REG - Horizonte Minerals - Final Results for the Year Ended 31 December 2021
28/03/2022 07:00
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RNS Number : 1495G Horizonte Minerals PLC 28 March 2022
NEWS
RELEASE
28 March 2022
Horizonte Minerals Plc
("Horizonte" or the "Company")
Final Results for the Year Ended 31 December 2021
Horizonte Minerals Plc, (AIM: HZM, TSX: HZM) the nickel development company
focused in Brazil, announces its final results for the year ended 31 December
2021 ('FY21' or the 'Period').
Highlights for the Period
· Completion of US$633 million funding package for the development of the
Araguaia ferronickel project ("Araguaia").
· US$25 million royalty agreement signed with Orion Resources Partners to
progress development of the Vermelho nickel-cobalt project ("Vermelho")
through feasibility study and permitting.
· 100%, 10-year Araguaia offtake agreement based on LME pricing signed with
Glencore.
· Strengthened cash balance of £156 million following equity fundraises in
February and December 2021.
· Appointment of Michael Drake as Head of Projects and Leo Vianna as Araguaia
Project Director.
· Mobilisation of Araguaia Lead Team in Brazil and successful recruitment of 85
person, predominantly Brazilian, Araguaia project team.
· Completion of Operational Readiness plan with key permits secured ahead of
commencement of construction.
· Award of power line licence to cover the full power requirement of the
Araguaia project at nameplate capacity.
· Extensive competitive tendering process undertaken across the key Araguaia
equipment packages with tier one vendors in preparation for contract awards in
H1 2022.
· Key environmental and social programmes undertaken in preparation for
construction phase of Araguaia including resettlement action plan, social
communication programme, safety improvements for school communities located
along the PA-449 highway, and the Local Development Agenda programme.
· Acquisition of new and unused ferronickel processing equipment from Companhia
Brasileira de Alumínio that is expected to provide meaningful synergies in
relation to the development of Araguaia, including the potential to fast-track
and lower the cost of development of a second RKEF line.
· Continued progress at Vermelho with Ramboll awarded Environmental and Social
Impact Assessment contract.
· Support provided to Conceição do Araguaia's ongoing Covid-19 vaccination
effort through the donation 10,000 medical items to the regional hospital.
Post Period End Operational Update
Following completion of the funding package and a positive construction
decision for Araguaia, activity in Q1 2022 has been to advance engineering,
place orders for long lead equipment and Engineering Procurement and
Construction Management ("EPCM") services and to commence early works at the
project site.
Engineering progress completed to date includes basic engineering
consolidation, geotechnical surveys, support for bidding processes and
detailed engineering with a focus on finalising the plant arrangement,
earthworks design, overland powerline and access roads.
The furnace supply contract was awarded to Hatch Ltd. in February 2022 (see
announcement dated 25 February 2022), which encompasses the supply of a
circular electric arc furnace rated at 60 megawatt, a calcine transfer system
to feed the furnace with 835,000 tonnes per annum of calcine and additional
services on installation and commissioning. The EPCM contract was awarded to
Pöyry Tecnologia Ltda ("Pöyry"), the Brazilian subsidiary of global
engineering services firm AFRY earlier this week (see announcement dated 22
March 2022). Contracts were also awarded to contractors for access road
upgrades, aggregate supply, and construction of temporary facilities such as
offices, as well as initial site infrastructure such as telecommunications and
fencing. Water wells are also being installed in accordance with construction
permits and licenses.
Contractors are being mobilised in accordance with Horizonte's health and
safety standards, which have achieved 500,000 manhours without a Lost Time
Injury ("LTI)" to date. This was achieved through the deployment of the
Company's new health and safety training programme, comprehensive induction
programme and the increase in health and safety reporting overseen by the
Company's newly appointed Health and Safety Manger, Eduardo Paiva.
New environmental programmes are being implemented in accordance with the
construction phase of Araguaia including installation of automatic monitoring
systems and implementation of the biodiversity action plan.
Horizonte CEO, Jeremy Martin commented: "The extensive technical and financial
work that concluded in the successful completion of the US$633 million project
funding package for Araguaia was transformational for Horizonte. It was a
culmination of two years of dedication and hard work by the Horizonte team and
all our advisors. During this time, we have established the foundations to
build a significant low-cost, sustainable nickel business which is now fully
funded to take our first tier one nickel project into production.
The preparatory work undertaken alongside the project financing process has
enabled us to make good progress during Q1 in the 24-month construction phase
of Araguaia. Our focus during this quarter has been on detailed engineering,
procurement, and early works ahead of earthworks commencing in Q2. We have
already awarded equipment and services contracts valued at approximately
US$150 million including the furnace and EPCM contracts. Our owner's team is
split across the engineering office in Belo Horizonte and the site office in
Conceição do Araguaia, and are managing key contractors working on access
road upgrades, essential site facilities and environmental programmes. We were
also very pleased to reach an important milestone of 500,000-man hours without
a lost time injury during the quarter. Our focus on health and safety
continues as activity on site increases.
Whilst the nickel market currently faces unprecedented volatility with
pricing, the consensus remains for continued exponential growth in demand,
both from the established stainless steel market and the accelerating battery
market. With very few new nickel projects in the global pipeline able to reach
production in the short-to-mid-term, Horizonte is uniquely placed to supply
into this deficit with Araguaia scheduled to start ramp up in early 2024."
For further information, visit www.horizonteminerals.com
(http://www.horizonteminerals.com) or contact:
Horizonte Minerals plc info@horizonteminerals.com (mailto:info@horizonteminerals.com)
Jeremy Martin (CEO) +44 (0) 203 356 2901
Anna Legge (Corporate Communications)
Peel Hunt LLP (Nominated Adviser & Joint Broker) +44 (0)20 7418 8900
Ross Allister
David McKeown
BMO (Joint Broker) +44 (0) 20 7236 1010
Thomas Rider
Pascal Lussier Duquette
Andrew Cameron
About Horizonte Minerals:
Horizonte Minerals plc (AIM & TSX: HZM) is developing two 100% owned, tier
one projects in Parà state, Brazil - the Araguaia Nickel Project and the
Vermelho Nickel-Cobalt Project. Both projects are large scale, high-grade,
low-cost, low-carbon and scalable. Araguaia is fully funded and in
construction. The project will produce 29,000 tonnes of nickel per year to
supply the stainless steel market. Vermelho is at feasibility study stage and
will produce 25,000 tonnes of nickel and 1,250 tonnes of cobalt to supply the
EV battery market. Horizonte's combined near-term production profile of over
50,000 tonnes of nickel per year positions the Company as a globally
significant nickel producer. Horizonte is developing a new nickel district in
Brazil that will benefit from established infrastructure, including
hydroelectric power available in the Carajás Mining District.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
Except for statements of historical fact relating to the Company, certain
information contained in this press release constitutes "forward-looking
information" under Canadian securities legislation. Forward-looking
information includes, but is not limited to, the ability of the Company to
complete the acquisition of equipment as described herein, statements with
respect to the potential of the Company's current or future property mineral
projects; the ability of the Company to complete a positive feasibility study
regarding the second RKEF line at Araguaia on time, or at all, the success of
exploration and mining activities; cost and timing of future exploration,
production and development; the costs and timing for delivery of the equipment
to be purchased as described herein, the estimation of mineral resources and
reserves and the ability of the Company to achieve its goals in respect of
growing its mineral resources; the realization of mineral resource and reserve
estimates and achieving production in accordance with the Company's potential
production profile or at all. Generally, forward-looking information can be
identified by the use of forward-looking terminology such as "plans",
"expects" or "does not expect", "is expected", "budget", "scheduled",
"estimates", "forecasts", "intends", "anticipates" or "does not anticipate",
or "believes", or variations of such words and phrases or statements that
certain actions, events or results "may", "could", "would", "might" or "will
be taken", "occur" or "be achieved". Forward-looking information is based on
the reasonable assumptions, estimates, analysis and opinions of management
made in light of its experience and its perception of trends, current
conditions and expected developments, as well as other factors that management
believes to be relevant and reasonable in the circumstances at the date that
such statements are made, and are inherently subject to known and unknown
risks, uncertainties and other factors that may cause the actual results,
level of activity, performance or achievements of the Company to be materially
different from those expressed or implied by such forward-looking information,
including but not limited to risks related to: the inability of the Company to
complete the acquisition of equipment contemplated herein, on time or at all,
the ability of the Company to complete a positive feasibility study regarding
the implementation of a second RKEF line at Araguaia on the timeline
contemplated or at all, exploration and mining risks, competition from
competitors with greater capital; the Company's lack of experience with
respect to development-stage mining operations; fluctuations in metal prices;
uninsured risks; environmental and other regulatory requirements; exploration,
mining and other licences; the Company's future payment obligations; potential
disputes with respect to the Company's title to, and the area of, its mining
concessions; the Company's dependence on its ability to obtain sufficient
financing in the future; the Company's dependence on its relationships with
third parties; the Company's joint ventures; the potential of currency
fluctuations and political or economic instability in countries in which the
Company operates; currency exchange fluctuations; the Company's ability to
manage its growth effectively; the trading market for the ordinary shares of
the Company; uncertainty with respect to the Company's plans to continue to
develop its operations and new projects; the Company's dependence on key
personnel; possible conflicts of interest of directors and officers of the
Company, and various risks associated with the legal and regulatory framework
within which the Company operates, together with the risks identified and
disclosed in the Company's disclosure record available on the Company's
profile on SEDAR at www.sedar.com (http://www.sedar.com) , including without
limitation, the annual information for of the Company for the year ended
December 31, 2020, the Araguaia Report and the Vermehlo Report. Although
management of the Company has attempted to identify important factors that
could cause actual results to differ materially from those contained in
forward-looking information, there may be other factors that cause results not
to be as anticipated, estimated or intended. There can be no assurance that
such statements will prove to be accurate, as actual results and future events
could differ materially from those anticipated in such statements.
