Horizonte Minerals Plc, (AIM: HZM, TSX: HZM) ('Horizonte'
or 'the Company') the nickel development company
focused in Brazil, announces its final results for the year ended
31 December 2019.
Full Year Highlights
- Company well-funded to see through current global Covid-19
crisis. Implemented strict health and safety policies in
Brazil and the UK, specifically tailored to Covid-19.
- Current working structure allows Value Engineering and Project
Finance work streams to continue tracking project schedule.
- In October signed a US$25 million upfront cash royalty
agreement with Orion Mine Finance to begin development of the
Araguaia project.
- Awarded the construction licence by SEMAS, the Brazilian Pará
State Environmental Agency, for Araguaia permitting construction to
begin on the rotary kiln electric furnace and processing
plant.
- Appointed Pedro Rodrigues dos Reis as Project Director to lead
the construction of Araguaia.
- Strong cash balance of £17.8 million at year end, following
injection of Orion funds.
- Company is well advanced on the financing process for the
Araguaia Project.
- Vermelho Nickel Cobalt Project 43-101 Prefeasibility Study
released (PFS) demonstrating that the project can be a significant
low-cost supplier of nickel and cobalt sulphate for the EV battery
market:-- 38-year mine life-- Cash flows after taxation
of US$7.3 billion-- IRR of over 26%-- Sits on the lower
half of the global cost curve
- Favourable long-term nickel market fundamentals remain robust
despite short term weakness due to Covid-19 pandemic.
Chairman’s Statement David J
Hall
Dear Shareholders
Late 2019 and early 2020 has thrown up a number
of global challenges: Firstly, the continuation of the US China
trade war; and secondly, the more serious challenge of the Covid-19
virus. The effects of the virus on global trade and commodities
have been unprecedented, oil prices have seen their largest decline
recorded in history and the S&P500 posting its worst daily
performance since December 2008. This will all have a knock-on
effect in the short term for nickel markets and in the mining
project finance arena. Despite the current market volatility, the
Company has a strong cash position of £17.8 Million, one of the
lowest cost nickel development projects globally, and a strong
shareholder base. Our team remains focused on the execution of our
plans to begin construction at Araguaia and complete the next stage
of the feasibility study at Vermelho. The Company will continue
monitor the situation closely and adapt its business strategy to
the market conditions.
The year 2019 saw some major steps taken for us
as a company as we continued to progress two of the most exciting
nickel projects in the global pipeline. Araguaia, a project that we
have developed from a grassroots exploration discovery through to
being construction ready, is now at the funding stage. It
will be a key source of high grade ferronickel for the stainless
steel markets in the future. Vermelho, meanwhile, has now got a
Pre-Feasibility Study behind it, and looks set to benefit from the
significant growth in the electric vehicle market given the battery
grade nickel and cobalt product it will produce and the timing at
which it will come in to production. In parallel to the
development of the projects, the fundamentals around the nickel
market are robust. Nickel was the best performing metal
on the LME during 2019, with the price rising by more than 34%,
closing the year at the US$14,000/t mark.
Despite the current challenging global
environment, we continue to work on the various workstreams
required to achieve our stated goals, including advancing
Araguaia to the "construction-ready" phase and progressing the
financing process. There is a possibility that the effects of
Covid-19 might result in a delay to the project finance process
however the nickel market fundamentals remain robust for the
medium-term and aligned with the planned start of production at
Araguaia.
On the ground in Brazil, our team is well
prepared to continue their work while at the same time ensuring the
safety of those in our employ as a top priority. We have
implemented strict health and safety policies specifically tailored
to Covid-19.
We announced important news on both projects
during the course of 2019, securing significant funding for
Araguaia via a royalty agreement with Orion Mine Finance (OMF),
while producing a prefeasibility study at Vermelho that showed
robust economics for our second 100% owned project.
The timeline to development of our projects is
well timed to match an expected increase in demand for nickel, due
to continued stainless steel growth and the emerging, but
fast-growing, demand from the electric vehicle market. During 2019
market sentiment around a pending Indonesian nickel ban, caused a
sharp price increase and major reduction in nickel inventories
during the year. This has since reversed due in part to the effects
of the Covid-19. The nickel market that has seen a lack of
investment over recent years, combined with a pending uptick in
demand, align well for the development of Araguaia.
There remains a significant concern amongst many
market commentators and end users of nickel regarding the future
availability of supply, especially with the anticipated widespread
adoption of Electric Vehicles and the impact this is likely to have
on already constrained nickel supplies.
Wood Mackenzie has previously forecast a
long-term incentive price of $19,800/t Ni, which represents the
price environment which would incentivise enough production to come
online to satisfy expected future demand. Due to their quality,
Horizonte’s two projects provide strong returns at prices well
below this incentive and are therefore well positioned to help
contribute to the envisioned supply gap.
Additionally, the long-term consensus pricing
for nickel remains around $16,400/t Ni which shows some further
upside to the current price environment. These positive forecasts
continue to roll in with Bank of America Merrill Lynch recently
tipping nickel prices of US$17,375/t next year and US$20,000/t the
year after.
Conclusion
We continue to believe that Horizonte is
uniquely placed to benefit from the improving nickel market
fundamentals, driven by the robust market for stainless steel
combined with the fast growing EV market.
Achieving this benefit requires a management
team capable of jointly progressing these projects towards
production from a technical and regulatory point of view, while, at
the same time, creating the relationships in the investor community
to access the funding to develop them.
This year the team has once again proved
themselves on both accounts, advancing Araguaia and Vermelho at a
rapid rate, while bringing OMF on board as a financing partner,
with its US$25 million investment in the Araguaia royalty.
On behalf of the Board, I would like to thank
management for its contribution to another successful year. I would
like to say thank you to the shareholders for your continued
support as we look forward to updating the market on further
positive developments as during 2020.
