REG - Horizonte Minerals - Q3 Financial Results
11/11/2022 07:16
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RNS Number : 0644G Horizonte Minerals PLC 11 November 2022
NEWS RELEASE
11 November 2022
Horizonte Minerals Plc
("Horizonte" or the "Company")
QUARTERLY FINANCIAL RESULTS FOR THE THREE MONTHS ENDED 30 SEPTEMBER 2022
Horizonte Minerals Plc (AIM: HZM, TSX: HZM), the nickel company developing two
Tier 1 assets in Brazil, announces it has today published its unaudited
financial results for the three months to 30 September 2022 and the Management
Discussion and Analysis for the same period. Both of the aforementioned
documents have been posted on the Company's website www.horizonteminerals.com
and are also available on SEDAR at www.sedar.com.
Highlights for the period:
• A number of key construction contracts including industrial civil
works and main power line awarded for Araguaia;
• Critical path items advancing in line with the schedule, including
furnace shell arrival on site and furnace concrete block foundations set;
• Araguaia Nickel Project approved as a Strategic Minerals Project by
the Brazilian Government;
• Feasibility Study Contract Awarded to Wood plc for Vermelho
Nickel-Cobalt Project;
• No lost time injuries recorded to date, with over 482,000 hours
worked; and
• Maintained a strong cash position of US$131 million at 30 September
2022, prior to any debt draw down and completion of recently announced fund
raise.
Post period highlights
· Closing of US$80 million fundraise for the construction of the
Araguaia nickel project ("Araguaia" or the "Project");
· Contracts totalling in excess of US$400 million awarded to-date at
Araguaia, with all key equipment supply and technical support services for the
balance of the Araguaia process flow sheet secured;
· Electro-mechanical contract awarded to MIP Engenharia & Milplan
Engenharia; and
· Araguaia construction running in line with project execution
schedule.
A full progress update on Araguaia along with an investor webinar will be
provided in December 2022.
For further information, visit www.horizonteminerals.com
(http://www.horizonteminerals.com) or contact:
Horizonte Minerals plc info@horizonteminerals.com (mailto:info@horizonteminerals.com)
Jeremy Martin (CEO) +44 (0) 203 356 2901
Simon Retter (CFO)
Patrick Chambers (Head of Investor Relations)
Peel Hunt LLP (Nominated Adviser & Joint Broker) +44 (0)20 7418 8900
Ross Allister
David McKeown
BMO (Joint Broker) +44 (0) 20 7236 1010
Thomas Rider
Pascal Lussier Duquette
Andrew Cameron
Tavistock (Financial PR) +44 (0) 20 7920 3150
Emily Moss
Cath Drummond
Adam Baynes
ABOUT HORIZONTE MINERALS
Horizonte Minerals plc (AIM & TSX: HZM) is developing two 100%-owned, Tier
1 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 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 60,000 tonnes of nickel per year
positions the Company as a globally significant nickel producer. Horizonte is
developing a new nickel district in Brazil that will benefit from established
infrastructure, including hydroelectric power available in the Carajás Mining
District.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Except for statements of historical fact relating to the Company, certain
information contained in this press release constitutes "forward-looking
information" under Canadian securities legislation. Forward-looking
information includes, but is not limited to, the ability of the Company to
complete the acquisition of equipment as described herein, statements with
respect to the potential of the Company's current or future property mineral
projects; the ability of the Company to complete a positive feasibility study
regarding the second RKEF line at Araguaia on time, or at all, the success of
exploration and mining activities; cost and timing of future exploration,
production and development; the costs and timing for delivery of the equipment
to be purchased as described herein, the estimation of mineral resources and
reserves and the ability of the Company to achieve its goals in respect of
growing its mineral resources; the realization of mineral resource and reserve
estimates and achieving production in accordance with the Company's potential
production profile or at all. Generally, forward-looking information can be
identified by the use of forward-looking terminology such as "plans",
"expects" or "does not expect", "is expected", "budget", "scheduled",
"estimates", "forecasts", "intends", "anticipates" or "does not anticipate",
or "believes", or variations of such words and phrases or statements that
certain actions, events or results "may", "could", "would", "might" or "will
be taken", "occur" or "be achieved". Forward-looking information is based on
the reasonable assumptions, estimates, analysis and opinions of management
made in light of its experience and its perception of trends, current
conditions and expected developments, as well as other factors that management
believes to be relevant and reasonable in the circumstances at the date that
such statements are made, and are inherently subject to known and unknown
risks, uncertainties and other factors that may cause the actual results,
level of activity, performance or achievements of the Company to be materially
different from those expressed or implied by such forward-looking information,
including but not limited to risks related to: the inability of the Company to
complete the acquisition of equipment contemplated herein, on time or at all,
the ability of the Company to complete a positive feasibility study regarding
the implementation of a second RKEF line at Araguaia on the timeline
contemplated or at all, exploration and mining risks, competition from
competitors with greater capital; the Company's lack of experience with
respect to development-stage mining operations; fluctuations in metal prices;
uninsured risks; environmental and other regulatory requirements; exploration,
mining and other licences; the Company's future payment obligations; potential
disputes with respect to the Company's title to, and the area of, its mining
concessions; the Company's dependence on its ability to obtain sufficient
financing in the future; the Company's dependence on its relationships with
third parties; the Company's joint ventures; the potential of currency
fluctuations and political or economic instability in countries in which the
Company operates; currency exchange fluctuations; the Company's ability to
manage its growth effectively; the trading market for the ordinary shares of
the Company; uncertainty with respect to the Company's plans to continue to
develop its operations and new projects; the Company's dependence on key
personnel; possible conflicts of interest of directors and officers of the
Company, and various risks associated with the legal and regulatory framework
within which the Company operates, together with the risks identified and
disclosed in the Company's disclosure record available on the Company's
profile on SEDAR at www.sedar.com (http://www.sedar.com) , including without
limitation, the annual information form of the Company for the year ended
December 31, 2021, the Araguaia Report and the Vermelho Report. Although
management of the Company has attempted to identify important factors that
could cause actual results to differ materially from those contained in
forward-looking information, there may be other factors that cause results not
to be as anticipated, estimated or intended. There can be no assurance that
such statements will prove to be accurate, as actual results and future events
could differ materially from those anticipated in such statements.
