REG - Horizonte Minerals - Interim Results
NEWS RELEASE
13 August 2021
INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2021
Horizonte Minerals Plc, (AIM: HZM; TSX: HZM) (the "Company" or "Horizonte"), the nickel development company focused on developing its ferro-nickel project in Brazil ("Araguaia" or "the Project"), announces it has today published its unaudited financial results for the six month period to 30 June 2021 and the Management Discussion and Analysis for the same period. Both of the aforementioned documents have been posted on the Company's website www.horizonteminerals.com and are also available on SEDAR at www.sedar.com.
Highlights for the Period
· Project financing of Araguaia nearing completion with credit approval process underway following completion of due diligence by the International Lenders.
· Senior Debt Facility expected to benefit from significant Export Credit Agency Support.
· Cornerstone strategic investor and final offtake agreements well advanced and expected to be finalised shortly after credit approvals.
· Horizonte maintained a strong cash position of £22.2 million following completion of an £18 million equity fundraise in February 2021.
· Financing discussions remain on track. Credit committee approval for the senior debt facility expected in Q3 2021 as previously announced
· Vermelho progressing with Ramboll awarded Environmental and Social Impact Assessment contract.
Events post the Reporting Date
· Significant progress on key project execution preparation activities, including competitive tendering for supply of key processing equipment, electric furnace and project management (EPCM) services.
· Operational Readiness Plan well advanced with all key permits in place for commencement of construction.
· Key environmental and social programmes continuing in preparation for construction phase.
· Mobilisation of Head of Projects to Brazil and appointment of Engineering, Community, Health and Safety Managers continues the build out of the project execution team.
· Publication of 2020 Sustainability Report in accordance with Global Reporting Initiative.
Horizonte Minerals plc
Unaudited Amended Condensed Consolidated Interim Financial Statements for the six months ended 30 June 2021
Condensed Consolidated Statement of Comprehensive Income
6 months ended
30 June
3 months ended
30 June
2021
2020
2021
2020
Unaudited
Unaudited
Amended
(Note 2)
Unaudited
Unaudited
Amended
(Note 2)
Notes
£
£
Administrative expenses
(2,640,027)
(1,565,143)
(1,819,225)
(890,684)
Change in fair value of special warrant liability
11
(1,174,796)
-
(871,795)
-
Gain/(loss) on foreign exchange
1,585,442
1,126,822
1,400,858
185,376
Loss from operations
(2,229,381)
(438,321)
(1,290,162)
(705,308)
Net finance costs
5
(61,955)
(321,299)
(46,698)
(12,790)
Loss before taxation
(2,291,336)
(759,620)
(1,336,860)
(718,098)
Taxation
-
-
-
-
Loss for the year
(2,291,336)
(759,620)
(1,336,860)
(718,098)
Other comprehensive income Items that may be reclassified subsequently to profit or loss
Currency translation differences on translating foreign operations
1,308,436
(8,067,676)
5,413,051
(1,457,804)
Other comprehensive income for the period, net of tax
1,308,436
(8,067,676)
5,413,051
(1,457,804)
Total comprehensive income for the period
attributable to equity holders of the Company
(982,900)
(8,827,296)
4,076,191
(2,175,902)
Earnings per share attributable to the equity holders of the Company
Basic & Diluted earnings per share (pence per share)
14
(0.143)
(0.052)
(0.079)
(0.050)
Condensed Consolidated Statement of Financial Position
30 June
2021
31 December
2020
Unaudited
Audited
Notes
£
£
Assets
Non-current assets
Intangible assets
6
6,482,754
6,220,872
Property, plant & equipment
7
43,091,850
30,839,947
49,574,604
37,060,819
Current assets
Trade and other receivables
498,188
270,540
Derivative financial asset
10 b
1,736,740
1,756,553
Cash and cash equivalents
22,183,243
10,935,563
24,418,171
12,962,656
Total assets
73,992,775
50,023,475
Equity and liabilities
