REG - Horizonte Minerals - Q3 Financial Results
12/11/2021 07:05
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RNS Number : 1465S Horizonte Minerals PLC 12 November 2021
NEWS RELEASE
12 November 2021
QUARTERLY FINANCIAL RESULTS FOR THE THREE MONTHS ENDED 30 SEPTEMBER 2021
Horizonte Minerals Plc, (AIM: HZM; TSX: HZM) (the "Company" or "Horizonte"),
the nickel development company focused on developing its ferro-nickel project
in Brazil ("Araguaia" or "the Project"), announces it has today published its
unaudited financial results for the three month period to 30 September 2021
and the Management Discussion and Analysis for the same period. Both of the
aforementioned documents have been posted on the Company's website
www.horizonteminerals.com (http://www.horizonteminerals.com) and are also
available on SEDAR at www.sedar.com (http://www.sedar.com) .
Highlights for the Period
· Credit approval from a syndicate of international financial
institutions (the "Senior Lenders") and two Export Credit Agencies ("ECAs")
for a senior secured project finance facility (the "Senior Debt Facility") of
up to US$346.2 million to fund the construction and development of Araguaia.
· Significant progress on key Araguaia execution preparation
activities, including competitive tendering for supply of key processing
equipment, electric furnace and project management (EPCM) services.
· Araguaia Operational Readiness Plan well advanced with all key
permits in place for commencement of construction.
· Key environmental and social programmes continuing in preparation
for construction phase at Araguaia
· Mobilisation of Head of Projects to Brazil and appointment of
Engineering, Community, Health and Safety Managers continues the build out of
the project execution team.
· Publication of 2020 Sustainability Report in accordance with
Global Reporting Initiative.
· Strong cash balance of £18.3 million maintained.
For further information, visit www.horizonteminerals.com
(http://www.horizonteminerals.com) or contact:
Horizonte Minerals plc info@horizonteminerals.com
Jeremy Martin (CEO) +44 (0) 203 356 2901
Anna Legge (Corporate Communications)
Peel Hunt (NOMAD & Joint Broker) +44 (0)20 7418 8900
Ross Allister
David McKeown
BMO (Joint Broker) +44 (0) 20 7236 1010
Thomas Rider
Pascal Lussier Duquette
Andrew Cameron
About Horizonte Minerals
Horizonte Minerals plc (AIM & TSX: HZM) is developing two 100% owned, tier
one projects in Parà state, Brazil - the Araguaia Nickel Project and the
Vermelho Nickel-Cobalt Project. Both projects are large scale, high-grade,
low-cost, low-carbon and scalable. Araguaia is construction ready and will
produce 29,000 tonnes of nickel per year to supply the stainless steel market.
Vermelho is at feasibility study stage and will produce 25,000 tonnes of
nickel and 1,250 tonnes of cobalt to supply the EV battery market.
Horizonte's combined near-term production profile of over 50,000 tonnes of
nickel per year positions the Company as a globally significant nickel
producer. Horizonte is developing a new nickel district in Brazil that will
benefit from established infrastructure, including hydroelectric power
available in the Carajás Mining District.
Horizonte Minerals plc
Unaudited Condensed Consolidated Interim Financial Statements for the nine
months ended 30 September 2021
Condensed Consolidated Statement of Comprehensive Income
9 months ended 3 months ended
30 September 30 September
2021 2020 2021 2020
Unaudited Unaudited Unaudited Unaudited
Notes £ £
Administrative expenses (4,033,774) (2,342,987) (1,393,747) (777,847)
Change in fair value of derivative - (433,522) - (433,522)
Change in fair value of special warrant liability 11 (1,174,796) - - -
Gain/(loss) on foreign exchange 348,548 410,804 (1,236,894) (716,015)
Loss before interest and tax (4,860,022) (2,365,705) (2,630,641) (1,927,384)
Net finance (costs)/income 5 (193,409) (219,863) (131,454) 95,872
Loss before taxation (5,053,431) (2,585,568) (2,762,095) (1,831,512)
Taxation - (51,071) - (51,071)
Loss for the year (5,053,431) (2,636,639) (2,762,095) (1,882,583)
Other comprehensive income Items that may be reclassified subsequently to
profit or loss
Currency translation differences on translating foreign operations (1,227,262) (9,232,975) (2,535,698) (1,165,298)
(1,227,262) (9,232,975) (2,535,698) (1,165,298)
Other comprehensive income for the period, net of tax
Total comprehensive income for the period
attributable to equity holders of the Company (6,280,693) (11,869,614) (5,297,793) (3,047,881)
Earnings per share attributable to the equity holders of the Company
Basic & Diluted earnings per share (pence per share) 14 (0.309) (0.182) (0.162) (0.130)
Condensed Consolidated Statement of Financial Position
30 September 31 December
2021 2020
Unaudited Audited
Notes £ £
Assets
Non-current assets
Intangible assets 6 6,208,586 6,220,872
Property, plant & equipment 7 45,914,010 30,839,947
52,122,596 37,060,819
Current assets
Trade and other receivables 607,039 270,540
Derivative financial asset 10 b 1,779,840 1,756,553
Cash and cash equivalents 18,257,410 10,935,563
20,644,289 12,962,656
Total assets 72,766,885 50,023,475
Equity and liabilities
Equity attributable to owners of the parent
Issued capital 8 17,001,558 14,493,773
Share premium 8 56,884,858 41,848,306
Other reserves (14,046,136) (12,818,874)
Accumulated losses (25,991,138) (22,112,503)
Total equity 33,849,142 21,410,702
Liabilities
Non-current liabilities
Contingent consideration 9 6,304,963 5,927,025
Royalty Finance 10 a 27,977,174 22,053,341
34,282,137 27,980,366
