - - 9,263,974 148,448,937
Contingent
consideration - - - 3,659,485 4,391,382
----------------------- -------------- --------------------- ------------------- ------------------- ------------
Total 632,407 - - 12,923,459 152,840,319
----------------------- -------------- --------------------- ------------------- ------------------- ------------
The cash flows related to the royalty finance represent the
estimated future payments in future years.
At 31 December 2019 Up to 3 Months Between 3 & 12 Months Between 1 & 2 Years Between 2 & 5 Years Over 5 years
----------------------- -------------- --------------------- ------------------- ------------------- ------------
GBP GBP GBP GBP GBP
Trade & other payables 683,933 - - -
Royalty financing
arrangement - - - 8,781,200 136,016,637
Contingent
consideration - - - 8,295,626 -
----------------------- -------------- --------------------- ------------------- ------------------- ------------
Total 683,933 - - 17,076,826 136,016,637
----------------------- -------------- --------------------- ------------------- ------------------- ------------
The cash flows related to the royalty finance represent the
estimated future payments in future years.
Company
At 31 December 2020 Up to 3 Months Between 3 & 12 Months Between 1 & 2 Years Between 2 & 5 Years Over 5 years
----------------------- -------------- --------------------- ------------------- ------------------- ------------
GBP GBP GBP GBP GBP
Trade & other payables 280,179 - - - -
Intercompany loans 12,194,094 - - - -
Contingent
consideration - - - 3,659,485 4,391,382
----------------------- -------------- --------------------- ------------------- ------------------- ------------
Total 12,474,273 - - 3,659,485 4,391,382
----------------------- -------------- --------------------- ------------------- ------------------- ------------
At 31 December 2019 Up to 3 Months Between 3 & 12 Months Between 1 & 2 Years Between 2 & 5 Years Over 5 years
----------------------- -------------- --------------------- ------------------- ------------------- ------------
GBP GBP GBP GBP GBP
Trade & other payables 735,518 - - - -
Intercompany loans 17,735,009 - - - -
Contingent
consideration - - - 8,295,626 -
----------------------- -------------- --------------------- ------------------- ------------------- ------------
Total 18,470,527 - - 8,295,626 -
----------------------- -------------- --------------------- ------------------- ------------------- ------------
(b) Foreign currency risks
The Group operates internationally and is exposed to foreign
exchange risk arising from various currency exposures, primarily
with respect to the Brazilian Real, US Dollar and the Pound
Sterling.
Foreign exchange risk arises from future commercial
transactions, recognised assets and liabilities and net investments
in foreign operations that are denominated in a foreign currency.
The Group holds a proportion of its cash in US Dollars and
Brazilian Reals to hedge its exposure to foreign currency
fluctuations and recognises the profits and losses resulting from
currency fluctuations as and when they arise. The volume of
transactions is not deemed sufficient to enter into forward
contracts.
At 31 December 2020, if the Brazilian Real had
weakened/strengthened by 20% against Pound Sterling with all other
variables held constant, post tax loss for the year would have been
approximately GBP 1,204,049 (2019: GBP102,936) lower/higher mainly
as a result of foreign exchange losses/gains on translation of
Brazilian Real expenditure and denominated bank balances. If the
USD:GBP rate had increased by 5% the effect would be GBP 372,488
(2019: GBP799,698).
As of 31 December 2020 the Group's net exposure to foreign
exchange risk was as follows:
Functional Currency
USD USD GBP GBP BRL BRL Total Total
Group 2020 2019 2020 2019 2020 2019 2020 2019
------------------------------- --------- ----- ----------- ---------- ----- ----- ----------- ----------
Currency of net GBP GBP GBP GBP GBP GBP GBP GBP
Financial assets/(liabilities)
GBP - - - - - - - -
USD - - (1,440,779) 10,822,512 - - (1,440,779) 10,822,512
BRL 5,433,840 - - - - 5,433,840 -
CAD - - 57,683 28,686 - - 57,683 28,686
EUR 72,610 - - - - - 72,610 -
------------------------------- --------- ----- ----------- ---------- ----- ----- ----------- ----------
Total net exposure 5,506,450 - (1,383,096) 10,851,198 - - 4,123,354 10,851,198
------------------------------- --------- ----- ----------- ---------- ----- ----- ----------- ----------
GBP GBP Total Total
Company 2020 2019 2020 2019
----------------------------- ----------- ---------- ----------- ----------
Currency of net GBP GBP GBP GBP
Financial assets/liabilities
USD (1,569,868) 10,822,512 (1,569,868) 10,822,512
CAD 30,000 28,686 30,000 28,686
----------------------------- ----------- ---------- ----------- ----------
Total net exposure (1,539,868) 10,851,198 (1,539,868) 10,851,198
----------------------------- ----------- ---------- ----------- ----------
(c) Interest rate risk
As the Group has no borrowings, it is not exposed to interest
rate risk on financial liabilities. The Group's interest rate risk
arises from its cash held on short-term deposit for which the
Directors use a mixture of fixed and variable rate deposits. As a
result, fluctuations in interest rates are not expected to have a
significant impact on profit or loss or equity.
(d) Commodity price risk
The group is exposed to the price fluctuation of its primary
product from the Araguaia project, being FerroNickel. The Group has
a royalty over its Araguaia project which is denominated as a fixed
percentage of the product over a certain number of tonnes produced.
Given the Group is current in the development phase and is not yet
producing any revenue, the costs of managing exposure to commodity
price risk exceed any potential benefits. The Directors monitor
this risk on an ongoing basis and will review this as the group
moves towards production. The Groups exposure to nickel price
amounted to the carrying value of the Royalty liability of
GBP22,053,341 (2019: GBP20,570,411). If the long term nickel price
assumption used in the estimation were to increase or decrease by
10% then the effect on the carrying value of the liability would be
an increase/decrease of GBP2,279,818 (2019: GBP2,107,418).
(e) Credit risk
Credit risk arises from cash and cash equivalents and
outstanding receivables including intercompany loan receivable
balances. The Group maintains cash and short-term deposits with a
variety of credit worthy financial institutions and considers the
credit ratings of these institutions before investing in order to
mitigate against the associated credit risk.
The Company's exposure to credit risk amounted to GBP10,935,563,
(2019: GBP17,760,330) and represents the Group cash positions.
The Company's exposure to credit risk amounted to GBP70,001,110,
(2019: GBP73,189,301). Of this amount GBP64,692,156 (2019:
GBP55,795,528) is due from subsidiary companies and GBP5,308,954
represents cash holdings (2019: GBP17,393,773). See note 27 for
adjustments for provisions for expected credit losses for the
intercompany receivables from subsidiary companies.
3.2 Capital risk management
The Group's objectives when managing capital are to safeguard
the Group's ability to continue as a going concern, in order to
provide returns for shareholders and to enable the Group to
continue its exploration and evaluation activities. The Group has
no repayable debt at 31 December 2020 and defines capital based on
the total equity of the Group. The Group monitors its level of cash
resources available against future planned exploration and
evaluation activities and may issue new shares in order to raise
further funds from time to time.
As indicated above, the Group holds cash reserves on deposit at
several banks and in different currencies until they are required
and in order to match where possible with the corresponding
liabilities in that currency.
3.3 Fair value estimation
The carrying values of trade receivables and payables are
assumed to be approximate to their fair values, due to their
short-term nature. The value of contingent consideration is
estimated by discounting the future expected contractual cash flows
at the Group's current cost of capital of 7% based on the interest
rate available to the Group for a similar financial instrument.
During the prior year the Group entered into a royalty funding
arrangement with Orion Mine Finance securing a gross upfront
payment of $25,000,000 before fees in exchange for a royalty over
the first 426k tonnes of nickel produced from the Araguaia
Ferronickel project. The agreement includes several prepayment
options embedded within the agreement enabling the Group to reduce
the royalty rate, these options are carried at fair value. Details
of this agreement are included in note [18].
The future expected nickel price and, volatility of the nickel
prices are key estimates that are critical in the fair value of the
Buy Back Option associated with the Royalty financing.
The fair value of cash, other receivables, accounts payable and
accrued liabilities approximate their carrying values due to the
short-term nature of the instruments.
Fair value measurements recognised in the statement of financial
position subsequent to initial fair value recognition can be
classified into Levels 1 to 3 based on the degree to which fair
value is observable.
Level 1 - Fair value measurements are those derived from quoted
prices in active markets for identical assets and liabilities.
Level 2 - Fair value measurements are those derived from inputs
other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly, or
indirectly.
Level 3 - Fair value measurements are those derived from
valuation techniques that include inputs for the asset or liability
that are not based on observable market data.
Information relating to the basis of determination of the level
3 fair value for the buyback option and consideration of
sensitivity to changes in estimates is disclosed in note [18b]).
]
There were no transfers between any levels of the fair value
hierarchy in the current or prior years.