Horizonte Minerals plc
2021 Report and Accounts
CHAIRMAN'S STATEMENT
2021
This year we have laid the foundations for the establishment of a significant
nickel producing business, culminating in the completion of a transformational
funding package in late November of US$633 million. This comprehensive
funding package for Araguaia, our first project to reach the construction
phase, is an outstanding achievement for the Horizonte team and one which very
few junior mining companies can claim. Through this process we have secured
support from multiple world class financial institutions which is testament to
the quality of the project and our team's tenacity. These milestones have once
again been achieved against a backdrop of uncertainty and disruption because
of the Covid pandemic. The team in London and Brazil has continued to navigate
the ever-changing working environment productively and most importantly,
safely.
The health and well-being of our employees and wider team of course remains
our number one priority and is at the forefront of our strategy. We are
dedicated to providing a safe and productive workplace. Covid is seemingly
part of our everyday lives for the foreseeable future, we therefore have
implemented ongoing Covid management protocols that we have implemented as we
have returned to office working and as we ramp up activity on site with early
works and the start of construction at Araguaia.
A transformational year
The securing of a comprehensive project funding package for Araguaia has been
the team's focus for the past two years, this would have been achieved in a
shorter timeframe if we had not lost one year as a result of the Covid
pandemic. Whilst working to secure a traditional package of debt, equity,
offtake, and cost overrun facilities, it has nonetheless been an incredibly
complex process with multiple parties in constant negotiation. In late 2021,
we were delighted to secure a $633 million funding package which fully funds
stage one of the project and provides the company with $99 million of
contingency, growth allowance and cost overrun facility. The package was made
up of $346.2 million debt package in two tranches, a $146.2 million Export
Credit Agency tranche with EKF and Finnvera and a $200 million commercial
tranche underwritten by BNP Paribas, Natixis, Societe Generale, ING and SEK
with both tranches being secured with competitive interest rates. We also
welcomed La Mancha and Orion as new and existing, respectively, strategic
investors and shareholders in Horizonte, and grateful for the continued
support of Glencore who, in addition to their cornerstone investment, extended
their relationship with the Company by agreeing to enter into the offtake
agreement. The offtake agreement is a 100%, 10-year agreement based on LME
pricing and therefore continues to provide our shareholders with good exposure
to the nickel price.
La Mancha and Orion have long track records of creating sustainable
shareholder value in the mining sector and their previous investments
highlight their ability to identify compelling growth opportunities at an
early stage. We believe the terms of the financing package and the calibre of
the lenders and strategic investors we have attracted is a testament to the
strong project fundamentals offered by the Araguaia project. The investments
from La Mancha, Orion and Glencore, alongside the Senior Debt Facility from
the syndicate of leading international financial institutions, provides a
strong endorsement of our broader corporate strategy to develop Horizonte into
a major nickel producer. The funding package has completely transformed our
shareholder register, with further institutions adding their support in the
New Year. Institutionalising our register is an important part in the
Company's growth story, providing us with support and confidence to accelerate
our plans of advancing both Araguaia and Vermelho. We look forward to working
with our new shareholders and continuing to receive the support from those who
have followed us on this journey.
There has certainly been a focus on Araguaia in recent years but, this is by
no means a reflection of the quality of Vermelho. Work at Vermelho has been
quietly progressing with a small, dedicated team and the appointment of
Ramboll to undertake the Environmental and Social Impact Assessment. This
assessment is a key requirement for permitting and the feasibility study. As
part of the Araguaia funding process, we were able to secure a $25 million
royalty agreement with Orion. These funds are dedicated to the acceleration of
the Vermelho feasibility study. Over the coming year, shareholders can expect
to see more activity from the project as we work to position Vermelho
alongside Araguaia as a future nickel and cobalt producer. With the electric
vehicle market recording a record year in 2021 and car manufacturers adopting
high-nickel content batteries at a faster pace than expected it is an
opportune time to position our world-class battery grade nickel-cobalt project
at the forefront of the Horizonte story.
Growing our team
The team in Brazil has grown rapidly in the past year, and it is very exciting
to see that we have been able to attract of some industry's top talent. We
started the year with announcing the appointment of our Head of Projects,
Michael Drake. Mike is a Mechanical Engineer with extensive international
leadership experience in the construction, operation and optimisation of
medium to large capex projects, with extensive expertise in both ferro-nickel,
and nickel acid-leach operations. Prior to joining Horizonte, Michael worked
for BHP, Newcrest Mining, and WMC Resources. Based out of our Brazilian
headquarters in Belo Horizonte, Mike has worked hard to not only build an
industry-leading team but also create and implement the working practices and
reporting structures across the areas of procurement, engineering, environment
and social and human resources, required to successfully build a tier one
nickel project. Later in the year, he was joined by Leo Vianna as Araguaia
Project Director. A Brazilian national, Leo is a Mechanical and Mechatronic
Engineer with over 24 years experience in project implementation and
management. He was previously Project Director for Vale's $1.9 billion
Bahodopi ferronickel project in Asia.
Horizonte now has the capability to build and deliver the Araguaia
ferro-nickel project, as well as simultaneously progressing Vermelho.
Supporting our communities
We have continued to support vulnerable families in our local communities who
have struggled through the Covid pandemic. We also assisted Conceição do
Araguaia's vaccination effort by donating 10,000 medical items to the regional
hospital. The vaccination effort in the region has progressed well and allowed
for life to return to a level of normality. Our social team was therefore able
to be more present in the local communities rather than engaging solely by
virtual means. An important focus for engagement this year has been that the
communities can expect in terms of on-site activity and the increased
workforce in the region, resettlement, local employment opportunities and
local suppliers and services. Horizonte having operated in the area for over
ten years Horizonte has excellent relationships with its local communities and
is confident this will continue. Alongside the construction phase of the
project, we will be working on new local initiatives as part of our Local
Development Agenda and working with SENAI to train local people in the skills
required to aid local employment at the project.
Sustainability
This year we will be publishing our third annual Sustainability Report in
which we are now able to track our progress clearly and transparently against
our commitments in the areas of environmental stewardship, social development,
and corporate governance. A standalone report such as this continues to be a
rarity from pre-production companies and sets Horizonte apart with its
commitment to best practice sustainability standards. These sustainability
standards were one of the key drivers for Horizonte to be able to secure the
high calibre of lenders and investors in the Araguaia funding process.
Following renewed commitments at the United Nations Conference on Climate
Change (COP26) in Glasgow, the International Energy Agency highlighted
nickel's critical role in the clean energy transition both through its use in
batteries and stainless steel. As part of this net-zero supply chain,
Horizonte's sustainability credentials have been key to our investment
opportunity. By integrating sustainability-focussed design into early project
planning and engineering Araguaia, through our carbon emissions reduction
programme, Araguaia will be able to become one of lowest carbon emission
projects of its peer group.
The nickel market
The nickel price ended 2021 30% higher than the previous year. Stainless steel
production increased 17% year on year, and it was an unprecedented year for
the electric vehicle market. 18.5% of all new cars registered in the U.K. were
either hybrid plug-in or fully electric. The year ended with a 160,000 tonne
deficit due to supply constraints from major producers citing labour strikes,
adverse weather and logistics issues. The new year has started with decade
high prices due to record low inventories and concerns over future supply and
nickel demand is expected to reach 3 million tonnes this year. The consensus
is that nickel demand is increasing exponentially both to supply the
established stainless steel market and the accelerating battery market but the
true growth curve remains contested, perhaps conversative estimates a 100%
increase in demand by 2040 while the International Energy Agency recently
stated that the nickel demand will increase 19-fold if the world expects to
meet the commitments made by the Paris Agreement on climate change.
Horizonte is one of very few nickel stories ready to supply this deficit,
and our projects can supply both the stainless steel and battery markets.
Acknowledgements
This will be my last statement as Chairman of Horizonte Minerals. It has been
a privilege to be involved with the Horizonte team from its initiation and to
see the development of your company through initial nickel discovery at
Araguaia and subsequent major deals initially with Teck, then with Glencore to
consolidate the entire district and the acquisition of Vermelho from Vale
resulting in Horizonte becoming a major nickel player.
In line with the Company's transformation the Board is evolving to better
reflect our shareholders and the skillset required to successfully deliver two
tier one nickel projects into production. Horizonte strives for best practice
corporate governance standards and will therefore be undergoing a corporate
governance review to set out a roadmap to smoothly transition our board.
I would like to thank the Board of Directors, the entire Horizonte team and
all our advisors that have worked tirelessly throughout the year to deliver
the transformational funding package and overall progress of our two projects.
I would also like to thank the continued support from our longstanding
shareholders and welcome our new investors.
David Hall
25 March 2022
INDEPENDENT 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 2021 and of
the Group's loss for the year then ended;
• the Group financial statements have been properly prepared in
accordance with UK adopted international accounting standards;
• the Parent Company financial statements have been properly
prepared in accordance with UK adopted international accounting standards 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 subsidiaries (the 'Group') for the year ended 31
December 2021 which comprise of 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 UK adopted international accounting standards 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.
Material uncertainty related to going concern
We draw attention to note 2.2 to the financial statements concerning the
Group's and the Parent Company's ability to continue as a going concern. As
stated in note 2.2 the Group has forecasted that it will need to draw down on
its agreed Senior Debt Facility in H2.2022. Draw down of the senior debt
facility requires conditions precedent to be complied with, some of which are
beyond the Directors' control. As stated in note 2.2 these events or
conditions, along with the other matters set out in note 2.2 indicate that a
material uncertainty exists that may cast significant doubt on the Group and
Parent Company's ability to continue as a going concern. Our opinion is not
modified in respect of this matter.
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.
Because of the judgements made by the Directors, and the significance of this
area, we have determined going concern to be a key audit matter. As described
in note 2.2, the Directors have prepared cash flow forecasts which demonstrate
that the Senior Debt Facility will be drawn down in H2 2022, and the ability
of the Group to make this draw down requires conditions precedent to be
complied with, some of which are beyond the Directors' control.
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
and in response to the key audit matter included:
· We obtained the Directors' Group cash flow forecast to 31 December
2023. We assessed the reasonableness of underlying assumptions, including
forecast levels of expenditure used in preparing these forecasts. To assess
the reasonableness and timings of the cash inflows and outflows, we used our
knowledge of the business and compared the Directors' forecasts to budgets
used as part of the fund raise package of $633m entered into in December
2021.
· We verified cash balances used in the forecast close to the date of
sign off of these financial statements, which included $197million of proceeds
from the equity funds raised in 2021.