Current liabilities
Trade and other payables 4,635,606 632,407
Special warrant liability 11 - -
4,635,606 632,407
Total liabilities 38,917,743 28,612,773
Total equity and liabilities 72,766,885 50,023,475
Condensed statement of changes in shareholders' equity
Attributable to the owners of the parent
Share Share Accumulated Other
capital premium losses reserves Total
£ £ £ £ £
As at 1 January 2020 14,463,773 41,785,306 (19,835,092) (4,666,930) 31,747,057
Comprehensive income
Loss for the period - - (2,636,639) - (2,636,639)
Other comprehensive income
Currency translation differences - - - (9,232,975) (9,232,975)
Total comprehensive income - - (2,636,639) (9,232,975) (11,869,614)
Transactions with owners
Issue of ordinary shares 30,000 63,000 - - 93,000
Total transactions with owners 30,000 63,000 - - 93,000
As at 30 September 2020 (unaudited) 14,493,773 41,848,306 (22,471,731) (13,899,905) 19,970,443
Attributable to the owners of the parent
Share Share Accumulated Other
capital premium losses reserves Total
£ £ £ £ £
As at 1 January 2021 14,493,773 41,848,306 (22,112,503) (12,818,874) 21,410,702
Comprehensive income
Loss for the period - - (5,053,431) - (5,053,431)
Other comprehensive income
Currency translation differences - - - (1,227,262) (1,227,262)
Total comprehensive income - - (5,053,431) (1,227,262) (6,280,693)
Transactions with owners
Issue of ordinary shares, net of issue costs 1,627,184 9,836,292 - - 11,463,476
Conversion of special warrants into shares, net of issue costs 880,601 5,200,260 1,174,796 - 7,255,657
Total transactions with owners 2,507,785 15,036,552 1,174,796 - 18,719,133
As at 30 September 2021 (unaudited) 17,001,558 56,884,858 (25,991,138) (14,046,136) 33,849,142
Condensed Consolidated Statement of Cash Flows
9 months ended
30 September
2021 2020
Unaudited Unaudited
£ £
Cash flows from operating activities
Loss before taxation (5,053,431) (2,585,568)
Interest income - (122,907)
Net finance costs/(income) 5 193,409 219,863
Fair value of derivative asset - 433,522
Change in fair value of special warrant liability 11 1,174,796 -
Exchange differences (348,548) (338,547)
Operating loss before changes in working capital (4,033,774) (2,393,637)
Decrease/(increase) in trade and other receivables (336,499) 50,742
(Decrease)/increase in trade and other payables 860,691 (23,080)
Net cash outflow from operating activities (3,509,582) (2,365,975)
Cash flows from investing activities
Purchase of intangible assets 6 (183,927) -
Purchase of property, plant and equipment 7 (7,384,308) (2,436,966)
Interest received 5 224,958 122,907
Net cash used in investing activities (7,343,277) (2,314,059)
Cash flows from financing activities
Net proceeds from issue of ordinary shares 11,463,476 93,000
Net proceeds from issue of special warrants 6,080,861 -
Net cash from financing activities 17,544,337 93,000
Net decrease in cash and cash equivalents 6,691,478 (4,587,034)
Cash and cash equivalents at beginning of period 10,935,563 17,760,330
Exchange gain/(loss) on cash and cash equivalents 630,369 410,759
Cash and cash equivalents at end of the period 18,257,410 13,584,055
Notes to the Financial Statements
1. General information
The principal activity of the Company and its subsidiaries (together 'the
Group') is the exploration and development of precious and base metals. There
is no seasonality or cyclicality of the Group's operations.
The Company's shares are listed on the Alternative Investment Market of the
London Stock Exchange (AIM) and on the Toronto Stock Exchange (TSX). The
Company is incorporated and domiciled in the United Kingdom. The address of
its registered office is Rex House, 4-12 Regent Street, London SW1Y 4RG.
2. Basis of preparation
The financial statements for the year ended 31 December 2020 were prepared in
accordance with International Financial Reporting Standards and IFRS
interpretations Committee interpretations as adopted by the European Union and
with IFRS and their Interpretations issued by the IASB.
On 31 December 2020, IFRS as adopted by the European Union at that date was
brought into UK law and became UK-adopted international accounting standards,
with future changes being subject to endorsement by the UK Endorsement Board.
The Group transitioned to UK-adopted international accounting standards in its
consolidated financial statements on 1 January 2021. There was no impact or
changes in accounting policies from the transition and the Group will also
continue to comply with IFRS and their interpretations issued by the IASB.
The condensed consolidated interim financial statements for the nine month
reporting period ended 30 September 2021 have been prepared in accordance with
IAS 34 as issued by the IASB and the UK-adopted International Accounting
Standard 34, 'Interim Financial Reporting'.
The interim report does not include all of the notes of the type normally
included in an annual financial report. Accordingly, this report is to be read
in conjunction with the annual report for the year ended 31 December 2020, and
any public announcements made by the Group during the interim reporting
period.
The financial information for the year ended 31 December 2020 contained in
these interim financial statements does not constitute the company's statutory
accounts for that period. Statutory accounts for the year ended 31 December
2020 have been delivered to the Registrar of Companies. The auditors' report
on those accounts was unqualified, did not draw attention to any matters by
way of emphasis, and did not contain a statement under 498(2) or 498(3) of the
Companies Act 2006.
