REG - Horizonte Minerals - Final Results <Origin Href="QuoteRef">HZM.L</Origin> - Part 2
17/03/2017 07:06
- Part 2: For the preceding part double click ID:nRSQ7459Za
subsequent period, the amount of the impairment loss decreases and
the decrease can be related objectively to an event occurring after the
impairment was recognised (such as an improvement in the debtor's credit
rating), the reversal of the previously recognised impairment loss is
recognised in the Consolidated Income Statement.
2.12 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.
2.13 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.
2.14 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
This category comprises the contingent consideration which are carried in the
consolidated statement of financial position at
fair value with changes in fair value recognised in the consolidated statement
of comprehensive income.
Other financial liabilities
Trade payables and other short-term monetary liabilities, which are initially
recognised at fair value and subsequently carried at amortised cost using the
effective interest method.
2.15 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.
2.16 Operating leases
Leases of assets under which a significant amount of the risks and benefits of
ownership are effectively retained by the lessor are classified as operating
leases. Operating lease payments are charged to the Income Statement on a
straight-line basis over the period of the respective leases.
2.17 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.
2.18 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").
2.19 Finance income
Interest income is recognised using the effective interest method, taking into
account the principal amounts outstanding and the interest rates applicable.
2.20 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.
3 Financial risk management
3.1 Financial risk factors
The main financial risks to which the Group's activities are exposed are
liquidity and fluctuations on foreign currency. The Group's overall risk
management programme focusses on the unpredictability of financial markets and
seeks to minimise potential adverse effects on the Group's financial
performance.
Risk management is carried out by the Board of Directors under policies
approved at the quarterly Board meetings. The Board frequently discusses
principles for overall risk management including policies for specific areas
such as foreign exchange.
(a) Liquidity risks
In keeping with similar sized mineral exploration groups, the Group's
continued future operations depend on the ability to raise sufficient working
capital through the issue of equity share capital. The Group monitors its cash
and future funding requirements through the use of cash flow forecasts.
All cash, with the exception of that required for immediate working capital
requirements, is held on short-term deposit.
(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 2016, if the Brazilian Real had weakened/strengthened by 20%
against Pound Sterling and US Dollar with all other variables held constant,
post tax loss for the year would have been approximately £41,448 lower/higher
mainly as a result of foreign exchange losses/gains on translation of
Brazilian Real expenditure and denominated bank balances.
(c) Interest rate risk
As the Group has no borrowings, it is not exposed to interest rate risk on
financial liabilities. The Group's interest rate risk arises from its cash
held on short-term deposit for which the Directors use a mixture of fixed and
variable rate deposits. As a result, fluctuations in interest rates are not
expected to have a significant impact on profit or loss or equity.
(d) Price risk
Given the size and stage of the Group's operations, the costs of managing
exposure to commodity price risk exceed any potential benefits. The Directors
will revisit the appropriateness of this policy should the Group's operations
change in size or nature.
(e) Credit risk
Credit risk arises from cash and cash equivalents and outstanding receivables.
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.
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 debt at 31 December 2016 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 fair
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.
4 Critical accounting estimates and judgements
The preparation of the Financial Statements in conformity with IFRSs requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the end of the reporting period and the reported amount of expenses during
the year. Actual results may vary from the estimates used to produce these
Financial Statements.
Estimates and judgements are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances.
Significant items subject to such estimates and assumptions include, but are
not limited to:
4.1 Impairment of exploration and evaluation costs
Exploration and evaluation costs have a carrying value at 31 December 2016 of
£31,737,737 (2015: £20,159,327 ). Each exploration project is subject to an
annual review by either a consultant or senior company geologist to determine
if the exploration results returned to date warrant further exploration
expenditure and have the potential to result in an economic discovery. This
review takes into consideration long-term metal prices, anticipated resource
volumes and grades, permitting and infrastructure. In the event that a project
does not represent an economic exploration target and results indicate there
is no additional upside, a decision will be made to discontinue exploration.