4 Critical accounting estimates and judgements
The preparation of the Financial Statements in conformity with
IFRSs requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the end of the
reporting period and the reported amount of expenses during the
year. Actual results may vary from the estimates used to produce
these Financial Statements.
Estimates and judgements are continually evaluated and are based
on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances.
Significant items subject to such estimates and judgements
include, but are not limited to:
Estimates
Company - Application of the expected credit loss model
prescribed by IFRS 9
IFRS 9 requires the Parent company to make assumptions when
implementing the forward-looking expected credit loss model. This
model is required to be used to assess the intercompany loan
receivables from the company's Brazilian subsidiaries for
impairment.
Arriving at the expected credit loss allowance involved
considering different scenarios for the recovery of the
intercompany loan receivables, the possible credit losses that
could arise and the probabilities for these scenarios. The
following was considered; the exploration project risk for Vermelho
as well as the potential economics as derived from the PFS,
positive NPV of the Araguaia projects as demonstrated by the
Feasibility Study, ability to raise the finance to develop the
projects, ability to sell the projects, market and technical risks
relating to the project, participation of the subsidiaries in the
Araguaia projects. See note 27 for a discussion on the adjustment
passed concerning the impairment loss.
Valuation of derivative financial assets
Valuing derivatives inherently relies on a series of estimates
and assumptions to derive what is deemed to be a fair value
estimate for a financial instrument. The royalty financing
arrangement entered into by the Group includes a Buyback option, an
embedded derivatives which was valued using a Monte Carlo
simulation method. This methodology of determining fair value is
reliant upon estimations including the probability of certain
scenarios occurring, the estimated production rate and timeline of
production from the Araguaia project, future nickel prices as well
as discount factors. The most important estimates in determining
the valuation of the Buyback option are the future nickel price and
its price volatility. The sensitivity of the valuation to these
estimates are considered in note 18b).
Judgements
4.1 Impairment of exploration and evaluation costs
Exploration and evaluation costs which relate solely to Vermelho
have a carrying value at 31 December 2020 of [GBP6,062,624] (2019:
GBP6,846,859). Each exploration project is subject to an annual
review by either a consultant or senior company geologist to
determine if the exploration results returned to date warrant
further exploration expenditure and have the potential to result in
an economic discovery. This review takes into consideration
long-term metal prices, anticipated resource volumes and grades,
permitting and infrastructure. In the event that a project does not
represent an economic exploration target and results indicate there
is no additional upside, a decision will be made to discontinue
exploration. The judgement exercised by management relates to
whether there is perceived to be an indicator of impairment and
that management have concluded that there is not, due to the
recovery in the Nickel prices, favourable economics of the
Pre-Feasibility Study as well as the fundamentals of the nickel
market and expected supply gap in the mid-term.
4.2 Contingent consideration
Contingent consideration has a carrying value of GBP5,927,026 at
31 December 2020 (2019: GBP6,246,071). There are two contingent
consideration arrangements in place as at 31 December 2020:
-- Payable to Glencore in respect of the Araguaia acquisition - $5m
-- Payable to Vale in respect of the Vale acquisition - $6m
In prior years Management judged that the projects had advanced
to a stage that it was probable that the consideration would be
paid and so should be recognised in full. This remains the
position. In addition, a key estimate in determining the estimated
value of the contingent consideration for both Glencore and Vale is
the timing of the assumed date of first commercial production.
Please refer to Note [17] for an analysis of the contingent and
deferred consideration.
4.3 Current and deferred taxation
The Group is subject to income taxes in numerous jurisdictions.
Judgment is required in determining the worldwide provision for
such taxes. The Group recognises liabilities for anticipated tax
issues based on estimates of whether additional taxes will be due.
Where the final tax outcome of these matters is different from the
amounts that were initially recorded, such differences will affect
the current and deferred income tax assets and liabilities in the
period in which such determination is made.
Deferred tax liabilities have been recognised on the fair value
gains in exploration assets arising on the acquisitions of Araguaia
Níquel Metais Ltda (formerly Teck Cominco Brasil S.A) and Lontra
Empreendimentos e Participações Ltda in 2010. A deferred tax asset
in respect of the losses has been recognised on acquisition of
Araguaia Níquel Metais Ltda to the extent that it can be set
against the deferred tax liability arising on the fair value gains.
In determining whether a deferred tax asset in excess of this
amount should be recognized management must make an assessment of
the probability that the tax losses will be utilized and a deferred
tax asset is only recognised if it is considered probable that the
tax losses will be utilized.
Other estimates include but are not limited to future cash flows
associated with assets, useful lives for depreciation and fair
value of financial instruments.
4.4 Accounting for the royalty finance arrangements
The Group has a $25m royalty funding arrangement which was
secured in order to advance the Araguaia project towards
construction. The royalty pays a fixed percentage of revenue to the
holder for production from the first 426k tonnes of nickel produced
from the Araguaia project. The treatment of this financing
arrangement as a financial liability, calculated using the
effective interest rate methodology is a key judgement that was
made by the Company in the prior year and which was taken following
obtaining independent expert advice. The carrying value of the
financing liability is driven by the expected future cashflows
payable to the holder on the basis of the production profile of the
mine property. It is also sensitive to assumptions regarding the
royalty rate, which can vary based upon the start date for
construction of the project and future nickel prices. The contract
includes certain embedded derivatives, including the Buy Back
Option which has been separated and carried at fair value through
profit and loss.
The future price of nickel and date of commencement of
commercial production are key estimates that are critical in the
determination of the carrying value of the royalty liability.
The future expected nickel price and, volatility of the nickel
prices are key estimates that are critical in the determination of
the fair value of the Buy Back Option associated with the Royalty
financing.
Further information relating to the accounting for this
liability, the embedded derivative and the sensitivity of the
carrying value to these estimates is provided in note 18a) and
18b).
4.5 Determination of commencement of capitalisation of borrowing
costs
The date at which the Group commenced capitalisation of
borrowing costs was determined to be the point at which the
Araguaia Project moved forwards with undertaking an exercise of
value engineering to get the project construction ready. This was
deemed by management to be at the start of 2020.
5 Segmental reporting
The Group operates principally in the UK and Brazil, with
operations managed on a project by project basis within each
geographical area. Activities in the UK are mainly administrative
in nature whilst the activities in Brazil relate to exploration and
evaluation work. The separate subsidiary responsible for the
project finance for the Araguaia Project is domiciled in the
Netherlands. The operations of this entity are reported separately
and so it is recognised as a new segment. The reports used by the
chief operating decision-maker are based on these geographical
segments.
UK Brazil Netherlands Total
2020 2020 2020 2020
2020 GBP GBP GBP GBP
-------------------------------------------------------------- ----------- ----------- ----------- -----------
Intragroup sales 219,844 (219,884) - -
Administrative expenses (2,488,200) (292,492) (169,044) (2,949,738)
Profit/(loss) on foreign exchange 1,491,281 (547,877) (192,091) 751,313
Loss from operations per reportable segment (777,073) (1,218,233) (361,135) (2,198,423)
-------------------------------------------------------------- ----------- ----------- ----------- -----------
Finance income 236,986 - - 236,986
Finance costs - - - -
Changes in estimate for contingent and deferred consideration - - - -
Fair value movement - - (424,500) (424,500)
Loss before taxation (540,089) (1,218,233) (785,635) (2,385,937)
-------------------------------------------------------------- ----------- ----------- ----------- -----------
Depreciation charges - - - -
Additions to non-current assets - 4,017,419 - 4,017,419
Capitalisation of borrowing costs - 2,100,521 - 2,100,521
Reportable segment assets 5,405,150 42,658,016 1,960,308 50,023,475
Reportable segment non-current assets - 37,060,819 - 37,060,819
Reportable segment liabilities 5,927,122 346,127 22,059,443 28,377,692
-------------------------------------------------------------- ----------- ----------- ----------- -----------
UK Brazil Netherlands
2019 2019 2019
2019 GBP GBP GBP
-------------------------------------------------------------- ----------- ---------- ----------- -----------
Intragroup sales 171,712 (171,712) - -
Administrative expenses (1,840,348) (723,532) - (2,563,880)
Loss on foreign exchange 6,796 (78,843) 15,782 (56,266)
Loss from operations per reportable segment (1,833,552) (802,376) 15,782 (2,620,146)
-------------------------------------------------------------- ----------- ---------- ----------- -----------
Finance income 78,420 31,616 - 110,036
Finance costs (344,953) - (588,398) (933,351)
Share based payment charge (326,413) - - (326,413)
Changes in estimate for contingent and deferred consideration 598,660 - - 598,660
Fair value movement - - - -
Loss before taxation (1,827,838) (770,760) (572,616) (3,171,214)
-------------------------------------------------------------- ----------- ---------- ----------- -----------
Depreciation charges - - - -
Additions to non-current assets - 3,595,775 - 3,595,775
Reportable segment assets 17,785,624 39,428,141 2,246,089 59,459,854
Reportable segment non-current assets - 39,317,989 - 39,317,989
Reportable segment liabilities 6,572,952 569,434 20,925,425 28,067,791
-------------------------------------------------------------- ----------- ---------- ----------- -----------
Inter segment revenues are calculated and recorded in accordance
with the underlying intra group service agreements.
