REG - Horizonte Minerals - FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2022
29/03/2023 07:00
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RNS Number : 5975U Horizonte Minerals PLC 29 March 2023
NEWS
RELEASE
29 March 2023
Final Results for the Year Ended 31 December 2022
Horizonte Minerals Plc (AIM/TSX: HZM) ("Horizonte" or the "Company") a nickel
company developing two Tier 1 assets in Brazil, is pleased to present its
final results for the year ended 31 December 2022 ('FY22' or the 'Period').
HIGHLIGHTS FOR THE PERIOD:
· Strong safety performance with zero fatalities and zero lost time
injuries in 2022;
· Construction on-schedule at the end of the Period having broken
ground in May 2022;
· Secured an oversubscribed equity fundraise of ~US$80m;
· Successfully completed first drawdown of the Senior Debt facility
having satisfied related conditions;
· Awarded all of the key material contracts at Araguaia, with first
production on track for Q1 2024;
· Ten-year renewable power contract secured at globally competitive
prices;
· Araguaia approved as a Strategic Minerals Project by the Brazilian
government;
· Built out an experienced team to deliver Araguaia;
· Feasibility study initiated at Vermelho, results due 1H 2024;
· Submitted environmental and social impact assessment at Vermelho;
· Welcomed William Fisher as Interim Chair of the Board;
· Critical risk controls implemented;
· Strategic partnerships with SENAI and FIEPA for local skills
development initiated.
Horizonte will provide a full construction update for Araguaia covering
activity in Q1 2023 in late April.
Jeremy Martin, CEO of Horizonte, commented:
"It is a pleasure to reflect on the achievements of 2022 which was a ground
breaking year for Horizonte and has laid the foundations for the years ahead,
positioning the Company to be a significant global producer, committed to the
ethical, safe and responsible production of a low carbon nickel product.
"Our focus for 2022 at Araguaia was to secure the funding, build our team,
award key equipment and construction contracts required for construction and
the move to operations, commencing our 24-month journey to becoming a nickel
producing Company.
"The 2022 reporting period began by closing out the Araguaia construction
funding package, in which a total of US$633 million was raised comprising a
combination of senior debt and equity with support from a number of
high-quality, long-term financial institutions and leading mining sector
investors. By the end of the year and following a multi-year effort to de-risk
Araguaia, we were able to successfully access the low-cost debt and draw down
on the first tranche of funds.
"The rigorous due diligence process, and the extensive list of obligations
that Horizonte was required to meet to access this funding, should provide all
our stakeholders with confidence in the robustness of Araguaia and the quality
of the team working on the project.
"The first debt drawn-down milestone demonstrates that we had made significant
progress on construction and were able to satisfy the Senior Lenders that we
had, among others;
· shown that Araguaia is funded through to completion and first cash
flows following the subsequent ~US$80m equity raise;
· made significant progress with construction, and in line with the
project schedule;
· awarded all of the key material contracts, including equipment
supply, Engineering Procurement and Construction Management (EPCM), port
access and power supply;
· have a long-term offtake in place for 100% of Araguaia's production
from line 1 with a high-quality counterparty in Glencore; and lastly,
· have built out an experienced team to deliver the Project.
"To highlight, the most critical of these contracts, is the low-cost power
contract. Electrical energy makes up approximately a third of our operating
costs at Araguaia, so having a power contract with renewable sourcing, at the
extremely competitive pricing that we were able to lock in, means that
Araguaia will be operating in the lowest quartile of the cost curve for at
least the ten-year duration of the initial contract life. Furthermore, this
contract demonstrates our ability to become one of the lowest CO(2) nickel
producers, a major competitive advantage when compared to nickel peers.
"Turning to the physical progress that we saw on the ground at Araguaia, 2022
was a hugely transformative year in the process of developing the greenfield
site into a producing asset. The foundations of the rotary kiln are now
well-advanced and earthworks are close to completion. To facilitate reliable
power to site, a 125 kilometre, 230kV powerline is being constructed and
pre-assembly of the towers and construction of the main substations at site
made good progress.
"Horizonte has a second Tier 1 asset in Vermelho. 100% owned, it is an
excellent opportunity to develop a low-cost supply of nickel and cobalt to
meet the fast-growing demand due to global efforts to transition to net zero
emissions.
"In October 2022 we awarded the principal engineering contract to undertake
the Feasibility Study (FS) at Vermelho to Wood plc, a major milestone in
advancing the project through to a funding decision. Wood is a global
engineering and technical services provider with extensive experience
specifically in the nickel sector, and undertook the original Vermelho FS for
its previous owner, Vale, from 2003 to 2006, resulting in a positive
construction decision. We anticipate results from the Feasibility Study in 1H
2024.
"We were also pleased to announce the filing of the Social and Environmental
Impact Assessment (EIA) for Vermelho in late 2022, an essential part of the
permitting process of the project. Approval of the EIA and subsequent granting
of a preliminary licence is expected during 2024, the first stage in a
three-stage environmental licencing process to develop a mine in Brazil. This
filing followed an 18-month period where Horizonte, in conjunction with Rambol
Group ("Rambol") (a leading global environmental and social consultancy firm)
together with Integratio (a leading Brazilian social consultancy firm),
undertook the collection and analysis of the baseline social and environmental
data specified by the Pará State Secretariat for Environment and
Sustainability (SEMAS), to reflect the current physical, biological and social
settings at Vermelho.
"Alongside the difficult macro inflationary environment, there have been some
challenges specific to the construction phase. Brazil itself experienced a
sudden step-up in industrial activity in 2022 following COVID-19 disruption,
meaning that construction contractors were scarce, as was the labour force.
Securing and maintaining our high-quality team at Araguaia has therefore been
an added challenge, but one which we have managed to overcome. We now have
over 2,000 people working at site, with this number expected to increase to
3,100 by the end of Q1 2023. Notwithstanding this sharp increase in employment
and activity on site, we are extremely proud to have lost zero hours to injury
this year, giving us a lost-time injury frequency rate ("LTIFR") rate of 0.00,
for the fifth consecutive year. There is of course no place for complacency
and the health and safety of our people remains central to everything we do.