· We reviewed the conditions that are required to be complied with to
draw down the Senior Debt Facility, discussed these with the Directors and
considered if compliance with these conditions was in the Directors' control.
· We considered the impact on the Group and Parent Company's cash flow
forecast should the Senior Debt Facility not be available.
· We assessed the appropriateness of the going concern disclosures
included in the financial statements against the requirements of the relevant
accounting standards.
Our responsibilities and the responsibilities of the Directors with respect to
going concern are described in the relevant sections of this report.
Overview
90% (2020: 80%) of Group net loss
Coverage 90% (2020: 94%) of Group total assets
2021 2020
Carrying value of exploration and evaluation assets and mine development
property
Valuation of royalty funding arrangement
Key audit matters
Going concern
Group financial statements as a whole
Materiality
£3,403,000 (2020:£750,000) based on 1.5% of total assets (2020: 1.5% of
total assets)
Materiality
Group financial statements as a whole
£3,403,000 (2020:£750,000) based on 1.5% of total assets (2020: 1.5% of
total assets)
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 components, being
Araguaia Niquel Mineracao Ltda 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 Nickel Production Services
BV, which were treated as insignificant components, were subject to specific
audit procedures on the significant risk areas and analytical procedures. The
Group audit team performed the audit of the Parent Company and the other
significant components, other than those components located in Brazil which
were audited by a BDO network member firm in Brazil.
The remaining components of the Group were considered insignificant and these
components were principally subject to analytical review procedures which were
performed by the Group audit team.
Our involvement with component auditors
For the work performed by component auditors, we determined the level of
involvement needed in order to be able to conclude whether sufficient
appropriate audit evidence has been obtained as a basis for our opinion on the
Group financial statements as a whole. Our involvement with component auditors
included the following:
· Detailed Group reporting instructions were sent to the component
auditors, which included the significant areas to be covered by the audits
(including areas that were considered to be key audit matters), and set out
the information to be reported to the Group audit team.
· The Group audit team was actively involved in the direction of the
audits performed by the component auditor for Group reporting purposes, along
with the consideration of findings and determination of conclusions drawn.
· The Group audit team reviewed the component auditor's work papers in
Brazil and engaged with the component auditors during their fieldwork and
completion phases.
· For the two principal operating components 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. In addition to the matter
described in the material uncertainty related to going concern of our report,
we have determined the matters below to be the key audit matters to be
communicated in our report.
Key audit matter How the scope of our audit addressed the key audit matter
Carrying value of exploration The Group holds the Araguaia mine development property carried at a value of We have reviewed management's impairment assessments for both projects and our
£44,088,134 and the Vermelho exploration and evaluation asset carried at a procedures included the following :
and evaluation value of £5,949,649.
assets
· We considered whether management's assessments of impairment had been
and mine Each year management are required to assess whether there are any indicators carried out in accordance with the requirements of the accounting standards.
that the mine development property and exploration and evaluation asset could
development be impaired. · We reviewed the feasibility studies prepared by independent
consultants for consistency with management's representations and assessed the
property competence and independence of the experts used by management.
Management have carried out a review for indicators of impairment and have not o For the Araguaia project, this assessment is supported by the externally
identified any indicators. prepared feasibility study published in November 2018 and revised in April
See notes 4.1, 10 and 11 to the financial statements.
2021.
Reviewing indicators of impairment and assessment of carrying values require
significant estimates and judgements and therefore we identified this as a key o For the Vermelho project, this assessment is supported by the externally
audit matter. prepared pre-feasibility study published in October 2019.
· We agreed the validity of licences held by the Group to the Brazilian
Government's Departamento Nacional de Producao Mineral 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.
Key observations:
Based on our work we concur with management's impairment indicator assessment,
and as a result consider the carrying value of the Group's exploration and
evaluation asset and mine development property is not impaired..
Valuation In 2019 Horizonte entered into a US$25m royalty funding agreement with Orion Our procedures in relation to the valuation of the royalty funding loan and
Mine Finance in exchange for future royalty payments linked to the future embedded derivatives are set our below.
of royalty revenues of the Araguaia project.
funding
In respect of the host loan:
arrangement The royalty agreement includes a buyback option enabling Horizonte to reduce
the royalty rate and other cash payment options (the call, make whole and put · We tested the valuation model prepared by management, checking that
options) for part reduction in the royalty rate, which require the the model's methodology was in agreement with the royalty agreement and in
occurrence of certain events. accordance with accounting standards and that the assumptions were in
See notes 20
agreement with management's justifications and explanations. We also checked
the arithmetical accuracy of the amortised loan model.
and 4.4
The agreement is a hybrid contract that contains a non-derivative host loan · We critically assessed management's key assumptions, including long
and prepayment options in the form of embedded derivatives which should be term nickel price, nickel price inflation and the adopted royalty rate, which
separated for accounting purposes. The embedded derivatives are initially is determined by the date of commencement of construction. We made our
recognised at fair value and subsequently revalued at each period end. assessment by reference to independent sources of data and supporting
documentation held by the Group.
Management has engaged an independent expert to calculate the fair value of
the buyback option. The fair value calculation utilised Monte Carlo simulation In respect of the fair value of the buyback option:
methodology.
· We reviewed the option valuation methodology adopted to check that
the features of the option had been appropriately modelled and we also
confirmed with management that the modelling is in line with their
The valuation of these financial instruments required management to make a understanding of the option features. This was reviewed by BDO valuation
number of key estimates. experts to ensure it was appropriately modelled.
· We checked that the key assumptions used were reasonable and in
agreement with those used for the valuation of the host loan.
Accordingly, the valuation of the royalty funding agreement is considered to
be a key audit matter. The nickel price volatility is an additional key assumption for the option
valuation. We recalculated the nickel price volatility using independently
sourced data and it was in close proximity to that used by management.
· We assessed the competence and independence of the valuation expert
used by management.
Key observations:
Based on our work, we concur with managements valuation methodology and the
key estimates used in valuing the host loan and buy back option.
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
2021 2020 2021 2020
£ £ £ £
Materiality 3,403,000 750,000 3,063,000 675,000
Basis for determining materiality 1.5% of total assets 1.5% of total assets Restricted to 90% of Group materiality Restricted to 90% of Group materiality
Rationale for the benchmark applied We consider total assets to be the most significant determinant of the Group's Calculated as a percentage of Group materiality for Group reporting purposes
financial performance for users of the financial statements, given the Group's as the statutory materiality exceeded Group materiality.
mine development focus. There was a significant increase in total assets
following the 2021 equity fund raise.
Performance materiality 2,552,000 562,500 2,297,000 506,250
Basis for determining performance materiality 75% of materiality based on consideration of factors including the level of
historical errors and nature of activities.
Component materiality
We set materiality for each component of the Group based on a percentage of
between 4% and 14% (2020: 5% to 44%) of Group materiality dependent on the
size and our assessment of the risk of material misstatement of that
component. Component materiality ranged from £145,000 to £460,000 (2020:
£35,000 to £330,000). 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 £68,000 (2020:£13,500). 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 2021 Report and Accounts 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 report and Directors' report In our opinion, based on the work undertaken in the course of the audit:
· the information given in the Strategic report and the 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 which we are required to report by exception We have nothing to report in respect of the following matters in relation to
which the Companies Act 2006 requires us to report to you if, in our opinion:
· 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. This included testing
journals direct to cash and expenses, which are outside of the normal purchase
to pay cycle.
· 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
(http://insite.bdo.co.uk/sites/audit/Documents/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.
Peter Acloque (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London
United Kingdom
25 March 2022
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 2021
Year ended Year ended
31 December 31 December
2021 2020
Notes £ £
Administrative expenses 6 (5,678,350) (2,949,736)
Change in fair value of derivative 20 1,853,282 (424,500)
Change in fair value of special warrant liability 22 (1,174,796) -
(Loss)/gain on foreign exchange (627,145) 751,313
Operating loss (5,627,009) (2,622,923)
Net finance (cost)/income 8 (4,043,794) 236,986
Loss before taxation (9,670,803) (2,385,937)
Income tax 9 - 108,526
Loss for the year from continuing operations attributable to owners of the (9,670,803) (2,277,411)
parent
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Currency translation differences on translating foreign operations 17 (2,418,094) (8,151,944)
Other comprehensive income for the year, net of tax (2,418,094) (8,151,944)
Total comprehensive income for the year attributable to owners of the parent (12,088,897) (10,429,355)
Loss per share from continuing operations attributable to owners of the parent
Basic and diluted loss per share (p) 25 (0.568) (0.157)
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 2021
31 December 31 December
2021 2020
Notes £ £
Assets
Non-current assets
Intangible assets 10 6,165,677 6,220,872
Property, plant & equipment 11 52,381,161 30,839,948
Right of use assets 21 282,320 -
58,829,158 37,060,820
Current assets
Trade and other receivables 12 10,237,167 270,539
Derivative financial asset 20 3,672,924 1,756,553
Cash and cash equivalents 13 156,186,302 10,935,563
170,096,393 12,962,655
Total assets 228,925,551 50,023,475
Equity and liabilities
Equity attributable to owners of the parent
Share capital 14 38,023,656 14,493,773
Share premium 15 177,928,649 41,848,306
Other reserves 17 (15,236,968) (12,818,874)
Retained losses (30,608,510) (22,112,503)
Total equity 170,106,827 21,410,702
Liabilities
Non-current liabilities
Contingent consideration 19 4,996,761 5,927,025
Royalty Finance 20 33,016,624 22,053,341
Lease liabilities 21 238,716 -
Deferred consideration 19 3,358,630 -
Trade payables 18 451,863 -
42,062,594 27,980,366
Current liabilities
Trade and other payables 18 16,008,280 632,407
Deferred consideration 19 704,246 -
Lease liabilities 21 43,604 -
16,756,130 632,407
Total liabilities 58,818,724 28,612,773
Total equity and liabilities 228,925,551 50,023,475
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 25 March 2022 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 2021
31 December 31 December
Notes 2021 2020
£ £
Non-Current Assets
Investment in subsidiaries 29 2,348,142 2,348,142
Loans to subsidiaries 30 69,811,930 64,692,156
72,160,072 67,040,298
Current assets
Trade and other receivables 12 9,763,600 96,196
Cash and cash equivalents 13 147,359,029 5,308,954
157,122,629 5,405,150
Total assets 229,282,701 72,445,448
Equity and liabilities
Equity attributable to equity shareholders
Share capital 14 38,023,656 14,493,773
Share premium 15 177,928,649 41,848,306
Other reserves 17 10,888,760 10,888,760
Retained losses (17,465,060) (13,186,690)
Total equity 209,376,005 54,044,149
Liabilities
Non-current liabilities
Contingent consideration 19 4,996,761 5,927,025
4,996,761 5,927,025
Current liabilities
Trade and other payables 18 12,081,730 280,179
Loans from subsidiary 30 2,828,205 12,194,095
14,909,935 12,474,274
Total liabilities 19,906,696 18,401,299
Total equity and liabilities 229,282,701 72,445,448
The above Company Statement of Financial Position should be read in
conjunction with the accompanying notes. The loss for the period was
£5,453,166 (2020: £3,377,407 profit).