David J Hall
Chairman 7 April 2020
Independent auditor’s report to the
members of Horizonte Minerals Plc
For Canadian filing
purposes
Opinion
We have audited the financial statements of
Horizonte Minerals Plc (the ‘parent company’) and its subsidiaries
(the ‘group’) for the years ended 31 December 2019 and 31 December
2018 which comprise the group statement of comprehensive income,
the group balance sheet, the group statement of changes in equity,
the group statement of cash flows and notes to the financial
statements including a summary of significant accounting
policies.
The financial reporting framework that has been
applied in their preparation is applicable law and International
Financial Reporting Standards (IFRSs). Our audit opinion does not
cover the parent company financial statements.
In our opinion:
- the group financial statements present fairly, in all material
respects, the financial position of the group as at 31 December
2019 and 31 December 2018 and its financial performance and its
cash flows for the years then ended; and
- the group financial statements have been properly prepared in
accordance with IFRSs as issued by the IAASB.
Basis for Opinion
We conducted our audit in accordance with
International Standards on Auditing (ISAs) as issued by IAASB and
applicable law. Our responsibilities under those standards are
further described in the Auditor’s responsibilities for the audit
of the financial statements section of our report. We are
independent of the group in accordance with the International
Ethics Standards Board for Accountants’ Code of Ethics for
Professional Accountants (IESBA Code) together with the ethical
requirements that are relevant to our audit of the group financial
statements in the UK, and we have fulfilled our other ethical
responsibilities in accordance with these requirements and the
IESBA code. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in
relation to which the ISAs as issued by the IAASB require us to
report to you where:
- the Directors’ use of the going
concern basis of accounting in the preparation of the financial
statements is not appropriate; or
- the Directors have not disclosed in
the financial statements any identified material uncertainties that
may cast significant doubt about the Group’s or the Parent
Company’s ability to continue to adopt the going concern basis of
accounting for a period of at least twelve months from the date
when the financial statements are authorised for issue.
Key audit matters
Key audit matters are those matters that, in our
professional judgment, were of most significance in our audit of
the financial statements of the current period and include the most
significant assessed risks of material misstatement (whether or not
due to fraud) we identified, including those which had the greatest
effect on: the overall audit strategy, the allocation of resources
in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these
matters.
Carrying value of exploration and evaluation assets and
mine development property
|
Key Audit Matter |
As detailed in notes 4.1, 10 and 11 to the financial statements,
the group holds the Araguaia mine development property carried at a
value of £32.3m and the Vermelho exploration and evaluation asset
carried at a value of £6.8m. Each year management are required to
assess whether there are any indicators that the exploration and
evaluation asset may be impaired. Management have carried out a
review for indicators of impairment and have not identified any
indicators. In 2019 the Araguaia asset was reclassified from
an exploration and evaluation asset to a mine development property.
IFRS 6 requires that upon reclassification the asset is assessed
for impairment. Management’s impairment assessment indicated that
no impairment was required. Reviewing indicators of
impairment and assessment of carrying values require significant
estimates and judgements and therefore we identified this as a key
audit matter. |
|
Audit Response |
We have reviewed management’s impairment assessments for both
projects and our procedures included the following :
- We considered whether management’s assessments of impairment
had been carried out in accordance with the requirements of
IFRS.
- We considered the appropriateness of management’s decision to
reclassify the Araguaia project to a mine development project,
assessing the evidence of technical and commercial
viability.
- We reviewed the feasibility studies prepared by independent
consultants for consistency with management’s representations and
assessed the competence and independence of the experts used by
management.
- For the Araguaia project, which is carried on the balance sheet
at £32m this assessment is supported by the externally prepared
feasibility study published in October 2018, which indicates a
post-tax net present value of $401m at a discount rate of 8%.
- For the Vermelho project, which is carried on the balance sheet
at £6.8m this assessment is supported by the externally prepared
pre-feasibility study published in October 2019, which indicates a
post-tax net present value of $1.7bn at a discount rate of 8%.
- For the Araguaia project we considered if key assumptions had
changed unfavourable since the date of publication of the study.
The study’s results used a long term nickel price of $14,000 per
tonne. In December 2019 the long term consensus price was higher,
at $16,200 per tonne.
- We agreed the validity of licences held by the Group to the
Brazilian Government’s DNPM website. We also reviewed the
correspondence, contracts and other documents regarding the
licenses to confirm that the Group has the relevant rights for its
activities in the stated areas for Araguaia and Vermelho.
- We evaluated the adequacy of the disclosures in respect of the
assessment of impairment indicators for the exploration and
evaluation asset and impairment assessment of the mine development
project against the requirements of the accounting standards.
|
|
Key Observation |
Based on our work we concur with management’s assessment of the
carrying value of the Group’s exploration and evaluation asset and
mine development property. |
Recognition and valuation of contingent
consideration
|
Key Audit Matter |
In prior years the Group acquired assets and licences relating to
the Glencore Araguaia and Vermelho projects and these acquisitions
gave rise to contingent consideration. Details of this contingent
consideration and the related critical judgements and estimates are
disclosed in notes 17 and 4.2. In late 2019, following the
publication of the positive pre-feasibility study for Vermelho, the
Company recognized US$6m of contingent consideration payable to
Vale S.A. The assessment of the contingent consideration payable
requires management to make judgements regarding when they consider
it probable that they will pay the consideration and estimates
which determine the anticipated timing of when the consideration
will become payable. Management are also required to reassess and
adjust the contingent consideration payable for any changes in the
accounting estimates as new information and events arises. For
these reasons we identified this as a key audit matter. |
|
Audit Response |
Our work included:
- We have reviewed the terms and conditions of the acquisition
agreements relating to the contingent consideration amounts payable
and checked that the calculation of contingent considerations is in
accordance with them.
- We assessed management’s basis for recognising the Vermelho
contingent consideration in the year following the publication of
the positive pre-feasibility study, including:
- We considered whether management’s policy to recognise the cash
settled contingent consideration when they assessed it to be
probable that it would be paid was in accordance with
IFRS.