Further information relating to our health and safety can be found on pages
28-29 of this report and also in our 3rd annual Sustainability Report found on
our website.
"As mentioned above, 2022 saw the Horizonte owners team continue to grow as
well. At the beginning of the year, we had a team of around 25 people. By
year-end this had grown close to 150 people spanning across various
disciplines from environmental and social-focused activities to commissioning
and Business readiness professionals. Creating a strong working culture is key
for 2023 as we look to engage our people over the long term to instil a
culture that encourages total commitment to results, empowerment, flexibility,
collaboration, transparency and participation.
"I'd like to welcome Mr William (Bill) Fisher to the role of Interim Chair of
the Board. Bill has served alongside me on the Board for the past eight years,
so he is very familiar with the business. We have always had a view that we
want to maintain continuity throughout the construction stages, and as we move
into ramp-up, Bill brings this required balance.
"Looking ahead to the coming 12 months, we are cognisant of the work that lies
ahead. Our primary focus will be on delivering Araguaia on-time, on-budget and
safely. We are targeting cold commissioning towards the end of 2023 with hot
commissioning and subsequent first nickel in 1Q 2024. Alongside this work, we
are planning to conduct a feasibility study on the second line at Araguaia, a
relatively low capex project that will double production from 14,500 tonnes
per annum to 29,000 tonnes per annum. Vermelho workflows will be centred
around the Feasibility study and EIA permitting process, both expected to be
finalized in 2024. Although these objectives are, in practice, considerable
undertakings, we are reassured by the progress already made across the Group,
and are confident in the ability of our teams on the ground to deliver.
"To conclude, I would like to thank all our stakeholders for your continued
support which is never taken for granted. I would also like to take this
opportunity to directly thank the Horizonte team, led on the ground in Brazil
by Mike Drake, our Head of Projects and Leo Vianna, our Project Director. The
whole team has achieved many significant milestones this year. We have entered
2023 with confidence and look forward to delivering and communicating our
progress as we continue to unlock value from across our portfolio."
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
Simon Retter (CFO)
Patrick Chambers (Head of IR)
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
Tavistock (Financial PR) +44 (0) 20 7920 3150
Emily Moss
Cath Drummond
ABOUT HORIZONTE MINERALS
Horizonte Minerals plc (AIM & TSX: HZM) is developing two 100%-owned, Tier
1 projects in Pará 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 under construction with first
metal scheduled for early 2024, when fully ramped up with Line 1 and Line 2,
is forecast to produce 29,000 tonnes of nickel per year. Vermelho is at
feasibility study stage and is expected to 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 60,000 tonnes of nickel per year
positions the Company as a globally significant nickel producer. Horizonte's
top three shareholders are La Mancha Investments S.à r.l., Glencore plc and
Orion Resource Partners LLP.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Except for statements of historical fact relating to the Company, certain
information contained in this press release may constitute "forward-looking
information" under Canadian securities legislation. 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 ability of the
Company to complete the acquisition of required equipment, on time or at all,
the costs and timing for delivery of the necessary equipment to be purchased,
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, the
success of exploration and mining activities; cost and timing of future
exploration, production and development, the ability of the Company to expand
production lines 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 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, including without limitation, the annual
information form of the Company for the year ended December 31, 2021, the
Araguaia Report and the Vermelho 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
Extract from the Consolidated Financial Statements and notes for the year
ended 31 December 2022
CHAIR'S STATEMENT
I am pleased to present my first Annual Report statement as interim Chair of
Horizonte. Having been a long serving
member of the Board, I am very familiar with the Company, and to that end, I
would like to reiterate that we find ourselves in a truly exciting period of
progression. The transition from a developer into construction is the next
phase for the business but our objectives, commitments and vision have
remained the same:
positioning Horizonte to be a significant global producer, committed to the
ethical, safe and responsible production
of a low-carbon nickel product. We have built an extremely capable management
team and I have every confidence
that we will deliver on our mission.
Following the completion of our US$633 million funding package at the end of
2021, the transformation of Araguaia
and the rate at which construction has advanced is notable and a testament to
the hard work and commitment of our workforce and partners. More than 2,000
people are now employed on the Project, demonstrating the transformational
potential for jobs and growth that the Project is providing to the local area.
Given the challenging nature of the market across the board in 2022, we
believe that the standout quality of the asset has been the biggest reason for
the success of the construction fundraise. Araguaia's long mine life of 28
years (with potential for expansion), low-cost, low-carbon nickel product is
what underpins the business. The build-out of the electrification market and
the move away from carbon as a fuel source have also contributed to the nickel
market's strong performance over the last 12 months.
During the year we also made strong progress at our second project, Vermelho,
a large high-grade, long mine life, scalable resource, designed to be a
low-cost producer of nickel and cobalt for the battery industry. Having
successfully completed a Pre-Feasibility study in 2019, this year we initiated
a Feasibility study, an important step forward in unlocking Vermelho's
significant value.
Board development
Horizonte's successful move to construction, inevitably, necessitated a
reinvigoration of our governance structures and leadership at Board level. It
is on this basis that, in 2022, a number of changes to the Board were
effected. I'd like to formally welcome Dr Gillian Davidson and Mr Vincent
Benoit, who joined the Board in March 2022.
Gillian's sustainability experience in the extractives and natural resources
sectors is a fantastic asset to Horizonte as we transition into a producer, as
is her role as founding member and chair of the Global Battery Alliance, an
initiative created to drive a sustainable battery value chain. Vincent also
brings a wealth of knowledge in the mining sector with 30 years' experience in
corporate finance, business development and M&A. Vincent has been a
partner at La Mancha since 2012, where his work on developing greenfield sites
with Endeavour Mining saw its market
capitalisation quadruple and positioned La Mancha as a leading private
investor in the gold mining sector. We're very pleased to have their expertise
on board, and you will likely see new additions to the Board in 2023 as we
transition towards becoming a producing nickel company. David Hall, my
predecessor as Chair, Allan Walker and Sepanta Dorri stepped down from the
Board and I would like to thank them sincerely for their important
contributions to Horizonte's success in recent years. The Board remains
committed to good corporate governance, the Quoted Company Alliance's
Corporate Governance Code (QCA Code) and to aligning the skills and experience
of the Directors and management with the needs of Horizonte as it advances
toward production.