Horizonte Minerals Plc
Restated Unaudited Condensed Consolidated Interim Financial Statements for the
nine months ended 30 September 2022
Restated Condensed Consolidated Statement of Comprehensive Income
9 months ended 3 months ended
30 September 30 September
2022 2021 Restated (Note 2.1) 2022 2021 Restated (Note 2.1)
Unaudited Unaudited Unaudited Unaudited
Notes US$ US$ US$ US$
Administrative expenses (9,504,757) (5,593,102) (2,841,133) (1,921,621)
Share based payments expense 17 (508,529) - (508,529) -
Change in fair value of special warrant liability - (1,616,120) - -
Change in fair value of derivatives 11 4,360,500 - - -
Gain/(loss) on foreign exchange 8,586,024 483,286 (797,045) (1,721,587)
Profit/(Loss) before interest and tax 2,933,238 (6,725,936) (4,146,707) (3,643,208)
Net finance (costs)/income 5 (5,665,339) (214,689) (2,433,333) (73,566)
(Loss)/Profit before taxation (2,732,101) (6,940,625) (6,580,040) (3,716,774)
Taxation - - - -
(Loss)/Profit for the year (2,732,101) (6,940,625) (6,580,040) (3,716,774)
Other comprehensive income Items that may be reclassified subsequently to
profit or loss
Cash flow hedges - foreign forward contracts 13 (7,845,763) - (3,208,230) -
Currency translation differences on translating foreign operations (17,549,770) (2,685,045) (7,760,495) (4,754,646)
(25,395,533) (2,685,045) (10,968,725) (4,754,646)
Other comprehensive income for the period, net of tax
Total comprehensive income for the period (28,127,634) (9,625,670) (17,548,765) (8,471,420)
attributable to equity holders of the Company
Earnings per share attributable to the equity holders of the Group
Basic & Diluted earnings per share (pence per share) 16 (1.435) (8.488) (3.455) (4.372)
Restated Condensed Consolidated Statement of Financial Position
30 September 31 December
2022 2021 Restated (Note 2.1)
Unaudited Audited
Notes US$ US$
Assets
Non-current assets
Intangible assets 6 9,997,895 8,309,485
Property, plant & equipment 7 218,583,242 70,594,090
Right of use assets 689,720 380,482
229,270,857 79,284,057
Current assets
Trade and other receivables 30,551,781 13,796,628
Derivative financial asset 10 b 9,540,000 4,950,000
Cash and cash equivalents 131,203,868 210,492,280
171,295,649 229,238,908
Total assets 400,566,506 308,522,965
Equity and liabilities
Equity attributable to owners of the parent
Issued capital 8 52,305,376 52,215,236
Share premium 8 245,672,686 245,388,102
Other reserves (48,668,257) (23,272,724)
Accumulated losses (47,109,682) (45,077,646)
Total equity 202,200,123 229,252,968
Liabilities
Non-current liabilities
Contingent consideration 9 6,779,135 6,734,132
Royalty Finance 10 a 88,600,396 44,496,504
Deferred consideration 9 4,727,125 4,526,425
Convertible loan notes liability 11 59,056,362 -
Environmental rehabilitation provision 12 98,036 -
Lease liabilities 587,863 321,717
Derivative financial liabilities 13 644,098 -
Trade payables 694,292 608,976
161,187,307 56,687,754
Current liabilities
Trade and other payables 28,905,680 21,574,365
Deferred consideration 9 950,000 949,113
Lease liabilities 121,732 58,765
Derivative financial liabilities 13 7,201,664 -
37,179,076 22,582,243
Total liabilities 198,366,383 79,269,997
Total equity and liabilities 400,566,506 308,522,965
Restated Condensed Statement of Changes in Shareholders' Equity
Attributable to the owners of the parent
Share Share Accumulated Other
capital premium losses reserves Total
US$ US$ US$ US$ US$
As at 1 January 2021 Restated (Note 2.1) 20,666,053 65,355,677 (33,304,178) (23,519,096) 29,198,456
Comprehensive income
Loss for the period - - (6,940,625) - (6,940,625)
Other comprehensive income
Currency translation differences - - - (2,685,045) (2,685,045)
Total comprehensive income - - (6,940,625) (2,685,045) (9,625,670)
Transactions with owners
Issue of ordinary shares 2,281,637 14,830,639 - - 17,112,276
Issue costs - (1,037,822) - - (1,037,822)
Conversion of special warrants into shares 1,213,556 7,986,413 1,616,120 - 10,816,089
Issue costs - (819,935) - - (819,935)
Total transactions with owners 3,495,193 20,959,295 1,616,120 - 26,070,608
As at 30 September 2021 Restated (Note 2.1) (unaudited) 24,161,246 86,314,972 (38,628,683) (26,204,141) 45,643,394
Attributable to the owners of the parent
Share Share Accumulated Other
capital premium losses reserves Total
US$ US$ US$ US$ US$
As at 1 January 2022 Restated (Note 2.1) 52,215,236 245,388,102 (45,077,646) (23,272,724) 229,252,968
Comprehensive income
Loss for the period - - (2,732,101) - (2,732,101)
Other comprehensive income
Cash flow hedges - foreign forward contracts - - - (7,845,763) (7,845,763)
Currency translation differences - - - (17,549,770) (17,549,770)
Total comprehensive income - - (2,732,101) (25,395,533) (28,127,634)
Transactions with owners
Issue of ordinary shares 90,140 284,584 191,536 - 566,260
Share based payments - - 508,529 - 508,529
Total transactions with owners 90,140 284,584 700,065 - 1,074,789
As at 30 September 2022 (unaudited) 52,305,376 245,672,686 (47,109,682) (48,668,257) 202,200,123
Restated Condensed Consolidated Statement of Cash Flows
9 months ended 3 months ended
30 September 30 September
2022 2021 2022 2021
Restated (Note 2.1) Restated
(Note 2.1)
Unaudited Unaudited Unaudited Unaudited
US$ US$ US$ US$
Cash flows from operating activities
Profit/(Loss) before taxation (2,732,101) (6,940,625) (6,580,040) (3,716,775)
Share based payments expense 17 508,529 - 508,529 -
Net finance costs/(income) 5 5,665,339 214,689 2,433,333 73,566
Fair value adjustments of derivative assets 11 (4,360,500) - - -
Change in fair value of special warrant liability - 1,616,120 - -
Exchange differences (8,586,024) (483,286) 797,045 1,721,587
Operating loss before changes in working capital (9,504,757) (5,593,102) (2,841,133) (1,921,622)
Decrease/(increase) in trade and other receivables (13,560,173) (453,748) (10,502,914) (134,965)
(Decrease)/increase in trade and other payables 7,416,636 1,160,587 19,257,493 (3,299,040)
Net cash (outflow)/inflow from operating activities (15,648,294) (4,886,263) 5,913,446 (5,355,627)
Cash flows from investing activities
Purchase of intangible assets 6 (1,409,985) (248,014) (1,192,638) (119,694)
Purchase of property, plant and equipment 7 (131,481,417) (9,957,265) (64,434,117) 843,509
Interest received 5 4,460,729 311,920 2,066,435 159,974
Net cash outflow from investing activities (128,430,673) (9,893,359) (63,560,320) 883,789
Cash flows from financing activities
Net proceeds from issue of ordinary shares 8 566,260 16,074,454 29,534 -
Proceeds from issue of convertible loan notes 11 61,262,500 - - -
Issue costs 11 (2,347,041) - - -
Proceeds from royalty finance arrangement 10a 25,000,000 - - -
Issue costs 10a (847,939) - - -
Net proceeds from issue of share warrants - 8,448,140 - -
Net cash inflow from financing activities 83,633,780 24,522,594 29,534 -
Net (decrease)/increase in cash and cash equivalents (60,445,187) 9,742,972 (57,617,340) (4,471,838)
Cash and cash equivalents at beginning of period 210,492,280 14,925,021 198,956,061 30,655,023
Exchange gain/(loss) on cash and cash equivalents (18,843,225) (49,047) (10,134,853) (1,564,239)
Cash and cash equivalents at end of the period 131,203,868 24,618,946 131,203,868 24,618,946
Restated 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 2021 were prepared in
accordance with UK adopted International Financial Reporting Standards and
International Accounting Standards as issued by the International Accounting
Standards Board (IASB) and Interpretations (collectively IFRSs).
The condensed consolidated interim financial statements for the nine-month
reporting period ended 30 September 2022 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 2021, and
any public announcements made by the Group during the interim reporting
period.
The financial information for the year ended 31 December 2021 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
2021 have been delivered to the Registrar of Companies. The auditors' report
on those accounts was unqualified and did not contain a statement under 498(2)
or 498(3) of the Companies Act 2006. The auditor's report drew attention to a
material uncertainty related to the Group's ability to continue as a going
concern (refer to the going concern note below), however the auditor's opinion
was not modified in respect of this matter.
2.1 Change in presentation currency
Horizonte Minerals Plc has decided to change its presentation currency from
Pounds Sterling to US Dollars effective 1 January 2022.