Equity attributable to owners of the parent
Issued capital
8
17,001,558
14,493,773
Share premium
8
56,884,858
41,848,306
Other reserves
(11,510,438)
(12,818,874)
Accumulated losses
(23,229,043)
(22,112,503)
Total equity
39,146,935
21,410,702
Liabilities
Non-current liabilities
Contingent consideration
9
6,048,092
5,927,025
Royalty Finance
10 a
24,980,636
22,053,341
31,028,728
27,980,366
Current liabilities
Trade and other payables
3,817,112
632,407
Special warrant liability
11
-
-
3,817,112
632,407
Total liabilities
34,845,840
28,612,773
Total equity and liabilities
73,992,775
50,023,475
Condensed statement of changes in shareholders' equity
Attributable to the owners of the parent
Share
capital
£
Share
premium
£
Accumulated
losses
£
Other
reserves
£
Total
£
As at 1 January 2020
14,463,773
41,785,306
(19,835,092)
(4,666,930)
31,747,057
Comprehensive income
Loss for the period
-
-
(759,620)
-
(759,620)
Other comprehensive income
Currency translation differences
-
-
-
(8,067,676)
(8,067,676)
Total comprehensive income
(759,620)
(8,067,676)
(8,827,296)
Transactions with owners
Issue of ordinary shares
-
-
-
-
-
Total transactions with owners
As at 30 June 2020 (unaudited and amended, see note 2)
14,463,773
41,785,306
(20,594,712)
(12,734,606)
22,919,761
Attributable to the owners of the parent
Share
capital
£
Share
premium
£
Accumulated
losses
£
Other
reserves
£
Total
£
As at 1 January 2021
14,493,773
41,848,306
(22,112,503)
(12,818,874)
21,410,702
Comprehensive income
Loss for the period
-
-
(2,291,336)
-
(2,291,336)
Other comprehensive income
Currency translation differences
-
-
-
1,308,436
1,308,436
Total comprehensive income
-
-
(2,291,336)
1,308,436
(982,900)
Transactions with owners
Issue of ordinary shares, net of issue costs
1,627,184
9,836,292
-
-
11,463,476
Conversion of special warrants into shares, net of issue costs
880,601
5,200,260
1,174,796
-
7,255,657
Total transactions with owners
2,507,785
15,036,552
-
-
18,719,133
As at 30 June 2021 (unaudited)
17,001,558
56,884,858
(23,229,043)
(11,510,438)
39,146,935
Condensed Consolidated Statement of Cash Flows
6 months ended
30 June
3 months ended
30 June
2021
2020
2021
2020
Unaudited
Unaudited
Amended
(Note 2)
Unaudited
Unaudited
Amended
(Note 2)
£
£
£
£
Cash flows from operating activities
Loss before taxation
(2,291,336)
(759,620)
(1,336,860)
(718,098)
Finance costs
5
61,955
321,299
46,698
12,790
Change in fair value of special warrant liability
11
1,174,796
-
871,795
-
Exchange differences
(1,585,442)
(1,126,822)
(1,400,858)
(185,376)
Operating loss before changes in working capital
(2,640,027)
(1,565,143)
(1,819,225)
(890,684)
Decrease/(increase) in trade and other receivables
(227,649)
53,126
(155,313)
56,001
(Decrease)/increase in trade and other payables
3,184,705
(137,320)
3,235,295
(15,113)
Net cash outflow from operating activities
317,029
(1,649,337)
1,260,757
(849,796)
Cash flows from investing activities
Purchase of intangible assets
6
(91,636)
(1,326,585)
(65,338)
(599,918)
Purchase of property, plant and equipment
7
(7,713,040)
(407,243)
(6,618,272)
(180,092)
Interest received
5
109,259
90,730
80,939
45,485
Net cash used in investing activities
(7,695,417)
(1,643,098)
(6,602,671)
(734,525)
Cash flows from financing activities
Net proceeds from issue of ordinary shares
11,463,476
-
-
-
Net proceeds from issue of special warrants
6,080,861
-
-
-
Net cash from financing activities
17,544,337
-
-
-
Net decrease in cash and cash equivalents
10,165,949
(3,292,435)
(5,341,914)
(1,584,321)
Cash and cash equivalents at beginning of period
10,935,563
17,760,330
26,331,015
16,993,664
Exchange gain/(loss) on cash and cash equivalents
1,081,731
1,126,822
1,194,142
185,374
Cash and cash equivalents at end of the period
22,183,243
15,594,717
22,183,243
15,594,717
Notes to the Financial Statements
1. General information
The principal activity of the Company and its subsidiaries (together 'the Group') is the exploration and development of precious and base metals. There is no seasonality or cyclicality of the Group's operations.