4.2 Estimated impairment of goodwill
Goodwill has a carrying value at 31 December 2016 of £280,059 (2015: £192,028
) which is included in intangible assets. The Group tests annually whether
goodwill has suffered any impairment, in accordance with the accounting policy
stated in note 2.7.
Management has concluded that there is no impairment charge necessary to the
carrying value of goodwill. See also note 10 to the Financial Statements.
4.3 Contingent consideration
Contingent consideration has a carrying value of £3,643,042, at 31 December
2016 (2015: £3,161,591). there are two contingent consideration arrangements
in place as at 31 December 2016:
· A contingent consideration arrangement that requires the Group to pay the
former owners of Teck Cominco Brasil S.A (subsequently renamed Araguaia Niquel
Mineração Ltda) 50% of the tax effect upon utilisation of the tax losses
existing in Teck Cominco Brasil S.A at the date of acquisition. Under the
terms of the acquisition agreement, tax losses that existed at the date of
acquisition and which are subsequently utilised in a period greater than 10
years from that date are not subject to the contingent consideration
arrangement.
This acquisition was accounted for as a business combination and an assessment
of the fair value of the contingent consideration was made at the date of
acquisition. This fair value is reassessed in each subsequent accounting
period. In arriving at an estimate of the fair value management make an
assessment of the probability of utilisation of all or part of the tax losses
by the end of the 10 year period which is August 2020. The Group has used
discounted cash flow analysis to determine when it is anticipated that the tax
losses will be utilised and any potential contingent consideration paid. These
cash flows could be affected by movements in a number of factors including the
timing of the development and commissioning of the project, commodity prices,
operating costs, capital expenditure, production levels, grades, recoveries
and interest rates. Because of the condition of the acquisition agreement to
utilise tax losses prior to August 2020 a critical assumption in the
assessment of value of the contingent consideration is the timing of
commencement of profitable production.
As explained in note 21, following a reassessment of the IFRS accounting
requirements, management has determined that the value attributed to the
contingent consideration must be reviewed at the end of each reporting period
and adjusted to reflect the current best estimate. This review was not
completed in prior years and accordingly, a restatement of prior years'
financial statements has been made.
· A contingent consideration arrangement that requires the Group to pay
Xstrata Brasil Mineração Ltda US$1,000,000 after the date of issuance of a
Feasibility Study comprising the Araguaia project and the Vale dos Sonhos
('VdS') and Serra do Tapa ('SdT') project areas ('GAP') (together the
'Enlarged Project'), to be satisfied in shares in the Company (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; and remaining
consideration of US$5,000,000 to be paid in cash, as at the date of first
commercial production from any of the resource areas within the Enlarged
Project area. The critical assumptions relating to the assessment of the
contingent consideration of S$5,000,000 are similar to those described above
for the contingent consideration payable to the former owners of Teck Cominco
Brasil S.A.
The Contingent consideration is considered to be a level 3 hierarchy
valuation, the following are unobservable inputs for the valuation model:
Discount rate and probability factor. In addition, the model includes the
foreign exchange rate.
Management have sensitized the fair value calculation to reasonable changes in
the unobservable inputs and note that if the discount rate were to increase to
10% then the FV would decrease to £3,387,315
Management have sensitized the probability factor and note that a change in
the probability weighting of 25% would cause the overall value of the
contingent consideration to increase by £96,207.
There has been no change in valuation technique during the period.
4.4 Current and deferred taxation
The Group is subject to income taxes in numerous jurisdictions. Judgment is
required in determining the worldwide provision for such taxes. The Group
recognises liabilities for anticipated tax issues based on estimates of
whether additional taxes will be due. Where the final tax outcome of these
matters is different from the amounts that were initially recorded, such
differences will affect the current and deferred income tax assets and
liabilities in the period in which such determination is made.