The presentation currency has been revised as the financing package concluded
by the Group to construct the Araguaia project is denominated in US Dollars
and future revenues will also be in US Dollars. The board therefore believes
that US Dollar financial reporting provides more relevant presentation of the
group's financial position, funding and treasury functions, financial
performance and its cash flows.
A change in presentation currency represents a change in an accounting policy
in terms of IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors requiring the restatement of comparative information. IAS 34 does not
require additional retrospective disclosure of the statement of financial
position. In accordance with IAS 21 The Effects of Changes in Foreign Exchange
Rates, the following methodology was followed in restating historical
financial information from Pounds Sterling to US Dollar:
· Assets and liabilities were translated at the relevant closing
exchange rate at the end of the reporting period. Items of income and
expenditure and cash flows were translated at average rates of exchange for
the period;
· The foreign currency translation reserve was reset to nil as at 1
January 2006, the date on which the group adopted IFRS. Share capital and
premium and other reserves, as appropriate, were translated at the historic
rates prevailing at the dates of underlying transactions; and
· The effects of translating the group's financial results and
financial position into US Dollar were recognised in the foreign currency
translation reserve.
The exchange rates used were as follows:
GBP/USD 31 December 2021 30 September 2021
Closing rate 1.3477 1.3484
Average rate 1.3774 1.3866
USD/BRL
Closing rate 5.5710 5.4490
Average rate 5.3810 5.3181
2.2a 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, the Directors consider that the Group has access to 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 development and exploration projects. The Group has cash reserves and
access to liquidity which are considered sufficient by the Directors to fund
the Group's committed expenditure both operationally and on its exploration
project for the foreseeable future.
The Group concluded a comprehensive funding package of US$633 million in
December 2021. The net proceeds of the fundraising will be used towards the
construction of the Araguaia project as well as for general working capital
purposes. In addition, the Group has also concluded a US$25million royalty on
the Vermelho Project, the net proceeds from the sale of this royalty will be
used to advance a feasibility study and permitting work streams on the
Vermelho project. The equity fundraise (US$197million of the US$633 million)
was finalized and funds received in December 2021 with a further equity fund
raise being completed in November 2022 for a gross US$80 million. The debt
elements of the funding package include Convertible Loan Notes (US$65
million), a Cost Overrun Facility (US$25 million) and a Senior Debt Facility
(US$346.2 million).
Funds from the convertible loan notes and the royalty were received in March
2022. The first drawdown under the Senior Debt Facility is expected to occur
in the fourth quarter of 2022 following the satisfaction of certain conditions
precedent customary to a financing of this nature. Subsequent drawdowns under
the Senior Debt Facility are expected to follow monthly during the remainder
of the construction period, again following the satisfaction of certain
conditions precedent customary to a financing of this nature. As the senior
debt is conditional, there is no guarantee that the conditions of this element
of the debt package will be satisfied.
The funds held at the end of the period along with those to be raised post
period end following the satisfaction of any condition's precedent for the
successful draw down of the Senior Debt Facility (Including access to any of
the funds secured as part of the Cost Overrun Facility), means the Group has
cash reserves which are considered sufficient by the Directors to execute the
construction of the Araguaia Project and fund its general working capital
requirements for the foreseeable future. The drawdown of the Senior Debt
Facility is conditional upon the expenditure of a certain level of equity
amongst other conditions precedent, by which time the Group is expected to
have made significant financial commitments. There exists a risk that the
Senior Debt Facility is not able to be drawn due to unforeseen circumstances
or noncompliance with any conditions precedent which may or may not be within
the control of the Group. Should the Senior Debt not be drawn then the Group
might require alternative sources of funding to meet its commitments.
These events are outside of the Group's control, and as such, a material
uncertainty exists which may cast significant doubt about the Group's
continued ability to operate as a going concern and its ability to realise its
assets and discharge its liabilities in the normal course of business.
If additional projects are identified and the Vermelho project advances,
additional funding may be required.
These factors indicate the existence of a material uncertainty which may cast
significant doubt over the Group's ability to continue as a going concern and
therefore they may be unable to realise its assets and discharge their
liabilities in the normal course of business. The financial statements do not
include any adjustments that would result if the Group were unable to continue
as a going concern.
2.2b 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.
The uncertainty as to the future impact of the Covid-19 pandemic has been
considered as part of the Group's adoption of the going concern basis. In
response to the easing of Covid-19 restrictions, employees are working from
the Group's offices in London and Brazil and will continue to adhere to
government guidelines. International travel has resumed and site work for the
two projects has been resumed.
To date, the Group has not been materially adversely affected by the COVID-19
pandemic. However, the ongoing nature and uncertainty of the pandemic in many
countries including the measures and restrictions put in place (travel bans
and quarantining in particular) continue to have the ability to impact the
Group's business continuity, workforce, supply-chain, business development
and, consequently, future revenues.
In addition, any infections occurring on the Group's premises could result in
the Group's operations being suspended, which may have an adverse impact on
the Group's operations as well as adverse implications on the Group's future
cash flows, profitability and financial condition. Supply chain disruptions
resulting from the COVID-19 pandemic and measures implemented by governmental
authorities around the world to limit the transmission of the virus (such as
travel bans and quarantining) may, in addition to the general level of
economic uncertainty caused by the COVID-19 pandemic, also adversely impact
the Group's operations, financial position and prospects.
As a result of considerations noted above, the Directors consider the impact
of COVID-19 could delay the drawdown of the senior debt facility.
2.3 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 2021 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.
2.4 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 2021 Annual Report and
Financial Statements. The nature and amounts of such estimates and judgements
have not changed significantly during the interim period. Estimates and
judgements relating to the Vermelho Royalty and the convertible loan notes are
not covered in the Group's 2021 Annual Report and Financial Statements and are
detailed below.
2.4a Accounting for the Vermelho Royalty Financing Arrangement
The Group has a $25m royalty funding arrangement which was secured in order to
advance a feasibility study and permitting work streams on the Vermelho
project. The royalty pays a fixed percentage of revenue to the holder for
production on the nickel and cobalt tonnes produced from the Vermelho project
over the life of mine. The treatment of this financing arrangement as a
financial liability, calculated using the effective interest rate methodology
is a key judgement that was made by the Company in prior years on the Araguaia
Royalty and which was taken following obtaining independent expert advice. The
carrying value of the financing liability is driven by the expected future
cashflows payable to the holder on the basis of the production profile of the
mine property. It is also sensitive to assumptions regarding the royalty rate,
which can vary based upon the start date for construction of the project and
future nickel and cobalt prices. The contract includes certain embedded
derivatives, including the Buy Back Option which has been separated and
carried at fair value through profit and loss.
The future prices of nickel and cobalt and the date of commencement of
commercial production are key estimates that are critical in the determination
of the carrying value of the royalty liability.
The future expected nickel and cobalt prices and volatility of such prices are
key estimates that are critical in the determination of the fair value of the
Buy Back Option associated with the Royalty financing.
Further information relating to the accounting for this liability, the
embedded derivative and the sensitivity of the carrying value to these
estimates is provided in note 10b.1) and 10b.2).
2.4b Accounting for the Convertible Loan Notes
The Group issued $65m convertible loan notes which was secured to finance the
construction of the Araguaia project. The convertible loan is a hybrid
financial instrument, whereby a debt host liability component and an embedded
derivative liability component was determined at initial recognition. The
conversion option did not satisfy the fixed for fixed equity criterion (fixed
number of shares and fixed amount of cash) as the currency of the convertible
loan notes is US Dollar and the functional currency of Horizonte Minerals Plc
and its share price is GBP.
For convertible notes with embedded derivative liabilities, the fair value of
the embedded derivative liability is determined first and the residual amount
is assigned to the debt host liability.