The Company's shares are listed on the Alternative Investment Market of the London Stock Exchange (AIM) and on the Toronto Stock Exchange (TSX). The Company is incorporated and domiciled in the United Kingdom. The address of its registered office is Rex House, 4-12 Regent Street, London SW1Y 4RG.
2. Basis of preparation
The financial statements for the year ended 31 December 2020 were prepared in accordance with International Financial Reporting Standards and IFRS interpretations Committee interpretations as adopted by the European Union and with IFRS and their Interpretations issued by the IASB.
On 31 December 2020, IFRS as adopted by the European Union at that date was brought into UK law and became UK-adopted international accounting standards, with future changes being subject to endorsement by the UK Endorsement Board. The Group transitioned to UK-adopted international accounting standards in its consolidated financial statements on 1 January 2021. There was no impact or changes in accounting policies from the transition and the Group will also continue to comply with IFRS and their interpretations issued by the IASB.
The condensed consolidated interim financial statements for the half-year reporting period ended 30 June 2021 have been prepared in accordance with IAS 34 as issued by the IASB and the UK-adopted International Accounting Standard 34, 'Interim Financial Reporting'.
The interim report does not include all of the notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the annual report for the year ended 31 December 2020, and any public announcements made by the Group during the interim reporting period.
These condensed interim financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2020 were approved by the board of directors on 31 March 2021 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.
Amendment to prior period figures
These financial statements have been restated to include certain amendments to the figures for the 6 months to 30 June 2020. The amendments are driven by the adoption of a new accounting policy at the beginning of 2020 in respect of the capitalisation of borrowing costs (refer to note 3). In addition, certain costs have been capitalised to the Mine Development Asset that had previously been incorrectly capitalised to intangible assets. None of these adjustments have a cash impact on the balance sheet.
The effect of these amendments on the statement of financial position and statement of comprehensive are set out in the table below:
Mine development asset
Intangible assets
Accumulated losses
£
£
£
30 June 2020 - as previously stated
26,007,557
8,039,824
(22,515,546)
Transfer of capitalised costs from intangibles assets to Mine development asset
1,264,905
(1,264,905)
-
Capitalisation of borrowing costs
1,920,835
-
1,920,835
30 June 2020 - Amended
29,193,297
6,774,919
(20,594,712)
As previously
stated 30/6/20
Reclassification to/from finance income and costs
Capitalisation of borrowing costs
Amended as at
30/6/20
£
£
£
Statement of comprehensive income
Administrative expenses
(1,565,143)
-
-
(1,565,143)
Change in value of contingent consideration
(391,160)
391,160
-
-
Gain/(Loss) on foreign exchange
1,126,822
1,126,822
Loss from operations
(829,481)
391,160
-
(438,321)
Finance income
90,730
-
(90,730)
-
Finance costs
(1,941,704)
(391,160)
2,011,565
(321,299)
Loss before taxation
(2,680,455)
-
1,920,835
(759,620)
Taxation
-
-
-
-
Loss for the year from continuing operations
(2,680,455)
-
1,920,835
(759,620)
Going concern
The condensed consolidated interim 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 projects. 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 staff presence within the Group's offices in London and Brazil has been restricted to a minimum with staff working from home where possible, 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, with the current cash resources available to the Group the Directors are of the opinion that it has 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 has 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.
Risks and uncertainties
The Board continuously assesses and monitors the key risks of the business. The key risks that could affect the Group's medium term performance and the factors that mitigate those risks have not substantially changed from those set out in the Group's 2020 Annual Report and Financial Statements, a copy of which is available on the Group's website: www.horizonteminerals.com and on Sedar: www.sedar.com The key financial risks are liquidity risk, foreign exchange risk, credit risk, price risk and interest rate risk.
Use of estimates and judgements
The preparation of condensed consolidated interim financial statements requires management to make estimates and judgements that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the end of the reporting period. Significant items subject to such estimates are set out in note 4 of the Group's 2020 Annual Report and Financial Statements. The nature and amounts of such estimates and judgements have not changed significantly during the interim period.
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 measure's 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.
3. Significant accounting policies
The same accounting policies, presentation and methods of computation have been followed in these condensed consolidated interim financial statements as were applied in the preparation of the Group's audited Financial Statements for the year ended 31 December 2020 except for the new accounting policy applied for the special warrant liability which is detailed below.
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 on contingent consideration payable for Araguaia
All other borrowing costs are recognized as part of interest expense in the year which they are incurred.