Deferred tax liabilities have been recognised on the fair value gains in
exploration assets arising on the acquisitions of Araguaia Niquel Mineração
Ltda (formerly Teck Cominco Brasil S.A) and Lontra Empreendimentos e
Participações Ltda. A deferred tax asset in respect of the losses has been
recognised on acquisition of Araguaia Niquel Mineração Ltda to the extent that
it can be set against the deferred tax liability arising on the fair value
gains. In determining whether a deferred tax asset in excess of this amount
should be recognized management must make an assessment of the probability
that the tax losses will be utilized and a deferred tax asset is only
recognised if it is considered probable that the tax losses will be utilized.
As explained in note 21, following a reassessment of the IFRS accounting
requirements, management has determined based on information available at the
time of preparation of the 2010 financial statements, the utilization of these
losses had a lower probability at the time of the acquisition in 2010 and a
restatement derecognizing the deferred tax asset has been made. Management
review the position each financial period and this assessment remains.
4.5 Other areas
Other estimates include but are not limited to future cash flows associated
with assets, useful lives for depreciation and fair value of financial
instruments.
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 reports used by the chief operating
decision-maker are based on these geographical segments.
2016 UK Brazil Other Total
2016 2016 2016 2016
£ £ £ £
Administrative expenses (802,409) (207,214) - (1,009,623)
Loss on foreign exchange 46,454 18,787 - 65,241
Loss from operations per reportable segment (755,955) (188,427) - (944,382)
Depreciation charges (970) (114) - (1,084)
Additions to non-current assets - 11,578,410 - 11,578,410
Reportable segment assets 9,309,132 32,062,800 - 41,371,932
Reportable segment non-current assets - 32,018,658 - 32,018,658
Reportable segment liabilities 3,969,966 347,511 - 4,317,477
2015 (Restated) UK Brazil Other Total
2015 2015 2015 2015 (Restated)
£ £ £ £
Administrative expenses (662,305) (189,234) (13,353) (864,892)
Loss) on foreign exchange (114,838) (136,571) - (251,409)
Loss from operations per reportable segment (777,143) (325,805) (13,353) (1,116,301)
Depreciation charges (1,037) (382) - (1,419)
Additions to non-current assets - (645,313) - (645,313)
Reportable segment assets 2,687,317 20,455,743 - 23,143,060
Reportable segment non-current assets - 20,363,243 - 20,363,243
Reportable segment liabilities 3,249,980 254,296 - 3,504,276
Inter segment revenues are calculated and recorded in accordance with the
underlying intra group service agreements.
A reconciliation of adjusted loss from operations per reportable segment to
loss before tax is provided as follows:
2016£ 2015 (Restated)
£
Loss from operations per reportable segment (944,382) (1,116,301)
Changes in fair value of contingent consideration (refer note 17) (260,632) (26,969)
Charge for share options granted (324,890) (100,248)
Impairment of available-for-sale asset - (253,006)
Finance income 4,387 14,918
Finance costs (220,817) (63,093)
Loss for the year from continuing operations (1,746,334) (1,544,699)
6 Expenses by nature
2016 2015 (Restated)
Group £ £
Charge for share options granted 324,890 100,248
Depreciation (note 11) 1,084 1,419
Operating lease charges 36,053 95,182
Profit on disposal of property, plant and equipment - (24,453)
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 2016 2015
£ £
Fees payable to the Company's auditor and its associates for the audit of the parent company and consolidated financial statements (2015: PKF Littlejohn) 32,000 37,500
Fees payable to the Company's auditor and its associates for other services:
- Audit related assurance services (paid to PKF Litteljohn) 5,000 7,000
-Tax compliance services 2,000 1,900
8 Finance income and costs
Group 2016 2015 (Restated)
£ £
Finance income:
- Interest income on cash and short-term bank deposits 4,387 14,918
Finance costs:
- Contingent consideration: unwinding of discount (220,817) (63,093)
Net finance costs (216,430) (48,175)
9 Income Tax
Group 2016 2015 (Restated)
£ £
Tax charge:
Current tax charge for the year - -
Deferred tax charge for the year - -
Tax on loss for the year - -
Reconciliation of current tax
Group 2016 2015 (Restated)
£ £
Loss before income tax (1,746,334) (1,544,699)
Current tax at 22.87% (2015: 32.52%) (399,387) (502,336)
Effects of:
Expenses not deducted for tax purposes 9,080 46,319
Utilisation of tax losses brought forward - (150,480)
Tax losses carried forward for which no deferred income tax asset was recognised - UK - -
Tax losses carried forward for which no deferred income tax asset was recognised - Brazil 408,466 606,497
Total tax - -
No tax charge or credit arises on the loss for the year.