- We considered whether management’s judgement that the
publication of the project’s first financial feasibility study
showing a high net present value to be an appropriate point to
recognise the contingent consideration.
- We have reviewed the contingent consideration calculations and
estimates made by management. We have challenged the estimates,
referring to supporting documentation and considered the
sensitivity of the calculations to changes in the judgements and
estimates. We have also checked the calculation of the accounting
adjustments for changes in estimates, foreign exchange
retranslation and the unwinding of the discount factor.
- We evaluated the adequacy of the disclosures against the
requirements of the accounting standards and to check that they
have adequately explain the key judgements and estimates made by
management.
|
|
Key Observation |
Based on our work we concur with management’s assessment of the
recognition and valuation of contingent consideration. |
Accounting for and valuation of the royalty funding
agreement
|
Key Audit Matter |
During the year, Horizonte has entered into a US$25m royalty
funding agreement with Orion Mine Finance in exchange for future
royalty payments linked to the future revenues of the Araguaia
project. The royalty agreement includes a buyback option enabling
Horizonte to reduce the royalty rate and other cash payment options
(the call, make whole and put options) for part reduction in
the royalty rate, which require the occurrence of certain
events. Details of the agreement and the related critical
judgements and estimates are disclosed in notes 18 and 4.4. The
accounting for this agreement is complex and therefore management
obtained advice from an independent expert. The accounting analysis
concluded that the agreement is a hybrid contract that contains a
non-derivative host loan and prepayment options in the form of
embedded derivatives which should be separated for accounting
purposes. The embedded derivatives are initially recognised at fair
value and subsequently revalued at each period end. Management
engaged an independent expert to calculate the fair value of the
buyback option. The fair value calculation utilised Monte-Carlo
simulation methodology. The call, make whole and put options
can only be exercised if two specific events occur, being:
- A change of control and;
- Commencement of major construction work after 31 March
2021.
Management assessed the probability of both of these events arising
to be remote and have determined the valuation of these options at
the inception of the loan and at the year end to be not material.
Judgement was required in determining the accounting treatment of
the royalty funding agreement and the approach to valuing the
options. The valuation of these financial instruments also required
management to make a number of key estimates. Accordingly, the
accounting for the royalty funding agreement is considered to be a
key audit matter. |
|
Audit Response |
Our procedures in relation to the accounting for and valuation of
the royalty funding loan and embedded derivatives are set our
below. In respect of the host loan:
- We reviewed the accounting analysis prepared by the expert,
assessing its factual accuracy and basis for the technical analysis
and we discussed the findings with management to understand their
assessment of the analysis. We also consulted with our own
technical experts as to the appropriateness of the proposed
accounting treatment.
- We assessed the competence and independence of the accounting
experts used by management.
- We tested the valuation model prepared by management, ensuring
the model’s methodology was in agreement with the royalty agreement
and IFRS requirements and that the assumptions were in agreement
with management’s justifications and explanations. We also checked
the arithmetical accuracy of the amortised loan model.
- We critically assessed management’s key assumptions, including
long term nickel price, nickel price inflation and the adopted
royalty rate by reference to independent sources of data and
supporting documentation held by the Group.
In respect of the fair value of the buyback option:
- We reviewed the option valuation methodology adopted to check
that the features of the option had been appropriately modelled and
we also confirmed with management that the modelling is in line
with their understanding of the option features.
- We checked that the key assumptions used were in agreement with
those used for the valuation of the host loan. The nickel price
volatility is an additional key assumption for the option
valuation. We recalculated the nickel price volatility using
independently sourced data and it was in close proximity to that
used by management.
- The option valuation is sensitive to the nickel price
volatility. Based on the features of the option management
considered volatility based on five years historic nickel prices to
be appropriate. We calculated an alternative reasonable volatility
based on ten years and it was in close proximity, being 1% lower
than the five year volatility.
- We assessed the competence and independence of the valuation
expert used by management.
- We discussed the valuation with the expert and management to
ensure that we understood the methodology that they had adopted and
the rationale behind it.
- We consulting with our own valuation experts on the methodology
adopted and the reasonableness of the macroeconomic
assumptions.
In respect of the call, make whole and put options:We discussed
with management their basis for concluding that the probability of
the events allowing exercise of these options was remote. We
corroborated this by reference to press announcements, internal
board minutes and other operational documentation and concluded
that their assessment was appropriate and supported by the
evidence. |
|
Key observations |
Based on our work we concur with management’s approach to the
accounting for the royalty agreement, that the valuation
methodology adopted for the host loan and the options is
appropriate, and that the key assumptions adopted are reasonable
and supported by available evidence. |
Other information
The other information comprises the information
included in the annual report and the management discussion and
analysis, other than the financial statements and our auditor’s
report thereon. The directors are responsible for the other
information. Our opinion on the financial statements does not cover
the other information and we do not express any form of assurance
conclusion thereon.
In connection with our audit of the financial
statements, our responsibility is to read the other information
and, in doing so, consider whether the other information is
materially inconsistent with the financial statements or our
knowledge obtained in the audit or otherwise appears to be
materially misstated. If we identify such material inconsistencies
or apparent material misstatements, we are required to determine
whether there is a material misstatement in the financial
statements or a material misstatement of the other information. If,
based on the work we have performed, we conclude that there is a
material misstatement of this other information, we are required to
report that fact.
We have nothing to report in this regard.
Responsibilities of
management
Management is responsible for the preparation
and fair presentation of the financial statements in accordance
with IFRSs, and for such internal control as management determines
is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or
error.
In preparing the financial statements, the
directors are responsible for assessing the group’s and the parent
company’s ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going
concern basis of accounting unless the directors either intend to
liquidate the group or the parent company or to cease operations,
or have no realistic alternative but to do so. Those charged with
governance are responsible for overseeing the Company’s financial
reporting process.