A reconciliation of adjusted loss from operations per reportable
segment to loss before tax is provided as follows:
2020 2019
GBP GBP
------------------------------------------------------------------------------ ----------- -----------
Loss from operations per reportable segment (2,198,423) (2,620,146)
Changes in estimate for contingent and deferred consideration (refer note 17) - 598,660
Charge for share options granted - (326,413)
Fair value movement on derivative (424,500) -
Finance income 236,986 110,036
Finance costs - (933,351)
Tax credit/(charge) 108,526 -
------------------------------------------------------------------------------ ----------- -----------
Loss for the year from continuing operations (2,277,411) (3,171,214)
------------------------------------------------------------------------------ ----------- -----------
An analysis of non current assets by geographic region is shown
below:
2020 2019
Group GBP GBP
------------ ---------- ----------
Netherlands 2,334,039 -
Isle of Man 15,151,088 -
Brazil 19,575,692 39,317,989
------------ ---------- ----------
Total 37,060,819 39,317,989
------------ ---------- ----------
This has been presented following the restructuring of the group
to include closure of two subsidiaries that are no longer required
and the transfer of some project related assets and intercompany
loans within the group.
6 Expenses by nature
2020 2019
Group GBP GBP
--------------------------------- --------- ---------
Employment related costs 1,067,047 1,070,636
Professional fees 1,093,299 615,579
Exploration costs expensed 343,695 723,628
Other 445,695 154,037
--------------------------------- --------- ---------
Total Administrative expenses 2,949,736 2,563,880
--------------------------------- --------- ---------
Charge for share options granted - 326,413
Depreciation (note 11) - -
--------------------------------- --------- ---------
7 Auditor remuneration
During the year the Group (including its overseas subsidiaries)
obtained the following services from the Company's auditor and its
associates:
2020 2019
Group GBP GBP
--------------------------------------------------------------------------------------------- ------ ------
Fees payable to the Company's auditor and its associates for the audit of the parent company
and consolidated financial statements 64,700 47,300
Fees payable to the Company's auditor and its associates for other services:
* Audit of subsidiaries 10,000 7,000
* Audit related assurance services 35,000 -
* Tax compliance services 35,244 48,563
--------------------------------------------------------------------------------------------- ------ ------
8 Finance income and costs
2020 2019
Group GBP GBP
------------------------------------------------------------ ----------- ---------
Finance income :
* Interest income on cash and short-term bank deposits 151,459 110,036
Finance costs :
* Contingent consideration: unwinding of discount (445,066) (344,953)
- Contingent consideration: change in estimates 764,109
* Amortisation of royalty financing (3,244,873) (572,294)
- Adjustment of royalty financing from change in estimates 910,834 (91,476)
- movement in fair value of derivative asset - 75,372
------------------------------------------------------------ ----------- ---------
Total finance costs (1,863,537) (933,351)
------------------------------------------------------------ ----------- ---------
Less finance costs capitalised 2,100,521
------------------------------------------------------------ ----------- ---------
Net finance income 236,986 (823,315)
------------------------------------------------------------ ----------- ---------
Interest costs that are directly attributable to the development
of a qualifying asset have been capitalised. This represents 100%
of the interest on the financing obtained for the Araguaia project,
and is a capitalisation rate of 14.5%.
9 Income Tax
2020 2019
Group GBP GBP
--------------------------------- -------- ----
Tax charge:
Current tax charge for the year (51,071) -
--------------------------------- -------- ----
Deferred tax credit for the year 159,597 -
--------------------------------- -------- ----
Tax on loss for the year 108,526 -
--------------------------------- -------- ----
Reconciliation of current tax
2020 2019
Group GBP GBP
------------------------------------------------- ----------- -----------
Loss before income tax (2,385,936) (3,171,214)
Current tax at 19% (2019: 19%) (453,328) (602,530)
Effects of:
Expenses not deducted for tax purposes 255,888 281,391
Utilisation of tax losses brought forward - -
Tax losses carried forward for which no deferred
income tax asset was recognised 83,060 473,130
Prior year adjustment (51,071)
Effect of higher overseas tax rates 114,380 (88,990)
Total tax (51,071) -
------------------------------------------------- ----------- -----------
No tax charge or credit arises on the loss for the year.
The corporation tax rate in Brazil is 34%, the Netherlands 21%
and the United Kingdom 19%. The group incurred expenses in all of
these jurisdictions during the year, in 2019 and 2020 the effective
rate was 19% as all of the losses arose in the UK.
Deferred income tax
An analysis of deferred tax assets and liabilities is set out
below.
2020 2019
Group GBP GBP
------------------------------------------------------------ --------- ---------
Deferred tax assets 1,624,891 1,412,509
------------------------------------------------------------ --------- ---------
Deferred tax liabilities
* Deferred tax liability to be settled after more than
12 months 1,624,891 1,624,891
------------------------------------------------------------ --------- ---------
Deferred tax liabilities (net) - (212,382)
------------------------------------------------------------ --------- ---------
The movement on the net deferred tax liabilities is as
follows:
2020 2019
Group GBP GBP
--------------------------- --------- ---------
At 1 January (212,382) (228,691)
--------------------------- --------- ---------
Exchange differences 52,785 16,309
--------------------------- --------- ---------
Adjustment to Deferred tax 159,597 -
--------------------------- --------- ---------
At 31 December - (212,382)
--------------------------- --------- ---------
Deferred tax assets are recognised on tax losses carried forward
to the extent that the realisation of the related tax benefit
through future taxable profits is probable.
Deferred tax liabilities are recognised in respect of fair value
adjustments to the carrying value of intangible assets as a result
of the acquisition of such assets.
The Group has tax losses of approximately GBP17,603,004 (2019:
GBP16,810,975) in Brazil and excess management charges of
approximately GBP2,288,011 (2019: GBP1,188,011) in the UK available
to carry forward against future taxable profits. Deferred tax
assets have been recognised up to the amount of the deferred tax
liability arising on the fair value adjustments. Potential deferred
tax assets of GBP6,419,743 (2019: GBP5,941,453) have not been
recognised.
Tax losses are available indefinitely.
10 Intangible assets
Intangible assets comprise exploration licenses, exploration and
evaluation costs and goodwill. Exploration and evaluation costs
comprise acquired and internally generated assets.
Exploration Exploration and
Goodwill Licenses evaluation costs Total
Group GBP GBP GBP GBP
------------------------------------ -------- ----------- ----------------- ------------
Cost
At 1 January 2019 226,757 6,130,296 29,380,849 35,737,903
Transfer to PPE - (3,483,363) (29,808,123) (33,291,486)
Additions - 3,324,005 2,604,911 5,928,916
Exchange rate movements (16,172) (813,572) (488,143) (1,317,887)
------------------------------------ -------- ----------- ----------------- ------------
Net book amount at 31 December 2019 210,585 5,157,366 1,689,495 7,057,446
------------------------------------ -------- ----------- ----------------- ------------
Additions - - - -
Exchange rate movements (52,337) (151,785) (632,451) (836,574)
------------------------------------ -------- ----------- ----------------- ------------
Net book amount at 31 December 2020 158,248 5,005,581 1,057,043 6,220,872
------------------------------------ -------- ----------- ----------------- ------------
(a) Exploration and evaluation assets
The exploration and evaluation costs are split between Vermelho
as follows:
Exploration
Exploration licences and evaluation costs Total
GBP GBP GBP
------------------------------------ -------------------- --------------------- ---------
Vermelho
------------------------------------ -------------------- --------------------- ---------
Net book amount at 31 December 2019 5,157,366 1,689,495 6,846,860
------------------------------------ -------------------- --------------------- ---------
Net book amount at 31 December 2020 5,005,581 1,057,043 6,062,624
------------------------------------ -------------------- --------------------- ---------
No indicators of impairment were identified during the year for
the Vermelho project.
Vermelho
In January 2018, the acquisition of the Vermelho project was
completed, which resulted in a deferred consideration of $1,850,000
being recognised and accordingly an amount of GBP1,245,111 was
capitalised to the exploration licences held within intangible
assets shown above.
On 17 October the Group published the results of a
Pre-Feasibility Study ("PFS") on the Vermelho Nickel Cobalt
Project, which confirms Vermelho as a large, high-grade resource,
with a long mine life and low-cost source of nickel sulphate for
the battery industry.