Sustainability
As a Company, we are committed to positioning Horizonte as a long-term partner
for our stakeholders. We have
always worked hard to ensure that we engage effectively with all of our local
stakeholders around our projects, from local individuals and families to
municipal authorities. 2022 was no exception, with the highlight of this
engagement being our community development agreement with Serviço Nacional de
Aprendizagem Industrial (SENAI), which we signed in July. SENAI is Brazil's
leading national industrial training provider and our partnership
is a key component of Araguaia's Local Content Initiative to train and develop
local community members in core skills required during Araguaia's construction
and operational phases. Horizonte has funded classrooms and upskilling courses
in critical skills like welding and electromechanical insulation, and so far
this year over 420 people have enrolled in two cohorts, including a high
proportion of women, which bodes well for a diverse and educated future
workforce. As a demonstration of our commitment to responsible mining, at the
end of the year we completed the construction of our biodiversity centre,
where as part of our significant biodiversity programme, we
will see close to eighty thousand seedlings of native species grown on-site
each year, helping to replant and rehabilitate large areas of degraded land
following prior agricultural practices surrounding Araguaia, including
biodiversity corridors to link key areas of biodiversity habitat around the
project area. You can read more about our sustainability programmes in our 3rd
annual Sustainability Report found on our website.
Positioning Horizonte for the future
Our strategy now is to focus on the construction of Araguaia, defining the
expansion potential of Araguaia as well as advancing Vermelho towards a
construction decision, thereby delivering value to shareholders. As we move
through this critical phase in our Company's development, on behalf of the
Board, I would like to take this opportunity to thank all of our workforce
partners and stakeholders for their ongoing contribution towards delivering on
our vision of becoming a significant global nickel producer.
William Fisher
Interim Chair of the Board
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2022
Year ended Year ended
31 December 31 December
2022 2021
Restated
Notes US$ US$
Administrative expenses 6 (12,544,856) (7,811,477)
Charge for share options granted 17 (1,415,581) -
Change in fair value of derivative 21,22 6,512,413 2,550,000
Change in fair value of special warrant liability - (1,616,120)
Gain/(loss) on foreign exchange 8,482,457 (862,739)
Operating profit/(loss) 1,034,433 (7,740,336)
Net finance (cost)/income 8 (6,351,735) (5,630,179)
Loss before taxation (5,317,302) (13,370,515)
Income tax 9 - -
Loss for the year from continuing operations attributable to owners of the (5,317,302) (13,370,515)
parent
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Cash flow hedges - foreign forward contracts 1,087,561 -
Currency translation differences on translating foreign operations 18 (6,678,108) 258,977
Other comprehensive (loss)/income for the year, net of tax (5,590,547) 258,977
Consolidated Statement of Financial Position
Company number: 05676866
As at 31 December 2022
Notes 31 December 2022 31 December 2021 31 December 2020
Restated
Restated
US$
US$ US$
Assets
Non-current assets
Intangible assets 10 13,208,837 8,309,484 8,490,339
Property, plant and equipment 11 277,902,428 70,594,091 42,090,825
Right of use assets 26 957,878 380,482 -
Trade and other receivables 12 9,965,590 - -
Derivative financial assets 14 61,777 - -
302,096,510 79,284,057 50,581,164
Current assets
Trade and other receivables 12 48,774,147 13,796,628 369,237
Derivative financial asset 14, 21 15,342,314 4,950,000 2,400,000
Cash and cash equivalents 13 154,027,967 210,492,280 14,925,021
218,144,428 229,238,908 17,694,258
Total assets 520,240,938 308,522,965 68,275,422
Equity and liabilities
Equity attributable to owners of the parent
Share capital 15 70,332,641 52,215,236 20,666,053
Share premium 16 306,719,689 245,388,102 65,355,677
Other reserves 18 (29,938,166) (23,260,058) (23,519,035)
Cash flow hedge reserve 1,087,561 - -
Share options reserve 17 1,415,581 - -
Retained losses (50,187,603) (45,058,633) (33,304,238)
Total equity 299,429,703 229,284,647 29,198,457
Liabilities
Non-current liabilities
Contingent consideration 20 6,895,737 6,734,134 8,082,092
Deferred consideration 20 4,808,431 4,493,861 -
Royalty Finance 21 89,745,255 44,496,504 30,131,755
Convertible loan notes 22 59,447,520 - -
Cost overrun facility 23 23,809,827 - -
Senior debt facility 24 4,328,241 - -
Environmental rehabilitation provision 25 634,883 - -
Lease liabilities 26 715,290 321,717 -
Trade payables 19 723,333 608,975 -
191,108,517 56,655,191 38,213,847
Current liabilities
Trade and other payables 19 28,481,038 21,574,362 863,118
Deferred consideration 20 950,000 950,000 -
Lease liabilities 26 271,680 58,765 -
29,702,718 22,583,127 863,118
Total liabilities 220,811,235 79,238,318 39,076,965
Total equity and liabilities 520,240,938 308,522,965 68,275,422
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 28 March 2023 and were signed on its behalf.