Special warrant liability
A contract that could result in the delivery of a variable number of the Company's own ordinary shares is considered a financial instrument and is measured at fair value through profit and loss. Refer to note 11 for the details of the Company's special warrant liability.
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.
The major exchange rates used for the revaluation of the statement of financial position at 30 June 2021 were $1:£0.72
(31 December 2020: $1:£0.73), Brazilian Real (R$):£0.145 (31 December 2020: R$:£0.141).
Foreign currency translation reserve includes movements that relate to the retranslation of the subsidiaries whose functional currencies are not Pounds Sterling.
During the first quarter of 2021, the Brazilian Real weakened by approximately 11% from R$7.1 to R$7.86 against the Pound Sterling. The Brazilian Real then strengthened by 12% to R$6.91 in quarter 2. Overall for the first six months of 2021 the Brazilian Real strengthened by 3% since 31 December 2020 (30 June 2020: weakened approximately by 26% from R$5.33 at 31 December 2019 to R$6.7). Currency translation differences for the six month period of £1.3million gain (2020:£8million loss) included in the consolidated statement of comprehensive income arose on the translation of property plant and equipment, intangible assets and cash and cash equivalents denominated in Brazilian Real.
The foreign exchange gain for the first six months of 2021 of £1,585,442 included in the statement of comprehensive income relates to the translation differences of foreign currency cash and cash equivalents balances and intercompany balances denominated in currencies other than the functional currency of the entity. £1million of this balance relates to a Brazilian Real denominated intercompany balance between the project finance subsidiary in the Netherlands and the Brazilian subsidiary for the Araguaia project.
Impact of accounting standards to be applied in future periods
There are a number of standards and interpretations which have been issued by the International Accounting Standards Board that are effective for periods beginning subsequent to 31 December 2021 that the Group has decided not to adopt early. The Group does not believe these standards and interpretations will have a material impact on the financial statements once adopted.
4 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.
2021
UK
Brazil
Netherlands
Total
6 months
ended
30 June 2021
£
6 months
ended
30 June 2021
£
6 months
ended
30 June 2021
£
6 months
ended
30 June 2021
£
Administrative expenses
(2,381,220)
(222,857)
(35,950)
(2,640,027)
Change in fair value of special warrant liability
(1,174,796)
-
-
(1,174,796)
Profit/(Loss) on foreign exchange
293,520
-
1,291,922
1,585,442
Loss from operations per reportable segment
(3,262,496)
(222,857)
1,255,972
(2,229,381)
Net finance costs
(61,955)
-
-
(61,955)
Loss before taxation
(3,324,451)
(222,857)
1,255,972
(2,291,336)
Depreciation charges
-
5,961
-
5,961
Additions to non-current assets
-
7,804,676
-
7,804,677
Capitalisation of borrowing costs
-
3,381,035
-
3,381,035
Foreign exchange movements to non-current assets
-
1,334,053
-
1,334,053
Reportable segment assets
11,550,722
60,529,794
1,912,258
73,992,774
Reportable segment liabilities
7,300,600
2,546,307
24,998,933
34,845,840
2020
UK
Brazil
Netherlands
Total
6 months
ended
30 June 2020
£
6 months
ended
30 June 2020
£
6 months
ended
30 June 2020
£
6 months
ended
30 June 2020
£
Administrative expenses
(1,026,822)
(328,537)
(209,784)
(1,565,143)
Profit/(Loss) on foreign exchange
1,065,995