The economic and technical results from the study support
further development of the project towards a full Feasibility Study
and included the following:
-- A 38-year mine life estimated to generate total cash flows after taxation of US$7.3billion;
-- An estimated Base Case post-tax Net Present Value1 ('NPV') of
US$1.7 billion and Internal Rate of Return ('IRR') of 26%;
-- At full production capacity the Project is expected to
produce an average of 25,000 tonnes of nickel and 1,250 tonnes of
cobalt per annum utilising the High-Pressure Acid Leach
process;
-- The base case PFS economics assume a flat nickel price of
US$16,400 per tonne ('/t') for the 38-year mine life;
-- C1 (Brook Hunt) cash cost of US$8,020/t Ni (US$3.64/lb Ni),
defines Vermelho as a low-cost producer; and
-- Initial Capital Cost estimate is US$652 million (AACE class 4).
Nothing has materially deteriorated with the economics of the
PFS between the publication date and the date of this report and
the Directors undertook an assessment of impairment through
evaluating the results of the PFS along with recent market
information relating to capital markets and nickel prices and
judged that there are no impairment indicators with regards to the
Vermelho Project. Nickel prices remain higher than they were at the
time of the publication of the PFS and overall sentiment towards
battery metals and supply materials have grown more positive over
the current year. The BRL has depreciated during the year which
could have a positive impact on economics of the project as the
revenue is denominated in USD with a significant portion of the
costs and capital expenditure denominated in BRL. It has been
therefore concluded there are no indicators if impairment.
(b) Goodwill
Goodwill arose on the acquisition of Lontra Empreendimentos e
Participações Ltda in 2010 but following the closure of Lontra
during the year the assets and allocated good will were transferred
to another group company. The Directors have determined the
recoverable amount of goodwill based on the same assumptions used
for the assessment of the Araguaia project detailed below. As a
result of this assessment, the Directors have concluded that no
impairment charge is necessary against the carrying value of
goodwill.
11 Property, plant and equipment
Mine Vehicles and Land acquisition
Development Property other field Office GBP
GBP equipment equipment Total
Group GBP GBP GBP
-------------------------------------- --------------------- ------------ ---------- ---------------- -----------
Cost
At 31 December 2018 - 106,722 14,424 - 121,146
-------------------------------------- --------------------- ------------ ---------- ---------------- -----------
Foreign exchange movements (1,270,126) - - - (1,270,126)
Transfer from exploration and
evaluation assets(1) 33,291,486 33,291,486
Additions 238,701 - - - 238,701
-------------------------------------- --------------------- ------------ ---------- ---------------- -----------
At 31 December 2019 32,260,061 106,722 14,424 - 32,381,207
-------------------------------------- --------------------- ------------ ---------- ---------------- -----------
Foreign exchange movements (7,662,503) (25,162) (13,052) - (7,700,717)
Disposals - (5,806) - - (5,806)
Interest capitalised 2,100,521 - - - 2,100,521
Additions 4,008,719 1,234 55,989 87,257 4,153,199
-------------------------------------- --------------------- ------------ ---------- ---------------- -----------
At 31 December 2020 30,706,798 76,988 57,361 87,257 30,928,404
-------------------------------------- --------------------- ------------ ---------- ---------------- -----------
Accumulated depreciation
At 31 December 2018 - 105,536 14,424 - 119,960
-------------------------------------- --------------------- ------------ ---------- ---------------- -----------
Charge for the year - 703 - - 703
Foreign exchange movements - - - - -
At 31 December 2019 - 106,239 14,424 - 120,663
-------------------------------------- --------------------- ------------ ---------- ---------------- -----------
Foreign exchange movements - (16,959) (8,399) - (25,358)
Disposals - (38,224) - - (38,224)
Charge for the year - 6,121 25,275 - 31,396
At 31 December 2020 - 57,177 31,300 - 88,477
-------------------------------------- --------------------- ------------ ---------- ---------------- -----------
Net book amount as at 31 December 2020 30,706,818 19,811 26,061 87,257 30,839,947
-------------------------------------- --------------------- ------------ ---------- ---------------- -----------
Net book amount as at 31 December 2019 32,260,061 483 - 32,260,544
-------------------------------------- --------------------- ------------ ---------- ---------------- -----------
Net book amount as at 1 January 2019 - 1,186 - 1,186
-------------------------------------- --------------------- ------------ ---------- ---------------- -----------
(1) Following determination of the technical feasibility and
commercial viability of the Araguaia Ferronickel Project, the
relevant expenditure has been transferred from exploration and
evaluation assets to evaluated mineral property
Depreciation of GBP31,396 (2019: GBP703) has been capitalised
and included within mine development asset additions for the year.
The remaining depreciation expense for the year ended 31 December
2020 of GBPnil (2019: GBPnil) has been charged in 'administrative
expenses' under 'Depreciation.'
In December 2018, a Canadian NI 43-101 compliant Feasibility
Study ("FS') was published by the Company regarding the enlarged
Araguaia Project which included the Vale dos Sonhos deposit
acquired from Glencore. The financial results and conclusions of
the FS clearly indicate the economic viability of the Araguaia
Project with an NPV of $401M using a nickel price of $14,000/t Ni.
Nothing material had changed with the economics of the FS between
the publication date and the date of this report and the Directors
undertook an assessment of impairment through evaluating the
results of the FS along with recent market information relating to
capital markets and nickel prices and judged that there are no
impairment indicators with regards to the Araguaia Project.
Impairment assessments for exploration and evaluation assets are
carried out either on a project by project basis or by geographical
area.
The adjacent Araguaia/Lontra/Vila Oito and Floresta exploration
sites ('the Araguaia Project'), together with the Vale dos Sonhos
deposit acquired from Xstrata Brasil Mineração Ltda comprise a
resource of a sufficient size and scale to allow the Company to
create a significant single nickel project. For this reason, at the
current stage of development, these two projects are viewed and
assessed for impairment by management as a single cash generating
unit.
The mineral concession for the Vale dos Sonhos deposit was
acquired from Xstrata Brasil Mineração Ltda, a subsidiary of
Glencore Canada Corporation, in November 2015.
The NPV has been determined by reference to the FS undertaken on
the Araguaia Project. The key inputs and assumptions in deriving
the value in use were, the discount rate of 8%, which is based upon
an estimate of the risk adjusted cost of capital for the
jurisdiction, capital costs of $443 million, operating costs of
$8,194/t Nickel, a Nickel price of US$14,000/t and a life of mine
of 28 years.
Sensitivity to changes in assumptions
For the base case NPV(8) of the Araguaia Project of US$401
million using a nickel price of US$14,000/t and US$740 million
using US$16,800/t as per the FS to be reduced to the book value of
the Araguaia Project as at 31 December 2019, the discount rate
applied to the cash flow model would need to be increased from 8%
to 17%.
12 Cash and cash equivalents
Group Company
---------------------- ---------------------
2020 2019 2020 2019
GBP GBP GBP GBP
------------------------- ---------- ---------- --------- ----------
Cash at bank and on hand 6,756,255 2,219,850 1,129,646 1,854,329
Short-term deposits 4,179,308 15,540,480 4,179,308 15,540,480
------------------------- ---------- ---------- --------- ----------
10,935,563 17,760,330 5,308,954 17,394,809
------------------------- ---------- ---------- --------- ----------
The Group's cash at bank and short-term deposits are held with
institutions with the following credit ratings:
Group Company
---------------------- ---------------------
2020 2019 2020 2019
GBP GBP GBP GBP
---------------------- ---------- ---------- --------- ----------
A+ 5,264,882 - 5,251,913 -
A 245,517 17,338,016 - 17,338,016
AAA 4,522,146 - - -
BAA 57,041 - 57,041 -
BB 735,807 - - -
BBB- - 422,314 - 56,793
NA 110,080 - - -
---------------------- ---------- ---------- --------- ----------
Total credit exposure 10,935,563 17,760,330 5,308,954 17,394,809
---------------------- ---------- ---------- --------- ----------
The cash deposited with the institution with no credit rating is
only held short term and the expected credit loss is not assessed
as material.
13 Share capital
2020 2020 2019 2019
Group and Company Number GBP Number GBP
--------------------------- ------------- ---------- ------------- ----------
Issued and fully paid
Ordinary shares of 1p each
At 1 January 1,446,377,287 14,463,773 1,432,521,800 14,325,218
Issue of ordinary shares 3,000,000 30,000 13,855,487 138,555
--------------------------- ------------- ---------- ------------- ----------
At 31 December 1,449,377,287 14,493,773 1,446,377,287 14,463,773
--------------------------- ------------- ---------- ------------- ----------
Share capital comprises amount subscribed for shares at the
nominal value.
2020
On 3 September 2020 the Group issued 3,000,000 new ordinary
shares at a price of 3.1 pence per share in relation to the
exercise of options by an employee of the Company.
2019
On 24 January 2019 the Company issued 13,855,487 as settlement
for $330,000 of deferred contingent consideration that became
payable following the issuance of a Feasibility Study including the
Vale dos Sonhos deposit originally acquired from Glencore.