William Fisher
Jeremy J Martin
Interim Chair of the
Board
Chief Executive Officer
Consolidated Statement of Changes in Equity
For the year ended 31 December 2022
Attributable to the
owners of the parent
Share Share Other Cash flow hedge Share options reserve Retained losses Total
capital
premium
reserves
reserve
US$
US$
US$
US$
US$
US$
US$
As at 1 January 2021 Restated 20,666,053 65,355,677 (23,519,035) - - (33,304,238) 29,198,457
Loss for the year - - - - (13,370,515) (13,370,515)
Other comprehensive income:
Currency translation differences on translating foreign operations - - 258,977 - - - 258,977
Total comprehensive income for the year - - 258,977 - - (13,370,515) (13,111,538)
Issue of ordinary shares 30,335,627 183,255,417 - - - - 213,591,044
Issue costs - (10,389,470) - - - - (10,389,470)
Conversion of special warrants into shares 1,213,556 7,986,413 - - - 1,616,120 10,816,089
Special warrants issue costs - (819,935) - - - - (819,935)
Total transactions with owners, recognised directly in equity 31,549,183 180,032,425 - - - 1,616,120 213,197,728
As at 31 December 2021 Restated 52,215,236 245,388,102 (23,260,058) - - (45,058,633) 229,284,647
Loss for the year - - - - - (5,317,302) (5,317,302)
Other comprehensive income:
Cash flow hedges - foreign forward contracts - - - 1,087,561 - - 1,087,561
Currency translation differences on translating foreign operations - - (6,678,108) - - - (6,678,108)
Total comprehensive income for the year - - (6,678,108) 1,087,561 - (5,317,302) (10,907,849)
Issue of ordinary shares 18,117,405 63,830,692 - - - 188,332 82,136,429
Issue costs - (2,499,105) - - - - (2,499,105)
Share options granted - - - - 1,415,581 - 1,415,581
Total transactions with owners, recognised directly in equity 18,117,405 61,331,587 - - 1,415,581 188,332 81,052,905
As at 31 December 2022 70,332,641 306,719,689 (29,938,166) 1,087,561 1,415,581 (50,187,603) 299,429,703
Consolidated Statement of Cash Flows
For the year ended 31 December 2022
31 December 2022 31 December 2021
US$ Restated
US$
Notes
Cash flows from operating activities
Loss before taxation (5,317,302) (13,370,515)
Charge for share options granted 17 1,415,581 -
Net finance costs 8 6,351,735 5,630,179
Exchange differences (8,482,457) 862,739
Change in fair value of derivative asset 21,22 (6,512,413) (2,550,000)
Fair value of special warrant liability - 1,616,120
Operating loss before changes in working capital (12,544,856) (7,811,477)
Increase in trade and other receivables (2,693,021) (13,427,391)
Increase in trade and other payables 5,336,114 16,675,664
Cash used in operating activities (9,901,763) (4,563,204)
Income taxes paid - -
Net cash used in operating activities (9,901,763) (4,563,204)
Cash flows from investing activities
Purchase of exploration and evaluation assets (4,349,092) (405,221)
Purchase of property, plant and equipment (191,740,544) (14,271,709)
Interest received 7,117,103 500,634
Net cash used in investing activities (188,972,533) (14,176,296)
Cash flows from financing activities
Proceeds from issue of ordinary shares 82,136,429 213,591,044
Issue costs (2,499,105) (10,389,470)
Proceeds from issue of convertible loan notes 61,262,500 -
Issue costs (950,287) -
Proceeds from royalty finance arrangement 25,000,000 -
Issue costs (847,939) -
Proceeds from cost overrun facility 25,000,000 -
Issue costs (1,198,634) -
Proceeds from senior debt facility 5,000,000 -
Issue costs (678,536) -
Lease liability repayments (207,552) -
Loan facilities interest payments (304,892) -
Senior debt facility prepaid transaction costs (42,250,088) -
Proceeds from issue of share warrants - 10,816,089
Share warrants issue costs - (819,935)
Net cash generated from financing activities 149,461,896 213,197,728
Net (decrease)/increase in cash and cash equivalents (49,412,400) 194,458,228
Cash and cash equivalents at beginning of year 210,492,280 14,925,021
Exchange (loss)/gain on cash and cash equivalents (7,051,913) 1,109,031
Cash and cash equivalents at end of the year 13 154,027,967 210,492,280
extract FROM THE Notes to the consolidated Financial Statements
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.
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.
Basis of preparation
These Financial Statements have been prepared in accordance with UK adopted
international accounting standards. Financial Statements have been prepared
under the historical cost convention except for the following items (refer to
individual accounting policies for details):
· Contingent consideration
· Financial instruments - fair value through profit and loss
· Cash settled share-based payment liabilities
· Cash flow hedges at fair value through other comprehensive income
(OCI)
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.
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 6 and 7; 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 has cash reserves and access
to liquidity which are considered sufficient by the Directors to fund the
Group's committed expenditure both operationally and on its exploration
project for the foreseeable future.
The Group concluded a comprehensive funding package of US$633 million in
December 2021. The net proceeds of the fundraisings 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$25million royalty
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$197million of the US$633 million)
was finalized and funds received in December 2021 with a further equity fund
raise completed in November 2022 for a gross US$80 million. 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).
Funds from the convertible loan notes and the royalty were received in March
2022. The cost overrun facility funds were received in November 2022 and the
first drawdown under the senior debt facility was completed in December 2022
following the satisfaction of certain conditions precedent customary to a
financing of this nature. Subsequent drawdowns under the senior debt facility
are expected to follow during the remainder of the construction period, again
following the satisfaction of certain conditions precedent customary to a
financing of this nature including but not limited to satisfaction of a cost
to complete exercise prior to each draw down on the facility, satisfaction of
minimum order values from certain suppliers, maintaining the good standing of
operational licences and permitting, and financial models detailing the
Group's budget forecasting compliance with covenants and ratios.
The funds held at the year-end along with those to be raised post year end
following the satisfaction of any condition's precedent for further drawdowns
of the senior debt facility (including access to any of the funds secured as
part of the cost overrun facility), 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. However, 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.
At the time of the second drawdown of the senior debt facility (completed
after the year end) the total remaining cost associated with bringing the
Araguaia Project to the point of generating cashflows were estimated to be
US$356 million which includes a contingency of US$19 million. This will be
funded through the undrawn senior debt facility of US$341.2 million. In
addition, the Group has a cost overrun facility available of US$25million. If
expected or actual costs were to increase as a result of delays or increases
in capital or pre-production operating costs by more than US$48 million (14%
increase) of the total budget the project would fail the cost to complete
test, a condition precedent of the senior debt facility. Additionally, despite
being approximately 45% complete a number of risks still exist around
escalation costs linked to several of the major construction packages (these
include labour and materials) potentially exceeding the contingency. This
could result in future drawdowns on the senior debt facility not being
permitted and require the Group to pursue alternative sources of funding to
meet its commitments.