The future expected market share price of the Company and the volatility of
the share price are the key estimates that are critical in the determination
of the fair value of the embedded derivative and subsequently the debt host
liability of the Convertible Loan Notes.
Further information relating to the accounting for this liability, the
embedded derivative and the sensitivity of the carrying value to these
estimates is provided in note 11.
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 2021 except for the new accounting policy
applied for the convertible loan notes, hedge accounting and the environmental
rehabilitation provision which is detailed below.
3.1 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 the Araguaia royalty finance
· Adjustments to the carrying value of the Araguaia royalty finance
· Unwinding of discount on contingent consideration payable for
Araguaia
· Unwinding of discount on the convertible loan notes
· Commitment fees payable on the senior debt facility
All other borrowing costs are recognized as part of interest expense in the
year which they are incurred.
3.2 Derivative financial instruments
Derivatives are initially measured at fair value, and changes therein are
recognised in profit or loss, except when hedge accounting is adopted and
changes in fair value are recognised in equity. All directly attributable
transaction costs are recognised in profit or loss as incurred.
3.3 Convertible loan notes
The convertible loan issued by the Group is a hybrid financial instrument,
whereby a debt host liability component and an embedded derivative liability
component was determined at initial recognition. The conversion option did not
satisfy the fixed for fixed equity criterion (fixed number of shares and fixed
amount of cash) as the currency of the convertible loan notes is US Dollar and
the functional currency of Horizonte Minerals Plc and its share price is GBP.
Conversion features that are derivative liabilities are accounted for
separately from the host instrument. The embedded derivative is accounted for
as a financial instrument through profit or loss and is initially measured at
fair value, and changes therein are recognised in profit or loss. The debt
host liability is accounted for at amortised cost. In the case of a hybrid
financial instrument, IFRS 9 requires that the fair value of the embedded
derivative is calculated first and the residual value (residual proceeds) is
assigned to the host financial liability.
Transaction costs are apportioned to the debt host liability and the embedded
derivative in proportion to the allocation proceeds. The portion attributed to
the conversion feature is expensed immediately, because transaction costs are
expensed immediately for all financial instruments measured at fair value
through profit or loss. The portion of transaction costs that are attributed
to the loan (measured at amortised cost), are subtracted from the carrying
amount of the financial liability and amortised as part of the effective
interest rate.
3.4 Hedge accounting
The Group has elected to adopt the hedge accounting requirements of IFRS 9
Financial Instruments, in respect of its foreign exchange hedging strategy.
The Group enters into hedge relationships where the critical terms of the
hedging instrument and the hedged item match, therefore, for the prospective
assessment of effectiveness a qualitative assessment is performed. Hedge
effectiveness is determined at the origination of the hedging relationship.
Quantitative effectiveness tests are performed at each period end to determine
the continuing effectiveness of the relationship. In instances where changes
occur to the hedged item which result in the critical terms no longer
matching, the hypothetical derivative method is used to assess effectiveness.
Foreign exchange risk arises when the Group enters into transactions
denominated in a currency other than their functional currency. Where the risk
to the Group is considered to be significant, the Group will enter into a
matching non-deliverable forward foreign exchange contracts with a reputable
bank.
The hedged forecast transactions denominated in foreign currency are expected
to occur between 14 May 2022 and 31 March 2025. Gains and losses recognised in
the hedging reserve in equity on non-deliverable forward foreign exchange
contracts are recognised in the consolidated statement of comprehensive income
in the period during which the hedged forecast transaction affects the
consolidated statement of comprehensive income, unless the gain or loss is
included in the initial carrying value of non-current assets through a basis
adjustment (immediate transfer from cash flow hedging reserve to cost of
asset) in which case recognition is over the lifetime of the asset as it is
depreciated. The ineffective portion of the cash flow hedge is recognised
immediately in the profit or loss.
3.5 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 US Dollars. The
Consolidated Financial Statements as at 31 December 2021 were presented in
Pounds Sterling, rounded to the nearest pound, which is the Company's
functional and Group's presentation currency. As disclosed in note 2 Basis of
Preparation, for the financial year commencing 1 January 2022 and future
financial years the Group's presentation currency will be US Dollars, rounded
to the nearest dollar.
(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 2022 were £1:US$1.12 (31 December 2021:
£1:US$1.35), Brazilian Real (R$):US$0.18 (31 December 2021: R$:US$0.18).
Foreign currency translation reserve includes movements that relate to the
retranslation of the subsidiaries whose functional currencies are not US
Dollars.
During the first quarter of 2022, the Brazilian Real strengthened by
approximately 15% from R$5.57 to R$4.74 against the US Dollar since 31
December 2021 (31 March 2021: depreciated approximately by 10% from R$5.20 at
31 December 2020 to R$5.70). During the second quarter of 2022, the Brazilian
Real depreciated further by approximately 11% to R$5.24 against the US Dollar
since 31 March 2022 (30 June 2021: strengthened approximately by 12% to
R$5.01). During the third quarter of 2022, the Brazilian Real depreciated by
approximately 3% to R$5.41 against the US Dollar since 30 June 2022 (30
September 2021: depreciated approximately by 9% to R$5.45). Currency
translation differences for the nine-month period of $17.5 million loss (2021:
$2.7 million 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 and Pounds
Sterling.
The foreign exchange gain for the nine-month period of $9million 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.
3.6 Environmental rehabilitation provision
The Group has recognised provisions for liabilities of uncertain timing or
amount including the environmental rehabilitation provision. The provision is
measured at the best estimate of the expenditure required to settle the
obligation at the period end date, discounted at a pre-tax rate reflecting
current market assessments of the time value of money and risks specific to
the liability.
3.7 Share-based payments
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.