14 Share premium
2020 2019
Group and Company GBP GBP
------------------------- ---------- ----------
At 1 January 41,785,306 41,664,018
Premium arising on issue
of ordinary shares 63,000 121,288
Issue costs - -
------------------------- ---------- ----------
At 31 December 41,848,306 41,785,306
------------------------- ---------- ----------
Share premium comprises the amount subscribed for share capital
in excess of nominal value.
15 Share-based payments
The Directors have discretion to grant options to the Group
employees to subscribe for Ordinary shares up to a maximum of 10%
of the Company's issued share capital. One third of options are
exercisable at each six months anniversary from the date of grant,
such that all options are exercisable 18 months after the date of
grant and all lapse on the tenth anniversary of the date of grant
or the holder ceasing to be an employee of the Group. Should
holders cease employment then the options remain valid for a period
of 3 months after cessation of employment, following which they
will lapse. Neither the Company nor the Group has any legal or
constructive obligation to settle or repurchase the options in
cash.
Movements on number of share options and their related exercise
price are as follows:
Weighted Weighted
average average
exercise exercise
Number of price Number of price
options 2020 options 2019
2020 GBP 2019 GBP
--------------------------- ----------- --------- ----------- ---------
Outstanding at 1 January 136,300,000 0.055 134,300,000 0.056
Forfeited (7,950,000) 0.140 - -
Exercised (3,000,000) 0.031 - -
Granted - - 2,000,000 0.048
Outstanding at 31 December 125,350,000 0.051 136,300,000 0.055
--------------------------- ----------- --------- ----------- ---------
Exercisable at 31 December 125,350,000 0.051 134,966,667 0.055
--------------------------- ----------- --------- ----------- ---------
The options outstanding at 31 December 2020 had a weighted
average remaining contractual life of 5.80 years (2019: 6.38
years).
The fair value of the share options was determined using the
Black-Scholes valuation model.
The parameters used are detailed below for options issued during
2019, no new options were issued during 2020.
2019
Group and Company options
---------------------------------------------------- ----------
Date of grant 11/02/2019
Weighted average share price 2.29 pence
Weighted average exercise price 4.80 pence
Weighted average fair value at the measurement date 1.05 pence
Expiry date 11/2/2029
Options granted 2,000,000
Volatility 51%
Dividend yield Nil
Option life 10 years
Annual risk free interest rate 1.22%
----------------------------------------------------- ----------
The expected volatility is based on historical volatility for
the six months prior to the date of grant. The risk free rate of
return is based on zero yield government bonds for a term
consistent with the option life.
The range of option exercise prices is as follows:
2020 2020 2019 2019
2020 Weighted Weighted 2019 Weighted Weighted
Weighted average average Weighted average average
Range of average remaining remaining average remaining remaining
exercise exercise 2020 life life exercise 2019 life life
prices price Number of expected contracted price Number of expected contracted
(GBP) (GBP) shares (years) (years) (GBP) shares (years) (years)
----------- ----------- ----------- ----------- ----------- ----------- ------------ ------------ ------------
0-0.1 0.042 115,700,000 6.21 6.21 0.04 121,150,000 7.02 7.02
0.1-0.2 0.154 9,650,000 0.93 0.93 0.16 15,150,000 1.55 1.55
----------- ----------- ----------- ----------- ----------- ----------- ------------ ------------ ------------
16 Other reserves
Merger Translation Other
reserve reserve reserve Total
Group GBP GBP GBP GBP
--------------------------------- ---------- ------------ ----------- ------------
At 1 January 2019 10,888,760 (11,880,652) (1,048,100) (2,039,991)
---------------------------------- ---------- ------------ ----------- ------------
Other comprehensive income - - - -
Currency translation differences - (2,626,938) - (2,626,938)
---------------------------------- ---------- ------------ ----------- ------------
At 31 December 2019 10,888,760 (14,507,590) (1,048,100) (4,666,930)
---------------------------------- ---------- ------------ ----------- ------------
Other comprehensive income - - - -
Currency translation differences - (8,151,944) - (8,151,994)
---------------------------------- ---------- ------------ ----------- ------------
At 31 December 2020 10,888,760 (22,659,534) (1,048,100) (12,818,874)
---------------------------------- ---------- ------------ ----------- ------------
Merger
reserve Total
Company GBP GBP
--------------------------------------- ---------- ----------
At 1 January 2019 and 31 December 2019 10,888,760 10,888,760
--------------------------------------- ---------- ----------
At 1 January 2020 and 31 December 2020 10,888,760 10,888,760
--------------------------------------- ---------- ----------
Other reserve
The other reserve arose on consolidation as a result of merger
accounting for the acquisition of the entire issued share capital
of Horizonte Exploration Limited during 2006 and represents the
difference between the value of the share capital and premium
issued for the acquisition and that of the acquired share capital
and premium of Horizonte Exploration Limited.
Merger Reserve
During the year ended 31 December 2010 the Company acquired 100%
of Teck Cominco Brasil S.A and Lontra Empreendimentos e
Participações Ltda (refer note 5). These acquisitions were effected
by the issue of shares in Horizonte Minerals plc. These shares
qualified for merger relief under section 612 of the Companies Act
2006. In accordance with section 612 of the Companies Act 2006 the
premium on the shares issued was recognised in a separate reserve
within equity called merger reserve.
Currency translation differences relate to the translation of
Group entities that have a functional currency different from the
presentation currency (refer note 2.8). Movements in the
translation reserve are linked to the changes in the value of the
Brazilian Real against the Pound Sterling: the intangible assets of
the Group are located in Brazil, and their functional currency is
the Brazilian Real, which decreased in value against Sterling
during the year.
17 Trade and other payables
Group Company
-------------------- --------------------
2020 2019 2020 2019
GBP GBP GBP GBP
------------------------------------- --------- --------- --------- ---------
Non-current
Contingent consideration payable
to:
Xstrata Brasil Mineração
Ltda 2,893,877 2,975,935 2,893,877 2,975,935
Vale Metais Basicoc S.A. 3,033,148 3,270,134 3,033,148 3,270,134
------------------------------------- --------- --------- --------- ---------
Total contingent consideration 5,927,025 6,246,069 5,927,025 6,246,069
------------------------------------- --------- --------- --------- ---------
Current
Trade and other payables 304,461 538,933 123,657 176,588
Amounts due to related parties
(refer note 22) - - 413,930 413,930
Social security and other
taxes 83,203 30,000 31,822 30,000
Accrued expenses 244,743 115,000 124,700 115,000
------------------------------------- --------- --------- --------- ---------
632,407 683,933 694,109 735,518
------------------------------------- --------- --------- --------- ---------
Total trade and other payables 6,559,432 6,930,002 6,621,134 6,981,587
------------------------------------- --------- --------- --------- ---------
Contingent Consideration payable to Xstrata Brasil Mineração
Ltda
On 28 September 2015 the Company announced that it had reached
agreement to indirectly acquire through wholly owned subsidiaries
in Brazil the advanced high-grade Glencore Araguaia nickel project
('GAP') in north central Brazil. GAP is located in the vicinity of
the Company's Araguaia Project.
Pursuant to a conditional asset purchase agreement ('Asset
Purchase Agreement') between, amongst others, the Company and
Xstrata Brasil Exploraçâo Mineral Ltda (' Xstrata '), a
wholly-owned subsidiary of Glencore Canada Corporation (' Glencore
') , the Company has agreed to pay a total consideration of US$8
million to Xstrata, which holds the title to GAP. The consideration
is to be paid according the following schedule;
-- US$2,000,000 in ordinary shares in the capital of the Company
which was settled by way of issuing new shares in the Company as
follows: US$660,000 was paid in shares to a subsidiary of Glencore
during 2015 and the transfer of the Serra do Tapa and Pau Preto
deposit areas (together: 'SdT') during 2016 initiated the final
completion of the transaction with a further US$1,340,000 shares in
the Company issued.
-- US$1,000,000 after the date of issuance of a joint
Feasibility Study for the combined Araguaia & GAP project
areas, to be satisfied in HZM Shares (at the 5 day volume weighted
average price taken on the tenth business day after the date of
such issuance) or cash, at the election of the Company. Of this
$330,000 is due upon the inclusion of Vale dos Sonhos in a
Feasibility Study and $670,000 for Serra do Tapa, during 2018 a
Feasibility Study including Vale dos Sonhos was published and the
consideration settled by way of issuing 13,855,487 new Shares in
the Company occurred during 2019. Serra do Tapa is not included in
the current project plans, therefore management have concluded it's
not currently probable that the consideration for Serra do Tapa
will be paid. This consideration is therefore not included in
contingent consideration; and
-- The remaining US$5,000,000 consideration will be paid in
cash, as at the date of first commercial production from any of the
resource areas within the Enlarged Project area. Following transfer
of the concession for the VdS deposit area to a subsidiary of the
Company, this has been included in contingent consideration
payable.