The Financial Statements were authorised for issue by the Board of Directors
on 25 March 2022 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 2021
Attributable to owners of the parent
Share Share Retained Other
capital premium losses reserves Total
Consolidated £ £ £ £ £
As at 1 January 2020 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 - - - (8,151,944) (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
Loss for the year - - (9,670,803) - (9,670,803)
Other comprehensive income:
Currency translation differences on translating foreign operations - - - (2,418,094) (2,418,094)
Total comprehensive income for the year - - (9,670,803) (2,418,094) (12,088,897)
Issue of ordinary shares 22,649,282 136,784,844 - - 159,434,126
Issue costs - (5,904,761) - - (5,904,761)
Conversion of special warrants into shares 880,601 5,795,235 1,174,796 - 7,850,632
Special warrants issue costs - (594,975) - - (594,975)
Total transactions with owners, recognised directly in equity 23,529,883 136,080,343 1,174,796 - 160,785,022
As at 31 December 2021 38,023,656 177,928,649 (30,608,510) (15,236,968) 170,106,827
A breakdown of other reserves is provided in note 17.
Company Statements of Changes in Equity
Attributable to equity shareholders
Share Share Retained Merger
capital premium losses reserves Total
Company £ £ £ £ £
As at 1 January 2020 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
Profit and total comprehensive income for the year - - (5,453,166) - (5,453,166)
Issue of ordinary shares 22,649,282 136,784,844 - - 159,434,126
Issue costs - (5,904,761) - - (5,904,761)
Conversion of special warrants into shares 880,601 5,795,235 1,174,796 - 7,850,632
Special warrants issue costs - (594,975) - - (594,975)
Total transactions with owners, recognised directly in equity 23,529,883 136,080,343 1,174,796 - 160,785,022
As at 31 December 2021 38,023,656 177,928,649 (17,465,060) 10,888,760 209,376,005
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 2021
31 December 31 December
2021 2020
Notes £ £
Cash flows from operating activities
Loss before taxation (9,670,803) (2,385,936)
Finance income - (236,986)
Finance costs 4,043,794 -
Exchange differences 627,145 (751,313)
Change in fair value of derivative asset (1,853,282) 424,500
Fair value of special warrant liability 1,174,796 -
Operating loss before changes in working capital (5,678,350) (2,949,735)
Decrease/(increase) in trade and other receivables (9,966,626) (135,814)
Increase/(decrease) in trade and other payables 11,929,592 (51,526)
Cash used in operating activities (3,715,384) (3,137,075)
Income taxes paid - (51,071)
Net cash used in operating activities (3,715,384) (3,188,146)
Cash flows from investing activities
Purchase of exploration and evaluation assets (300,676) -
Purchase of property, plant and equipment (10,589,678) (4,153,198)
Interest received 363,923 151,459
Net cash used in investing activities (10,526,431) (4,001,739)
Cash flows from financing activities
Proceeds from issue of ordinary shares 159,434,126 93,000
Issue costs (5,904,761) -
Proceeds from issue of share warrants 7,850,632 -
Share warrants issue costs (594,975) -
Net cash generated from financing activities 160,785,022 93,000
Net increase/(decrease) in cash and cash equivalents 146,543,207 (7,096,885)
Cash and cash equivalents at beginning of year 10,935,563 17,760,330
Exchange gain/(loss) on cash and cash equivalents (1,292,468) 272,118
Cash and cash equivalents at end of the year 13 156,186,302 10,935,563
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 2021
31 December 31 December
2021 2020
Notes £ £
Cash flows from operating activities
Profit before taxation (5,453,166) 3,428,478
IFRS9 Expected credit loss (credit)/charge 27,976 (3,814,254)
Finance income (935,038) (72,155)
Finance costs - 445,065
Exchange differences 453,520 (1,491,383)
Change in fair value of contingent consideration - (764,109)
Fair value of special warrant liability 1,174,796 -
Operating profit before changes in working capital (4,731,912) (2,268,358)
(Increase)/decrease in trade and other receivables (9,667,401) 39,180
Increase/(decrease) in trade and other payables 11,801,551 (41,409)
Cash flows generated / (used) from operating activities (2,597,762) (2,270,587)
Taxes paid - (51,071)
Net cash flows generated / (used) from operating activities (2,597,762) (2,321,658)
Cash flows from investing activities
Loans to subsidiary undertakings (14,485,665) (10,363,054)
Interest received 4,773 72,155
Net cash used in investing activities (14,480,892) (10,290,899)
Cash flows from financing activities
Proceeds from issue of ordinary shares 159,434,126 93,000
Issue costs (5,904,761) -
Proceeds from issue of share warrants 7,850,632 -
Share warrants issue costs (594,975) -
Net cash generated from financing activities 160,785,022 93,000
Net increase/(decrease) in cash and cash equivalents 143,706,368 (12,519,557)
Cash and cash equivalents at beginning of year 5,308,954 17,393,773
Exchange gain/(loss) on cash and cash equivalents (1,656,293) 434,738
Cash and cash equivalents at end of the year 13 147,359,029 5,308,954
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 Regent 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 International
Financial Reporting Standards and International Accounting Standards as issued
by the International Accounting Standards Board (IASB) and Interpretations
(collectively IFRSs). Financial Statements have been prepared under the
historical cost convention except for the following items (refer to individual
accounting policies for details):
- Contingent and deferred consideration
- Financial instruments - fair value through profit and loss
- Cash settled share based payment liabilities
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 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. 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.
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 concluded a comprehensive funding package of US$633 million in
December 2021. The net proceeds of the fundraising will be used towards the
construction of the Araguaia project as well as for general working capital
purposes. In addition the company has also concluded a US$25 million royalty
agreement on the Vermelho Project, the net proceeds from the sale of this
royalty will be used to advance a feasibility study and permitting work
streams on the Vermelho project. The equity fundraise (US$197 million of the
US$633 million) was finalized and funds received in December 2021. The debt
elements of the funding package include Convertible Loan Notes (US$65
million), a Cost Overrun Facility (US$25 million) and a Senior Debt Facility
(US$346.2 million).
Based on current commitments entered into by the Group, and following the
satisfaction of all material conditions precedent, the funds from the
convertible loan notes and the royalty are expected to be drawn down in March
2022. The first drawdown under the Senior Debt Facility is expected to occur
in the fourth quarter of 2022 following satisfaction of certain conditions
precedent customary to a financing of this nature. As the senior debt is
conditional, there is no guarantee that the conditions of this element of the
debt package will be satisfied.
The funds held at the year-end along with those to be raised post year end
means the Group has cash reserves which are considered sufficient by the
Directors to execute the construction of the Araguaia Project and fund its
general working capital requirements for the foreseeable future. The drawdown
of the Senior Debt Facility is conditional upon the expenditure of a certain
level of equity amongst other conditions precedent, by which time the company
is expected to have made significant financial commitments. There exists a
risk that the Senior Debt Facility is not able to be drawn due to unforeseen
circumstances or noncompliance with any conditions precedent which may or may
not be within the control of the Group. Should the Senior Debt not be drawn
then the Group would require alternative sources of funding to meet its
commitments.
If additional projects are identified and the Vermelho project advances,
additional funding may be required.
These factors indicate the existence of a material uncertainty which may cast
significant doubt over the Group and the Company's ability to continue as a
going concern and therefore they may be unable to realise its assets and
discharge their liabilities in the normal course of business. The financial
statements do not include any adjustments that would result if the Group or
the Company were unable to continue as a going concern.
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 the easing of Covid-19 restrictions, employees are working from
the Group's offices in London and Brazil and will continue to adhere to
government guidelines. International travel has resumed and site work for the
two projects has been resumed.
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 rep-resents 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.
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 the easing of Covid-19 restrictions, employees are working from
the Group's offices in London and Brazil and will continue to adhere to
government guidelines. International travel has resumed and site work for the
two projects has been resumed.
To date, the Group has not been materially adversely affected by the COVID-19
pandemic. However, the ongoing nature and uncertainty of the pandemic in many
countries including the measures and restrictions put in place (travel bans
and quarantining in particular) continue to have the ability to impact the
Group's business continuity, workforce, supply-chain, business development
and, consequently, future revenues.
In addition, any infections occurring on the Group's premises could result in
the Group's operations being suspended, which may have an adverse impact on
the Group's operations as well as adverse implications on the Group's future
cash flows, profitability and financial condition. Supply chain disruptions
resulting from the COVID-19 pandemic and measures implemented by governmental
authorities around the world to limit the transmission of the virus (such as
travel bans and quarantining) may, in addition to the general level of
economic uncertainty caused by the COVID-19 pandemic, also adversely impact
the Group's operations, financial position and prospects.
As a result of considerations noted above, the Directors consider the impact
of COVID-19 could delay the drawdown of the senior debt facility.
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 2021, are:
Standard Detail Effective date
IFRS 7, IFRS 9, IFRS16, IAS 39 Amendments regarding interest rate benchmark reform - phase 2 1 January 2021
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 2021 and not early adopted
At the date of authorisation of these Consolidated Financial Statements, the
following new standards, amendments and interpreta-tions to existing standards
have been published but are not yet effective and have not been adopted early
by the Group.