As the project moves into operational ramp-up phase there are a number of risk
areas around commissioning the furnace and rotary kiln. If any of these
ramp-up risks exceed the pre-production funding allocated to the unit areas
there will be a requirement for additional funding.
As some of these events are outside of the Group's control, a material
uncertainty exists which may cast significant doubt about the Group's
continued ability to operate as a going concern and its ability to realise its
assets and discharge its liabilities in the normal course of business.
The financial statements do not include any adjustments that would result if
the Group were unable to continue as a going concern.
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.
Horizonte Minerals Plc changed its presentation currency from Pounds Sterling
to US Dollars effective 1 January 2022.
The presentation currency has been revised as the financing package concluded
by the Group to construct the Araguaia project is denominated in US Dollars
and future revenues will also be in US Dollars. The board therefore believes
that US Dollar financial reporting provides more relevant presentation of the
group's financial position, funding and treasury functions, financial
performance and its cash flows.
A change in presentation currency represents a change in an accounting policy
in terms of IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors requiring the restatement of comparative information. In accordance
with IAS 21 The Effects of Changes in Foreign Exchange Rates, the following
methodology was followed in restating historical financial information from
Pounds Sterling to US Dollar:
· Assets and liabilities were translated at the relevant closing
exchange rate at the end of the reporting period. Items of income and
expenditure and cash flows were translated at average rates of exchange for
the period;
· The foreign currency translation reserve was reset to nil as at 1
January 2006, the date on which the group adopted IFRS. Share capital and
premium and other reserves, as appropriate, were translated at the historic
rates prevailing at the dates of underlying transactions; and
· The effects of translating the group's financial results and
financial position into US Dollar were recognised in the foreign currency
translation reserve.
The exchange rates used were as follows:
GBP/USD 31 December 2021 31 December 2020
Closing rate 1.3477 1.3649
Average rate 1.3757 1.2837
USD/BRL
Closing rate 5.5710 5.1967
Average rate 5.3810 5.0869
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
US$
evaluation costs
US$
Licenses
US$ US$
US$
Cost
At 1 January 2021 215,979 6,831,692 1,442,670 - 8,490,341
Additions - 103,461 209,246 92,515 405,222
Amortisation for the year - - - (2,509) (2,509)
Exchange rate movements (14,844) (480,025) (88,701) - (583,570)
Net book amount at 31 December 2021 201,135 6,455,128 1,563,215 90,006 8,309,484
Additions - - 4,255,285 93,808 4,349,093
Amortisation for the year - - - (30,743) (30,743)
Exchange rate movements 14,081 648,566 (87,945) 6,301 581,003
Net book amount at 31 December 2022 215,216 7,103,694 5,730,555 159,372 13,208,837
(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 the amount 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$652 million (AACE class 4).
Nothing has materially deteriorated with the economics of the PFS between the
publication date and the date of this report and the Directors undertook an
assessment of impairment through evaluating the results of the PFS along with
recent market information relating to capital markets and nickel prices and
judged that there are no impairment indicators with regards to the Vermelho
Project. Nickel prices remain higher than they were at the time of the
publication of the PFS and overall sentiment towards battery metals and supply
materials have grown more positive over the current year.
(b) Goodwill
Goodwill arose on the acquisition of Lontra Empreendimentos e Participações
Ltda in 2010. The Directors have determined the recoverable amount of goodwill
based on the same assumptions used for the assessment of the Lontra
exploration project detailed above. As a result of this assessment, the
Directors have concluded that no impairment charge is necessary against the
carrying value of goodwill.
Property, plant and equipment
Group Mine Vehicles and Office Land Building Total
Development Property
other field
equipment
acquisition
improvements
US$
equipment
US$
US$
US$
US$
US$
Cost
At 31 December 2020 41,909,101 105,074 78,287 119,090 - 42,211,552
Additions 13,328,811 759,475 69,980 10,199,425 - 24,357,691
Transfers - 648 (648) - - -
Interest capitalized 7,073,241 - - - - 7,073,241
Disposals - - (1,385) - - (1,385)
Foreign exchange movements (2,893,576) (7,204) (5,368) (8,186) - (2,914,334)
At 31 December 2021 59,417,577 857,993 140,866 10,310,329 - 70,726,765
Additions 184,319,008 - 167,364 2,606,842 37,519 187,130,733
Interest capitalized 13,175,730 - - - - 13,175,730
Transfers 781,069 (813,617) 32,334 - 214 -
Environmental rehabilitation additions 634,883 - - - - 634,883
Disposals - - (2,828) - - (2,828)
Foreign exchange movements 5,637,148 60,068 9,862 721,831 - 6,428,909
At 31 December 2022 263,965,415 104,444 347,598 13,639,002 37,733 278,094,192
Accumulated depreciation
At 31 December 2020 - 78,036 42,719 - - 120,755
Charge for the year - 7,526 12,840 - - 20,366
Transfers - 222 (222) - - -
Disposals - - (168) - - (168)
Foreign exchange movements - (5,350) (2,929) - - (8,279)
At 31 December 2021 - 80,434 52,240 - - 132,674
Charge for the year - 6,933 42,165 - 978 50,076
Transfers - (744) 726 - 18 -
Disposals - - (274) - - (274)
Foreign exchange movements - 5,631 3,657 - - 9,288
At 31 December 2022 - 92,254 98,514 - 996 191,764
Net book amount as at 31 December 2022 263,965,415 12,190 249,084 13,639,002 36,737 277,902,428
Net book amount as at 31 December 2021 59,417,577 777,559 88,626 10,310,329 - 70,594,091
In December 2018, a Canadian NI 43-101 compliant Feasibility Study (FS) was
published by the Company regarding the enlarged Araguaia Project which
included the Vale dos Sonhos deposit acquired from Glencore. The financial
results and conclusions of the FS clearly indicate the economic viability of
the Araguaia Project with an NPV of $401M using a nickel price of $14,000/t
Ni. Nothing material had changed with the economics of the FS between the
publication date and the date of this report and the Directors undertook an
assessment of impairment through evaluating the results of the FS along with
recent market information relating to capital markets and nickel prices and
judged that there are no impairment indicators with regards to the Araguaia
Project.