3.6 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 2022 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
2022 Netherlands
9 months 9 months 9 months 9 months
ended ended ended ended
30 September 2022 30 September 2022 30 September 2022 30 September 2022
US$ US$ US$ US$
Administrative expenses (7,465,840) (1,902,253) (136,664) (9,504,757)
Share based payments expense (508,529) - - (508,529)
Change in fair value of derivative 4,360,500 - - 4,360,500
Profit/(Loss) on foreign exchange 8,627,415 - (41,391) 8,586,024
Profit/(Loss) before interest and tax per reportable segment 5,013,546 (1,902,253) (178,055) 2,933,238
Net finance costs 74,831 (201,197) (5,538,973) (5,665,339)
Profit/(Loss) before taxation 5,088,377 (2,103,450) (5,717,028) (2,732,101)
Depreciation charges - 35,186 - 35,186
Additions to non-current assets - 132,891,403 - 132,891,403
Capitalisation of borrowing costs - 13,260,561 - 13,260,561
Foreign exchange movements to non-current assets - 3,484,915 - 3,484,915
Reportable segment assets 105,005,050 285,664,136 9,897,320 400,566,506
Reportable segment liabilities 72,910,728 36,846,304 88,609,350 198,366,382
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
US$ US$ US$ US$
Administrative expenses (4,946,681) (553,789) (92,632) (5,593,102)
Change in fair value of special warrant liability (1,616,120) - - (1,616,120)
Profit/(Loss) on foreign exchange (58,992) - 542,278 483,286
Loss before interest and tax per reportable segment (6,621,793) (553,789) 449,646 (6,725,936)
Net finance costs (214,689) - - (214,689)
Loss before taxation (6,836,482) (553,789) 449,646 (6,940,625)
Depreciation charges - 13,646 - 13,646
Additions to non-current assets - 14,442,749 - 14,442,749
Capitalisation of borrowing costs - 7,486,579 - 7,486,579
Foreign exchange movements to non-current assets - (1,606,193) - (1,606,193)
Reportable segment assets 13,327,460 82,190,208 2,603,805 98,121,473
Reportable segment liabilities 9,935,239 4,806,571 37,736,269 52,478,079
UK Brazil Total
2022 Netherlands
3 months 3 months 3 months 3 months
ended ended ended ended
30 September 2022 30 September 2022 30 September 2022 30 September 2022
US$ US$ US$ US$
Administrative expenses (2,185,371) (613,198) (42,564) (2,841,133)
Share based payments expense (508,529) - - (508,529)
Change in fair value of derivative - - - -
Profit/(Loss) on foreign exchange 554,012 (335,535) (1,015,522) (797,045)
Profit/(Loss) before interest and tax per reportable segment (2,139,888) (948,733) (1,058,086) (4,146,707)
Net finance costs (73,566) 66,130 (2,425,897) (2,433,333)
Profit/(Loss) before taxation (2,213,454) (882,603) (3,483,983) (6,580,040)
Depreciation charges - 13,009 - 13,009
Additions to non-current assets - 60,720,658 - 60,720,658
Capitalisation of borrowing costs - 4,840,344 - 4,840,344
Foreign exchange movements to non-current assets - (1,898,279) - (1,898,279)
UK Brazil Total
Netherlands
2021
3 months 3 months 3 months 3 months
ended ended ended ended
30 September 2021 30 September 2021 30 September 2021 30 September 2021
US$ US$ US$ US$
Administrative expenses (1,635,123) (243,862) (42,636) (1,921,621)
Change in fair value of special warrant liability - - - -
Profit/(Loss) on foreign exchange (467,189) - (1,254,398) (1,721,587)
Loss before interest and tax per reportable segment (2,102,312) (243,862) (1,297,034) (3,643,208)
Net finance costs (73,566) - - (73,566)
Loss before taxation (2,175,878) (243,862) (1,297,034) (3,716,774)
Depreciation charges - 5,355 - 5,355
Additions to non-current assets - 3,657,467 - 3,657,467
Capitalisation of borrowing costs - 3,114,898 - 3,114,898
Foreign exchange movements to non-current assets - (3,750,293) - (3,750,293)
5 Finance income and costs
9 months 9 months 3 months 3 months
ended ended ended ended
30 September 2022 30 September 2021 30 September 2022 30 September 2021
US$ US$ US$ US$
Finance income
- Interest income on cash and short-term deposits 4,460,729 311,920 2,066,435 159,974
Finance costs
- Interest on land purchases (169,382) - 78,156 -
- Interest on lease liability (38,410) - (13,945) -
- Commitment fees on senior debt (3,794,151) - (1,527,649) -
- Other (8,960) - (5,114) -
- Contingent and deferred consideration: unwinding of discount (577,665) (419,519) (120,110) (143,755)
- Contingent and deferred consideration: Fair value adjustment 31,677 - (74,449) -
- Contingent and deferred consideration: change in estimate 299,399 - - -
- Convertible loan note: unwinding of discount (3,767,306) - (1,914,701) -
- Amortisation of Royalty Finance (6,608,422) (3,405,152) (2,740,264) (1,188,256)
- Royalty finance carrying value adjustment (8,753,409) (4,188,517) (3,022,036) (2,016,427)
Total finance costs pre-capitalisation (18,925,900) (7,701,268) (7,273,677) (3,188,464)
Finance costs capitalised to the Araguaia mine development project 13,260,561 7,486,579 4,840,344 3,114,898
Net finance costs (5,665,339) (214,689) (2,433,333) (73,566)
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
US$ US$ US$ US$ US$
Cost
At 1 January 2021 215,979 6,831,692 1,442,670 - 8,490,341
Additions - 103,461 209,246 92,515 405,222
Amortisation for the year - - - (2,509) (2,509)
Exchange rate movements (14,844) (480,024) (88,701) - (583,569)
Net book amount at 31 December 2021 201,135 6,455,129 1,563,215 90,006 8,309,485
Additions - 223,768 1,095,394 90,823 1,409,985
Amortisation for the year - - - (20,431) (20,431)
Exchange rate movements 7,234 270,232 18,154 3,237 298,856
Net book amount at 30 September 2022 208,369 6,949,129 2,676,762 163,635 9,997,895
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 Building improvements Total
US$ US$ US$ US$ US$ US$
Cost
At 1 January 2021 41,909,101 105,074 78,287 119,090 - 42,211,552
Additions 13,328,811 759,475 69,980 10,199,425 - 24,357,691
Transfers - 648 (648) - - -
Disposals - - (1,385) - - (1,385)
Capitalised interest 7,073,241 - - - - 7,073,241
Exchange rate movements (2,893,576) (7,206) (5,368) (8,185) - (2,914,335)
At 31 December 2021 59,417,577 857,991 140,866 10,310,330 - 70,726,764
Additions 128,783,919 - 162,086 2,499,087 36,325 131,481,417
Environmental rehabilitation additions 98,036 - - - - 98,036
Transfers 756,217 (787,730) 31,306 - 207 -
Capitalised interest 13,260,561 - - - - 13,260,561
Disposals - - (1,885) - - (1,885)
Exchange rate movements 2,784,084 30,858 5,066 370,819 - 3,190,828
At 30 September 2022 205,100,394 101,121 337,439 13,180,235 36,532 218,755,721
Accumulated depreciation
At 1 January 2021 - 78,036 42,719 - - 120,755
Charge for the year - 7,526 12,840 - - 20,366
Transfer - 222 (222) - - -
Disposals - - (168) - - (168)
Exchange rate movements - (5,350) (2,929) - - (8,279)
At 31 December 2021 - 80,434 52,240 - - 132,674
Charge for the period - 5,720 29,072 - 393 35,185
Transfer - (720) 703 - 17 -
Disposals - - (151) - - (151)
Exchange rate movements - 2,893 1,879 - - 4,771
At 30 September 2022 - 88,327 83,742 - 410 172,479
Net book amount as at 30 September 2022 205,100,394 12,794 253,697 13,180,235 36,122 218,583,242
Net book amount as at 31 December 2021 59,417,577 777,557 88,626 10,310,330 - 70,594,090
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
$14,000/t Ni. Nothing material had changed with the economics of the FS
between the publication date and the date of this report and the Directors
undertook an assessment of impairment for the 2021 audited financial
statements through evaluating the results of the FS along with recent market
information relating to capital markets and nickel prices and judged that
there are no impairment indicators with regards to the Araguaia Project. Since
then, no impairment indicators have been identified.
8 Share Capital and Share Premium
On 11 April 2022 the Group issued 6,000,000 new ordinary shares (after share
consolidation 300,000 shares) at a price of 4.33 pence per share in relation
to the exercise of options by an employee of the Company.
On 31 May 2022 the Group completed a share consolidation on the basis of 1 new
share for every 20 existing shares. As a result of the share consolidation,
the Company's issued share capital consists of 190,418,279 ordinary shares of
£0.20 each.
Issued and fully paid Number of shares (before share consolidation) Number of shares (after share consolidation) Ordinary shares Share premium Total
US$ US$ US$
At 1 January 2022 Restated 3,802,365,590 190,118,279 52,215,236 245,388,102 297,603,338
Issue of equity 7,000,000 350,000 90,140 284,584 374,724
At 30 September 2022 3,809,365,590 190,468,279 52,305,376 245,672,686 297,978,062
The share premium as at 1 January 2022 was restated by US$2,549,459 due to
issue costs relating to the December equity raise that was invoiced after the
year end date.
9 Contingent and Deferred 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 US$2,428,446
at 30 September 2022 (31 December 2021: US$2,308,612). It comprises
US$5,000,000 consideration in cash as at the date of first commercial
production from the 'Vale dos Sonhos' resource areas within the Enlarged
Project area. The key assumptions underlying the treatment of the contingent
consideration the US$5,000,000 and 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 nine months to 30 September 2022 is
US$119,834 (30 September 2021: US$204,831).