Contingent consideration payable to Vale S.A
-- On 19 December 2017 the Company announced that it had reached
agreement with Vale S.A ("Vale") to indirectly acquire through
wholly owned subsidiaries in Brazil, 100% of the advanced Vermelho
nickel-cobalt project in Brazil ("Vermelho").
-- The terms of the Acquisition required Horizonte to pay an
initial cash payment of US$150,000 with a further US$1,850,000 in
cash payable on the second anniversary of the signing of the asset
purchase agreement. This was paid by the Group in December 2019 and
is no longer included in deferred consideration.
-- A final payment of US$6,000,000 in cash is payable by
Horizonte within 30 days of first commercial sale of product from
Vermelho. Management have assessed that with the publication of the
Pre-Feasibility Study during 2019 for the Vermelho project, there
is a reasonable probability that the project will advance through
to production and therefore have recognised this contingent
consideration within liabilities for the first time during the
year.
The critical assumptions underlying the treatment of the
contingent consideration are set out in note [4.2].
As at 31 December 2020, there was a finance expense of
GBP231,780 (2019: GBP344,952) recognised in finance costs within
the Statement of Comprehensive Income in respect of the contingent
and deferred consideration arrangements, as the discount applied to
the consideration at the date of acquisition was unwound.
Contingent consideration Deferred consideration Total
GBP GBP GBP
---------------------------- ------------------------ ---------------------- -----------
At 1 January 2019 3,461,833 1,360,792 4,822,626
---------------------------- ------------------------ ---------------------- -----------
Initial recognition - Vale 3,324,004 - 3,324,004
Unwinding of discount 253,439 91,513 344,952
Change in estimate (534,201) (64,459) (598,660)
Settlement of consideration (259,006) (1,387,846) (1,646,852)
At 31 December 2019 6,246,069 - 6,246,069
---------------------------- ------------------------ ---------------------- -----------
Unwinding of discount 445,065 - 445,065
Change in estimate (764,109) - (764,109)
---------------------------- ------------------------ ---------------------- -----------
At 31 December 2020 5,927,025 - 5,927,025
---------------------------- ------------------------ ---------------------- -----------
The change in estimate during 2020 relates revisions to the
estimated payment date of both considerations as a result of the
start date of production being extended. Slightly offsetting this
is the result of adverse movements in foreign exchange rates as
both of the Contingent consideration amount payable are denominated
in USD and the GBP/USD exchange rate fell during the year.
18 a) Royalty financing liability
On 29 August 2019 the Group entered into a royalty funding
arrangement with Orion Mine Finance ("OMF") securing a gross
upfront payment of $25,000,000 before fees in exchange for a
royalty, the rate being in a range from 2.25% to 3.00% and
determined by the date of funding and commencement of major
construction. At inception of the loan the rate was estimated at
2.45% and at the year end the rate has been estimated at 2.65%. The
royalty is paid over the first 426k tonnes of nickel produced from
the Araguaia Ferronickel project. The Royalty agreement has certain
provisions to increase the headline royalty rate should there be
delays in securing project financing beyond a pre agreed timeframe.
The royalty is linked to production and therefore does not become
payable until the project is constructed and commences commercial
production. The agreement contains certain embedded derivatives
which as per IFRS9 have been separately valued and included in the
fair value of the financial instrument in note 18 b).
The Royalty liability has initially been recognised using the
amortised cost basis using the effective interest rate of 14.5%.
When circumstances arise that lead to payments due under the
agreement being revised, the group adjusts the carrying amount of
the financial liability to reflect the revised estimated cash
flows. This is achieved by recalculating the present value of
estimated cash flows using the original effective interest rate of
14.5%. any adjustment to the carrying value is recognised in the
income statement.
GBP
--------------------------------------------------------- -----------
Initial recognition of Royalty 19,379,845
Fees (1,138,640)
Fair value of embedded derivative on initial recognition 2,232,558
Unwinding of discount 572,294
Change in carrying value 91,476
Effects of foreign exchange ( 567,122)
Value as at 31 December 2019 20,570,411
---------------------------------------------------------- -----------
Unwinding of discount 3,244,873
Change in carrying value (910,834)
Effects of foreign exchange (851,109 )
---------------------------------------------------------- -----------
Value as at 31 December 2020 22,053,341
---------------------------------------------------------- -----------
Management have sensitised the carrying value of the royalty
liability by an increase/decrease in the royalty rate of 0.1% and
it would be GBP832,201 higher/lower and for a $1,000/t Ni
increase/decrease in future nickel price the carrying value would
increase/decrease by GBP1,408,077.
b) Derivative financial asset
The aforementioned agreement includes several options embedded
within the agreement as follows:
-- If there is a change of control of the Group and the start of
major construction works (as defined by the expenditure of in
excess of $30m above the expenditure envisaged by the royalty
funding) is delayed beyond a certain pre agreed timeframe the
following options exist:
o Call Option - which grants Horizonte the option to buy back
between 50 - 100% of the royalty at a valuation that meets certain
minimum economic returns for OMF;
o Make Whole Option - which grants Horizonte the option to make
payment as if the project had started commercial production and the
royalty payment were due; and
o Put Option - should Horizonte not elect for either of the
above options, this put option grants OMF the right to sell between
50 - 100% of the Royalty back to Horizonte at a valuation that
meets certain minimum economic returns for OMF.
-- Buy Back Option - At any time from the date of commercial
production, provided that neither the Call Option, Make Whole
Option or the Put Option have been actioned, Horizonte has the
right to buy back up to 50% of the Royalty at a valuation that
meets certain minimum economic returns for OMF.
The directors have undertaken a review of the fair value of all
of the embedded derivatives and are of the opinion that the Call
Option, Make Whole Option and Put Option currently have immaterial
values as the probability of both a change of control and project
delay are currently considered to be remote. There is considered to
be a higher probability that the Group could in the future exercise
the Buy Back Option and therefore has undertaken a fair value
exercise on this option.
The initial recognition of the Buy Back Option has been
recognised as an asset on the balance sheet with any changes to the
fair value of the derivative recognised in the income statement. It
been fair valued using a Monte Carlo simulation which runs a high
number of scenarios in order to derive an estimated valuation.
The assumptions for the valuation of the Buy Back Option are the
future nickel price ($16,191/t Ni), the start date of commercial
production (2024), the prevailing royalty rate (2.65%), the
inflation rate (1.5%) and volatility of nickel prices (22.6%).
2019
GBP
---------------------------------- ---------
Initial recognition of derivative 2,232,558
Change in fair value 75,372
Effects of foreign exchange (61,121)
Value as at 31 December 2019 2,246,809
----------------------------------- ---------
Change in fair value (424,500)
Effects of foreign exchange (65,756)
Value as at 31 December 2020 1,756,553
----------------------------------- ---------
Sensitivity analysis
The valuation of the Buyback option is most sensitive to
estimates for nickel price, nickel price volatility, royalty rate
as well as the production rate. If the royalty rate is increased to
2.75% then the fair value would increase to $2,780,000 and if
production reached 80% of the target capacity then the fair value
would decrease to $930,000.
The nickel price volatilities based on both 5 and 10 year
historic prices are in close proximity and this is the period in
which management consider that the option would be exercised.
Therefore, management have concluded that currently no reasonably
possible alternative assumption for this estimate would give rise
to a material impact on the valuation.
19 Note to statement of cash flows
Below is a reconciliation of borrowings from financial
transactions:
Royalty Financing Derivative asset Total
GBP GBP GBP
--------------------------------------------------------- ----------------- ---------------- -----------
As at 1 January 2019 - - -
Cashflows
Gross proceeds 19,379,845 - 19,379,845
Fees (1,138,640) - (1,138,640)
Non cash flows:
Fair value of embedded derivative on initial recognition 2,232,558 (2,232,558) -
Unwinding of discount 572,294 - 572,294
Change in fair value 91,476 (75,372) 16,104
Effects of foreign exchange (567,122) 61,121 (506,001)
Total non-current borrowings 31 December 2019 20,570,411 (2,246,809) 18,323,602
---------------------------------------------------------- ----------------- ---------------- -----------
Unwinding of discount 3,244,873 - 3,244,873
Change in fair value (910,834) 424,500 (486,334)
Effects of foreign exchange (851,109 ) 65,756 (785,353)
---------------------------------------------------------- ----------------- ---------------- -----------
Total non-current borrowings 31 December 2020 22,053,341 1,756,553 20,296,788
---------------------------------------------------------- ----------------- ---------------- -----------
20 Dividends
No dividend has been declared or paid by the Company during the
year ended 31 December 2020 (2019: nil).
21 Earnings per share
(a) Basic
The basic loss per share of 0.157p loss per share (2019 loss per
share: 0.219p) is calculated by dividing the loss attributable to
owners of the parent by the weighted average number of ordinary
shares in issue during the year.