Going concern
The condensed consolidated interim financial statements have been prepared on
a going concern basis. Although the Group's assets are not generating revenues
and an operating loss has been reported, the Directors consider that the Group
has sufficient funds to undertake its operating activities for a period of at
least the next 12 months including any additional expenditure required in
relation to its current exploration projects. The Group has cash reserves
which are considered sufficient by the Directors to fund the Group's committed
expenditure both operationally and on its exploration project for the
foreseeable future. However, as additional projects are identified and the
Araguaia project moves towards production, additional funding will be
required. Refer to note 19 for details of funding events after the reporting
period.
The uncertainty as to the future impact of the Covid-19 pandemic has been
considered as part of the Group's adoption of the going concern basis. The
Covid-19 vaccine rollout has eased restriction in the United Kingdom and
Brazil. The Group's offices in London and Brazil are now fully open, operating
with strict Covid-19 compliant health and safety measures. International
travel will be resumed in the coming months after the ease in travel
restrictions. Site work for the two projects has resumed as well, with strict
Covid compliant health and safety measures.
The pandemic delayed the Araguaia project financing timeline by a number of
months but all parties to the Araguaia project finance are committed to
finalise the project finance and the Directors do not expect there to be any
more delays unless the Covid-19 pandemic takes a significant turn for the
negative. With the current cash resources available to the Group the Directors
are of the opinion that it has sufficient financing to enable the Company to
continue its operations for at least 12 months should any additional cost
arise as a result of any potential deterioration in the global Covid-19
situation.
As a result of considerations noted above, the Directors have a reasonable
expectation that the Group has adequate resources to continue in operational
existence for the foreseeable future. Thus, they continue to adopt the going
concern basis of accounting in preparing these Financial Statements.
Risks and uncertainties
The Board continuously assesses and monitors the key risks of the business.
The key risks that could affect the Group's medium term performance and the
factors that mitigate those risks have not substantially changed from those
set out in the Group's 2020 Annual Report and Financial Statements, a copy of
which is available on the Group's website: www.horizonteminerals.com
(http://www.horizonteminerals.com) and on Sedar: www.sedar.com
(http://www.sedar.com) . In addition to the key risks, the key financial risks
are liquidity risk, foreign exchange risk, credit risk, price risk and
interest rate risk.
Use of estimates and judgements
The preparation of condensed consolidated interim financial statements
requires management to make estimates and judgements that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the end of the reporting period. Significant items subject to
such estimates are set out in note 4 of the Group's 2020 Annual Report and
Financial Statements. The nature and amounts of such estimates and judgements
have not changed significantly during the interim period.
Assessment of the impact of COVID-19
During the period of these financial statements there has been an ongoing
significant global pandemic which has had significant knock-on effects for the
majority of the world's population, by way of the measure's governments are
taking to tackle the issue. This represents a risk to the Group's operations
by restricting travel, the potential to detriment the health and wellbeing of
its employees, as well as the effects that this might have on the ability of
the Group to finance and advance its operations in the timeframes envisaged.
The Group has taken steps to try and ensure the safety of its employees and
operate under the current circumstances and feels the outlook for its
operations remains positive, however risk remain should the pandemic worsen or
changes its impact on the Group. The assessment of the possible impact on
the going concern position of the Group is set out in the going concern note
above. In addition, because of the long-term nature of the Group's nickel
projects and their strong project economics management do not consider that
COVID has given rise to any impairment indicators. The Group has not received
any government assistance.
3. Significant accounting policies
The same accounting policies, presentation and methods of computation have
been followed in these condensed consolidated interim financial statements as
were applied in the preparation of the Group's audited Financial Statements
for the year ended 31 December 2020 except for the new accounting policy
applied for the special warrant liability which is detailed below.
Capitalisation of borrowing costs
Borrowing costs are expensed except where they relate to the financing of
construction or development of qualifying assets. Borrowing costs directly
related to financing of qualifying assets in the course of construction are
capitalised to the carrying value of the Araguaia mine development property.
Where funds have been borrowed specifically to the finance the Project, the
amount capitalised represents the actual borrowing costs incurred net of all
interest income earned on the temporary re-investment of these borrowings
prior to utilisation. Borrowing costs capitalised include:
· Interest charge on royalty finance
· Adjustments to the carrying value of the royalty finance
· Unwinding of discount on contingent consideration payable for
Araguaia
All other borrowing costs are recognized as part of interest expense in the
year which they are incurred.
Special warrant liability
A contract that could result in the delivery of a variable number of the
Company's own ordinary shares is considered a financial liability and is
measured at fair value through profit and loss. Refer to note 11 for the
details of the Company's special warrant liability.
Foreign currency translation
(a) Functional and presentation currency
Items included in the Financial Statements of the Group's entities are
measured using the currency of the primary economic environment in which the
entity operates (the functional currency). The functional currency of the UK
and Isle of Man entities is Pounds Sterling and the functional currency of the
Brazilian entities is Brazilian Real. The functional currency of the project
financing subsidiary incorporated in the Netherlands is USD. The Consolidated
Financial Statements are presented in Pounds Sterling, rounded to the nearest
pound, which is the Company's functional and Group's presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency
using the exchange rates prevailing at the dates of the transactions or
valuation where such items are re-measured. Foreign exchange gains and losses
resulting from the settlement of such transactions and from the translation at
year-end exchange rates of monetary assets and liabilities denominated in
foreign currencies are recognised in profit or loss.