The weighted average applicable tax rate of 22.87% used is a combination of
the 20% effective standard rate of corporation tax in the UK, 34% Brazilian
corporation tax. The weighted average applicable tax rate has decreased from
32.52% to 22.87% as a greater proportion of loss before income tax arose in
the UK.
Deferred income tax
An analysis of deferred tax assets and liabilities is set out below.
Group 2016 2015 (Restated)
£ £
Deferred tax assets 4,744,885 6,920,143
Deferred tax liabilities
- Deferred tax liability to be settled after more than 12 months (5,027,335) (7,113,808)
Deferred tax liabilities (net) (282,450) (193,665)
The movement on the net deferred tax liabilities is as follows:
Group 2016 2015 (Restated)
£ £
At 1 January (193,665) (273,273)
Exchange differences (88,785) 79,608
At 31 December (282,450) (193,665)
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 £18,132,502 (2015: £17,363,000) in
Brazil and excess management charges of approximately £2,492,408 (2015:
£1,690,000) in the UK available to carry forward against future taxable
profits. Deferred tax asset have been recognised up to the amount of the
deferred tax liability arising on the fair value adjustments potential
deferred tax assets of £6,663,532 have not been recognised.
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 ExplorationLicenses Exploration and Total
£ £ evaluation costs £
£
Cost
At 1 January 2015 (Restated) 270,925 - 20,804,640 21,075,565
Additions - 3,174,275 2,540,833 5,715,108
Exchange rate movements (78,897) - (6,360,421) (6,439,318)
At 31 December 2015 (Restated) 192,028 3,174,275 16,985,052 20,351,355
Additions - 1,012,620 1,253,212 2,265,831
Exchange rate movements 88,032 1,458,290 7,854,288 9,400,610
Net book amount at 31 December 2016 280,060 5,645,185 26,092,551 32,017,796
(a) Exploration and evaluation assets
No indicators of impairment were identified during the year.
In October 2016, a Canadian NI 43-101 compliant Pre-Feasibility Study ('PFS')
was published by the Company regarding the enlarged Araguaia Project which
included the areas recently acquired from Glencore Xstrata. The financial
results and conclusions of the PFS clearly indicate the economic viability of
the Araguaia Project. The Directors undertook an assessment of impairment
through evaluating the results of the PFS and judged that no impairment was
required with regards to the Araguaia Project.
(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.
Impairment reviews 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 recoverable amount has been determined by reference to the PFS undertaken
during the year on the Araguaia Project. The key inputs and assumptions in
deriving the value in use were, the discount rate of 8%, Nickel price of
US$12,000/t and a life of mine of 28years.
Sensitivity to changes in assumptions
For the base case NPV8 of the Araguaia Project of US$581 million using a
nickel price of US$14,000/t and US$328 million using US$12,000/t as per the
PFS to be reduced to the book value of the Araguaia Project as at 31 December
2016, the discount rate applied to the cash flow model would need to be
increased from 8% to 21%.