Standard Detail Effective date
IAS 16 Amendments prohibiting a company from deducting from the cost of property, 1 January 2022
plant and equipment amounts received from selling items produced while the
company is preparing the asset for its intended use
IAS 37 Amendments regarding the costs to include when assessing whether a contract is 1 January 2022
onerous
IFRS 3 Amendment - replacing a reference to an old version of the Board's Conceptual 1 January 2022
Framework for Financial Reporting with a reference to the latest version,
which was issued in March 2018.
Annual Improvements to IFRSs (2018-2020 Cycle) - IFRS 9 IFRS 9 - Clarifies the fees a company includes in assessing the terms of a new 1 January 2022
or modified financial liability to determine whether to derecognise a
financial liability.
IAS 1 Amendment - regarding the classification of liabilities 1 January 2023
IAS 8 Amendment - definition of accounting estimates 1 January 2023
IAS 1 and IFRS Pratice Statement 2 Amendment - disclosure of accounting policies 1 January 2023
IAS 12 Amendment - Deferred Tax related to Assets and Liabilities arising from a 1 January 2023
Single Transaction
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.
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:
Subsidiary undertaking Held Registered Address Country of incorporation Nature of business
Horizonte Exploration Ltd Directly Rex House, 4-12 Regent Street, London SW1Y 4RG England Mineral Exploration
Horizonte Minerals (IOM) Ltd Indirectly 1(st) Floor, Viking House, St Pauls Square, Ramsey, IM8 1GB, Ilse of Man Isle of Man Holding company
HM Brazil (IOM) Ltd Indirectly 1(st) Floor, Viking House, St Pauls Square, Ramsey, IM8 1GB, Ilse of Man Isle of Man Holding company
Cluny (IOM) Ltd Indirectly 1(st) Floor, Viking House, St Pauls Square, Ramsey, IM8 1GB, Ilse of Man Isle of Man Holding company
Champol (IOM) ltd Indirectly First Names House, Victoria Road, Douglas, IM2 4DF, Isle of Man Isle of Man Holding company
Horizonte Nickel (IOM) Ltd Indirectly 1(st) Floor, Viking House, St Pauls Square, Ramsey, IM8 1GB, Ilse of Man Isle of Man Holding company
Nickel Production Services B.V Directly Atrium Building, 8(th) floor, Strawinskylaan 3127, 1077 ZX, Amsterdam The Netherlands Provision of financial services
Battery Material Services B.V Directly Naritaweg 165, 1043BW Amsterdam, The Netherlands The Netherlands Provision of financial services
HM do Brasil Ltda Indirectly CNPJ 07.819.038/0001-30 com sede na Rua Paraíba, n. 1465, sala 1102 - parte, Brazil Mineral Exploration
bairro Savassi 2904, Belo Horizonte - MG. CEP: 30.130-148
Araguaia Niquel Metais Ltda Indirectly CNPJ 97.515.035/0001-03 com sede na Rua Paraíba, n. 1465, sala 1102 - parte, Brazil Mineral Exploration
bairro Savassi 2904, Belo Horizonte - MG. CEP: 30.130-148
Trias Brasil Mineração Ltda Indirectly CNPJ 23.282.280/0001-73 com sede na Rua Paraíba, n° 1465, sala 1102 - Parte, Brazil Mineral Exploration
bairro Savassi, Belo Horizonte/MG, CEP 30.130-148, Brazil
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 definition 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 is 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 prob-able 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%
Land is not depreciated. 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. To the extent that the Group borrows funds
generally and uses them for the purpose of obtaining a qualifying asset, the
Group shall determine the amount of borrowing costs eligible for
capitalisation by applying a capitalisation rate to the expenditures on that
asset. The capitalisation rate shall be the weighted average of the borrowing
costs applicable to all borrowings of the entity that are outstanding during
the period.
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. At each balance sheet
date, the Group reviews the carrying amounts of its property, plant and
equipment and intangible assets to determine whether there is any indication
that those assets have suffered impairment. Prior to carrying out impairment
reviews, the significant cash generating units are assessed to determine
whether they should be reviewed under the requirements of IFRS 6 - Exploration
for and Evaluation of Mineral Resources or IAS 36 - Impairment of Assets. Such
determination is by reference to the stage of development of the project and
the level of reliability and surety of information used in calculating value
in use or fair value less costs to sell. Impairment reviews performed under
IFRS 6 are carried out on a project by project basis, with each project
representing a potential single cash generating unit. An impairment review is
undertaken when indicators of impairment arise; typically when one of the
following circumstances applies:
(i) sufficient data exists that render the resource uneconomic and unlikely to
be developed
(ii) title to the asset is compromised
(iii) budgeted or planned expenditure is not expected in the foreseeable
future
(iv) insufficient discovery of commercially viable resources leading to the
discontinuation of activities
Impairment reviews performed under IAS 36 are carried out when there is an
indication that the carrying value may be impaired. Such key indicators
(though not exhaustive) to the industry include:
(i) a significant deterioration in the spot price of nickel
(ii) a significant increase in production costs
(iii) a significant revision to, and reduction in, the life of mine plan
If any indication of impairment exists, the recoverable amount of the asset is
estimated, being the higher of fair value less costs to sell and value in use.
In assessing value in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset for
which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash generating unit) is estimated
to be less than its carrying amount, the carrying amount of the asset (or cash
generating unit) is reduced to its recoverable amount. Such impairment losses
are recognised in profit or loss for the year.
Where an impairment loss subsequently reverses, the carrying amount of the
asset (or cash generating unit) is increased to the revised estimate of its
recoverable amount, but so that the increased carrying amount does not exceed
the carrying amount that would have been determined had
no impairment loss been recognised for the asset (or cash generating unit) in
prior years. A reversal of an impairment loss is recognised in profit or loss
for the year.
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 subsidiaries incorporated in the Netherlands is USD, however debt
costs capitalised to the mine development asset are recorded in Brazilian
Real. 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 31 December 2021 were United States Dollar $1:£0.742
(31 December 2020: $1:£0.73), Brazilian Real (R$):£0.133 (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 year ended 31 December 2021, the Brazilian Real depreciated by 6%
since 31 December 2020. Currency translation differences for the year of £2.4
million loss (2020:£8.2million 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 loss for the year of £627,145 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.
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 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 a forward looking expected credit loss model. 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.
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 liability and is
measured at fair value through profit and loss. During the year the Company
completed the private placement of special warrants. At the transaction date a
liability was recognised because the shares had not been issued but had been
paid for. The charge to the statement of comprehensive income reflects the
liability was marked to market. When the warrants were exercised the liability
was extinguished and recognised in equity. Refer to note 22 for the details of
the transaction..
Other financial liabilities
Financial liabilities are 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 has such short duration leases and lease payments are charged to the
income statement with the exception of the Group's lease for the Belo
Horizonte office.
Lease liabilities are measured at the present value of the contractual
payments due to the lessor over the lease term, with the discount rate
determined by reference to the rate inherent in the lease unless (as is
typically the case) this is not readily determinable, in which case the
group's incremental borrowing rate on commencement of the lease is used.
Variable lease payments are only included in the measurement of the lease
liability if they depend on an index or rate. In such cases, the initial
measurement of the lease liability assumes the variable element will remain
unchanged throughout the lease term. Other variable lease payments are
expensed in the period to which they relate.
On initial recognition, the carrying value of the lease liability also
includes:
• amounts expected to be payable under any residual value guarantee;
• the exercise price of any purchase option granted in favour of the group
if it is reasonable certain to assess that option;
• any penalties payable for terminating the lease, if the term of the lease
has been estimated on the basis of termination option being exercised.
Right of use assets are initially measured at the amount of the lease
liability, reduced for any lease incentives received, and increased for:
• lease payments made at or before commencement of the lease;
• initial direct costs incurred; and
• the amount of any provision recognised where the group is contractually
required to dismantle, remove or restore the leased asset
Subsequent to initial measurement lease liabilities increase as a result of
interest charged at a constant rate on the balance outstanding and are reduced
for lease payments made. Right-of-use assets are amortised on a straight-line
basis over the remaining term of the lease or over the remaining economic life
of the asset if, rarely, this is judged to be shorter than the lease term.
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 over-all 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 fre-quently 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 or various forms of debt
funding. Liquidity risk arises from the Group's management of working capital
and the expenditure profile of the group. At present the Group 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 expect-ed 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 require-ments to be anticipated.
The following table sets out the contractual maturities of undiscounted
financial liabilities:
Up to 3 Months Between 3 & 12 Months Between 1 &2 Years Between 2 & 5 Years Over 5 Years
Group £ £ £ £ £
At 31 December 2021
Trade & other payables 16,008,280 - 451,863 - -
Royalty financing arrangement - - 2,375,269 18,236,231 168,625,617
Contingent consideration - - - -4,452,029 3,710,024
Deferred consideration - 704,905 704,905 3,339,022 -
Lease liabilities 15,949 47,846 69,408 206,932 -
Total 16,024,229 752,750 3,601,445 26,234,215 172,335,641
The cash flows related to the royalty finance represent the estimated future
payments in future years.
Up to 3 Months Between 3 & 12 Months Between 1 &2 Years Between 2 & 5 Years Over 5 Years
£ £ £ £ £
At 31 December 2020
Trade & other payables 632,407 - - - -
Royalty financing arrangement - - - 9,263,974 148,448,937
Contingent consideration - - - 3,659,485 4,391,382
Lease liabilities - - - - -
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.
Up to 3 Months Between 3 & 12 Months Between 1 &2 Years Between 2 & 5 Years Over 5 Years
Company £ £ £ £ £
At 31 December 2021
Trade & other payables 12,081,730 - - - -
Intercompany loans 2,828,205 - - - -
Contingent consideration - - - 4,452,029 3,710,024
Total 14,909,936 - - 4,452,029 3,710,024
Up to 3 Months Between 3 & 12 Months Between 1 &2 Years Between 2 & 5 Years Over 5 Years
£ £ £ £ £
At 31 December 2020
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
(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 2021, 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 £4,235,376 (2020: £1,204,049)
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 £232,398 (2020:
£372,488.