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 US$4,350,690 at 30
September 2022 (31 December 2021: US$4,425,522). 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 2022, there was a net finance income of US$74,831 (30
September 2021: US$214,689) 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 net finance income includes a change in
estimate due to the change in the estimated date of first commercial
production from 30 June 2026 to 30 June 2027. The finance costs in respect of
this contingent consideration are expensed as the Vermelho project has not
entered the construction phase.
Deferred Consideration payable to Companhia Brasileira de Alumínio
The deferred consideration payable to Companhia Brasileira de Aluminio has a
carrying value of US$5,677,125 at 30 September 2022 (31 December 2021:
US$5,475,538). It comprises US$7,000,000 consideration in cash for ferronickel
processing equipment which payable on the completion of certain milestones in
the Araguaia project and was recognised for the first time in December 2021.
The milestones are as follows:
a) US$600,000 payable on execution of the Agreement, this was paid on
9 December 2021;
b) US$950,000 upon the removal of 80% of the Processing Equipment from
CBA's Niquelândia operations;
c) US$950,000 upon reaching 50% completion of Araguaia plant
construction;
d) d) US$1,150,000 upon production at Araguaia reaching 90% of
nameplate capacity for a period of 60 days, on average, and with up to 50% of
such amount payable in Horizonte shares, at Horizonte's election; and
e) e) US$3,350,000 payable by Horizonte in three equal annual
instalments with the first instalment due within 45 days of the first sale of
ferronickel to a third party. Horizonte may choose to pay the outstanding
balance of this amount at any time of it's choosing with up to 50% of the
total able to be paid in Horizonte's shares, at Horizonte's election.
The key assumptions underlying the treatment of the deferred consideration is
a discount factor of 7.0% and the estimated timing of the milestones as
outlined previously.
As at 30 September 2022, there was a finance expense of US$201,587 (30
September 2021: $nil) recognised in finance costs within the Statement of
Comprehensive Income in respect of this deferred consideration arrangement, as
the discount applied to the deferred consideration at the date of acquisition
was unwound.
Companhia Brasileira de Aluminio Xstrata Brasil Mineração Ltda (in respect of Araguaia project) Vale Metais Basicos S.A. (in respect of Vermelho project) Total
(in respect of Araguaia project)
US$ US$ US$ US$
At 1 January 2021
Initial recognition 5,450,087 3,946,090 4,136,002 13,532,179
Unwinding of discount 19,256 276,226 289,520 585,002
Change in estimate - (1,913,705) - (1,913,705)
Change in carrying value and foreign exchange 6,195 - (1) 6,194
At 31 December 2021 5,475,538 2,308,611 4,425,521 12,209,670
Unwinding of discount 233,264 119,834 224,567 577,665
Change in estimate - - (299,399) (299,399)
Change in carrying value and foreign exchange (31,677) - 1 (31,676)
At 30 September 2022 5,677,125 2,428,445 4,350,690 12,456,260
10 a) Royalty Financing liability
10 a.1) Araguaia royalty financing liability
On 29 August 2019 the Group entered into a royalty funding arrangement with
Orion Mine Finance ("OMF") securing a gross upfront payment of US$25,000,000
before fees in exchange for a royalty, the rate being in a range from 2.25% to
3.00% and determined by the date of funding and commencement of major
construction. The rate has been confirmed to be 2.95%. The royalty is paid
over the first 426k tonnes of nickel produced from the Araguaia Ferronickel
project. The royalty is linked to production and therefore does not become
payable until the project is constructed and commences commercial production;
more detail is contained within the audited financial statements for the year
ended 31 December 2021.
The Royalty liability has initially been recognised using the amortised cost
basis with an effective interest rate of 14.5%. When circumstances arise that
lead to payments due under the agreement being revised, the group adjusts the
carrying amount of the financial liability to reflect the revised estimated
cash flows. This is achieved by recalculating the present value of estimated
cash flows using the original effective interest rate of 14.5%. Any adjustment
to the carrying value is recognised in the income statement.
The carrying value of the royalty reflects assumptions on expected long term
nickel price, update headline royalty rate as well as the timing of payments
related to expected date of commencement of production and hence payment to be
made under the royalty agreement. The assumption influencing the increase in
the carrying value of the royalty since year end is the long-term nickel price
which has increased from US$16,945 t/Ni to US$18,629 t/Ni. The royalty rate is
2.95%.
Management have sensitised the carrying value of the royalty liability for a
US$1,000/t Ni increase/decrease in future nickel price the carrying value
would change by US$3,007,914.
10 a.2) Vermelho royalty financing liability
On 23 November 2021 the Group entered into a royalty funding arrangement with
Orion Mine Finance ("OMF") securing a gross upfront payment of US$25,000,000
before fees in exchange for a royalty, at a rate of 2.1%. The royalty rate
will increase to 2.25% if substantial construction of the Vermelho Project has
not commenced within 5 years of the closing date, 30 March 2022. The royalty
will be paid over the life of mine of Vermelho. The Royalty agreement has
certain provisions to revise the headline royalty rate should there be change
in the mine schedule and production profile prior to construction or if the
resource covered in the Vermelho Feasibility Study is depleted. The royalty is
linked to production and therefore does not become payable until the project
is constructed and commences commercial production. The agreement contains
certain embedded derivatives which as per IFRS9 have been separately valued
and included in the fair value of the financial instrument in note 10 b). The
royalty funds were received on 30 March 2022.
The Royalty liability has initially been recognised using the amortised cost
basis with an effective interest rate of 19.34%. 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 19.34%. Any
adjustment to the carrying value is recognised in the income statement.
The carrying value of the royalty reflects assumptions on expected long term
nickel and cobalt prices, headline royalty rate as well as the timing of
payments related to expected date of commencement of production and hence
payment to be made under the royalty agreement. The assumption influencing the
initial valuation of the carrying value of the Vermelho royalty is the
long-term nickel price of US$17,756 t/Ni (as at the initial recognition date
30 March 2022), the long-term cobalt price of US$53,355t/Co (as at the initial
recognition date 30 March 2022), and the royalty rate of 2.1%. The assumptions
influencing the valuation at the period end date is the long-term nickel price
of US$18,629 t/Ni, the long-term cobalt price of US$58,182 t/Co. The royalty
rate has remained at 2.1%.
Management have sensitised the carrying value of the royalty liability by a
change in the royalty rate to 2.25% and it would be US$2,448,645 higher/lower
and for a US$1,000/t Ni increase/decrease in future nickel price and future
cobalt price the carrying value would change by US$1,575,763.
Araguaia Royalty valuation Vermelho Royalty valuation Total
US$ US$ US$
Net book amount at 1 January 2021 30,131,755 - 30,131,755
Unwinding of discount 4,637,057 - 4,637,057
Change in carrying value 9,727,692 - 9,727,692
Effects of foreign exchange - - -
Net book amount at 31 December 2021 44,496,504 - 44,496,504
Initial recognition - 25,000,000 25,000,000
Embedded derivative - initial valuation - 4,590,000 4,590,000
Transaction costs - (847,939) (847,939)
Unwinding of discount 3,929,180 2,679,242 6,608,422
Change in carrying value 5,893,677 2,859,732 8,753,409
Effects of foreign exchange - - -
Net book amount at 30 September 2022 54,319,361 34,281,035 88,600,396
10 b) Derivative financial assets
10 b.1) Araguaia derivative financial assets
The aforementioned Araguaia royalty 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 US$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 has been fair valued using a Monte
Carlo simulation which runs a high number of scenarios in order to derive an
estimated valuation. The Monte Carlo simulation was performed at the 31
December 2021 year end. The Monte Carlo simulation is performed annually at
the year-end date. The assumptions driving the buy-back option valuation were
assessed as at 30 September 2022 and it was concluded that the change in the
valuation would not be material.