(c) Group companies
The results and financial position of all the Group's entities (none of which
has the currency of a hyperinflationary economy) that have a functional
currency different from the presentation currency are translated into the
presentation currency as follows:
1. assets and liabilities for each statement of financial position
presented are translated at the closing rate at the date of that statement of
financial position;
2. each component of profit or loss is translated at average exchange
rates during the accounting period (unless this average is not a reasonable
approximation of the cumulative effect of the rates prevailing on the
transaction dates, in which case income and expenses are translated at the
dates of the transactions); and
3. all resulting exchange differences are recognised in other
comprehensive income.
On consolidation, exchange differences arising from the translation of the net
investment in foreign entities, and of monetary items receivable from foreign
subsidiaries for which settlement is neither planned nor likely to occur in
the foreseeable future are taken to other comprehensive income. When a foreign
operation is sold, such exchange differences are recognised in profit or loss
as part of the gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign
entity are treated as assets and liabilities of the foreign entity and
retranslated at the end of each reporting period.
The major exchange rates used for the revaluation of the statement of
financial position at 30 September 2021 were $1:£0.74 (31 December 2020:
$1:£0.73), Brazilian Real (R$):£0.136 (31 December 2020: R$:£0.141).
Foreign currency translation reserve includes movements that relate to the
retranslation of the subsidiaries whose functional currencies are not Pounds
Sterling.
During the first quarter of 2021, the Brazilian Real weakened by approximately
11% from R$7.1 to R$7.86 against the Pound Sterling. The Brazilian Real then
strengthened by 12% to R$6.91 in quarter 2 and weakened again in quarter 3 by
6% to R$7.33. Overall for the period ended 30 September 2021, the Brazilian
Real depreciated by 3% since 31 December 2020 (30 September 2020: weakened
approximately by 36% from R$5.33 at 31 December 2019 to R$7.25). Currency
translation differences for the nine month period of £1.2million loss
(2020:£9million loss) included in the consolidated statement of comprehensive
income arose on the translation of property plant and equipment, intangible
assets and cash and cash equivalents denominated in Brazilian Real.
The foreign exchange gain for the nine month period of £348,548 included in
the statement of comprehensive income relates to the translation differences
of foreign currency cash and cash equivalents balances and intercompany
balances denominated in currencies other than the functional currency of the
entity.
Impact of accounting standards to be applied in future periods
There are a number of standards and interpretations which have been issued by
the International Accounting Standards Board that are effective for periods
beginning subsequent to 31 December 2021 that the Group has decided not to
adopt early. The Group does not believe these standards and interpretations
will have a material impact on the financial statements once adopted.
4 Segmental reporting
The Group operates principally in the UK and Brazil, with operations managed
on a project-by-project basis within each geographical area. Activities in the
UK are mainly administrative in nature whilst the activities in Brazil relate
to exploration and evaluation work. The separate subsidiary responsible for
the project finance for the Araguaia Project is domiciled in the Netherlands.
The operations of this entity are reported separately and so it is recognised
as a new segment. The reports used by the chief operating decision-maker are
based on these geographical segments.
UK Brazil Total
2021 Netherlands
9 months 9 months 9 months 9 months
ended ended ended ended
30 September 2021 30 September 2021 30 September 2021 30 September 2021
£ £ £ £
Administrative expenses (3,567,569) (399,398) (66,807) (4,033,774)
Change in fair value of special warrant liability (1,174,796) - - (1,174,796)
Profit/(Loss) on foreign exchange (42,549) - 391,097 348,548
Loss before interest and tax per reportable segment (4,784,914) (399,398) 324,290 (4,860,022)
Net finance costs (193,409) - - (193,409)
Loss before taxation (4,978,323) (399,398) 324,290 (5,053,431)
Depreciation charges - 9,842 - 9,842
Additions to non-current assets - 10,710,743 - 10,710,743
Capitalisation of borrowing costs - 5,495,638 - 5,495,638
Foreign exchange movements to non-current assets - (1,134,743) - (1,134,743)
Reportable segment assets 9,883,645 60,952,258 1,930,982 72,766,885
Reportable segment liabilities 7,367,973 3,564,553 27,985,217 38,917,743
UK Brazil Total
2020 Netherlands
9 months 9 months 9 months 9 months
ended ended ended ended
30 September 2020 30 September 2020 30 September 2020 30 September 2020
£ £ £ £
Administrative expenses (1,636,689) (407,777) (298,521) (2,342,987)
Fair value movement (433,522) - - (433,522)
Profit/(Loss) on foreign exchange 731,429 (338,984) 18,359 410,804
Loss before interest and tax per reportable segment (1,338,782) (746,761) (280,162) (2,365,705)
Net finance costs (219,863) - - (219,863)
Loss before taxation (1,558,645) (746,761) (280,162) (2,585,568)
Depreciation charges - - - -
Additions to non-current assets - 2,436,966 - 2,436,966
Capitalisation of borrowing costs - 2,442,614 - 2,442,614
Foreign exchange movements to non-current assets - (8,245,405) - (8,245,405)
Reportable segment assets 7,303,457 38,384,277 5,096,835 50,784,569