As of 31 December 2021 the Group's net exposure to foreign exchange risk was
as
follows:
Functional Currency
Group USD USD GBP GBP BRL BRL Total Total
2021
2021 2020 2020 2021 2020 2021 2020
Currency of net £ £ £ £ £ £ £ £
Financial assets/(liabilities)
GBP (933,874) - - - - - (933,874) -
USD - - 90,206,582 (1,440,779) (4,062,876) - 86,143,706 (1,440,779)
BRL 14,675,359 5,433,840 - - - - 14,675,359 5,433,840
CAD - - 6,986,953 57,683 - - 6,986,953 57,683
EUR 12,830 72,610 - - - - 12,830 72,610
Total net exposure 13,754,315 5,506,450 97,193,535 (1,383,096) (4,062,876) - 106,884,972 4,123,354
Company GBP GBP Total Total
2021
2020 2021 2020
Currency of net £ £ £ £
Financial assets/(liabilities)
USD 90,037,823 (1,569,868) 90,037,823 (1,569,868)
CAD 6,958,850 30,000 6,958,850 30,000
Total net exposure 96,996,673 (1,539,868) 96,996,673 (1,539,868)
(c) Interest rate risk
As the Group has no drawn down 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 royal-ty 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 £33,016,624 (2020: £22,053,341).
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 £3,409,321 (2020: £2,279,818).
(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 £156,186,302 (2020:
£10,935,563) and represents the Group cash positions.
The Company's exposure to credit risk amounted to £217,170,961 (2020:
£70,001,110). Of this amount £69,811,932 (2020: £64,692,156) is due from
subsidiary companies and £147,359,029 represents cash holdings (2020:
£5,308,954). See note 30 for ad-justments 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.
In 2019 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 20.
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 and the joint venture obligation 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 20b).
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 peri-od 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 30 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 20b).
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 2021 of £5,949,650 (2020: £6,062,624). 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 econom-ic 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 addition-al 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 and deferred consideration
Contingent consideration has a carrying value of £4,996,761 and deferred
consideration has a carrying value of £4,062,876 at 31 December 2021 (2020:
£5,927,026). There are two contingent consideration arrangements in place as
at 31 December 2021:
· Payable to Glencore in respect of the Araguaia
acquisition - $5m
· Payable to Vale in respect of the Vale acquisition - $6m
The deferred contingent consideration arrangement in place as at 31 December
2021 is payable to Companhia Brasileira de Alumino (CBA) in respect of plant
equipment.
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 and deferred consideration
for Glencore Vale and CBA is the timing of the assumed date of first
commercial production. Please refer to Note 19 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 carrying 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 rec-ognized 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 20a) and 20b).
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
2021
2021
2021
£
£ 2021
£
2021 £
Intragroup sales - - - -
Administrative expenses (4,733,000) (814,054) (131,295) (5,678,349)
Change in fair value of special warrant liability (1,174,796) - - (1,174,796)
Change in fair value of derivative - - 1,853,282 1,853,282
Profit/(loss) on foreign exchange (405,739) 26,171 (247,577) (627,145)
Loss from operations per reportable segment (6,313,536) (787,883) 1,474,410 (5,627,009)
Net finance income/(cost) 1,012,324 (136,516) (4,919,602) (4,043,794)
Loss before taxation (5,301,212) (924,399) (3,445,192) (9,670,803)
Depreciation charges - 16,973 - 16,973
Additions to non-current assets - 18,374,202 - 18,374,202
Capitalisation of borrowing costs - 5,248,379 - 5,248,379
Foreign exchange movements to non-current assets - (2,144,027) - (2,144,027)
Reportable segment assets 157,332,695 67,807,925 3,784,931 228,925,550
Reportable segment non-current assets - 58,829,158 - 58,829,158
Reportable segment liabilities 17,078,491 8,717,383 33,022,850 58,818,724
UK Brazil Netherlands Total
2020
2020
2020
£
£ 2020
£
2020 £
Intragroup sales 219,884 (219,884) - -
Administrative expenses (2,488,200) (292,492) (169,044) (2,949,736)
Fair value movement - - (424,500) (424,500)
Profit/(loss) on foreign exchange 1,491,281 (547,877) (192,091) 751,313
Loss from operations per reportable segment (777,035) (1,060,253) (785,635) (2,622,923)
Finance income 236,986 - - 236,986
Finance costs - - - -
Loss before taxation (540,049) (1,060,253) (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 28,332,692
Inter segment revenues are calculated and recorded in accordance with the
underlying intra group service agreements.
6 Expenses by nature
2021 2020
Group £ £
Employment related costs 3,818,517 1,067,047
Professional fees 1,119,158 1,093,299
Exploration costs expensed - 343,695
Other 740,675 445,695
Total administrative expenses 5,678,350 2,949,736
7 Auditor remuneration
During the year the Group (including its overseas subsidiaries) obtained the
following services from the Company's auditor and its associates:
Group 2021 2020
£
£
Fees payable to the Company's auditor and its associates for the audit of the 71,935 64,700
parent company and consolidated financial statements
Fees payable to the Company's auditor and its associates for other services:
- Audit of subsidiaries 10,239 10,000
- Audit related assurance services 105,000 35,000
-Tax compliance services 24,932 35,244
8 Finance income and costs
Group 2021 2020
£
£
Finance income:
- Interest income on cash and short-term bank deposits 363,923 151,459
Finance costs:
- Interest on land acquisitions (122,228) -
- Contingent consideration: unwinding of discount (427,804) (445,066)
- Contingent consideration: change in fair value (74,927) 764,109
- Contingent consideration: change in estimate 1,419,978 -
- Amortisation of Royalty financing (3,316,259) (3,244,873)
- Fair Value adjustment on royalty (7,134,856) 910,834
Total finance costs (9,292,173) (1,863,537)
Less finance costs capitalised 5,248,379 2,100,521
Net finance costs 4,043,794 236,986
9 Income Tax
Group 2021 2020
£
£
Tax charge:
Current tax charge for the year - (51,071)
Deferred tax charge for the year - 159,597
Tax on loss for the year - 108,526
Reconciliation of current tax
Group 2021 2020
£
£
Loss before income tax (9,670,803) (2,385,936)
Current tax at 19% (2020: 19%) (1,837,453) (453,328)
Effects of:
Expenses not deducted for tax purposes 735,916 255,888
Tax losses carried forward for which no deferred income tax asset was 1,334,505 83,060
recognised
Prior year adjustment - (51,071)
Effect of higher overseas tax rates (232,968) 114,380
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 25% and the United
Kingdom 19%. The group incurred expenses in all of these jurisdictions during
the year. The effective tax rate for the year was 23% (2020: 19%).
Deferred income tax
An analysis of deferred tax assets and liabilities is set out below.
Group 2021 2020
£
£
Deferred tax assets - 1,624,891
Deferred tax liabilities
- Deferred tax liability to be settled after more than 12 months - 1,624,891
Deferred tax liabilities (net) - -
The movement on the net deferred tax liabilities is as follows:
Group 2021 2020
£
£
At 1 January - (212,382)
Exchange differences - 52,785
Adjustment to deferred tax - 159,597
At 31 December - -
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 £16,612,453 (2020: £17,603,004) in
Brazil and excess management charges of approx-imately £6,866,179 (2020:
£2,288,011) 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 £4,460,940 (2020: £6,419,743) 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.
Group Goodwill Exploration Exploration and Software Total
£
evaluation costs
£
Licenses
£ £
£
Cost
At 1 January 2020 210,585 5,157,366 1,689,495 - 7,057,446
Transfer to PPE - - - - -
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
Additions - 76,768 155,262 68,646 300,676
Amortisation for the year - - - (1,861) (1,861)
Exchange rate movements (9,005) (292,612) (52,393) - (354,010)
Net book amount at 31 December 2021 149,243 4,789,737 1,159,912 66,785 6,165,677
(a) Exploration and evaluation assets
The exploration licences and exploration and evaluation costs relate to the
Vermelho project. 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 £1,245,111 was capitalised to the exploration
licences held within intangible assets shown above.
On 17 October 2020 the Group published the results of a Pre-Feasibility Study
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. The Directors have determined the recoverable amount of goodwill
based on the same assumptions used for the assessment of the Lontra
exploration project detailed above. 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
Group Mine Vehicles and Office Land acquisition £ Total
other field
equipment
£
Development Property
equipment
£
£
£
Cost
At 31 December 2019 32,260,061 106,722 14,424 - 32,381,207
Additions 4,008,719 1,234 55,989 87,257 4,153,199
Interest capitalized 2,100,521 - - - 2,100,521
Disposals - (5,806) - - (5,806)
Foreign exchange movements (7,662,482) (25,162) (13,052) - (7,700,717)
At 31 December 2020 30,706,819 76,988 57,361 87,257 30,928,425
Additions 9,890,044 563,534 51,925 7,568,023 18,073,526
Interest capitalized 5,248,379 - - - 5,248,379
Transfers - 481 (481) - -
Disposals - - (1,028) - (1,028)
Foreign exchange movements (1,757,108) (4,369) (3,255) (4,965) (1,769,697)
At 31 December 2021 44,088,134 636,635 104,523 7,650,315 52,479,605
Accumulated depreciation
At 31 December 2019 - 106,239 14,424 - 120,663
Charge for the year - 6,121 25,275 - 31,396
Disposals - (38,224) - - (38,224)
Foreign exchange movements - (16,959) (8,399) - (25,358)
At 31 December 2020 - 57,177 31,300 - 88,477
Charge for the year - 5,584 9,527 - 15,111
Transfers - 164 (164) - -
Disposals - - (125) - (125)
Foreign exchange movements - (3,243) (1,776) - (5,019)
At 31 December 2021 - 59,682 38,762 - 98,444
Net book amount as at 31 December 2021 44,088,134 576,953 65,761 7,650,315 52,381,161
Net book amount as at 31 December 2020 30,706,819 19,811 26,061 87,257 30,839,948
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 ma-terial 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 de-posit 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.
During the year progress was made in the land acquisition process for the
Araguaia project. The deposits were paid to secure the 'right of way', these
acquisitions amounted to £7.6million. £3.5million of the land and 'right of
way' purchases is included in trade and other payables as at 31 December 2021.
Sensitivity to changes in assumptions
For the base case NPV 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 2021, the
discount rate applied to the cash flow model would need to be increased from
8% to 17%.