Auditor’s responsibilities for the audit
of the financial statements
Our objectives are to obtain reasonable
assurance about whether the financial statements as a whole are
free from material misstatement, whether due to fraud or error, and
to issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with International Standards on
Auditing (ISAs) will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic decisions of
users taken on the basis of these financial statements. As part of
an audit in accordance with ISAs, we exercise professional judgment
and maintain professional scepticism throughout the audit. We
also:
- Identify and assess the risks of
material misstatement of the group’s financial statements, whether
due to fraud or error, design and perform audit procedures
responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion. The
risk of not detecting a material misstatement resulting from fraud
is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or
the override of internal control.
- Obtain an understanding of internal
control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the group’s
internal control.
- Evaluate the appropriateness of
accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the directors.
- Conclude on the appropriateness of
the directors’ use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material
uncertainty exists related to events or conditions that may cast
significant doubt on the group’s and the parent company’s ability
to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in the
auditor’s report to the related disclosures in the financial
statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained
up to the date of the auditor’s report. However, future events or
conditions may cause the group and the parent company to cease to
continue as a going concern.
- Evaluate the overall presentation,
structure and content of the financial statements, including the
disclosures, and whether the financial statements represent the
underlying transactions and events in a manner that achieves fair
presentation, (i.e. gives a true and fair view).
- Are required to report on
consolidated financial statements, obtain sufficient appropriate
audit evidence regarding the financial information of the entities
or business activities within the group to express an opinion on
the consolidated financial statements. We are responsible for the
direction, supervision and performance of the group audit. We
remain solely responsible for the audit opinion.
We communicate with those charged with
governance regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including any
significant deficiencies in internal control that we identify
during our audit.
We also provide those charged with governance
with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them
all relationships and other matters that may reasonably be
thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with those charged
with governance, we determine those matters that were of most
significance in the audit of the financial statements of the
current period and are therefore the key audit matters. We describe
these matters in our auditor’s report unless law or regulation
precludes public disclosure about the matter or when, in extremely
rare circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
The partner in charge of the audit resulting in
this independent auditors’ report is Stuart Barnsdall.
BDO LLP
London, United Kingdom
7 April 2020
Consolidated Statement of Comprehensive
IncomeFor the year ended 31 December 2019
| |
|
Year ended |
Year ended |
| |
|
31 December |
31 December |
| |
|
2019 |
2018 |
|
|
Notes |
£ |
£ |
| Administrative expenses |
|
(2,563,880 |
) |
(1,336,093 |
) |
| Charge for share options
granted |
|
(326,413 |
) |
(837,172 |
) |
| Changes in estimate for
contingent and deferred consideration |
17 |
598,660 |
|
139,392 |
|
| Gain/(Loss) on foreign
exchange |
|
(56,261 |
) |
186,206 |
|
|
Operating loss |
6 |
(2,347,899 |
) |
(1,847,667 |
) |
| Finance income |
8 |
110,036 |
|
89,446 |
|
| Finance
costs |
8 |
(933,351 |
) |
(181,442 |
) |
| Loss before
taxation |
|
(3,171,214 |
) |
(1,939,663 |
) |
| Income
tax |
9 |
- |
|
— |
|
|
Loss for the year from continuing operations attributable
to owners of the parent |
|
(3,171,214 |
) |
(1,939,663 |
) |
| Other comprehensive
income |
|
|
|
| Items that may be
reclassified subsequently to profit or loss |
|
|
|
|
Currency translation differences on translating foreign
operations |
16 |
(2,626,939 |
) |
(3,028,006 |
) |
|
Other comprehensive income for the year, net of
tax |
|
(2,626,939 |
) |
(3,028,006 |
) |
|
Total comprehensive income for the year attributable to
owners of the parent |
|
(5,798,153 |
) |
(4,967,669 |
) |
|
Profit/(Loss) per share from continuing operations
attributable to owners of the parent |
|
|
|
| Basic
and diluted (pence per share) |
21 |
(0.219 |
) |
(0.136 |
) |
The above Consolidated Statement of Comprehensive Income should
be read in conjunction with the accompanying notes.
Consolidated Statement of Financial
PositionCompany number: 05676866As at 31 December 2019
| |
|
|
31
December |
31 December |
| |
|
|
2019 |
2018 |
| |
Notes |
|
£ |
£ |
| Assets |
|
|
|
|
| Non-current assets |
|
|
|
|
| Intangible assets |
10 |
|
7,057,445 |
|
35,737,902 |
|
| Property, plant & equipment |
11 |
|
32,260,544 |
|
1,186 |
|
|
|
|
|
39,317,989 |
|
35,739,088 |
|
| Current assets |
|
|
|
|
| Trade and other receivables |
|
|
134,726 |
|
24,243 |
|
| Derivative financial asset |
18 |
|
2,246,809 |
|
- |
|
| Cash and cash
equivalents |
12 |
|
17,760,330 |
|
6,527,115 |
|
| |
|
|
20,141,865 |
|
6,551,358 |
|
| Total
assets |
|
|
59,459,854 |
|
42,290,446 |
|
| Equity and liabilities |
|
|
|
|
| Equity attributable to owners of the
parent |
|
|
|
|
| Share capital |
13 |
|
14,463,773 |
|
14,325,218 |
|
| Share premium |
14 |
|
41,785,306 |
|
41,664,018 |
|
| Other reserves |
16 |
|
(4,666,930 |
) |
(2,039,991 |
) |
| Retained losses |
|
|
(19,835,092 |
) |
(16,990,290 |
) |
| Total
equity |
|
|
31,747,057 |
|
36,958,955 |
|
| Liabilities |
|
|
|
|
| Non-current liabilities |
|
|
|
|
| Contingent consideration |
17 |
|
6,246,071 |
|
3,461,833 |
|
| Royalty Finance |
18 |
|
20,570,411 |
|
- |
|
| Deferred tax
liabilities |
9 |
|
212,382 |
|
228,691 |
|
| |
|
|
27,028,864 |
|
3,690,524 |
|
| Current liabilities |
|
|
|
|
| Trade and other payables |
17 |
|
683,933 |
|
280,175 |
|
| Deferred
Consideration |
17 |
|
- |
|
1,360,792 |
|
| |
|
|
683,933 |
|
1,640,967 |
|
| Total
liabilities |
|
|
27,712,864 |
|
5,331,491 |
|
| Total equity
and liabilities |
|
|
59,459,854 |
|
42,290,446 |
|
The above Consolidated Statement of Financial Position should be
read in conjunction with the accompanying notes.