35,342
25,485
1,126,822
Loss from operations per reportable segment
39,173
(293,195)
(184,299)
(438,321)
Net finance costs
(321,299)
-
-
(321,299)
Loss before taxation
(282,126)
(293,195)
(184,299)
(759,620)
Depreciation charges
-
-
-
-
Additions to non-current assets
-
1,733,828
-
1,733,828
Capitalisation of borrowing costs
-
1,920,835
-
1,920,835
Foreign exchange movements to non-current assets
-
(7,986,331)
-
(7,986,331)
Reportable segment assets
9,557,383
41,814,278
2,683,075
54,054,736
Reportable segment liabilities
7,018,073
424,730
23,692,172
31,134,975
2021
UK
Brazil
Netherlands
Total
3 months
ended
30 June 2021
£
3 months
ended
30 June 2021
£
3 months
ended
30 June 2021
£
3 months
ended
30 June 2021
£
Administrative expenses
(1,688,093)
(96,046)
(35,086)
(1,819,225)
Change in fair value of special warrant liability
(871,795)
-
-
(871,795)
Profit/(Loss) on foreign exchange
162,648
-
1,238,210
1,400,858
Loss from operations per reportable segment
(2,397,240)
(96,046)
1,203,124
(1,290,162)
Net finance costs
(46,698)
-
-
(46,698)
Loss before taxation
(2,443,938)
(96,046)
1,203,124
(1,336,860)
Depreciation charges
-
3,084
-
3,084
Additions to non-current assets
-
6,683,609
-
6,683,609
Capitalisation of borrowing costs
-
2,181,150
-
2,181,150
Foreign exchange movements to non-current assets
-
4,949,978
-
4,949,978
2020
UK
Brazil
Netherlands
Total
3 months
ended
30 June 2020
£
3 months
ended
30 June 2020
£
3 months
ended
30 June 2020
£
3 months
ended
30 June 2020
£
Administrative expenses
(588,360)
(164,143)
(138,182)
(890,685)
Profit/(Loss) on foreign exchange
65,848
94,043
25,485
185,376
Loss from operations per reportable segment
(522,512)
(70,100)
(112,697)
(705,309)
Net finance costs
(12,790)
-
-
(12,790)
Loss before taxation
(535,302)
(70,100)
(112,697)
(718,099)
Depreciation charges
-
-
-
-
Additions to non-current assets
-
780,010
-
780,010
Capitalisation of borrowing costs
-
933,588
-
933,588
Foreign exchange movements to non-current assets
-
(2,369,732)
-
(2,369,732)
5 Finance income and costs
6 months
ended
30 June 2021
6 months
ended
30 June 2020
3 months
ended
30 June 2021
3 months
ended
30 June 2020
£
£
£
£
Finance income
- Interest income on cash and short-term deposits
109,259
90,730
80,939
45,485
Finance costs
- Contingent consideration: unwinding of discount
(201,044)
(222,533)
(101,334)
(116,279)
- Contingent consideration: Fair value adjustment
75,003
(391,160)
5,108
91,850
- Amortisation of Royalty Finance
(1,730,592)
(1,619,744)
(945,460)
(827,122)
- Royalty finance carrying value adjustment
(1,695,616)
(99,427)
(1,267,101)
(140,312)
Total finance costs pre-capitalisation
(3,442,990)
(2,242,134)
(2,227,848)
(946,378)
Finance costs capitalised to the Araguaia mine development project
3,381,035
1,920,835
2,181,150
933,588
Net finance costs
(61,955)
(321,299)
(46,698)
(12,790)
6 Intangible assets
Intangible assets comprise exploration and evaluation costs and goodwill. Exploration and evaluation costs comprise internally generated and acquired assets.
Exploration and
Goodwill
Exploration licences
evaluation costs
Total
£
£
£
£
Cost
At 1 January 2020
210,585
5,157,366
1,689,495
7,057,446
Additions
-
-
-
-
Exchange rate movements
(52,337)
(151,785)
(632,451)
(836,573)
Net book amount at 31 December 2020
158,248
5,005,581
1,057,044
6,220,873
Additions
-
38,394
53,243
91,637
Exchange rate movements
4,331
140,717
25,196
170,244
Net book amount at 30 June 2021
162,579
5,184,692
1,135,483
6,482,754
Impairment assessments for exploration and evaluation assets are carried out either on a project-by-project basis or by geographical area.