12 Trade and other receivables
Group Company
2021 2020 2021 2020
£
£
£
£
VAT and other taxes receivable 887,920 262,539 414,353 88,196
Deposits 8,000 8,000 8,000 8,000
Other receivables 9,341,247 - 9,341,247 -
10,237,167 270,539 9,763,600 96,196
Other receivables relates to transaction costs for the US$633million financing
package concluded in December 2021. These transaction costs relate to the debt
finance agreements and the transaction costs will be offset against the debt
when it is drawndown.
13 Cash and cash equivalents
Group Company
2021 2020 2021 2020
£
£
£
£
Cash at bank and on hand 153,054,239 6,756,255 144,226,966 1,129,646
Short-term deposits 3,132,063 4,179,308 3,132,063 4,179,308
156,186,302 10,935,563 147,359,029 5,308,954
The Group's cash at bank and short-term deposits are held with institutions
with the following credit ratings:
Group Company
2021 2020 2021 2020
£
£
£
£
A+ 147,315,486 5,264,882 147,308,088 5,251,913
A 86,038 245,517 - -
AAA - 4,522,146 - -
BAA - 57,041 - 57,041
BB - 735,807 - -
BB- 8,504,893 - - -
BBB+ 50,941 - 50,941 -
B+ 112,006 - - -
NA 116,938 110,170 - -
156,186,302 10,935,563 147,359,029 5,308,954
The cash deposited with the institution with no credit rating is only held
short term and the expected credit loss is not as-sessed as material.
14 Share capital
Group and Company 2021 2021 2020 2020
Number
£
Number
£
Issued and fully paid
Ordinary shares of 1p each
At 1 January 1,449,377,287 14,493,773 1,446,377,287 14,463,773
Issue of ordinary shares 2,264,928,203 22,649,282 3,000,000 30,000
Conversion of special warrants into shares 88,060,100 880,601 - -
At 31 December 3,802,365,590 38,023,656 1,449,377,287 14,493,773
Share capital comprises amount subscribed for shares at the nominal value.
2021
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.
On 23 December 2021, 2,102,209,850 new ordinary shares were placed with new
and existing investors at a price of 7.0 pence per share. The gross
proceeds raised in the placement was £147,230,250 and issue costs amounted to
£5,164,623.
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.
15 Share premium
Group and Company 2021 2020
£
£
At 1 January 41,848,306 41,785,306
Premium arising on issue of ordinary shares 136,784,844 63,000
Issue costs (5,904,761) -
Premium arising on conversion of special warrants into shares 5,795,235 -
Special warrants issue costs (594,975) -
At 31 December 177,928,649 41,848,306
Share premium comprises the amount subscribed for share capital in excess of
nominal value.
16 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 obli-gation to settle
or repurchase the options in cash.
Movements on number of share options and their related exercise price are as
follows:
Number of Weighted Number of Weighted
options
average
options
average
2021
exercise
2020
exercise
price
price
2021
2020
£
£
Outstanding at 1 January 125,350,000 0.051 136,300,000 0.055
Forfeited (11,050,000) 0.139 (7,950,000) 0.140
Exercised - - (3,000,000) 0.031
Granted - - - -
Outstanding at 31 December 114,300,000 0.0425 125,350,000 0.051
Exercisable at 31 December 114,300,000 0.0425 125,350,000 0.051
The options outstanding at 31 December 2021 had a weighted average remaining
contractual life of 4.47 years (2020: 5.80 years).
The fair value of the share options was determined using the Black-Scholes
valuation model.
No new options were issued during 2020 and 2021.
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:
Range of exercise prices (£) 2021 2021 2021 2021 2020 2020 2020 2020
Weighted
Number of
Weighted
Weighted
Weighted
Number of
Weighted
Weighted
average
shares
average
average
average
shares
average
average
exercise price
remaining life
remaining life
exercise price
remaining life
remaining life
(£)
expected
contracted
(£)
expected
contracted
(years)
(years)
(years)
(years)
0-0.1 0.042 113,800,000 4.49 4.49 0.042 115,700,000 6.21 6.21
0.1-0.2 0.154 500,000 0.73 0.73 0.154 9,650,000 0.93 0.93
17 Other reserves
Merger Translation Other
reserve reserve reserve Total
Group £ £ £ £
At 1 January 2020 10,888,760 (14,507,590) (1,048,100) (4,666,930)
Other comprehensive income - - - -
Currency translation differences - (8,151,944) - (8,151,944)
At 31 December 2020 10,888,760 (22,659,534) (1,048,100) (12,818,874)
Other comprehensive income - - - -
Currency translation differences - (2,418,094) - (2,418,094)
At 31 December 2021 10,888,760 (25,077,628) (1,048,100) (15,236,968)
Company Merger Total
reserve
£
£
At 1 January 2020 and 31 December 2020 10,888,760 10,888,760
At 1 January 2021 and 31 December 2021 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.
18 Trade and other payables
Group Company
2021 2020 2021 2020
£ £ £ £
Non-current
Trade and other payables 451,863 - - -
Current
Trade and other payables 3,381,704 304,461 - 123,657
Social security and other taxes 572,431 83,203 33,811 31,822
Accrued expenses 12,054,145 244,743 12,047,919 124,700
16,008,280 632,407 12,081,730 280,179
Total trade and other payables 16,460,144 632,407 12,081,730 280,179
19. Contingent and deferred consideration
19.1 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 subsidiar-ies 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.
The contingent consideration payable to Xstrata Brasil Mineração Ltda for
the acquisition of the Araguaia project has a carrying value of £1,713,002 at
31 December 2021 (31 December 2020: £2,893,877). It comprises US$5,000,000
consideration in cash as at the date of first commercial production of
ferronickel product (excluding the commissioning period) from any of the
resource areas covered in the purchase agreement, i.e. Vale dos Sonhos (VDS)
and Serra do Tapa (SDT). 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 from the VDS and SDT
permits. During the year the estimated date of first commercial production
from the VDS and SDT permits was revised to align with the mine plan. The
Group has finalised its mine plan for the Araguaia Project which was approved
as part of the investment decision for the Araguaia project finance package
which was successfully concluded in December 2021. The mine plan anticipates
production from VDS permit to commence 9 years after the Araguaia project
first production date and thus it was deemed reasonable to estimate the change
in timing of the contingent consideration.
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 are capitalised to the mine development asset.
19.2 Contingent consideration payable to Vale Metais Basicos S.A.
· On 19 December 2017 the Company announced that it had reached an
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 contingent consideration payable to Vale Metais Basicos S.A. for the
acquisition of the Vermelho project has a carrying value of £3,283,758 at 31
December 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.
The finance costs in respect of this contingent consideration are expensed as
the Vermelho project has not entered the construction phase.
19.3 Deferred consideration payable to Companhia Brasileiro de Aluminio
On 8 December 2021 the Group's subsidiary Araguaia Niquel Metais Ltda (ANM)
entered into an asset purchase agreement to purchase certain new and unused
ferronickel processing equipment (the "Processing Equipment") from Companhia
Brasileira de Alumínio ("CBA").
The Processing Equipment comprises the key components of a conventional rotary
kiln electric furnace plant ("RKEF"), excluding the furnace, and is expected
to provide meaningful synergies in relation to the development of the Araguaia
ferronickel project.
An upfront cost of US$600,000 is payable in cash on signing with a total
consideration of up to US$7,000,000, with the balance payable upon the
achievement of future milestones related to the development and operation of
Araguaia. As part of the transaction CBA will continue to perform care and
maintenance activities going forward until it is removed from the existing
site.
The total consideration of up to US$7 million payable by ANM will be paid
according to the following schedule:US$600,000 payable on execution of the
Agreement:
§ US$950,000 upon the removal of 80% of the Processing Equipment from CBA's
Niquelândia operations;
§ US$950,000 upon reaching 50% completion of Araguaia plant construction;
§ US$1,150,000 upon production at Araguaia reaching 90% of nameplate capacity
for a period of 60 days, on average, and with up to 50% of such amount payable
in Horizonte shares, at Horizonte's election; and
§ US$3,350,000 payable by Horizonte in three equal annual instalments with
the first instalment due within 45 days of the first sale of ferronickel to a
third party. Horizonte may choose to pay the outstanding balance of this
amount at any time of its choosing with up to 50% of the total able to be paid
in Horizonte's shares, at Horizonte's election.
In addition the contract provides that each component of the Purchase Price
shall be deemed immediately due and payable to the Seller at the long stop
date of December 31, 2027. The deferred consideration payable to CBA has a
carrying value of £4,062,876 at 31 December 2021 (31 December 2020: £nil).
The key assumptions underlying the treatment of the deferred consideration of
US$7,000,000 is a discount factor of 7.0% along with the estimated date of
completion of the project milestones as outlined above.
The critical assumptions underlying the treatment of the contingent and
deferred considerations are set out in note 4.2 .
Companhia Brasileira de Aluminio (in respect of Araguaia project) 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
Initial recognition 4,043,991 - - 4,043,991
Unwinding of discount 14,288 201,899 211,616 427,803
Change in estimate - (1,419,978) - (1,419,978)
Change in carrying value and foreign exchange 4,597 37,204 38,994 80,795
At 31 December 2021 4,062,876 1,713,002 3,283,758 9,059,636
Reclassification to current liabilities (704,246) - - (704,246)
At 31 December 2021 3,358,630 1,713,002 3,283,758 8,355,390
The change in estimate during 2021 relates revisions to the estimated payment
date of the Xstrata Brasil Mineração Ltda contingent consideration as a
result of the start date of commercial production at the VDS and SDT areas
being extended.
20 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 has been estimated at 2.65%,
at year end the rate has been revised to 2.95%. 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 20 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. The
long-term nickel price used in the royalty valuation as at 31 December 2021 is
$16,945/t Ni.
£
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 3,316,259
Change in carrying value 7,134,856
Effects of foreign exchange 512,168
Net book amount at 31 December 2021 33,016,624
Management have sensitised the carrying value of the royalty liability by a
change in the royalty rate to 3% (maximum royalty rate in the agreement) and
it would be £559,604 higher/lower and for a $1,000/t Ni increase/decrease in
future nickel price the carrying value would change by £2,011,950.