11 Property, plant and equipment
Group Vehicles and Office Total
other field equipment £
equipment £
£
Cost
At 1 January 2015 152,089 14,730 166,819
Disposals (40,089) - (40,089)
Foreign exchange movements (37,353) (2,134) (39,487)
At 31 December 2015 74,647 12,596 87,243
Foreign exchange movements 31,657 1,802 33,459
At 31 December 2016 106,304 14,398 120,702
Accumulated depreciation
At 1 January 2015 104,117 8,312 112,429
Charge for the year 26,245 2,469 28,714
Disposals (26,916) - (26,916)
Foreign exchange movements (37,807) (1,065) (38,872)
At 31 December 2015 65,639 9,716 75,355
Charge for the year 11,766 2,614 14,380
Foreign exchange movements 28,320 1,785 30,105
At 31 December 2016 105,725 14,115 119,840
Net book amount as at 31 December 2016 579 283 862
Net book amount as at 31 December 2015 9,008 2,880 11,888
Net book amount as at 1 January 2015 47,972 6,418 54,390
Depreciation charges of £13,296 (2015: £27,295 ) have been capitalised and
included within intangible exploration and evaluation asset additions for the
year. The remaining depreciation expense for the year ended 31 December 2016
of £1,084 (2015: £1,419 ) has been charged in 'administrative expenses' under
'Depreciation.'
Company Field Office Total
equipment equipment £
£ £
Cost
At 1 January 2015 4,208 7,403 11,611
Additions - - -
At 31 December 2015 and 2016 4,208 7,403 11,611
Accumulated depreciation
At 1 January 2015 4,208 5,112 9,320
Charge for the year - 1,037 1,037
At 31 December 2015 4,208 6,149 10,357
Charge for the year - 971 971
At 31 December 2016 4,208 7,120 11,328
Net book amount as at 31 December 2016 - 283 283
Net book amount as at 31 December 2015 - 1,254 1,254
Net book amount as at 1 January 2015 - 2,291 2,291
12 Cash and cash equivalents
Group Company
2016 2015 2016 2015
£ £ £ £
Cash at bank and on hand 9,250,281 2,676,160 9,094,308 2,519,018
Short-term deposits 67,500 62,745 49,685 49,248
9,317,781 2,738,905 9,143,993 2,568,266
The Group's cash at bank and short-term deposits are held with institutions
with the following credit ratings (Fitch):
Group Company
2016 2015 2016 2015
£ £ £ £
A 9,217,380 2,616,981 9,094,308 2,519,018
BBB- 100,401 121,924 49,685 49,248
9,317,781 2,738,905 9,143,993 2,568,266
13 Share capital
Group and Company 2016 2016 2015 2015
Number £ Number £
Issued and fully paid
Ordinary shares of 1p each
At 1 January 671,204,378 6,712,044 492,427,105 4,924,271
Issue of ordinary shares 500,729,922 5,007,299 178,777,273 1,787,773
At 31 December 1,171,934,300 11,719,343 671,204,378 6,712,044
Share capital comprises amount subscribed for shares at the nominal value.
2016
On 8 August 2016, a total of 50,729,922 new ordinary shares were issued at the
prevailing market price of £0.0199 per share in consideration for the purchase
of the Vale dos Sonhos mineral concession from Xstrata Brasil Mineração Ltda.
On 30 November 2016, a total of 374,000,000 shares were issued through a
private placement at a price of £0.02 per share to raise £7,480,000 before
expenses.
On 2 December 2016, a total of 76,000,000 shares were issued through a private
placement at a price of £0.02 per share to raise £1,520,000 before expenses.
2015
On 2 October 2015, a total of 112,500,000 shares were issued through a private
placement at a price of £0.01 per share to raise £1,125,000 before expenses.
On 9 October 2015, a total of 42,500,000 shares were issued through a private
placement at a price of £0.01 per share to raise £425,000 before expenses.
On 25 November 2015, a total of 23,777,273 shares were issued at £0.0184 per
share in consideration for the purchase of the Vale dos Sonhos mineral
concession from Xstrata Brasil Mineração Ltda.
14 Share premium
Group and Company 2016 2015
£ £
At 1 January 31,252,708 31,095,370
Premium arising on issue of ordinary shares 5,005,662 200,300
Issue costs (490,685) (42,962)
At 31 December 35,767,344 31,252,708
Share premium comprises the amount subscribed for share capital in excess of
nominal value.