Impairment assessments for exploration and evaluation assets are carried out
either on a project-by-project basis or by geographical area.
The adjacent Araguaia/Lontra/Vila Oito and Floresta exploration sites (the
Araguaia Project), together with the Vale dos Sonhos deposit acquired from
Xstrata Brasil Mineração Ltda comprise a resource of a sufficient size and
scale to allow the Company to create a significant single nickel project. For
this reason, at the current stage of development, these two projects are
viewed and assessed for impairment by management as a single cash generating
unit.
The mineral concession for the Vale dos Sonhos deposit was acquired from
Xstrata Brasil Mineração Ltda, a subsidiary of Glencore Canada Corporation,
in November 2015.
The NPV has been determined by reference to the FS undertaken on the Araguaia
Project. The key inputs and assumptions in deriving the value in use were, the
discount rate of 8%, which is based upon an estimate of the risk adjusted cost
of capital for the jurisdiction, capital costs of $443 million, operating
costs of $8,194/t Nickel, a Nickel price of US$14,000/t and a life of mine of
28 years.
During the year further progress was made in the land acquisition process for
the Araguaia project. US$1.7million of the land and 'right of way' purchases
is included in trade and other payables as at 31 December 2022.
US$105million of the additions for the mine development property are
prepayments to suppliers which have been paid in advance of delivery of mining
equipment that is pre-fabricated offsite.
a) Royalty financing liability
a.1) Araguaia 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 US$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. The rate has been confirmed to be 2.95%. The royalty is paid
over the first 426k tonnes of nickel produced from the Araguaia Ferronickel
project. The royalty is linked to production and therefore does not become
payable until the project is constructed and commences commercial production.
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 21 b).
The Royalty liability has initially been recognised using the amortised cost
basis with an effective interest rate of 14.5%. When circumstances arise that
lead to payments due under the agreement being revised, the group adjusts the
carrying amount of the financial liability to reflect the revised estimated
cash flows. This is achieved by recalculating the present value of estimated
cash flows using the original effective interest rate of 14.5%. Any adjustment
to the carrying value is recognised in the income statement.
The carrying value of the royalty reflects assumptions on expected long term
nickel price, update headline royalty rate as well as the timing of payments
related to expected date of commencement of production and hence payment to be
made under the royalty agreement.
The long-term nickel price used in the royalty valuation as at 31 December
2022 is US$18,721/t Ni (2021:US$ 16,945/t Ni).
Management have sensitised the carrying value of the royalty liability for a
US$1,000/t Ni increase/decrease in future nickel price the carrying value
would change by US$2,682,547 (2021:US$2,711,505).
a.2) Vermelho royalty financing liability
On 23 November 2021 the Group entered into a royalty funding arrangement with
Orion Mine Finance ("OMF") securing a gross upfront payment of US$25,000,000
before fees in exchange for a royalty, at a rate of 2.1%. The royalty rate
will increase to 2.25% if substantial construction of the Vermelho Project has
not commenced within 5 years of the closing date, 30 March 2022. The royalty
will be paid over the life of mine of Vermelho. The Royalty agreement has
certain provisions to revise the headline royalty rate should there be change
in the mine schedule and production profile prior to construction or if the
resource covered in the Vermelho Feasibility Study is depleted. 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 21 b). The
royalty funds were received on 30 March 2022.
The Royalty liability has initially been recognised using the amortised cost
basis with an effective interest rate of 17.66%. 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 17.66%. Any
adjustment to the carrying value is recognised in the income statement.
The carrying value of the royalty reflects assumptions on expected long term
nickel and cobalt prices, headline royalty rate as well as the timing of
payments related to expected date of commencement of production and hence
payment to be made under the royalty agreement.
The assumption influencing the initial valuation of the carrying value of the
Vermelho royalty is the long-term nickel price of US$17,756 t/Ni (as at the
initial recognition date 30 March 2022), the long-term cobalt price of
US$53,355t/Co (as at the initial recognition date 30 March 2022), and the
royalty rate of 2.1%. The assumptions influencing the valuation at the period
end date is the long-term nickel price of US$18,721 t/Ni, the long-term cobalt
price of US$56,950 t/Co. The royalty rate has remained at 2.1%.
Management have sensitised the carrying value of the royalty liability by a
change in the royalty rate to 2.25% and it would be US$2,925,856 higher and
for a US$1,000/t increase/decrease in future nickel price and future cobalt
price the carrying value would change by US$1,981,761.
Vermelho Royalty Araguaia Royalty Total
US$ US$ US$
Net book amount at 1 January 2021 - 30,131,755 30,131,755
Unwinding of discount - 4,637,057 4,637,057
Change in carrying value - 9,727,692 9,727,692
Net book amount at 31 December 2021 - 44,496,504 44,496,504
Initial recognition 25,000,000 - 25,000,000
Embedded derivative - initial valuation 9,848,175 - 9,848,175
Transaction costs (847,939) - (847,939)
Unwinding of discount 4,448,595 5,350,666 9,799,261
Change in carrying value 2,513,156 (1,063,902) 1,449,254
Net book amount at 31 December 2022 40,961,987 48,783,268 89,745,255
b) Derivative financial asset
b.1) Araguaia 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 of US$18,721/t Ni (2021:US$16,941/t Ni), the start date of commercial
production in March 2024 (2021: May 2023), the prevailing royalty rate of
2.95% (2021: 2.95%), the inflation rate of 2.22% (2021: 1.76%), and volatility
of nickel prices of 39.7% (2021: 22.1%).