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 ($16,941/t Ni), the start date of commercial production (May 2023), the
prevailing royalty rate (2.95%), the inflation rate (1.76%) and volatility of
nickel prices (22.1%).
£
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 1,853,282
Effects of foreign exchange 63,089
Value as at 31 December 2021 3,672,924
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 $1,338,000 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.
21 Right of use assets and lease liability
In December 2021, Araguaia Niquel Metais Ltda entered into a commercial lease
agreement for an office property in Belo Horizonte. The duration of the lease
will be for 5 years. The instalments in the first year will be BRL 40,000 per
month and in years 2 to 5 the monthly instalment will be BRL 43,520.
The right of use asset and lease liability was recognised in December 2021 at
inception of the lease.
Right of use asset £
Initial recognition 282,320
Value as at 31 December 2021 282,320
Lease liability
Initial recognition 282,320
Reclassified to current liabilities (43,604)
Non-current lease liability 238,716
22 Special warrant liability
On 9 March 2021 the Company completed the 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 31 December 2021 -
23 Note to statement of cash flows
Below is a reconciliation of borrowings from financial transactions:
Royalty Financing Derivative asset Total
£ £ £
As at 1 January 2020 20,570,411 (2,246,809) 18,323,602
Non cash flow adjustments:
Unwinding of discount 3,244,873 - 3,244,873
Change in fair (910,834) 424,500 (486,334)
value
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
Unwinding of discount 3,316,259 - 3,316,259
Change in fair value 7,134,856 (1,853,282) 5,281,574
Effects of foreign exchange 512,168 (63,089) 449,079
Total non-current borrowings 31 December 2021 33,016,624 (3,672,924) 29,343,700
24 Dividends
No dividend has been declared or paid by the Company during the year ended 31
December 2021 (2020: nil).
25 Earnings per share
(a) Basic
The basic loss per share of 0.568p loss per share (2020 loss per share:
0.157p) 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.
2021 2020
Group £ £
Loss attributable to owners of the parent (9,670,803) (2,277,411)
Weighted average number of ordinary shares in issue 1,703,513,618 1,447,323,588
(b) Diluted
The basic and diluted loss per share for the years ended 31 December 2021 and
31 December 2020 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 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.
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.
On 23 December 2021, 2,102,209,850 new ordinary shares were placed with new
and existing investors at a price of 7.00 pence per share.
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.
Details of share options that could potentially dilute earnings per share in
future periods are set out in note 16.
26 Related party transactions
The following transactions took place with subsidiaries in the year:
Amounts totalling £5,147,750 (2020: £5,464,756) were lent to Horizonte
Nickel IOM Ltd and Champol IOM Ltd finance exploration work during 2021, by
Horizonte Minerals Plc. No interest is charged on balances outstanding during
the year. The amounts are repayable on demand.
See note 30 for balances with subsidiaries at the year end.
All Group transactions were eliminated on consolidation.
27 Ultimate controlling party
The Directors believe there to be no ultimate controlling party.
28 Employee benefit expense (including Directors and Key Management)
Group Company
2021 2020 2021 2020
Group £ £ £ £
Wages and salaries 5.417.395 2,180,283 3,996,570 1,384,126
Social security costs 629,206 269,069 386,904 161,157
Indemnity for loss of office 81,040 1,315 - -
6,127,641 2,450,667 4,383,474 1,545,283
Management 12 13 8 8
Field staff 38 24 3 -
Average number of employees including Directors and Key Management 50 11
37 8
Employee benefit expenses includes £2,311,546 (2020: £1,110,358) of costs
capitalised and included within intangible non-current assets.
29 Investments in subsidiaries
2021 2020
Company £ £
Shares in Group undertakings 2,348,142 2,348,142
2,348,142 2,348,142
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.
30 Loans to and from subsidiaries
Balances with subsidiaries at the year-end were:
2021 2020
Assets/(Liabilities) Assets/(Liabilities)
Company £ £
Loans to subsidiaries
HM Brazil (IOM) Ltd 6,297,961 6,297,961
Horizonte Nickel (IOM) Ltd 58,491,543 53,530,300
Champol (IOM) Ltd 4,769,422 4,610,891
Horizonte Minerals (IOM) Ltd 253,004 253,004
Total 69,811,930 64,692,156
Loans from subsidiaries
HM Exploration Ltd (413,930) (413,930)
Cluny (IOM) Ltd - (37,783)
Nickel Production Services B.V. (2,414,275) (11,742,382)
Total (2,828,205) 12,194,095
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.
1 January 2020 Transfers Amounts advanced during year Expected credit loss 2020 Amounts advanced during year Expected credit loss 2021
Company £ £ £ £ £ £ £ £
HM do Brasil Ltda 944,928 (2,173,475) 283,619 944,928 - - - -
HM Brazil (IOM) Ltd 3,149,326 2,173,473 524,962 450,200 6,297,961 - - 6,297,961
Horizonte Nickel (IOM) Ltd 35,641,959 17,409,339 479,003 - 53,530,300 4,961,243 - 58,491,543
Araguaia Niquel Mineração Ltda 10,244,039 (11,434,152) 1,190,112 - - - - -
Horizonte Minerals (IOM) Ltd 253,004 - - - 253,004 - - 253,004
Typhon Brasil Mineração Ltda 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) 4,610,891 186,507 (27,976) 4,769,422
Cluny (IOM) Ltd 801,403 (1,144,861) - 343,458 - - - -
Total 55,413,146 - 5,464,746 3,814,254 64,692,156 5,147,750 (27,976) 69,811,930
The Gross and net intercompany loan position following the expected credit
loss as each year end is set out below:
2021 2020
Gross loan Expected credit loss Net loan Gross loan Expected credit loss Net loan
Company £ £ £ £ £ £
HM do Brasil Ltda - - - - - -
HM Brazil (IOM) Ltd 8,997,087 (2,699,126) 6,297,961 8,997,087 (2,699,126) 6,297,961
Horizonte Nickel (IOM) Ltd 58,491,543 - 58,491,543 53,530,300 - 53,530,300
Araguaia Niquel Mineração Ltda - - - - - -
Horizonte Minerals (IOM) Ltd 253,004 - 253,004 253,004 - 253,004
Typhon Brasil Mineração Ltda - - - - - -
Trias Brasil Mineração Ltda - - - - - -
Champol (IOM) Ltd 5,611,085 (841,663) 4,769,422 5,424,578 (813,687) 4,610,891
Cluny (IOM) Ltd - - - - - -
Total 73,352,719 (3,540,789) 69,811,930 68,204,969 (3,512,813) 64,692,156
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% (2020: 0%) for the Araguaia proj-ect, to 30% (2020: 30%) for the
receivables from HM Brazil and 15% (2020: 15%) 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 pros-pects
for Vermelho.
The credit loss allowance was assessed at the date of 31 December 2021.
There was no change in the expected credit loss allowance at the year end.
31 Commitments
Capital expenditure contracted for at the end of the reporting period but not
yet incurred is as follows:
2021 2020
Group £ £
Intangible assets - 7,314,000
Capital commitments relate to contractual commitments for metallurgical,
economic and environmental evaluations by third parties. Once incurred these
costs will be capitalised as intangible exploration asset additions. The
contract relating to items of plant and equipment, which was the disclosed
capital commitment at 31 December 2020, was completed in December 2021.
Refer to note 17 for the details of the agreement concluded with Companhia
Brasileira de Alumínio. At the time of this report the Group was in the
process of concluding equipment purchase contracts which are key to the
commencement of the Araguaia project construction.
32 Contingent Liabilities
Other Contingencies
The Group believes that there are no substantive financial claims and legal
proceedings against it as at 31 December 2021. As a result, no provision and
no disclosure has been made in these financial statements for the year ended
31 December 2021.
33 Financial Instruments
Financial Assets
Fair Value Amortised cost Total Fair Value Amortised cost Total
2021 2021 2021 2020 2020 2020
Group £ £ £ £ £ £
Cash and cash equivalents - 156,186,302 156,186,302 - 10,935,563 10,935,563
Derivative financial asset 3,672,924 - 3,672,924 1,756,553 - 1,756,553
Total 3,672,924 156,186,302 159,859,226 1,756,553 10,935,563 12,692,116
Amortised cost
2021 2020
Company £ £
Cash and cash equivalents 147,359,029 5,308,954
Loans to subsidiaries 69,811,930 64,692,156
Total 217,170,959 70,001,110
Financial Liabilities
Amortised cost
2021 2020
Group £ £
Trade and other payables 16,460,143 632,407
Contingent consideration 4,996,761 5,927,025
Deferred consideration 4,062,876 -
Royalty Finance 33,016,624 22,053,341
Total 58,536,404 28,612,773
Amortised cost
2021 2020
Company £ £
Trade and other payables 12,081,730 694,110
Contingent consideration 4,996,761 5,927,025
Loans from subsidiary 2,828,205 11,780,164
Total 19,906,696 18,401,299
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.
34 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
35 Events after the reporting date
On 15 March 2022 Araguaia Niquel Metais LTDA, a wholly owned subsidiary of the
Group entered into legally binding documentation including a comprehensive
intercreditor agreement and loan agreements with two export credit agencies in
relation its senior secured project finance debt facility of US$346.2
million.
The Senior Debt Facility will include the following:
· Commercial senior facility of US$200,000,000 provided by the Senior
Lenders;
· ECA facility of US$74,562,000 guaranteed by EKF;
· ECA facility of US$71,638,000 guaranteed by Finnvera;
First drawdown under the Senior Debt Facility is expected to occur in the
fourth quarter of 2022 following satisfaction of certain conditions precedent
customary for transactions of this nature.
On 15 March 2022 Horizonte Minerals confirmed the satisfaction of material
conditions precedent in relation to the US$ 65 million Convertible Loan Note
with full draw down on this expected to follow shortly afterwards.
On 15 March 2022 Horizonte signed binding loan documentation in relation to a
US$25 million Cost Overrun Facility ("COF"). Entering into the COF is a
condition precedent to first drawdown under the Senior Debt Facility. The COF
will be available for drawdown in the case of a cost overrun against the
construction schedule and budget, subject to certain conditions including the
Company having deployed 90% of the funding from the equity fundraise and
convertible notes toward the construction of the Araguaia ferronickel project.
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