15 Share-based payments
The Directors have discretion to grant options to the Group employees to
subscribe for Ordinary shares up to a maximum of 10% of the Company's issued
share capital. One third of options are exercisable at each six months
anniversary from the date of grant, such that all options are exercisable 18
months after the date of grant and all lapse on the tenth anniversary of the
date of grant or the holder ceasing to be an employee of the Group. Should
holders cease employment then the options remain valid for a period of 3
months after cessation of employment, following which they will lapse. Neither
the Company nor the Group has any legal or constructive obligation to settle
or repurchase the options in cash.
Movements on number of share options and their related exercise price are as
follows:
Number of Weighted Number of Weighted
options average options average
2016 exercise 2015 exercise
£ price £ price
2016 2015
£ £
Outstanding at 1 January 48,760,000 0.124 38,300,000 0.119
Forfeited (8,450,000) 0.092 (2,790,000) 0.151
Granted 15,000,000 0.030 13,250,000 0.040
Outstanding at 31 December 55,310,000 0.079 48,760,000 0.096
Exercisable at 31 December 36,760,000 0.102 30,693,333 0.124
The options outstanding at 31 December 2016 had a weighted average remaining
contractual life of 7.28 years (2015: 7.45 years).
The fair value of the share options was determined using the Black-Scholes
valuation model.
The parameters used are detailed below.
Group and Company 2016 2015
options options
Date of grant or reissue 01/09/2016 10/06/2015
Weighted average share price 2.03 pence 2.63 pence
Weighted average exercise price 3.00 pence 4.00 pence
Expiry date 31/08/2026 09/06/2025
Options granted 15,000,000 13,250,000
Volatility 64% 75%
Dividend yield Nil Nil
Option life 10 years 10 years
Annual risk free interest rate 2.83% 2.83%
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 2016 2016 2016 2016 2015 2015 2015 2015
of exercise prices (£) 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 0.049 39,850,000 8.34 8.34 0.060 30,300,000 8.62 8.62
0.1-0.2 0.154 15,460,000 4.57 4.57 0.154 18,460,000 5.53 5.53
16 Other reserves
Available-for-sale Merger Translation Other
reserve reserve reserve reserve Total
Group £ £ £ £ £
At 1 January 2015 (As previously reported) (253,006) 10,888,760 (9,909,255) (1,048,100) (321,601)
Refer note 22 c - - 1,574,535 - 1,574,535
At 1 January 2015 (Restated) (253,006) 10,888,760 (8,334,720) (1,048,100) 1,252,934
Permanent diminution taken to income 253,006 - - - 253,006
Currency translation differences - - (6,354,056) - (6,354,056)
At 31 December 2015 (Restated) - 10,888,760 (14,688,776) (1,048,100) (4,848,116)
Other comprehensive income - - - - -
Currency translation differences - - 9,315,180 - 9,315,180
At 31 December 2016 - 10,888,760 (5,373,596) (1,048,100) 4,467,064
Company Merger Total
reserve £
£
At 1 January 2015 and 31 December 2015 10,888,760 10,888,760
At 1 January 2016 and 31 December 2016 10,888,760 10,888,760
The merger and other reserve as at 31 December 2016 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.
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 increased in value against Sterling
during the year.
The available for sale reserve represents changes in the fair value of assets
that are held available for sale.
17 Trade and other payables
Group Company
2016 2015 (Restated) 2016 2015 (Restated)
£ £ £ £
Non-current
Contingent consideration payable to former owners of Teck Cominco Brasil S.A. 115,100 354,713 115,100 354,713
Contingent consideration payable to Xstrata Brasil Mineração Ltda (refer note 27) 3,527,942 2,806,878 3,527,942 2,806,878
Total contingent consideration 3,643,042 3,161,591 3,643,042 3,161,591
Current
Trade and other payables 229,046 16,038 148,985 10,377
Amounts due to related parties (refer note 22) - - 413,930 413,930
Social security and other taxes 19,088 21,519 19,088 15,533
Accrued expenses 143,851 111,463 165,052 63,033
391,985 149,020 747,055 502,873
Total trade and other payables 4,035,027 3,310,611 4,390,097 3,664,464
Trade and other payables include amounts due of £65,053 (2015: £65,748 ) in
relation to exploration and evaluation activities.