2020 2019
Group GBP GBP
---------------------------------------------------- ------------- -------------
Loss attributable to owners of the parent (2,277,411) (3,171,214)
Weighted average number of ordinary shares in issue 1,447,323,588 1,445,504,202
---------------------------------------------------- ------------- -------------
(b) Diluted
The basic and diluted loss per share for the years ended 31
December 2020 and 31 December 2019 are the same as the current year
result for the year was a loss, the options and warrants
outstanding would be anti-dilutive. Therefore, the dilutive loss
per share is considered as the same as the basic loss per
shares.
On 3 September 2020 the Group issued 3,000,000 new ordinary
shares at a price of 3.1 pence per share in relation to the
exercise of options by an employee of the Company.
In January 2019 the Group issued a further 13,855,487 new
ordinary shares at a price of 1.875 pence per share in settlement
for deferred contingent consideration due to Glencore, had this
occurred prior to the end of the year this would have impacted the
basic and diluted earnings per share figures.
Details of share options that could potentially dilute earnings
per share in future periods are set out in note 15.
22 Related party transactions
The following transactions took place with subsidiaries in the
year:
A fee totalling GBPnil (2019: GBP474,782 was charged to HM do
Brazil Ltda, GBPnil (2019: GBP1,950,790) to Araguaia Níquel Metais
Ltda and GBPnil (2019: GBP120,197) to Typhon Brasil Mineração Ltda
by Horizonte Minerals Plc in respect of consultancy services
provided and funding costs.
Amounts totalling GBP5,464,842 (2019: GBP2,545,769 ) were lent
to HM Brazil (IOM) Ltd, Horizonte Nickel IOM Ltd, HM do Brasil
Ltda, Araguaia Níquel Metais Ltda and Typhon Brasil Mineração Ltda
to finance exploration work during 2020, by Horizonte Minerals Plc.
No Interest is charged on balances outstanding during the year. The
amounts are repayable on demand.
See note 27 for balances with subsidiaries at the year end.
All Group transactions were eliminated on consolidation.
23 Ultimate controlling party
The Directors believe there to be no ultimate controlling
party.
24 Directors' remuneration (including Key Management)
Post Cost to Non-Cash
Short term employment Company
benefits benefits
Social Share Based
Aggregate Other Pension Security Payment
emoluments Emoluments(1) costs Total costs Charge Grand Total
Group 2020 GBP GBP GBP GBP GBP GBP GBP
--------------- -------------- -------------- ------------- --------- -------------- -------------- -----------
Non-Executive
Directors
Sepanta Dorri - - - - - - -
David Hall 38,000 36,250 - 74,250 4,031 - 78,281
William Fisher 16,850 37,000 - 53,850 - - 53,850
Allan Walker 47,500 32,513 - 80,013 9,829 - 89,842
Owen Bavinton 42,092 32,513 25,605 100,210 9,083 - 109,293
Executive -
Directors
Jeremy Martin 252,000 181,283 - 433,283 58,580 - 491,863
Key Management -
Simon Retter 195,000 139,338 3,000 337,338 39,921 - 377,259
--------------- -------------- -------------- ------------- --------- -------------- -------------- -----------
591,442 458,897 28,605 1,078,944 121,444 - 1,200,388
--------------- -------------- -------------- ------------- --------- -------------- -------------- -----------
(1) Denotes amounts payable for annual performance related
bonuses
Post Cost to Company Non-Cash
Short term employment
benefits benefits
Social Share Based
Aggregate Other Pension Security Payment
emoluments emoluments costs Total costs Charge Grand Total
Group 2019 GBP GBP GBP GBP GBP GBP GBP
---------------- --------------- ----------- -------------- ------- --------------- --------------- -----------
Non-Executive
Directors
Alexander - - -
Christopher - - - -
David Hall 30,234 32,500(1) - 62,824 2,981 34,224 100,029
William Fisher 26,400 32,500(1) - 58,900 - 29,946 88,846
Allan Walker 30,359 32,500(1) - 62,859 7,483 29,946 100,288
Owen Bavinton 31,043 - 39,396 70,439 1,696 29,946 102,081
Executive
Directors
Jeremy Martin 231,130 200,000(1) 16,662 447,792 51,405 68,448 567,645
Key Management
Simon Retter 155,640 94,164(2) 12,000 261,804 20,295 34,224 316,323
---------------- --------------- ----------- -------------- ------- --------------- --------------- -----------
504,896 391,664 68,058 964,618 83,860 226,735 1,275,212
---------------- --------------- ----------- -------------- ------- --------------- --------------- -----------
(1) Denotes bonuses paid regarding a long term incentive plan
related to the successful publication of a Feasibility Study for
Araguaia, Pre-Feasibility Study for Vermelho and closure of $25m
royalty funding arrangement with OMF.
(2) Includes GBP65,000 bonus paid regarding a long term
incentive plan related to the successful publication of a
Feasibility Study for Araguaia, Pre-Feasibility Study for Vermelho
and closure of $25m royalty funding arrangement with OMF.
There are no other long term or termination benefits granted to
key management.
The Company does not operate a pension scheme. Pension costs
comprise contributions to Defined Contribution pension plans held
by the relevant Director or Key Management.
25 Employee benefit expense (including Directors and Key
Management)
Group Company
2020 2019 2020 2019
Group GBP GBP GBP GBP
------------------------------------------------------------------- --------- --------- --------- ---------
Wages and salaries 2,180,283 1,856,864 1,384,126 1,220,693
Social security costs 269,069 254,503 161,157 125,626
Indemnity for loss of office 1,315 16,865 - -
Share options granted to Directors and employees (note 15) - 326,413 - 326,413
------------------------------------------------------------------- --------- --------- --------- ---------
2,450,667 2,454,645 1,545,283 1,672,732
------------------------------------------------------------------- --------- --------- --------- ---------
Management 13 10 8 8
Field staff 24 18 - -
--------- --------- --------- ---------
Average number of employees including Directors and Key Management 37 28 8 8
------------------------------------------------------------------- --------- --------- --------- ---------
Employee benefit expenses includes GBP1,110,358 (2019:
GBP892,500) of costs capitalised and included within the Mine
Development Property.
Share options granted include costs of GBPnill (2019:
GBP192,511) relating to Directors.
26 Investments in subsidiaries
2020 2019
Company GBP GBP
----------------------------- --------- ---------
Shares in Group undertakings 2,348,142 2,348,042
2,348,142 2,348,042
----------------------------- --------- ---------
Investments in Group undertakings are stated at cost.
On 23 March 2006 the Company acquired the entire issued share
capital of Horizonte Exploration Limited by means of a share for
share exchange; the consideration for the acquisition was
21,841,000 ordinary shares of 1 penny each, issued at a premium of
9 pence per share. The difference between the total consideration
and the assets acquired has been credited to other reserves.
27 Loans to subsidiaries
Balances with subsidiaries at the year end were:
2020 2019
Assets Assets
Company GBP GBP
--------------------------------------- ---------- ----------
HM do Brasil Ltda - 944,928
HM Brazil (IOM) Ltd 6,297,961 3,149,326
Horizonte Nickel (IOM) Ltd 53,530,300 35,641,959
Araguaia Níquel Metais Ltda - 10,244,040
Horizonte Minerals (IOM) Ltd 253,004 253,004
Typhon Brasil Mineração Ltda - 4,378,487
Trias Brasil Mineração Ltda - 801,403
Champol (IOM) Ltd 4,610,891 -
----------------------------------------- ---------- ----------
Total 64,692,156 55,413,147
----------------------------------------- ---------- ----------
The loans to Group undertakings are repayable on demand and
currently carry no interest, however there is currently no
expectation of repayment within the next twelve months and
therefore loans are treated as non-current.
During the year Typhon was closed down and the intercompany loan
and assets was transferred to another group company. In addition
the Group undertook a restructure resulting in a transfer of some
other intercompany loan balances between various group entities.
The result of this restructure has been set out in the table below
in addition to the other changes to the loan balances.