The Financial Statements were authorised for issue by the Board
of Directors on 7 April 2020 and were signed on its behalf.
David J Hall
Jeremy J
MartinChairman
Chief Executive Officer
Company Statement of Financial PositionCompany
number: 05676866As at 31 December 2019
| |
|
|
31 December |
31 December |
|
|
Notes |
|
2019£ |
2018£ |
| Non-Current
Assets |
|
|
|
|
| Property, plant &
equipment |
11 |
|
- |
|
- |
|
| Investment in
subsidiaries |
26 |
|
2,348,042 |
|
2,348,042 |
|
| Loans
to Subsidiaries |
27 |
|
55,413,147 |
|
49,478,251 |
|
|
|
|
|
57,761,189 |
|
51,826,293 |
|
| Current
assets |
|
|
|
|
| Trade and other
receivables |
|
|
135,376 |
|
19,388 |
|
| Cash
and cash equivalents |
12 |
|
17,393,773 |
|
5,487,339 |
|
|
|
|
|
17,529,149 |
|
5,506,727 |
|
|
Total assets |
|
|
75,290,338 |
|
57,333,020 |
|
| Equity and
liabilities |
|
|
|
|
| Equity attributable to
equity shareholders |
|
|
|
|
| Share capital |
13 |
|
14,463,773 |
|
14,325,218 |
|
| Share premium |
14 |
|
41,785,306 |
|
41,664,018 |
|
| Merger reserve |
16 |
|
10,888,760 |
|
10,888,760 |
|
|
Retained losses |
|
|
(16,564,099 |
) |
(14,852,732 |
) |
|
Total equity |
|
|
50,573,740 |
|
52,025,264 |
|
|
Liabilities |
|
|
|
|
| Non-current
liabilities |
|
|
|
|
|
Contingent consideration |
17 |
|
6,246,071 |
|
3,461,833 |
|
| |
|
|
6,246,071 |
|
3,461,833 |
|
|
Current liabilities |
|
|
|
|
| Trade and other payables |
17 |
|
735,518 |
|
485,131 |
|
| Loans from subsidiary |
|
|
17,735,009 |
|
- |
|
|
Deferred Consideration |
17 |
|
- |
|
1,360,792 |
|
|
|
|
|
18,470,527 |
|
1,845,923 |
|
|
Total liabilities |
|
|
24,716,598 |
|
5,307,756 |
|
|
Total equity and liabilities |
|
|
75,290,338 |
|
57,333,020 |
|
The above Company Statement of Financial Position should be read
in conjunction with the accompanying notes, loss for the period was
£2,037,780 (2018:£1,782,260 ). As permitted by section 408 of the
Companies Act 2006, the statement of comprehensive income of the
Parent Company is not presented as part of these Financial
Statements.
The Financial Statements were authorised for issue by the Board
of Directors on 7 April 2020 and were signed on its behalf.
David J Hall
Jeremy J MartinChairman
Chief Executive Officer
Statements of Changes in EquityFor the year
ended 31 December 2019
| |
Attributable to owners of the parent |
| |
Share |
Share |
Retained |
Other |
|
| |
capital |
premium |
losses |
reserves |
Total |
|
Consolidated |
£ |
£ |
£ |
£ |
£ |
|
As at 1 January 2018 |
13,719,343 |
40,422,258 |
|
(15,887,801 |
) |
988,015 |
|
39,241,815 |
|
| Loss for the year |
— |
— |
|
(1,939,663 |
) |
— |
|
(1,939,663 |
) |
| Other comprehensive
income: |
|
|
|
|
|
|
Currency translation differences on translating foreign
operations |
— |
— |
|
— |
|
(3,028,006 |
) |
(3,028,006 |
) |
|
Total comprehensive income for the year |
— |
— |
|
(1,939,663 |
) |
(3,028,006 |
) |
(4,967,669 |
) |
| Issue of ordinary shares |
605,875 |
1,451,724 |
|
- |
|
- |
|
2,057,599 |
|
| Issue costs |
- |
(209,964 |
) |
- |
|
— |
|
(209,964 |
) |
|
Share-based payments |
- |
- |
|
837,172 |
|
— |
|
837,172 |
|
|
Total transactions with owners, recognised directly in
equity |
605,875 |
1,241,760 |
|
837,172 |
|
— |
|
2,684,807 |
|
|
As at 31 December 2018 |
14,325,218 |
41,664,018 |
|
(16,990,290 |
) |
(2,039,991 |
) |
36,958,955 |
|
| Loss for the year |
— |
— |
|
(3,171,214 |
) |
— |
|
(3,171,214 |
) |
|
Other comprehensive income: |
|
|
|
|
|
| Currency translation
differences on translating foreign operations |
— |
— |
|
— |
|
(2,626,939 |
) |
(2,626,939 |
) |
|
Total comprehensive income for the year |
— |
— |
|
(3,171,214 |
) |
(2,626,939 |
) |
(5,798,153 |
) |
|
Issue of ordinary shares |
138,555 |
121,288 |
|
— |
|
— |
|
259,843 |
|
| Issue costs |
— |
— |
|
— |
|
— |
|
— |
|
| Share-based payments |
— |
— |
|
326,413 |
|
— |
|
326,413 |
|
|
Total transactions with owners, recognised directly in
equity |
138,555 |
121,288 |
|
326,413 |
|
— |
|
586,256 |
|
|
As at 31 December 2019 |
14,463,773 |
41,785,306 |
|
(19,835,092 |
) |
(4,666,930 |
) |
31,747,057 |
|
A breakdown of other reserves is provided in note 16.