Contingent Consideration payable to the former owners of Teck Cominco Brasil
S.A.
The fair value of the contingent consideration arrangement with the former
owners of Teck Cominco Brasil S.A. was estimated at the acquisition date
according to the probability and timing of when future taxable profits will
arise against which the tax losses may be utilised in accordance with the
terms of the acquisition agreement.
As explained in note 21 the estimate of fair value has been restated and is
now assessed to be £115,100 (2015 £354,713). The critical assumptions
underlying the fair value estimate are set out in note 4.3. Estimates were
also based on the current rates of tax on profits in Brazil of 34% and a
discount factor of 7.0% was applied to the future dates at which the tax
losses will be utilised and consideration paid.
Contingent Consideration payable to Xstrata Brasil Mineração Ltda
On 28 September 2015 the Company announced that it had reached agreement to
indirectly acquire through wholly owned subsidiaries in Brazil the advanced
high-grade Glencore Araguaia nickel project ('GAP') in north central Brazil.
GAP is located in the vicinity of the Company's Araguaia Project.
Pursuant to a conditional asset purchase agreement ('Asset Purchase
Agreement') between, amongst others, the Company and Xstrata Brasil Exploraçâo
Mineral Ltda ('Xstrata'), a wholly-owned subsidiary of Glencore Canada
Corporation ('Glencore'), the Company has agreed to pay a total consideration
of US$8 million to Xstrata, which holds the title to GAP. The consideration
is to be paid according the following schedule;
· US$2,000,000 in ordinary shares in the capital of the Company which as at
31 December 2016 had been settled by way of issuing new shares in the
Company.
· 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; 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 critical assumptions underlying the treatment of the contingent
consideration are set out in note 4.3.
As at 31 December 2016, there was a finance expense of £193,868 (2015:
£14,505) recognised in finance costs within the Statement of Comprehensive
Income in respect of the contingent consideration arrangement, as the discount
applied to the contingent consideration at the date of acquisition was
unwound.
18 Dividends
No dividend has been declared or paid by the Company during the year ended 31
December 2016 (2015: nil).
19 Earnings per share
(a) Basic
The basic loss per share of 0.240p loss per share (2015 loss per share:
0.290p) 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.
2016 2015
Group £ £
Loss attributable to owners of the parent (1,746,334) (1,544,699)
Weighted average number of ordinary shares in issue 727,096,642 531,868,151
(b) Diluted
The basic and diluted loss per share for the years ended 31 December 2016 and
31 December 2015 are the same as the effect of the exercise of share options
would be anti-dilutive.
Details of share options that could potentially dilute earnings per share in
future periods are set out in note 15.
20 Related party transactions
The following transactions took place with subsidiaries in the year:
A fee totalling £312,043 (2015: £232,829) was charged to HM do Brazil Ltda,
£872,784 (2015: £639,814) to Araguaia Niquel Mineração Ltda and £58,806 to
Typhon Brasil Mineração Ltda by Horizonte Minerals Plc in respect of
consultancy services provided and funding costs.
Amounts totalling £782,926 (2015: £4,919,360) were lent to HM Brazil (IOM)
Ltd, HM do Brasil Ltda, Araguaia Niquel Mineraçao Ltda and Typhon Brasil
Mineração Ltda to finance exploration work during 2016, by Horizonte Minerals
Plc. Interest is charged at an annual rate of 6% on balances outstanding
during the year.
Balances with subsidiaries at the year end were:
2016 2016 2015 2015
Assets Liabilities Assets Liabilities
Company £ £ £ £
HM do Brasil Ltda 792,301 - 845,808 -
Minera El Aguila SAC - - - -
HM Brazil (IOM) Ltd 4,933,377 - 4,725,314 -
Horizonte Nickel (IOM) Ltd 26,070,923 - 24,340,018 -
Araguaia Niquel Mineração Ltda 6,074,517 - 4,605,395 -
Horizonte Minerals (IOM) Ltd 253,004 - 253,004 -
Horizonte Exploration Ltd - 413,930 - 413,930
Typhon Brasil Mineração Ltda 3,198,183 - 3,174,275 -
Total 41,322,305 413,930 37,944,114 413,930
All Group transactions were eliminated on consolidation.