7 Property, plant and equipment
Mine Development Property
Vehicles and other field equipment
Office equipment
Land acquisition
Total
£
£
£
£
£
Cost
At 1 January 2020
32,260,061
106,722
14,424
-
32,381,207
Additions
4,008,719
1,234
55,989
87,257
4,153,199
Disposals
-
(5,806)
-
-
(5,806)
Capitalised interest
2,100,521
-
-
-
2,100,521
Exchange rate movements
(7,662,503)
(25,162)
(13,052)
-
(7,700,717)
At 31 December 2020
30,706,798
76,988
57,361
87,257
30,928,404
Additions
2,111,793
-
6,079
5,595,168
7,713,040
Capitalised interest
3,381,035
-
-
-
3,381,035
Exchange rate movements
843,352
2,120
2,120
319,284
1,166,876
At 30 June 2021
37,042,978
79,108
65,560
6,001,708
43,189,355
Accumulated depreciation
At 1 January 2020
-
106,239
14,424
-
120,663
Charge for the year
-
6,121
25,275
-
31,396
Disposals
-
(38,224)
-
-
(38,224)
Exchange rate movements
-
(16,959)
(8,399)
-
(25,358)
At 31 December 2020
-
57,177
31,300
-
88,477
Charge for the period
-
2,802
3,159
-
5,961
Exchange rate movements
-
1,802
1,264
-
3,066
At 30 June 2021
-
61,781
35,723
-
97,504
Net book amount as at 30 June 2021
37,042,978
17,327
29,837
6,001,708
43,091,850
Net book amount as at 31 December 2020
30,706,798
19,811
26,061
87,257
30,839,927
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 for the 2020 audited financial statements 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. Since then, no impairment indicators have been identified.
During the quarter progress was made in the land acquisition process for the Araguaia project. The escrow deposit was paid to secure the 'right of way', these acquisitions amounted to £5.6million.
8 Share Capital and Share Premium
Issued and fully paid
Number of shares
Ordinary shares
£
Share premium
£
Total
£
At 1 January 2021
1,449,377,287
14,493,773
41,848,306
56,342,079
Issue of equity
250,778,453
2,507,785
15,036,552
17,544,337
At 30 June 2021
1,700,155,740
17,001,558
56,884,858
73,886,416
On 19 February 2021, 162,718,353 new ordinary shares were placed with new and existing investors at a price of 7.5 pence per share. The gross proceeds raised in the placement was £12,203,876 and issue costs amounted to £740,401. On 14 April 2021, the 88,060,100 Special Warrants were converted to 88,060,100 ordinary shares of the Company, refer to note 11 for more details on the Special Warrants.
9 Contingent Consideration
Contingent Consideration payable to Xstrata Brasil Mineração Ltda.
The contingent consideration payable to Xstrata Brasil Mineração Ltda for the acquisition of the Araguaia project has a carrying value of £2,952,988 at 30 June 2021 (31 December 2020: £2,893,877). It comprises US$5,000,000 consideration in cash as at the date of first commercial production from any of the resource areas within the Enlarged Project area. The key assumptions underlying the treatment of the contingent consideration of US$5,000,000 is a discount factor of 7.0% along with the estimated date of first commercial production.
During 2020 the Araguaia project entered the development phase and as a result borrowing costs including unwinding of discount on contingent consideration for qualifying assets have been capitalised to the mine development asset. The borrowing costs capitalised for the 6 months to 30 June 2021 is £98,161 (30 June 2020: £106,026).
The change in the fair value of contingent consideration payable to Xstrata Brasil Mineração Ltda generated a gain of £39,050 for the six months ended 30 June 2021 (30 June 2020: £186,368 loss) due to changes in the exchange rate of the functional currency in which the liability is payable.
Contingent Consideration payable to Vale Metais Basicos S.A.
The contingent consideration payable to Vale Metais Basicos S.A. for the acquisition of the Vermelho project has a carrying value of £3,095,104 at 30 June 2021 (31 December 2020: £3,033,148). It comprises US$6,000,000 consideration in cash as at the date of first commercial production from the Vermelho project and was recognised for the first time in December 2019, following the publication of a PFS on the project. The key assumptions underlying the treatment of the contingent consideration of US$6,000,000 is a discount factor of 7.0% along with the estimated date of first commercial production.
As at 30 June 2021, there was a finance expense of £102,884 (30 June 2020: £116,507) recognised in finance costs within the Statement of Comprehensive Income in respect of this contingent consideration arrangement, as the discount applied to the contingent consideration at the date of acquisition was unwound. The finance costs in respect of this contingent consideration are expensed as the Vermelho project has not entered the construction phase.
The change in the fair value of contingent consideration payable to Vale Metais Basicos S.A. generated a gain of £40,928 for the six months ended 30 June 2021 (30 June 2020: £204,792 loss) due to changes in the value of the functional currency in which the liability is payable (USD).