|
Statements of Changes in Equity (continued) |
| |
Attributable to equity shareholders |
| |
Share |
Share |
Retained |
Merger |
|
| |
capital |
premium |
losses |
reserves |
Total |
|
Company |
£ |
£ |
£ |
£ |
£ |
| As at 1 January
2018 |
13,719,343 |
40,422,258 |
|
(13,907,644 |
) |
10,888,760 |
(51,122,717 |
) |
| Profit and total comprehensive
income for the year |
— |
— |
|
(1,782,260 |
) |
— |
(1,782,260 |
) |
| Issue
of ordinary shares |
605,875 |
1,451,724 |
|
— |
|
— |
2,057,599 |
|
| Issue costs |
— |
(209,964 |
) |
— |
|
— |
(209,964 |
) |
|
Share-based payments |
— |
— |
|
837,172 |
|
— |
837,172 |
|
| Total transactions with
owners, recognised directly in equity |
605,875 |
1,214,760 |
|
837,172 |
|
|
2,684,807 |
|
|
As at 31 December 2018 |
14,325,218 |
41,664,018 |
|
(14,852,732 |
) |
10,888,760 |
52,025,264 |
|
| Profit and total comprehensive
income for the year |
— |
— |
|
(2,037,780 |
) |
— |
(2,037,780 |
) |
| Issue of ordinary shares |
138,555 |
121,288 |
|
— |
|
— |
259,843 |
|
| Issue costs |
— |
— |
|
— |
|
— |
— |
|
|
Share-based payments |
— |
— |
|
326,413 |
|
— |
326,413 |
|
| Total
transactions with owners, recognised directly in equity |
138,555 |
121,288 |
|
(1,711,367 |
) |
— |
(1,451,524 |
) |
|
As at 31 December 2019 |
14,463,773 |
41,785,306 |
|
(16,564,099 |
) |
10,888,760 |
50,573,740 |
|
The above Statements of Changes in Equity should be read in
conjunction with the accompanying notes.
Consolidated Statement of Cash FlowsFor the
year ended 31 December 2019
| |
|
31 December |
31 December |
| |
|
2019 |
2018 |
|
|
Notes |
£ |
£ |
| Cash flows from
operating activities |
|
|
|
| Loss before taxation |
|
(3,171,214 |
) |
(1,939,663 |
) |
| Finance income |
|
(110,036 |
) |
(89,446 |
) |
| Finance costs |
|
933,351 |
|
181,442 |
|
| Charge for share options
granted |
|
326,413 |
|
837,172 |
|
| Exchange differences |
|
(77,072 |
) |
(313,049 |
) |
| Change in fair value of
contingent consideration |
|
(598,660 |
) |
(139,392 |
) |
|
Depreciation |
|
— |
|
— |
|
| Operating loss before
changes in working capital |
|
(2,697,218 |
) |
(1,462,136 |
) |
| Decrease/(increase) in trade
and other receivables |
|
(110,483 |
) |
128,862 |
|
|
Increase/(decrease) in trade and other payables |
|
403,758 |
|
(456,109 |
) |
|
Net cash used in operating activities |
|
(2,403,943 |
) |
(1,790,183 |
) |
| Cash flows from
investing activities |
|
|
|
| Purchase of exploration and
evaluation assets |
|
(3,992,757 |
) |
(3,221,062 |
) |
| Purchase of property, plant
and equipment |
|
(238,701 |
) |
— |
|
|
Interest received |
|
110,036 |
|
89,446 |
|
|
Net cash used in investing activities |
|
(4,121,422 |
) |
(3,131,616 |
) |
| Cash flows from
financing activities |
|
|
|
| Proceeds from issue of royalty
funding |
|
18,241,205 |
|
— |
|
| Proceeds from issue of
ordinary shares |
|
— |
|
2,057,599 |
|
| Issue
costs |
|
— |
|
(209,965 |
) |
|
Net cash generated from financing activities |
|
18,241,205 |
|
1,847,634 |
|
|
Net increase/(decrease) in cash and cash
equivalents |
|
11,715,840 |
|
(3,074,164 |
) |
| Cash and cash equivalents at
beginning of year |
|
6,527,825 |
|
9,403,825 |
|
|
Exchange gain/(loss) on cash and cash equivalents |
|
(482,625 |
) |
197,454 |
|
|
Cash and cash equivalents at end of the year |
12 |
17,760,330 |
|
6,527,115 |
|
On the 24 January 2019 the Company issued 13,855,487 as a non
cash settlement for $330,000 of deferred contingent
consideration
The above Consolidated Statement of Cash Flows should be read in
conjunction with the accompanying notes.