On 30 November 2016 a total of 374,000,000,000 shares were issued through a
private placement at a price of £0.02 per share, to raise £7,480,000 before
expenses. As part of this private placement, Henderson Global Investors
subscribed for 50,000,000 shares and Richard Griffiths subscribed for
62,235,000 shares representing 13.4 percent and 16.6 percent respectively of
the private placement. By reason of its existing shareholdings in the Company,
the participation of Henderson Global Investors and Richard Griffiths in the
private placement of 30 November 2016 constituted a related party transaction
under AIM Rule 13 of the AIM Rules for Companies.
On 2 December 2016 a total of 76,000,000 shares were issued through a non
brokered private placement in Canada, at a price of C$0.04 per share. As part
of this private placement, Teck Resources Limited subscribed for 21,517,250
shares representing 28.3 percent of the private placement. By reason of their
existing shareholdings in the Company, the participation of Teck Resources
Limited in the private placement each constitute a related party transaction
under AIM Rule 13 of the AIM Rules for Companies.
On 27 June 2013 the Company signed an agreement for an £8 million Equity
Financing Facility ('EFF') with Darwin Strategic Limited ('Darwin'), a
majority owned subsidiary of Henderson Global Investors' Volantis Capital. The
EFF agreement with Darwin provides Horizonte with an equity line facility
which, subject to certain conditions and restrictions, can be drawn on any
time over 36 months. The floor subscription price in relation to each draw
down is set at the discretion of the Company. Horizonte did not utilise this
facility during the period and it has now lapsed.
21 Restatements of contingent consideration and deferred tax asset
These financial statements reflect prior year adjustments in respect of a
deferred tax asset, contingent consideration and associated exchange
differences and finance costs. Both the deferred tax asset and contingent
consideration arose from the acquisition of Teck Cominco Brasil S.A. in 2010,
which was accounted for as a business combination. The initial recognition of
both of these items required management to make an assessment of the
probabilities of the tax losses being utilised and the fair value of the
contingent consideration to be paid.
Following the recent review undertaken of the relevant recognition criteria,
and conditions relating to both items it has been concluded that the level of
deferred tax recognised at the time of the acquisition requires
re-calculation. The recognition of the deferred tax asset at an early stage in
the Araguaia project did not meet the criteria prescribed by IAS 12 - Income
Taxes, of it being probable that they could be utilised.
It has also been concluded that the fair value of the contingent consideration
applied at time of acquisition similarly requires re calculation. This
liability relates to payments due to the vendors upon utilisation of brought
forward tax losses of Teck Cominco. The payments would be 50% of the tax
effect of the losses utilised from the date of acquisition up to August 2020.
The fair value originally calculated assumed 100% utilisation of the brought
forward tax losses and was not a probability weighted to reflect the
underlying risks of the project and the requirement to utilise the losses
within a set timeframe.
Management now believes that it would be appropriate to restate the Financial
Statements to derecognize the deferred tax asset and re-measure the contingent
consideration as follows:
a) Deferred tax asset
A deferred tax asset of £5,065,976 has been derecognised at 1 January 2015.
A deferred tax asset of £3,590,675 has been derecognised at 31 December 2015.
b) Contingent consideration and finance costs
A contingent consideration liability has been reduced to £335,327 at 1 January
2015.
Finance costs are reduced by £275,336 in the year ended 31 December 2015 in
respect of reversing the unwinding of the discount on the contingent
consideration.
A contingent consideration liability has been reduced to £3,161,591 at 31
December 2015.
c) Foreign exchange translation reserve
An adjustment of £1,574,535 has been made to the foreign exchange translation
reserve at 1 January 2015 in respect of the above adjustments.
A further adjustment of £913,675 has been made to the foreign exchange
translation reserve at 31 December 2015 in respect of further movements of the
deferred tax asset and
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