Xstrata Brasil Mineração Ltda (in respect of Araguaia project)
Vale Metais Basicos S.A. (in respect of Vermelho project)
Total
£
£
£
At 1 January 2020
2,975,935
3,270,134
6,246,069
Unwinding of discount
213,285
231,780
445,065
Change in carrying value and foreign exchange
(295,343)
(468,766)
(764,109)
At 31 December 2020
2,893,877
3,033,148
5,927,025
Unwinding of discount
98,161
102,884
201,045
Change in carrying value and foreign exchange
(39,050)
(40,928)
(79,978)
At 30 June 2021
2,952,988
3,095,104
6,048,092
10 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 the current period end the rate has been estimated to be 2.75%. The royalty is paid over the first 426k tonnes of nickel produced from the Araguaia Ferronickel project. The royalty is linked to production and therefore does not become payable until the project is constructed and commences commercial production, more detail is contained within the audited financial statements for the year ended 31 December 2020.
The Royalty liability has initially been recognised using the amortised cost basis with an 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.
Royalty valuation
£
Net book amount at 1 January 2020
20,570,411
Unwinding of discount
3,244,873
Change in carrying value
(910,834)
Effects of foreign exchange
(851,109)
Net book amount at 31 December 2020
22,053,341
Unwinding of discount
1,730,593
Change in carrying value
1,695,616
Effects of foreign exchange
(498,914)
Net book amount at 30 June 2021
24,980,636
The carrying value of the royalty reflects assumptions on expected long term nickel price, update headline royalty rate as well as the timing of payments related to expected date of commencement of production and hence payment to be made under the royalty agreement.
Management have sensitised the carrying value of the royalty liability by a change in the royalty rate of 0.1% and it would be £908,418 higher/lower and for a $1,000/t Ni increase/decrease in future nickel price the carrying value would change by £1,551,008.
10 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%).
£
Value as at 1 January 2020
2,246,809
Change in fair value
(424,500)
Effects of foreign exchange
(65,756)
Value as at 31 December 2020
1,756,553
Change in fair value
-
Effects of foreign exchange
(19,813)
Value as at 30 June 2021
1,736,740
Sensitivity analysis
The valuation of the Buyback option is most sensitive to estimates for nickel price and nickel price volatility.
An increase in the estimated future nickel price by $1,000 would give rise to a $1,190,000 increase in the value of the option.
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.
11 Special warrant liability
On 9 March 2021 the Company completed the bought deal private placement of special warrants (the "Special Warrants), raising gross proceeds of £6.7 million (the "Offering") including the full exercise of the underwriters' option.
Pursuant to the Offering, the Company issued 88,060,100 Special Warrants at a price of 7.5 pence per share per Special Warrant. Each Special Warrant, subject to the Penalty Provision (as defined below) and subject to adjustments in certain circumstances, shall be deemed to be exercised for one Ordinary Share in the capital of the Company (each, an "Underlying Share") without any required action on the part of the holders (including payment of additional consideration) on the date on which the earlier of the following occurs:
(i) the third business day following the date on which a final receipt is obtained from the applicable securities regulator on behalf of the securities regulatory authorities in each of the provinces of British Columbia and Ontario (the "Final Receipt"), for the final qualification prospectus (the "Qualification Prospectus") qualifying the Underlying Shares for distribution; and
(ii) 4:59 p.m. (Toronto time) on 10 July 2021.
The Company agreed to use commercially reasonable efforts to qualify the Underlying Shares for distribution in Canada, and to obtain the Final Receipt therefor, on or prior to 28 April 2021. In the event the Final Receipt was not received on or before 18 April 2021, each Special Warrant entitled the holder thereof to receive, upon the exercise or deemed exercise thereof, as applicable, 1.1 Underlying Shares without further payment on the part of the holder (the "Penalty Provision").
The Special Warrants contained terms that could have resulted in variability in the number of common shares
issued, with an increase in the conversion ratio if the final prospectus was not filed by 28 April 2021. Accordingly,
the Special Warrants were classified as a derivative financial instrument under IFRS and measured at fair
value through profit and loss. On initial recognition, the carrying value of the liability was equal to the net
proceeds of £6,178,222 .
The receipt for the Final Prospectus was confirmed on 9 April 2021. On 14 April 2021, the 88,060,100 Special Warrants were converted to 88,060,100 ordinary shares of the Company with no penalty. Upon the conversion of the Special Warrants to ordinary shares, the fair value of the Special Warrants as at 14 April 2021 was transferred to Share Capital and Share Premium. The fair value of the Special Warrants as at 14 April 2021, was determined to be £7,255,657. The change in fair value from the date of issuance on 9 March 2021 to the date of exercise on 14 April 2021, an unrealised loss of $1,174,796 was recognized related to Special Warrants.