The assumptions for the valuation of the Buy Back Option (per the Monte Carlo
simulation) are the future nickel price (US$16,941/t Ni), the production start
date (May 2023), the prevailing royalty rate (2.95%), the inflation rate
(1.76%) and volatility of nickel prices (22.1%).
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 US$1,000 would give rise
to a US$1,338,000 increase in the value of the option.
The nickel price volatilities based on both 5- and 10-year historic prices are
in close proximity and this is the period in which management consider that
the option would be exercised. Therefore, management have concluded that
currently no reasonably possible alternative assumption for this estimate
would give rise to a material impact on the valuation.
10 b.2) Vermelho derivative financial assets
Horizonte has the right to buy back 50% of the royalty on the first four
anniversaries of closing (or on any direct or indirect change of control in
respect of Vermelho up until the fourth anniversary of closing).
After the 4th anniversary, Horizonte has the right to buy back 50% of the
royalty on any direct or indirect change of control in respect of Vermelho at
a valuation that meets certain minimum economic returns for OMF.
The initial recognition of the Buy Back Option has been recognised as an asset
on the balance sheet with any changes to the fair value of the derivative
recognised in the income statement. It has been fair valued using a Monte
Carlo simulation which runs a high number of scenarios in order to derive an
estimated valuation. The Monte Carlo simulation was performed at the agreement
date of 23 November 2021.
The assumptions for the valuation of the Buy Back Option (per the Monte Carlo
simulation) are the future nickel price (US$16,602/t Ni), the future cobalt
price (US$45,387/t Co), the production profile from 2027 to 2065, the expected
royalty rate (2.1%), the inflation rate (1.76%), volatility of nickel prices
(22.1%) and volatility of cobalt prices (28.0%).
Sensitivity analysis
The valuation of the Buyback option is sensitive to estimates for nickel and
cobalt prices and their respective volatilities, the change in royalty rate
and the production profile.
An increase in the volatility of the nickel (28%) and cobalt (35%) would give
rise to a US$270,000 increase in the value of the option. An increase in the
royalty rate to 2.25% (assuming the original volatilities 22%Ni, 28%Co) would
increase the option valuation by US$830,000.
If the production profile decreased by 20% (assuming the original
volatilities) the option valuation would decrease by U$1.9million.
The nickel and cobalt price volatilities based on both 5- and 10-year historic
prices are in close proximity and this is the period in which management
consider that the option would be exercised. Therefore, management have
concluded that currently no reasonably possible alternative assumption for
this estimate would give rise to a material impact on the
valuation.
Araguaia Royalty Vermelho Royalty Total
US$ US$ US$
Value as at 1 January 2021 2,400,000 - 2,400,000
Change in fair value 2,550,000 - 2,550,000
Value as at 31 December 2021 4,950,000 - 4,950,000
Initial recognition - 4,590,000 4,590,000
Value as at 30 September 2022 4,950,000 4,590,000 9,540,000
11 Convertible loan notes liability
On 29 March 2022 the Company issued convertible loan notes to the value of
US$65 million at an interest rate of 11.75% with interest accruing quarterly
in arrears. The convertible loan notes were issued at a discount of 5.75%. The
maturity date of the instruments is 15 October 2032.
The convertible loan notes are unsecured and the noteholders will be repaid as
follows:
· Interest shall be capitalised until the Araguaia Project
Completion date, estimated to be 31 December 2025 (subject to various
technical operating tests being passed)
· After Project Completion Date, interest shall be paid quarterly
only if there is available cash (after the company meets its senior debt and
other senior obligations)
· After Project Completion Date, principal repayments (including
accrued capitalized interest) shall be paid quarterly subject to available
cash for distribution. In addition, a cash sweep of 85% of excess cash will
apply on each interest payment date
· Any amount outstanding on the CLN on the maturity date 15 October
2032, Horizonte is obliged to settle in full on the maturity date.
At any time until the Maturity Date, the Noteholder may, at its option,
convert the notes, partially or wholly, into a number of ordinary shares up to
the total amount outstanding under the Convertible Note divided by the
Conversion Price. The Conversion Price is 125% of the Subscription Price of
0.07 pence (after share consolidation 1.40 pence converted to US$ at a rate of
1.3493). The Conversion Price is therefore US$1.89.
The convertible loan is a hybrid financial instrument, whereby a debt host
liability component and an embedded derivative liability component was
determined at initial recognition. The conversion option did not satisfy the
fixed for fixed equity criterion (fixed number of shares and fixed amount of
cash) as the currency of the convertible loan notes is US Dollar and the
functional currency of Horizonte Minerals Plc and its share price is GBP.
For convertible notes with embedded derivative liabilities, the fair value of
the embedded derivative liability is determined first and the residual amount
is assigned to the debt host liability.
The initial recognition of the embedded derivative conversion feature has been
recognised as a liability on the balance sheet with any changes to the fair
value of the derivative recognised in the income statement. It has been fair
valued using a Monte Carlo simulation which runs a high number of scenarios in
order to derive an estimated valuation. The Monte Carlo simulation was
performed at the transaction date 29 March 2022 and 30 June 2022.
The assumptions for the valuation of the conversion feature (per the Monte
Carlo simulation) are the Horizonte Minerals Plc future share price volatility
(60%), GBP: USD exchange rate volatility (9%) on the conversion price,
risk-free rates (2.41% at 29 March and 2.98% at 30 June).
At 29 March 2022 the fair value of the conversion feature was calculated (per
the Monte Carlo simulation) as US$19,161,400. The proceeds received was US$
61,262,500 and thus the residual allocated to the debt host liability was
US$42,101,100.
The debt host liability will be accounted for using the amortised cost basis
with an effective interest rate of 19%. The effective interest rate is
recalculated after adjusting for the transaction costs. The Group will
recognise the unwinding of the discount at the effective interest rate, until
the maturity date, the carrying amount at the maturity date will equal the
cash payment required to be made.
The directly attributable transaction costs amounted to US$2,347,041 which was
allocated proportionately to the embedded derivative (US$734,096) and the
convertible loan notes liability (US$ 1,612,945). The embedded derivative
transaction costs were recognised in profit and loss, whereas the convertible
loan liability transaction costs were deducted from the financial liability
carrying amount.
After the fifth anniversary of the closing date, Horizonte shall have a
one-time right to redeem the Convertible Notes, in whole, at 105% of the par
value plus accrued and unpaid interest in cash if:
1. The thirty-business day VWAP of Horizonte shares exceeds 200% of
the Conversion Price and the average daily liquidity of the Company's shares
(across all relevant exchanges) exceeds US$2.5 million per trading day over
the prior 30 trading days; or
2. There is a change of control.
Management have assessed the likelihood of the above events occurring is
highly improbable and thus the value of the redemption right is immaterial and
was thus not considered in the valuation of the instrument.
Sensitivity analysis - Conversion feature derivative
The valuation of the conversion feature derivative is sensitive to the
Horizonte Minerals Plc future share price volatility (60%). If the share price
volatility increased to 80% the option valuation would increase by
$3.5million. If the volatility decreased to 40% the option valuation would
decrease by $1.9million.