Reportable segment liabilities 6,918,664 397,018 23,498,444 30,814,126
UK Brazil Total
2021 Netherlands
3 months 3 months 3 months 3 months
ended ended ended ended
30 September 2021 30 September 2021 30 September 2021 30 September 2021
£ £ £ £
Administrative expenses (1,186,348) (176,542) (30,857) (1,393,747)
Change in fair value of special warrant liability - - - -
Profit/(Loss) on foreign exchange (336,069) - (900,825) (1,236,894)
Loss before interest and tax per reportable segment (1,522,417) (176,542) (931,682) (2,630,641)
Net finance costs (131,454) - - (131,454)
Loss before taxation (1,653,871) (176,542) (931,682) (2,762,095)
Depreciation charges - 3,880 - 3,880
Additions to non-current assets - 2,906,066 - 2,906,066
Capitalisation of borrowing costs - 2,114,603 - 2,114,603
Foreign exchange movements to non-current assets - (2,468,797) - (2,468,797)
UK Brazil Total
2020 Netherlands
3 months 3 months 3 months 3 months
ended ended ended ended
30 September 2020 30 September 2020 30 September 2020 30 September 2020
£ £ £ £
Administrative expenses (554,880) (213,930) (9,037) (777,847)
Fair value movement (433,522) - - (433,522)
Profit/(Loss) on foreign exchange (334,566) (374,323) (7,126) (716,015)
Loss before interest and tax per reportable segment (1,322,968) (588,253) (16,163) (1,927,384)
Net finance income 95,872 - - 95,872
Loss before taxation (1,227,096) (588,253) (16,163) (1,831,512)
Depreciation charges - - - -
Additions to non-current assets - 833,400 - 833,400
Capitalisation of borrowing costs - 687,260 - 687,260
Foreign exchange movements to non-current assets - (617,092) - (617,092)
5 Finance income and costs
9 months 9 months 3 months 3 months
ended ended ended ended
30 September 2021 30 September 2020 30 September 2021 30 September 2020
£ £ £ £
Finance income
- Interest income on cash and short-term deposits 224,958 122,907 115,699 32,177
Finance costs
- Contingent consideration: unwinding of discount (305,071) (340,520) (104,027) (117,987)
- Contingent consideration: Fair value adjustment (74,286) 78,415 (149,290) 464,011
- Amortisation of Royalty Finance (2,481,846) (2,449,542) (751,253) (829,798)
- Royalty finance carrying value adjustment (3,052,802) (73,737) (1,357,186) 25,690
Total finance costs pre-capitalisation (5,689,047) (2,662,477) (2,246,057) (425,907)
Finance costs capitalised to the Araguaia mine development project 5,495,638 2,442,614 2,114,603 521,779
Net finance costs (193,409) (219,863) (131,454) 95,872
6 Intangible assets
Intangible assets comprise exploration and evaluation costs and goodwill.
Exploration and evaluation costs comprise internally generated and acquired
assets.
Exploration and
Goodwill Exploration licences evaluation costs Software Total
£ £ £ £ £
Cost
At 1 January 2020 210,585 5,157,366 1,689,495 - 7,057,446
Additions - - - - -
Exchange rate movements (52,337) (151,785) (632,451) - (836,573)
Net book amount at 31 December 2020 158,248 5,005,581 1,057,044 - 6,220,873
Additions - 53,528 75,365 55,034 183,927
Exchange rate movements (4,997) (162,368) (29,072) 223 (196,214)
Net book amount at 30 September 2021 153,251 4,896,741 1,103,337 55,256 6,208,586
Impairment assessments for exploration and evaluation assets are carried out
either on a project-by-project basis or by geographical area.
7 Property, plant and equipment
Mine Development Property Vehicles and other field equipment Office equipment Land acquisition Total
£ £ £ £ £
Cost
At 1 January 2020 32,260,061 106,722 14,424 - 32,381,207
Additions 4,008,719 1,234 55,989 87,257 4,153,199
Disposals - (5,806) - - (5,806)
Capitalised interest 2,100,521 - - - 2,100,521
Exchange rate movements (7,662,503) (25,162) (13,052) - (7,700,717)
At 31 December 2020 30,706,798 76,988 57,361 87,257 30,928,404
Additions 4,489,378 - 392,490 5,644,947 10,526,815
Capitalised interest 5,495,638 - - - 5,495,638
Exchange rate movements (975,486) (2,418) (7,398) 44,212 (941,090)
At 30 September 2021 39,716,328 74,570 442,453 5,776,416 46,009,767
Accumulated depreciation
At 1 January 2020 - 106,239 14,424 - 120,663
Charge for the year - 6,121 25,275 - 31,396
Disposals - (38,224) - - (38,224)
Exchange rate movements - (16,959) (8,399) - (25,358)
At 31 December 2020 - 57,177 31,300 - 88,477
Charge for the period - 4,575 5,267 - 9,842
Exchange rate movements - (2,082) (480) - (2,562)
At 30 September 2021 - 59,670 36,087 - 95,757
Net book amount as at 30 September 2021 39,716,328 14,900 406,366 5,776,416 45,914,010
Net book amount as at 31 December 2020 30,706,798 19,811 26,061 87,257 30,839,947
In December 2018, a Canadian NI 43-101 compliant Feasibility Study ("FS') was
published by the Company regarding the enlarged Araguaia Project which
included the Vale dos Sonhos deposit acquired from Glencore.
The financial results and conclusions of the FS clearly indicate the economic
viability of the Araguaia Project with an NPV of $401M using a nickel price of
$14,000/t Ni. Nothing material had changed with the economics of the FS
between the publication date and the date of this report and the Directors
undertook an assessment of impairment for the 2020 audited financial
statements through evaluating the results of the FS along with recent market
information relating to capital markets and nickel prices and judged that
there are no impairment indicators with regards to the Araguaia Project. Since
then, no impairment indicators have been identified.
During the year progress was made in the land acquisition process for the
Araguaia project. The escrow deposit was paid to secure the 'right of way',
these acquisitions amounted to £5.6million. £3.1million of the land and
'right of way' purchases is included in trade and other payables as at 30
September 2021.