£
Gross proceeds from issue of share warrants
6,675,836
Issue costs
(594,975)
Effects of change in fair value and foreign exchange
1,174,796
Conversion of share warrants into shares
(7,255,657)
Value as at 30 June 2021
-
12 Fair value
Carrying Amount versus Fair Value
The following table compares the carrying amounts versus the fair values of the group's financial assets and financial liabilities as at 30 June 2021.
The group considers that the carrying amount of the following financial assets and financial liabilities are
a reasonable approximation of their fair value:
· Trade receivables
· Trade payables
· Cash and cash equivalents
As at 30 June 2021
As at 31 December 2020
Carrying amount
Fair Value
Carrying amount
Fair Value
£
£
£
£
Financial Assets
Derivative financial assets
1,736,740
1,736,740
1,756,553
1,756,553
Total Assets
1,736,740
1,736,740
1,756,553
1,756,553
Financial Liabilities
Contingent consideration
6,048,092
6,048,092
5,927,025
5,927,025
Royalty Finance
24,980,636
24,980,636
22,053,341
22,053,341
Special warrant liability
-
-
-
-
Total Liabilities
31,028,728
31,028,728
27,980,366
27,980,366
Fair value Hierarchy
The level in the fair value hierarchy within which the financial asset or financial liability is categorised is
determined on the basis of the lowest level input that is significant to the fair value measurement.
Financial assets and financial liabilities are classified in their entirety into only one of the three levels.
The fair value hierarchy has the following levels:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2- inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly, (i.e., as prices) or indirectly (i.e., derived from prices)
Level 3- inputs for the asset or liability that are not based on observable market data (unobservable inputs)
The derivative financial asset and special warrant liability have been deemed to be a level three fair value. Information related to the valuation method and sensitivities analysis for the derivative financial asset are included in note 10 b and in note 11 for special warrant liability.
13 Dividends
No dividend has been declared or paid by the Company during the six months ended 30 June 2021 (2020: nil).
14 Earnings per share
The calculation of the basic loss per share of 0.143 pence for the six months ended 30 June 2021 (30 June 2020 loss per share: 0.052 pence) is based on the loss attributable to the equity holders of the Company of £2,291,336 for the six-month period ended 30 June 2021 (30 June 2020: £759,620 loss) divided by the weighted average number of shares in issue during the period of 1,602,397,381 (weighted average number of shares for the six months ended 30 June 2020: 1,449,377,287).
Details of share options that could potentially dilute earnings per share in future periods are disclosed in the notes to the Group's Annual Report and Financial Statements for the year ended 31 December 2020 and in note 15 below.
15 Issue of Share Options
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 not the Group has any legal or constructive obligation to settle or repurchase the options in cash.
There was no movement in share options during the six months ended 30 June 2021.
Number of options
Weighted average exercise price
£
Outstanding at 1 January 2021
125,350,000
0.051
Outstanding at 30 June 2021
125,350,000
0.051
Exercisable at 30 June 2021
125,350,000
0.051
16 Ultimate controlling party
The Directors believe there to be no ultimate controlling party.
17 Related party transactions
The nature of related party transactions of the Group has not changed from those described in the Group's Annual Report and Financial Statements for the year ended 31 December 2020. There were no significant related party transactions during the 6-month period ended 30 June 2021.
18 Commitments
The Company has conditional capital commitments totaling £1.7 million 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.
19 Events after the reporting period
None
20 Approval of interim financial statements
These Condensed Consolidated Interim Financial Statements have been approved for issue by the Board of Directors on 13 August 2021.
For further information, visit www.horizonteminerals.com or contact:
Horizonte Minerals plc
Jeremy Martin (CEO)
Anna Legge (Corporate Communications)
info@horizonteminerals.com
+44 (0) 203 356 2901
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.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.ENDIR SFWESEEFSEEA
Recent news on Horizonte Minerals
See all newsREG - Horizonte Minerals - Corporate Update
AnnouncementREG - Horizonte Minerals - Corporate Update
AnnouncementREG - Horizonte Minerals - Corporate Update
AnnouncementREG - Horizonte Minerals - Araguaia Project Update
AnnouncementREG - Horizonte Minerals - Corporate Update
Announcement