Sensitivity analysis
The valuation of the Buyback option is most sensitive to future nickel price
estimates and nickel price volatility.
A 15% adjustment to the estimated future nickel price would result in a
variance between US$2.7million and US$3million in the valuation.
b.2) Vermelho derivative financial assets
Horizonte has the right to buy back 50% of the royalty on the first four
anniversaries of closing (or on any direct or indirect change of control in
respect of Vermelho up until the fourth anniversary of closing).
After the 4th anniversary, Horizonte has the right to buy back 50% of the
royalty on any direct or indirect change of control in respect of Vermelho at
a valuation that meets certain minimum economic returns for OMF.
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 has 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 (US$18,721/t Ni), the future cobalt price (US$56,950/t Co), the
production profile from 2027 to 2065, the expected royalty rate (2.1%), the
inflation rate (2.22%), volatility of nickel prices (22.1%) and volatility of
cobalt prices (28.0%).
Sensitivity analysis
The valuation of the Buyback option is sensitive to estimates for nickel and
cobalt prices and their respective volatilities.
A 15% adjustment to the estimated future nickel and cobalt prices would result
in a variance of US$3.7 million in the valuation.
Refer to the table below for the summary of the derivative financial assets
valuation:
Vermelho Royalty Araguaia Royalty Total
US$ US$ US$
Value as at 1 January 2021 - 2,400,000 2,400,000
Change in fair value - 2,550,000 2,550,000
Value as at 31 December 2021 - 4,950,000 4,950,000
Initial recognition 9,848,175 - 9,848,175
Change in fair value (366,284) 57,496 (308,788)
Value as at 31 December 2022 9,481,891 5,007,496 14,489,387
22 Convertible loan notes
On 29 March 2022 the Company issued convertible loan notes to the value of
US$65 million at an interest rate of 11.75% with interest accruing quarterly
in arrears. The convertible loan notes were issued at a discount of 5.75%. The
maturity date of the instruments is 15 October 2032.
The convertible loan notes are unsecured and the noteholders will be repaid as
follows:
· Interest shall be capitalised until the Araguaia Project
Completion date, estimated to be 31 December 2025 (subject to various
technical operating tests being passed)
· After Project Completion Date, interest shall be paid quarterly
only if there is available cash (after the company meets its senior debt and
other senior obligations)
· After Project Completion Date, principal repayments (including
accrued capitalized interest) shall be paid quarterly subject to available
cash for distribution. In addition, a cash sweep of 85% of excess cash will
apply on each interest payment date
· Any amount outstanding on the CLN on the maturity date 15 October
2032, Horizonte is obliged to settle in full on the maturity date.
At any time until the Maturity Date, the Noteholder may, at its option,
convert the notes, partially or wholly, into a number of ordinary shares up to
the total amount outstanding under the Convertible Note divided by the
Conversion Price. The Conversion Price is 125% of the Subscription Price of
0.07 pence (after share consolidation 1.40 pence converted to US$ at a rate of
1.3493). The Conversion Price is therefore US$1.89. After the equity fundraise
that was completed on 8 November 2022 (refer to note 14) the conversion price
was revised to £1.268 /US$1.71.
The convertible loan is a hybrid financial instrument, whereby a debt host
liability component and an embedded derivative liability component was
determined at initial recognition. The conversion option did not satisfy the
fixed for fixed equity criterion (fixed number of shares and fixed amount of
functional currency cash) as the currency of the convertible loan notes is US
Dollar and the functional currency of Horizonte Minerals Plc and its share
price is GBP.
For convertible notes with embedded derivative liabilities, the fair value of
the embedded derivative liability is determined first and the residual amount
is assigned to the debt host liability.
The initial recognition of the embedded derivative conversion feature has been
recognised as a liability on the balance sheet with any changes to the fair
value of the derivative recognised in the income statement. It has been fair
valued using a Monte Carlo simulation which runs a high number of scenarios in
order to derive an estimated valuation. The Monte Carlo simulation was
performed at the transaction date 29 March 2022 and at the year-end date 31
December 2022.
The assumptions for the valuation of the conversion feature (per the Monte
Carlo simulation) at initial recognition are the Horizonte Minerals Plc future
share price volatility (60.3%), GBP: USD exchange rate volatility (11.1%) on
the conversion price. At the year end date the share price volatility
assumption was 42.9% and the GBP: USD exchange rate volatility assumption 10%.
At 29 March 2022 the fair value of the conversion feature was calculated (per
the Monte Carlo simulation) as US$36,458,088. The proceeds received was US$
61,262,500 and thus the residual allocated to the debt host liability was
US$24,804,412.
The debt host liability will be accounted for using the amortised cost basis
with an effective interest rate of 34%. The effective interest rate is
recalculated after adjusting for the transaction costs and the discount of
5.75%. The Group will recognise the unwinding of the discount at the effective
interest rate, until the maturity date, the carrying amount at the maturity
date will equal the cash payment required to be made.
The directly attributable transaction costs amounted to US$2,347,041 which was
allocated proportionately to the embedded derivative (US$1,396,754) and the
convertible loan notes liability (US$ 950,287). The embedded derivative
transaction costs were recognised in profit and loss, whereas the convertible
loan liability transaction costs were deducted from the financial liability
carrying amount.
After the fifth anniversary of the closing date, Horizonte shall have a
one-time right to redeem the Convertible Notes, in whole, at 105% of the par
value plus accrued and unpaid interest in cash if:
1. The thirty-business day VWAP of Horizonte shares exceeds 200% of
the Conversion Price and the average daily liquidity of the Company's shares
(across all relevant exchanges) exceeds US$2.5 million per trading day over
the prior 30 trading days; or
2. There is a change of control.
Management have assessed the likelihood of the above events occurring is
highly improbable and thus the value of the redemption right is immaterial and
was thus not considered in the valuation of the instrument.