Embedded derivative Convertible loan notes liability Total
US$ US$ US$
Initial recognition (after discount on issue) 19,161,400 42,101,100 61,262,500
Transaction costs - (1,612,944) (1,612,944)
Unwinding of discount - 3,767,306 3,767,306
Change in fair value (4,360,500) - (4,360,500)
Value as at 30 September 2022 14,800,900 44,255,462 59,056,362
12 Environmental rehabilitation provision
Environmental rehabilitation provision relates to the estimated cost of
returning the Araguaia Project mining property to its original state at the
end of the life of mine in accordance with the Brazilian legislation. The cost
is recognised as part of the Mine Development Asset and will be depreciated
over the life of the mine. The main uncertainty relates to estimating the cost
that will be incurred at the end of the life of mine.
Total
US$
Additions 98,036
Value as at 30 September 2022 98,036
13 Derivative financial liability
Cash flow forward foreign exchange contracts
Total
US$
Derivatives designated as hedging instruments
Non-deliverable forward contracts 7,845,762
Value as at 30 September 2022 7,845,762
Current and non-current
Current 7,201,664
Non-current 644,098
7,845,762
In January 2022 the Group's Board approved the budget for the development of
the Araguaia Ferronickel Project (Project). With the funding base being
primarily US Dollars, the Project budget includes a significant portion of
spend in local currency, the Brazilian Real (BRL). The Group and its senior
lenders agreed to implement a foreign exchange hedging strategy that ensures
that at least 70% of its BRL denominated capital expenditure to be incurred
between 14 May 2022 and 31 March 2024 is hedged to reduce the exposure of
future BRL foreign exchange risk.
The Group has therefore entered into a series of monthly non-deliverable
forward transactions ("NDFs") which will lock in a series of future USD: BRL
rates based on the Group's projected spend profile at the time of entering
into those transactions. NDFs by definition are non-deliverable and so the
Group would either pay or receive an amount of BRL to ensure that it
ultimately achieves the hedged rate.
The effects of the cash flow non-deliverable forward contract hedging
relationship are as follows:
US$
Carrying amount of the derivatives (7,845,763)
Change in fair value of designated hedging instruments (7,845,763)
Change in fair value of designated hedged item 7,845,763
Notional amount 278,032,760
Maturity date 31/10/2022 - 28/03/2024
Hedge ratio 1:1
14 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
2022.
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 2022 As at 31 December 2021
Carrying amount Amortised Cost Fair Value Carrying amount Amortised cost Fair Value
US$ US$ US$ US$ US$ US$
Financial Assets 9,540,000 - 9,540,000 4,950,000 - 4,950,000
Derivative financial assets
Total Assets 9,540,000 9,540,000 4,950,000 4,950,000
Financial Liabilities
Contingent consideration 6,779,135 6,779,135 - 6,734,132 6,734,132
Deferred consideration 5,677,125 5,677,125 - 5,475,538 5,475,538
Royalty Finance 88,600,396 88,600,396 - 44,496,504 44,496,504
Convertible Loan Note - host debt liability 44,255,462 44,255,462 - - - -
Convertible Loan Note - embedded derivative 14,800,900 - 14,800,900 - - -
Derivative financial liability 7,845,763 - 7,845,763 - - -
Total Liabilities 167,958,780 145,312,118 22,646,663 56,706,174 56,706,174 -
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 has 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.
The derivative liability on the convertible loan note has been deemed to be a
level three fair value. Information related to the valuation method and
sensitivities analysis are included in note 11.
The derivative liability on the forward exchange contracts has been deemed to
be a level one fair value. Information related to the hedging instrument are
included in note 13.
15 Dividends
No dividend has been declared or paid by the Company during the nine months
ended 30 September 2022 (2021: nil).
16 Earnings per share
The calculation of the loss per share of 1.435 cents for the nine months ended
30 September 2022 (30 September 2021 loss per share: 8.488 cents) is based on
the loss attributable to the equity holders of the Company of US$2,732,101 for
the nine month period 30 September 2022 (30 September 2021: US$6,940,625 loss)
divided by the weighted average number of shares in issue during the period of
190,324,323 (weighted average number of shares for the nine months ended 30
September 2021: 81,767,079). The comparative earnings per share (30 September
2021) have been restated to reflect the share consolidation (note 8). The
conversion option on the convertible loan notes was considered when assessing
the diluted earnings per share. However, when comparing the exercise price of
£1.75 and the market price per share of £0.97 as at the quarter end date 30
September 2022, the conversion option was out of the money and therefore it is
not dilutive.
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 2021 and in note 17 below.
17 Share based payment
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, other than the options issued on 12 July 2022.
Options issued on 12 July 2022 will vest in three tranches on the 12-month,
18-month and 28-month anniversaries after the date of grant (refer below for
further information). All share options 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.
Two employees exercised their share options on 11 April 2022 and 6 July 2022
respectively. There were no other movements for the nine months ended 30
September 2022.
On 31 May 2022 the Group completed a share consolidation on the basis of 1 new
share for every 20 existing shares. The number of share options and the
exercise prices have been revised following the share consolidation.
The Group awarded new share options on 12 July 2022 (the "Award Date") over
9,736,250 ordinary shares of £0.20 each in the capital of the Company to
executives (PDMRs) and key personnel in the UK and Brazil. Each share option
is exercisable in return for one ordinary share in the Company and will vest
in three tranches on the 12-month, 18-month and 28-month anniversaries of the
Award Date at a ratio of 25%, 25% and 50%, with exercise prices of £1.68,
£1.72 and £1.76 for each one third of the Awards.
Movements on number of share options and their related exercise price are as
follows:
Number of options (before share consolidation) Weighted average exercise price (before share consolidation) Number of options (after share consolidation) Weighted average exercise price (after share consolidation)
£ £
Outstanding at 1 January 2022 114,300,000 0.0425 5,715,000 0.85
Exercised (7,000,000) 0.0433 (350,000) 0.83
Issued but not vested 194,725,000 0.086 9,736,250 1.72
Expired (7,700,000) 0.064 (385,000) 1.28
Outstanding at 30 September 2022 294,325,000 0.071 14,716,250 1.41
Exercisable at 30 September 2022 101,400,000 0.042 5,070,000 0.833
The fair value of the share options issued during the current financial year
was determined using the Black-Scholes valuation model.
The parameters used are detailed below:
2022
options
Date of grant 12/07/2022
Weighted average share price 98.5 pence
Weighted average exercise price 172 pence
Weighted average fair value at the measurement date 41.69 pence
Expiry date 11/07/2032
Options granted 9,736,250
Volatility 45.1%
Dividend yield Nil
Option life 10 years
Annual risk-free interest rate 2.14%
18 Ultimate controlling party
The Directors believe there to be no ultimate controlling party.
19 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 2021. There were no significant related party
transactions during the nine-month period ended 30 September 2022.
20 Commitments
The Company has conditional capital commitments totaling $397 million relating
to equipment purchase and service contracts which are key to the commencement
of the Araguaia project construction. These commitments remain subject to a
number of conditions precedent which have not been met at the date of this
report.
21 Events after the reporting period
The Company announced a placing and subscription on 4 October 2022 (together
the "Fundraise") raising gross proceeds of approximately £70.5million
(approximately US$80million) at a placing price of 90.5 pence per share from
existing and new investors. The Company issued a total of 77,945,627 new
ordinary shares with existing shareholders La Mancha Investments S.A.R.L. and
Glencore International AG participating for approximately £23.8million
(approximately US$27million) and approximately £26.4million (approximately
US$30million) respectively.
In connection with the Fundraise , Jeremy Martin, a director and Chief
Executive Officer of the Company, and Simon Retter, Chief Financial Officer of
the Company, each agreed to subscribe for 27,624 shares at the placing price.
The Fundraise was completed on the 8(th) November 2022.
22 Approval of interim financial statements
These Condensed Consolidated Interim Financial Statements have been approved
for issue by the Board of Directors on 8 November 2022.
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