Amounts Amounts
advanced Expected Transfers advanced Expected
1 January during credit during credit
2019 year loss 2019 year loss 2020
Company GBP GBP GBP GBP GBP GBP GBP GBP
-------------------- ---------- ---------- ---------- ---------- ------------ ---------- ---------- ----------
HM do Brasil Ltda 883,909 122,038 (61,019) 944,928 (2,173,475) 283,619 944,928 -
HM Brazil (IOM) Ltd 3,021,172 256,308 (128,154) 3,149,326 2,173,473 524,962 450,200 6,297,961
Horizonte Nickel
(IOM) Ltd 33,145,934 2,496,025 - 35,641,959 17,409,339 479,992 - 53,530,290
Araguaia Níquel
Metais Ltda 9,747,742 496,298 - 10,244,040 (11,434,152) 1,190,112 - -
Horizonte Minerals
(IOM) Ltd 253,004 - - 253,004 - - - 253,004
Typhon Brasil
Mineração
Ltda 1,625,087 3,004,807 (251,407) 4,378,487 (7,967,759) 1,712,777 1,876,495 -
Trias Brasil
Mineração
Ltda - - - - (1,012,620) - 1,012,620 -
Champol (IOM) Ltd - - - - 4,150,055 1,274,283 (813,447) 4,610,891
Cluny (IOM) Ltd 801,403 - - 801,403 (1,144,861) - 343,458 -
-------------------- ---------- ---------- ---------- ---------- ------------ ---------- ---------- ----------
Total 49,478,251 6,375,476 (440,580) 55,413,147 - 5,464,745 3,814,254 64,692,156
-------------------- ---------- ---------- ---------- ---------- ------------ ---------- ---------- ----------
The Gross and net intercompany loan position following the
expected credit loss as each year end is set out below:
2020 2019
Gross Loan Expected credit loss Net Loan Gross Loan Expected credit loss Net Loan
Company GBP GBP GBP GBP GBP GBP
-------------------------- ---------- -------------------- ---------- ---------- -------------------- ----------
HM do Brasil Ltda - - - 1,889,856 (944,928) 944,928
HM Brazil (IOM) Ltd 8,997,087 (2,699,126) 6,297,961 6,298,652 (3,149,326) 3,149,326
Horizonte Nickel (IOM) Ltd 53,530,300 - 53,530,300 35,641,959 - 35,641,959
Araguaia Níquel
Metais Ltda - - - 10,244,040 - 10,244,040
Horizonte Minerals (IOM)
Ltd 253,004 - 253,004 253,004 - 253,004
Typhon Brasil
Mineração Ltda - - - 6,254,982 (1,876,495) 4,378,487
Trias Brasil
Mineração Ltda - - - 1,012,620 (1,012,620) -
Champol (IOM) Ltd 5,424,578 (813,687) 4,610,891 240 (240) -
Cluny (IOM) Ltd - - - 1,144,861 (343,458) 801,403
-------------------------- ---------- -------------------- ---------- ---------- -------------------- ----------
Total 68,204,969 (3,512,813) 64,692,156 62,740,214 (7,327,067) 55,413,147
-------------------------- ---------- -------------------- ---------- ---------- -------------------- ----------
Impairment provisions for receivables and loans to related
parties are recognised based on using the general approach to
determine if there has been a significant increase in credit risk
since initial recognition and whether the receivables and loans are
credit impaired in accordance with IFRS9.
The loan to the subsidiary companies, are classified as
repayable on demand. IFRS 9 requires consideration of the expected
credit risk associated with the loans. As the subsidiary companies
do not have any liquid assets to sell to repay the loan, should it
be recalled, the conclusion reached was that the loan should be
categorised as credit impaired.
As part of the assessment of expected credit losses of the
intercompany loan receivable, the Directors have assessed the cash
flows associated with a number of different recovery scenarios.
This included consideration of the:
-- exploration and development project risk,
-- positive NPV of the Araguaia project as demonstrated by the Feasibility Study
-- positive NPV of the Vermelho Nickel Cobalt Project demonstrated by the Pre-Feasibility Study
-- ability to raise the finance to develop the projects
-- ability to sell the projects
-- market and technical risks relating to the projects
-- participation of the subsidiaries in the Araguaia project
The directors have concluded that certain amounts may not be
fully recovered giving rise to the expected credit loss adjustment.
After taking into consideration all of the above factors the rate
of expected credit loss varies from 0% (2019: 0%) for the Araguaia
project, to 30% (2019: 50%) for the receivables from HM Brazil and
15% (2019: 30%) for the Vermelho Project. The reduction in expected
credit loss assessment for HM Brazil is due Araguaia's the further
progress towards development and continuing improving prospects for
Vermelho.
The credit loss allowance was assessed at the date of 31
December 2020.
28 Commitments
Capital expenditure contracted for at the end of the reporting
period but not yet incurred is as follows:
2020 2019
Group GBP GBP
-------------------------- --------- ----
Mine Development Property 7,314,000 -
-------------------------- --------- ----
The Company has conditional capital commitments totalling GBP7.3
million ($10m) relating to certain items of plant and equipment.
These commitments remain subject to a number of conditions
precedent which have not been met at the date of this report. $1.5m
of the purchase will be payable upon completion with the remaining
amounts payable over future periods with $5m payable after
commencement of sales by the Araguaia project. $1.5m of the
purchase will be payable upon completion with the remaining amounts
payable over future periods with $5m payable after commencement of
sales by the Araguaia project.
29 Contingent Liabilities
Other Contingencies
The Group has received a claim from various trade union
organisations in Brazil regarding outstanding membership fees due
in relation to various subsidiaries within the Group. Some of these
claims relate to periods prior to the acquisition of the relevant
subsidiary and would be covered by warranties granted by the
previous owners at the date of sale. The Directors are confident
that no amounts are due in relation to these proposed membership
fees and that the claims will be unsuccessful. No subsequent
actions, claims or communications from the various trade union
organisations have been received subsequent to the requests for
payment. As a result, no provision has been made in the Financial
Statements for the year ended 31 December 2020 for amounts claimed.
Should the claim be successful, the maximum amount payable in
relation to fees not subject to the warranty agreement would be
approximately GBP64,000.
In December 2014, the Group received a writ from the State
Attorney in Conceição do Araguaia regarding alleged environmental
damages caused by drilling activities in 2011. To ensure proper
environmental stewardship, the Group conducts certified baseline
studies prior to all drill programmes and ensures that areas
explored are properly maintained and conserved in accordance with
local environmental legislation. After drilling has occurred, drill
sites and access routes are rehabilitated to equal or better
conditions and evidence is retained to demonstrate that such
rehabilitation work has been completed. In January 2015 the Group
filed a robust defence against the writ. A court hearing was held
in May 2015 at which documents were requested to confirm that valid
environmental authorisations were in place. These were subsequently
submitted as requested. No substantive financial claim continues to
be made against the Group under the terms of the writ. The Group
continues to believe that the writ is flawed and is working towards
having it withdrawn in due course. As a result, no provision has
been made in the Financial Statements for the year ended 31
December 2020.
30 Financial Instruments
Financial Assets
Fair Value Amortised cost Total Fair Value Amortised cost Total
2020 2020 2020 2019 2019 2019
Group GBP GBP GBP GBP GBP GBP
---------------------------- ---------- -------------- ---------- ---------- -------------- ----------
Cash and cash equivalents - 10,935,563 10,935,563 - 17,760,330 17,760,330
Derivative financial asset 1,756,553 - 1,756,553 2,246,809 - 2,246,809
Trade and other receivables - 270,540 270,540 - 134,726 134,726
Total 1,756,553 11,206,103 12,962,656 2,246,809 17,895,056 20,141,865
--------------------------------- ---------- -------------- ---------- ---------- -------------- ----------
Amortised cost
2020 2019
Company GBP GBP
---------------------------- ---------- --------------
Cash and cash equivalents 5,308,954 17,393,773
Loans to subsidiaries 64,692,156 55,413,060
Trade and other receivables 96,196 135,376
Total 70,097,306 72,942,209
--------------------------------- ---------- --------------
Financial Liabilities
Amortised cost
2020 2019
Group GBP GBP
Trade and other payables 632,407 683,933
Contingent consideration 5,927,026 6,246,071
Royalty Finance 22,053,341 20,570,411
Total 28,612,774 27,500,415
------------------------------ -------------- ----------
Amortised cost
2020 2019
Company GBP GBP
Trade and other payables 280,179 321,588
Contingent consideration 5,927,036 6,246,071
Loans from subsidiary 12,194,094 17,735,009
Total 18,401,309 24,302,668
------------------------------ ---------- ----------
Financial instruments not measured at fair value includes cash
and cash equivalents, trade and other receivables, trade and other
payables, and, contingent and deferred consideration which are
discounted.
31 Parent Company Guarantee
Horizonte Minerals plc has, together with other group companies,
provided a parent guarantee to Orion Mine Finance related to the
$25 Million Royalty Financing arrangement granted by Nickel
Production Services B.V. in respect of the project owned by
Araguaia Níquel Metais Ltda during the financial year. The royalty
payments are conditional upon entering into commercial production
and therefore cannot become due until this is achieved. Horizonte
Mineral plc's obligation to pay under the guarantee only arises if
Nickel Production Services B.V. as grantor of the royalty or any of
the other provider of a parent guarantee fails to make any payment
under the royalty agreement. The Company considers the probability
of such scenarios to be minimal at the current stage of the
business' development and therefore any fair value assessment of
such potential financial liability has been deemed to be
immaterial
32 Events after the reporting date
On 23 February 2021 the company announced a GBP18.8 million fund
raise comprising approximately GBP12.2m received for the issue of
issued 162,718,353 new ordinary shares by way of a placing,
alongside approximately GBP6.6m for the issue of 88,060,100 special
warrants, which entitled the holder to convert the warrants into
ordinary shares in the company following the publication of a
prospectus to meet the requirement of the Toronto Stock
Exchange.
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