Sensitivity analysis - Conversion feature derivative
The valuation of the conversion feature derivative is sensitive to the
Company's equity price and share price volatility. A 15% adjustment on the
Company's equity price results in a variance of between US$7.6million and
US$8.3million in the valuation. A 30% adjustment on the equity volatility
results in a variance of US4.9million.
Embedded derivative Convertible loan notes liability Total
US$ US$ US$
Initial recognition (after discount on issue) 36,458,088 24,804,412 61,262,500
Transaction costs - (950,287) (950,287)
Unwinding of discount - 5,956,508 5,956,508
Change in fair value (6,821,201) - (6,821,201)
Value as at 31 December 2022 29,636,887 29,810,633 59,447,520
23 Cost overrun facility
On 30 November 2022, the Group satisfied all conditions precedent in relation
to the cost overrun facility (COF) and had received all COF funds from Orion.
The COF benefits from the same security package as the senior debt facility
but will be subordinated to the senior debt facility. Access to the COF funds
is restricted and will only be available in the case of a cost overrun against
the Araguaia Project construction schedule and budget, subject to certain
conditions including:
90% of the funding from the Equity Fundraise and Convertible loan notes have
been invested in the construction of the Araguaia Project
A gearing ratio of 70:30 being met
The COF is US$25million with an interest rate of 13% and a maturity date of 15
October 2032. Interest will be calculated quarterly and be payable in arrears
at the end of each interest period - March 31, June 30, September 30 and
December 31. The first interest period was 30 November to 31 December 2022.
The initial principal repayment date is 31 March 2025. 3.23% of the
outstanding principal amount will be paid at each quarter end date starting
from 31 March 2025.
The COF will be accounted for using the amortised cost basis with an effective
interest rate of 15%. The effective interest rate is recalculated after
adjusting for the transaction costs. The Group will recognise the unwinding of
the discount at the effective interest rate, until the maturity date, the
carrying amount at the maturity date will equal the cash payment required to
be made.
Total
US$
Initial recognition 25,000,000
Transaction costs (1,198,634)
Unwinding of discount 288,321
Interest repayments (279,860)
Value as at 31 December 2022 23,809,827
24 Senior debt facility
On 15 March 2022 the Group entered into legally binding documentation
including a comprehensive intercreditor agreement and loan agreements with two
export credit agencies in relation to its senior secured project finance debt
facility of US$346.2 million. The senior debt facility was executed between
Araguaia Niquel Metais LTDA, and a syndicate of international financial
institutions, being BNP Paribas, BNP Paribas Fortis, ING Capital LLC, ING Bank
N.V., Natixis, New York Branch, Société Générale and SEK (Swedish Export
Credit Corporation).
The senior debt facility includes 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 (Denmark's Export
Credit Agency);
· ECA facility of US$71,638,000 guaranteed by Finnvera plc
(Finland's Export Credit Agency);
On 7 December 2022, the Group satisfied all conditions precedent for the first
utilisation under the senior debt facility of US$346.2 million. The first
utilisation was for US$5million.
The interest rate on the ECA facility is calculated according to this formula
: Margin + Term SOFR (Secured Overnight Financing Rate) + Baseline Credit
Adjustment Spread (CAS). The ECA Facility margin is 1.8%. The Term SOFR was
the first interest period was 4.21714% and the Baseline CAS 0.11448%. The ECA
facility interest rate was therefore 6.13162% at 31 December 2022.
The interest rate on the Commercial facility is calculated according to this
formula : Margin + Term SOFR (Secured Overnight Financing Rate) + Baseline
Credit Adjustment Spread (CAS). The Commercial Facility margin is 4.75%. The
Term SOFR was the first interest period was 4.21714% and the Baseline CAS
0.11448%. The ECA facility interest rate was therefore 9.08162% at 31 December
2022.
Interest will be calculated quarterly and be payable in arrears at the end of
each interest period - March 31, June 30, September 30 and December 31. The
first interest period was 7 to 31 December 2022. The initial principal
repayment date is 31 March 2025. The outstanding principal amount will be paid
according to the repayment schedule at each quarter end date starting from 31
March 2025.
The final maturity date on the Commercial Facility is 15 July 2030. The final
maturity date on the ECA Facility is 15 July 2032.
The ECA and Commercial Facilities will be accounted for using the amortised
cost basis with effective interest rates of 12.25% and 11.57% respectively.
The effective interest rate is recalculated after adjusting for the
transaction costs. The Group will recognise the unwinding of the discount at
the effective interest rate, until the maturity date, the carrying amount at
the maturity date will equal the cash payment required to be made.
The Senior Debt Facility is secured via a comprehensive security package which
includes:
· Pledge of shares in the Araguaia Níquel Metais Ltda. (the
"Borrower");
· Pledge of shares of the guarantors (other than Horizonte Minerals
plc);
· First ranking security over all of the Araguaia Project's assets
(including its mineral rights);
· Assignment of insurance policies;
· Assignment of material project contracts (including rights under
hedge agreements);
· Charge over certain bank accounts of the Borrower (including the
debt service bank account, the cost overrun account and the insurance proceeds
account); and
· Assignment of credit related to intercompany loans (by the Group
borrowing entity) and subordination of the debt related to inter-company loans
(by the Group lending entity).
ECA Facility Commercial Facility Total
US$ US$ US$
Initial recognition 2,111,496 2,888,504 5,000,000
Transaction costs (446,399) (232,137) (678,536)
Unwinding of discount 12,660 19,148 31,808
Interest repayments (8,271) (16,760) (25,031)
Value as at 31 December 2022 1,669,486 2,658,755 4,328,241
As at 31 December 2022 the drawn vs undrawn balance on the senior debt
facility was as follows:
Drawn Undrawn Total
Commercial Facility 2,888,504 343,311,496 346,200,000
EKF ECA Facility 1,076,863 73,485,137 74,562,000
Finnvera ECA Facility 1,034,633 70,603,367 71,638,000
Events after the reporting date
Non-adjusting events after the reporting date
On 27 February 2023, the Group announced that it had drawn down US$50million
from it senior secured project finance debt facility of US$346.2million.
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