8 Share Capital and Share Premium
Issued and fully paid Number of shares Ordinary shares Share premium Total
£ £ £
At 1 January 2021 1,449,377,287 14,493,773 41,848,306 56,342,079
Issue of equity 250,778,453 2,507,785 15,036,552 17,544,337
At 30 September 2021 1,700,155,740 17,001,558 56,884,858 73,886,416
On 19 February 2021, 162,718,353 new ordinary shares were placed with new and
existing investors at a price of 7.5 pence per share. The gross proceeds
raised in the placement was £12,203,876 and issue costs amounted to
£740,401. On 14 April 2021, the 88,060,100 Special Warrants were converted
to 88,060,100 ordinary shares of the Company, refer to note 11 for more
details on the Special Warrants.
9 Contingent Consideration
Contingent Consideration payable to Xstrata Brasil Mineração Ltda.
The contingent consideration payable to Xstrata Brasil Mineração Ltda for
the acquisition of the Araguaia project has a carrying value of £3,078,406 at
30 September 2021 (31 December 2020: £2,893,877). It comprises US$5,000,000
consideration in cash as at the date of first commercial production from any
of the resource areas within the Enlarged Project area. The key assumptions
underlying the treatment of the contingent consideration of US$5,000,000 is a
discount factor of 7.0% along with the estimated date of first commercial
production.
During 2020 the Araguaia project entered the development phase and as a result
borrowing costs including unwinding of discount on contingent consideration
for qualifying assets have been capitalised to the mine development asset. The
borrowing costs capitalised for the 9 months to 30 September 2021 is £148,951
(30 September 2020: £162,241).
The change in the carrying value of contingent consideration payable to
Xstrata Brasil Mineração Ltda generated a loss of £35,578 for the nine
months ended 30 September 2021 (30 September 2020: £37,842 loss) due to
changes in the exchange rate of the functional currency in which the liability
is payable.
Contingent Consideration payable to Vale Metais Basicos S.A.
The contingent consideration payable to Vale Metais Basicos S.A. for the
acquisition of the Vermelho project has a carrying value of £3,226,557 at 30
September 2021 (31 December 2020: £3,033,148). It comprises US$6,000,000
consideration in cash as at the date of first commercial production from the
Vermelho project and was recognised for the first time in December 2019,
following the publication of a PFS on the project. The key assumptions
underlying the treatment of the contingent consideration of US$6,000,000 is a
discount factor of 7.0% along with the estimated date of first commercial
production.
As at 30 September 2021, there was a finance expense of £156,120 (30
September 2020: £178,280) recognised in finance costs within the Statement of
Comprehensive Income in respect of this contingent consideration arrangement,
as the discount applied to the contingent consideration at the date of
acquisition was unwound. The finance costs in respect of this contingent
consideration are expensed as the Vermelho project has not entered the
construction phase.
The change in the carrying value of contingent consideration payable to Vale
Metais Basicos S.A. generated a loss of £37,289 for the nine months ended 30
September 2021 (30 September 2020: £41,583 loss) due to changes in the value
of the functional currency in which the liability is payable (USD).
Xstrata Brasil Mineração Ltda (in respect of Araguaia project) Vale Metais Basicos S.A. (in respect of Vermelho project) Total
£ £ £
At 1 January 2020 2,975,935 3,270,134 6,246,069
Unwinding of discount 213,285 231,780 445,065
Change in carrying value and foreign exchange (295,343) (468,766) (764,109)
At 31 December 2020 2,893,877 3,033,148 5,927,025
Unwinding of discount 148,951 156,120 305,071
Change in carrying value and foreign exchange 35,578 37,289 72,867
At 30 September 2021 3,078,406 3,226,557 6,304,963
10 a) Royalty financing liability
On 29 August 2019 the Group entered into a royalty funding arrangement with
Orion Mine Finance ("OMF") securing a gross upfront payment of $25,000,000
before fees in exchange for a royalty, the rate being in a range from 2.25% to
3.00% and determined by the date of funding and commencement of major
construction. At the current period end the rate has been estimated to be
2.75%. The royalty is paid over the first 426k tonnes of nickel produced from
the Araguaia Ferronickel project. The royalty is linked to production and
therefore does not become payable until the project is constructed and
commences commercial production, more detail is contained within the audited
financial statements for the year ended 31 December 2020.
The Royalty liability has initially been recognised using the amortised cost
basis with an effective interest rate of 14.5%. When circumstances arise that
lead to payments due under the agreement being revised, the group adjusts the
carrying amount of the financial liability to reflect the revised estimated
cash flows. This is achieved by recalculating the present value of estimated
cash flows using the original effective interest rate of 14.5%. Any adjustment
to the carrying value is recognised in the income statement.
Royalty valuation
£
Net book amount at 1 January 2020 20,570,411
Unwinding of discount 3,244,873
Change in carrying value (910,834)
Effects of foreign exchange (851,109)
Net book amount at 31 December 2020 22,053,341
Unwinding of discount 2,481,846
Change in carrying value 3,052,802
Effects of foreign exchange 389,185
Net book amount at 30 September 2021 27,977,174
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 assumptions influencing the increase in
the carrying value of the royalty since year end are the royalty rate which
has increased by 0.2% to 2.85% and the long term nickel price which has
increased from $16,191 t/Ni to $16,911 t/Ni.
Management have sensitised the carrying value of the royalty liability by a
change in the royalty rate of 0.1% and it would be £981,655 higher/lower and
for a $1,000/t Ni increase/decrease in future nickel price the carrying value
would change by £1,707,818.