Company Statement of Cash FlowsFor year ended
31 December 2019
| |
|
31 December |
31 December |
| |
|
2019 |
2018 |
|
|
Notes |
£ |
£ |
| Cash flows from
operating activities |
|
|
|
| Profit before taxation |
|
(2,037,780 |
) |
(1,782,260 |
) |
| IFRS9 Expected credit
loss |
|
440,579 |
|
1,939,745 |
|
| Finance income |
|
(78,420 |
) |
(74,909 |
) |
| Finance costs |
|
344,952 |
|
181,442 |
|
| Charge for share options
granted |
|
326,413 |
|
837,172 |
|
| Exchange differences |
|
(64,047 |
) |
(40,661 |
) |
| Change in fair value of
contingent consideration |
|
(598,660 |
) |
(139,392 |
) |
| Depreciation |
|
- |
|
- |
|
| Operating profit
before changes in working capital |
|
(1,666,961 |
) |
921,137 |
|
| Increase in trade and other
receivables |
|
(116,049 |
) |
22,446 |
|
|
Increase in trade and other payables |
|
250,387 |
|
(328,111 |
) |
|
Net cash flows generated from operating
activities |
|
(1,532,625 |
) |
(615,472 |
) |
| Cash flows from
investing activities |
|
|
|
| Loans to subsidiary
undertakings |
|
(4,353,284 |
) |
(6,475,397 |
) |
|
Interest received |
|
78,420 |
|
74,909 |
|
|
Net cash used in investing activities |
|
(4,274,864 |
) |
(6,400,488 |
) |
| Cash flows from
financing activities |
|
|
|
| Proceeds from grant of
Royalty |
|
18,241,205 |
|
- |
|
| Proceeds from issue of
ordinary shares |
|
- |
|
2,057,599 |
|
| Issue
costs |
|
- |
|
(209,965 |
) |
|
Net cash generated from financing activities |
|
18,241,205 |
|
1,847,634 |
|
| Net
increase/(decrease) in cash and cash equivalents |
|
12,433,716 |
|
(3,937,382 |
) |
| Exchange gain/(loss) on cash
and cash equivalents |
|
(527,342 |
) |
185,954 |
|
| Cash and cash equivalents at
beginning of year |
|
5,487,399 |
|
9,238,827 |
|
|
Cash and cash equivalents at end of the year |
12 |
17,393,773 |
|
5,487,399 |
|
On the 24 January 2019 the Company issued 13,855,487 as a non
cash settlement for $330,000 of deferred contingent
consideration
The above Company Statement of Cash Flows should be read in
conjunction with the accompanying notes.
Notes to the Financial Statements
1 General information
The principal activity of Horizonte Minerals Plc (‘the Company’)
and its subsidiaries (together ‘the Group’) is the exploration and
development of base metals. The Company’s shares are listed on the
AIM market of the London Stock Exchange and on the Toronto Stock
Exchange. The Company is incorporated and domiciled in England and
Wales. The address of its registered office is Rex House, 4-12
Regents Street, London, SW1Y 4RG.
2 Summary of significant accounting
policies
The principal accounting policies applied in the preparation of
these Financial Statements are set out below. These policies have
been consistently applied to all the years presented.
2.1 Basis of preparation
These Financial Statements have been prepared in accordance with
International Financial Reporting Standards (‘IFRSs’) and IFRS
interpretations Committee (‘IFRS IC’) interpretations as adopted by
the European Union (‘EU’) and with IFRS and their Interpretations
issued by the IASB. The consolidated financial statements
have also been prepared in accordance with and those parts of the
Companies Act 2006 applicable to companies reporting under IFRS.
The Financial Statements have been prepared under the historical
cost convention as modified by the revaluation of share based
payment charges which are assessed annually.
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of
applying the Group’s Accounting Policies. The areas involving a
higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the Financial
Statements, are disclosed in Note 4.
2.2 Going concern
The Group’s business activities together with the factors likely
to affect its future development, performance and position are set
out in the Chairman’s Statement on pages 4 and 5; in addition note
3 to the Financial Statements includes the Group’s objectives,
policies and processes for managing its capital; its financial risk
management objectives; details of its financial instruments and its
exposure to credit and liquidity risk.
The Financial Statements have been prepared on a going concern
basis. Although the Group’s assets are not generating revenues and
an operating loss has been reported, the Directors consider that
the Group has sufficient funds to undertake its operating
activities for a period of at least the next 12 months including
any additional expenditure required in relation to its current
exploration 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.
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
government instructions the Group’s offices in London and Brazil
have been closed with staff working from home, international travel
has stopped and all site work for the two projects has been
restricted to a minimum level. However, a number of the key
project milestones are still advancing and are currently on track
being run by the teams in a virtual capacity.
Whilst the board considers that the effect of
Covid-19 on the Group’s financial results at this time is
constrained to inefficiencies due to remote working, restrictions
on travel and some minor potential delays to consultants work
streams, the Board considers the pandemic could delay the Araguaia
project financing timeline by a number of months (this will be
dependent on the duration of the effects of the Covid-19 virus
across global markers). In response to any potential delay
management has prepared a revised cashflow forecast for the next 24
months reflecting potential cost cutting in the parent company
relating to reduced travel and lower levels of investor relations
and marketing activities together with delaying certain costs for
the Araguaia project. This forecast indicates that the Group has
sufficient cash to survive beyond the next 24 months and it will be
adopted should the Araguaia project financing not be able to be
progressed as quickly as anticipated.
As a result of considerations noted above, the Directors have a
reasonable expectation that the Group and Company have adequate
resources to continue in operational existence for the foreseeable
future. Thus, they continue to adopt the going concern basis of
accounting in preparing these Financial Statements.
2.3 Changes in accounting policy and
disclosures
a) New and amended standards adopted by
the Group
New standards impacting the Group that are adopted in the annual
financial statements for the year ended 31 December 2019, are:
| Standard |
Detail |
Effective
date |
| IFRS 16 |
Leases |
1 January 2019 |
| IFRS 11 |
Amendment – annual improvements
2015-2017 cycle |
1 January 2019 |
| IAS 19 |
Amendment – regarding plan
amendments, curtailments or settlements |
1 January 2019 |
| IAS 23 |
Amendment – annual improvements
2015-2017 cycle |
1 January 2019 |
| IAS 28 |
Amendment – regarding long-term
interests in associates and joint ventures |
1 January 2019 |
| IFRIC 23 |
Uncertainty over income tax
treatments |
1 January 2019 |
IFRS 16, Leases IFRS 16, which supersedes IAS
17, sets out principles for the recognition, measurement,
presentation and disclosure of leases for both parties to a
contract, i.e. the customer (“lessee”) and the supplier (“lessor”).
Lessee accounting has changed substantially under this new standard
while there is little change for the lessor. IFRS 16 has removed
the classification of leases as either operating leases or
financing leases and, instead, introduced a single lessee
accounting model. A lessee is required to recognise assets and
liabilities for all leases with a term of more than 12 months
(unless the underlying asset is of low value) and is required to
present depreciation of leased assets separately from interest on
lease liabilities in the Consolidated Statement of Comprehensive
Income. A lessor continues to classify its leases as operating
leases or financing leases, and to account for those two types of
leases separately.