10 b) Derivative financial asset
The aforementioned agreement includes several options embedded within the
agreement as follows:
· If there is a change of control of the Group and the start of
major construction works (as defined by the expenditure of in excess of $30m
above the expenditure envisaged by the royalty funding) is delayed beyond a
certain pre agreed timeframe the following options exist:
o Call Option - which grants Horizonte the option to buy back between 50 -
100% of the royalty at a valuation that meets certain minimum economic returns
for OMF;
o Make Whole Option - which grants Horizonte the option to make payment as
if the project had started commercial production and the royalty payment were
due; and
o Put Option - should Horizonte not elect for either of the above options,
this put option grants OMF the right to sell between 50 - 100% of the Royalty
back to Horizonte at a valuation that meets certain minimum economic returns
for OMF.
· Buy Back Option - At any time from the date of commercial
production, provided that neither the Call Option, Make Whole Option or the
Put Option have been actioned, Horizonte has the right to buy back up to 50%
of the Royalty at a valuation that meets certain minimum economic returns for
OMF.
The directors have undertaken a review of the fair value of all of the
embedded derivatives and are of the opinion that the Call Option, Make Whole
Option and Put Option currently have immaterial values as the probability of
both a change of control and project delay are currently considered to be
remote. There is considered to be a higher probability that the Group could in
the future exercise the Buy Back Option and therefore has undertaken a fair
value exercise on this option.
The initial recognition of the Buy Back Option has been recognised as an asset
on the balance sheet with any changes to the fair value of the derivative
recognised in the income statement. It been fair valued using a Monte Carlo
simulation which runs a high number of scenarios in order to derive an
estimated valuation.
The assumptions for the valuation of the Buy Back Option are the future nickel
price ($16,191/t Ni), the start date of commercial production (2024), the
prevailing royalty rate (2.65%), the inflation rate (1.5%) and volatility of
nickel prices (22.6%).
£
Value as at 1 January 2020 2,246,809
Change in fair value (424,500)
Effects of foreign exchange (65,756)
Value as at 31 December 2020 1,756,553
Change in fair value -
Effects of foreign exchange 23,287
Value as at 30 September 2021 1,779,840
Sensitivity analysis
The valuation of the Buyback option is most sensitive to estimates for nickel
price and nickel price volatility.
An increase in the estimated future nickel price by $1,000 would give rise to
a $1,190,000 increase in the value of the option.
The nickel price volatilities based on both 5- and 10-year historic prices are
in close proximity and this is the period in which management consider that
the option would be exercised. Therefore, management have concluded that
currently no reasonably possible alternative assumption for this estimate
would give rise to a material impact on the valuation.
11 Special warrant liability
On 9 March 2021 the Company completed the private placement of special
warrants (the "Special Warrants), raising gross proceeds of £6.7 million (the
"Offering") including the full exercise of the underwriters' option.
Pursuant to the Offering, the Company issued 88,060,100 Special Warrants at a
price of 7.5 pence per share per Special Warrant. Each Special Warrant,
subject to the Penalty Provision (as defined below) and subject to adjustments
in certain circumstances, shall be deemed to be exercised for one Ordinary
Share in the capital of the Company (each, an "Underlying Share") without any
required action on the part of the holders (including payment of additional
consideration) on the date on which the earlier of the following occurs:
(i) the third business day following the date on which a final receipt is
obtained from the applicable securities regulator on behalf of the securities
regulatory authorities in each of the provinces of British Columbia and
Ontario (the "Final Receipt"), for the final qualification prospectus (the
"Qualification Prospectus") qualifying the Underlying Shares for distribution;
and
(ii) 4:59 p.m. (Toronto time) on 10 July 2021.
The Company agreed to use commercially reasonable efforts to qualify the
Underlying Shares for distribution in Canada, and to obtain the Final Receipt
therefor, on or prior to 28 April 2021. In the event the Final Receipt was not
received on or before 18 April 2021, each Special Warrant entitled the holder
thereof to receive, upon the exercise or deemed exercise thereof, as
applicable, 1.1 Underlying Shares without further payment on the part of the
holder (the "Penalty Provision").
The Special Warrants contained terms that could have resulted in variability
in the number of common shares
issued, with an increase in the conversion ratio if the final prospectus was
not filed by 28 April 2021. Accordingly,
the Special Warrants were classified as a derivative financial instrument
under IFRS and measured at fair
value through profit and loss. On initial recognition, the carrying value of
the liability was equal to the net
proceeds of £6,178,222 .
The receipt for the Final Prospectus was confirmed on 9 April 2021. On 14
April 2021, the 88,060,100 Special Warrants were converted to 88,060,100
ordinary shares of the Company with no penalty. Upon the conversion of the
Special Warrants to ordinary shares, the fair value of the Special Warrants as
at 14 April 2021 was transferred to Share Capital and Share Premium. The fair
value of the Special Warrants as at 14 April 2021, was determined to be
£7,255,657. The change in fair value from the date of issuance on 9 March
2021 to the date of exercise on 14 April 2021, an unrealised loss of
$1,174,796 was recognized related to Special Warrants.
£
Gross proceeds from issue of share warrants 6,675,836
Issue costs (594,975)
Effects of change in fair value and foreign exchange 1,174,796
Conversion of share warrants into shares (7,255,657)
Value as at 30 September 2021 -
12 Fair value
Carrying Amount versus Fair Value
The following table compares the carrying amounts versus the fair values of
the group's financial assets and financial liabilities as at 30 September
2021.
The group considers that the carrying amount of the following financial assets
and financial liabilities are
a reasonable approximation of their fair value:
· Trade receivables
· Trade payables
· Cash and cash equivalents
As at 30 September 2021 As at 31 December 2020
Carrying amount Fair Value Carrying amount Fair Value
£ £ £ £
Financial Assets 1,779,840 1,779,840 1,756,553 1,756,553
Derivative financial assets
Total Assets 1,779,840 1,779,840 1,756,553 1,756,553
Financial Liabilities
Contingent consideration 6,304,963 6,304,963 5,927,025 5,927,025
Royalty Finance 27,977,174 27,977,174 22,053,341 22,053,341
Special warrant liability - - - -
Total Liabilities 34,282,138 34,282,138 27,980,366 27,980,366
Fair value Hierarchy
The level in the fair value hierarchy within which the financial asset or
financial liability is categorised is
determined on the basis of the lowest level input that is significant to the
fair value measurement.
Financial assets and financial liabilities are classified in their entirety
into only one of the three levels.
The fair value hierarchy has the following levels:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or
liabilities
Level 2- inputs other than quoted prices included within level 1 that are
observable for the asset or liability, either directly, (i.e., as prices) or
indirectly (i.e., derived from prices)
Level 3- inputs for the asset or liability that are not based on observable
market data (unobservable inputs)
The derivative financial asset and special warrant liability have been deemed
to be a level three fair value. Information related to the valuation method
and sensitivities analysis for the derivative financial asset are included in
note 10 b and in note 11 for special warrant liability.
13 Dividends
No dividend has been declared or paid by the Company during the nine months
ended 30 September 2021 (2020: nil).
14 Earnings per share
The calculation of the basic loss per share of 0.309 pence for the nine months
ended 30 September 2021 (30 September 2020 loss per share: 0.182 pence) is
based on the loss attributable to the equity holders of the Company of
£5,053,431 for the nine-month period ended 30 September 2021 (30 September
2020: £2,636,639 loss) divided by the weighted average number of shares in
issue during the period of 1,635,341,590 (weighted average number of shares
for the nine months ended 30 September 2020: 1,446,683,856).
Details of share options that could potentially dilute earnings per share in
future periods are disclosed in the notes to the Group's Annual Report and
Financial Statements for the year ended 31 December 2020 and in note 15 below.
15 Issue of Share Options
The Directors have discretion to grant options to the Group employees to
subscribe for Ordinary shares up to a maximum of 10% of the Company's issued
share capital. One third of options are exercisable at each six months
anniversary from the date of grant, such that all options are exercisable 18
months after the date of grant and all lapse on the tenth anniversary of the
date of grant or the holder ceasing to be an employee of the Group. Should
holders cease employment then the options remain valid for a period of 3
months after cessation of employment, following which they will lapse. Neither
the Company not the Group has any legal or constructive obligation to settle
or repurchase the options in cash.
There was no movement in share options during the nine months ended 30
September 2021.
Number of options Weighted average exercise price
£
Outstanding at 1 January 2021 125,350,000 0.051
Outstanding at 30 September 2021 125,350,000 0.051
Exercisable at 30 September 2021 125,350,000 0.051
16 Ultimate controlling party
The Directors believe there to be no ultimate controlling party.
17 Related party transactions
The nature of related party transactions of the Group has not changed from
those described in the Group's Annual Report and Financial Statements for the
year ended 31 December 2020. There were no significant related party
transactions during the 9-month period ended 30 September 2021.
18 Commitments
The Company has conditional capital commitments totaling £7 million relating
to certain items of plant and equipment. These commitments remain subject to a
number of conditions precedent which have not been met at the date of this
report.
19 Events at and after the reporting period
On 30 September 2021 the Company announced that it had received credit
approvals from a syndicate of five international financial institutions (the
"Senior Lenders") in addition to the previously announced approval by the two
export credit agencies (the "ECAs") for a senior secured project finance
facility (the "Senior Debt Facility") of up to US$346.2 million to fund the
construction and development of its Araguaia ferro-nickel project ("Araguaia"
or the "Project").
The Senior Lenders are BNP Paribas Securities Corp ("BNPP"), ING Capital LLC
("ING"), Natixis, New York Branch ("Natixis"), Société Générale
("SocGen"), and Swedish Export Credit Corporation ("SEK"). The ECAs are EKF,
Denmark's Export Credit Agency ("EKF") and Finnvera plc, Finland's Export
Credit Agency ("Finnvera").
The Senior Debt Facility will include two tranches:
· Tranche A of US$146.2 million, to be guaranteed by the ECAs in
relation to a number of key equipment and service provider contracts; and
· Tranche B of US$200 million.
The term of the Senior Debt Facility will be ten and a half years for Tranche
A, and eight and a half years for Tranche B. The interest rate of the Senior
Debt Facility will be at a rate of LIBOR plus 1.80% for Tranche A, and LIBOR
plus 4.25 to 4.75% for Tranche B. Closing of the Senior Debt Facility is
subject to customary conditions, including the negotiation and settlement of
definitive documentation and the entry into a comprehensive intercreditor
agreement, among others.
The Company filed and obtained a final receipt for a final base shelf
prospectus dated 29 October 2021 in each of the territories of Canada, other
than Quebec. The prospectus enables the Company to qualify for a distribution
of up to C$125 million of any combination of ordinary shares, warrants,
subscription receipts, debt securities, and units during the 25-month period
that the Prospectus remains effective. The specific terms of any future
offerings of securities, including the use of proceeds from any
offering, will be established in a prospectus supplement filed with the
applicable Canadian regulatory authorities. The Prospectus provides
flexibility to the Company to pursue its business objectives.
20 Approval of interim financial statements
These Condensed Consolidated Interim Financial Statements have been approved
for issue by the Board of Directors on 11 November 2021.
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