On 1 January 2019, the Group adopted IFRS 16. The Group has
reviewed its contracts and agreements and concluded the only leases
held by the Group relate to short term office leases which are not
considered material to these financial statements. The impact of
IFRS 16 is therefore nil on both current and prior periods.
b) New and amended standards, and interpretations issued
but not yet effective for the financial year beginning 1 January
2019 and not early adopted
Standards effective in future
periods
Certain new standards, amendments and
interpretations to existing standards have been published that are
relevant to the group’s activities and are mandatory for the group
is accounting periods beginning after 1 January 2019 or later
periods and which the group has decided not to adopt early.
These include:
| Standard |
Detail |
Effective
date |
| IFRS 17 |
Insurance contracts |
1 January 2021 |
| IAS 1 |
Amendment – regarding the
definition of material |
1 January 2020 |
| IAS 1 |
Amendment – regarding the
classification of liabilities |
1 January 2022 |
| |
Amendment – References to the
Conceptual Framework in IFRS Standards |
1 January 2020 |
| IFRS 3 |
Amendment – Business Combination:
Definition of a Business |
1 January 2020 |
|
IFRS 9, 7 & IAS 37 |
Amendments – Interest Rate
Benchmark Reform |
1 January 2020 |
The directors do not expect that the adoption of
the Standards listed above will have a material impact on the
financial statements of the Group in future periods.
2.4 Basis of consolidation and business
acquisitions
Horizonte Minerals Plc was incorporated on 16 January 2006. On
23 March 2006 Horizonte Minerals Plc acquired the entire issued
share capital of Horizonte Exploration Limited (HEL) by way of a
share for share exchange. The transaction was treated as a group
reconstruction and was accounted for using the merger accounting
method as the entities were under common control before and after
the acquisition.
Subsidiaries are entities controlled by the
Group. Control is achieved when the Group is exposed, or has
rights, to variable returns from its involvement with the investee
and has the ability to affect those returns through its power over
the investee.
The Group considers all relevant facts and
circumstances in assessing whether it has power over an investee,
including:
- The contractual arrangement with the other vote holders of the
investee.
- Rights arising from other contractual arrangements.
- The Group’s voting rights and potential voting rights.
Consolidation of a subsidiary begins when the Group obtains
control over the subsidiary and ceases when the Group loses control
of the subsidiary. Assets, liabilities, income and expenses of a
subsidiary acquired or disposed of during the year are included in
the consolidated financial statements from the date the Group gains
control until the date the Group ceases to control the
subsidiary.
Other than for the acquisition of HEL as noted above, the Group
uses the acquisition method of accounting to account for business
combinations. The consideration transferred for the acquisition of
a subsidiary is the fair value of the assets transferred, the
liabilities incurred and the equity interests issued by the Group.
The consideration transferred includes the fair value of any asset
or liability resulting from a contingent consideration arrangement.
Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured
initially at their fair values at the acquisition date.
Acquisition-related costs are expensed as incurred unless they
result from the issuance of shares, in which case they are offset
against the premium on those shares within equity.
If an acquisition is achieved in stages, the acquisition date
carrying value of the acquirer’s previously held equity interest in
the acquiree is remeasured to fair value at the acquisition date
through profit or loss.
Any contingent consideration to be transferred by the Group is
recognised at fair value at the acquisition date. Subsequent
changes to the fair value of the contingent consideration that is
deemed to be an asset or a liability is recognised in accordance
with IFRS9 either in profit or loss or as a change in other
comprehensive income. The unwinding of the discount on contingent
consideration liabilities is recognised as a finance charge within
profit or loss. Contingent consideration that is classified as
equity is not remeasured, and its subsequent settlement is
accounted for within equity.
The excess of the consideration transferred and the acquisition
date fair value of any previous equity interest in the acquiree
over the fair value of the Group’s share of the identifiable net
assets acquired is recorded as goodwill. If this is less than the
fair value of the net assets of the subsidiary acquired in the case
of a bargain purchase, the difference is recognised directly in
profit or loss.
Inter-company transactions, balances and unrealised gains on
transactions between Group companies are eliminated. Accounting
policies of subsidiaries have been changed where necessary to
ensure consistency with policies adopted by the Group.
Investments in subsidiaries are accounted for at cost less
impairment.
The following 100% owned subsidiaries have been included within
the consolidated Financial Statements:
|
Subsidiary undertaking |
Held |
Registered Address |
Country of incorporation |
Nature of business |
| Horizonte Exploration Ltd |
Directly |
Rex House, 4-12 Regents Street, London SW1Y 4RG |
England |
Mineral Exploration |
| Horizonte Minerals (IOM)
Ltd |
Indirectly |
1st Floor, Viking House, St Pauls Square, Ramsey, IM8 1GB, Ilse of
Man |
Isle of Man |
Holding company |
| HM Brazil (IOM) Ltd |
Indirectly |
1st Floor, Viking House, St Pauls Square, Ramsey, IM8 1GB, Ilse of
Man |
Isle of Man |
Holding company |
| Cluny (IOM) Ltd |
Indirectly |
1st Floor, Viking House, St Pauls Square, Ramsey, IM8 1GB, Ilse of
Man |
Isle of Man |
Holding company |
| Champol (IOM) ltd |
Indirectly |
1st Floor, Viking House, St Pauls Square, Ramsey, IM8 1GB, Ilse of
Man |
Isle of Man |
Holding company |
| Horizonte Nickel (IOM)
Ltd |
Indirectly |
1st Floor, Viking House, St Pauls Square, Ramsey, IM8 1GB, Ilse of
Man |
Isle of Man |
Holding company |
| Nickel Production Services
B.V |
Directly |
Atrium Building, 8th floor, Strawinskylaan 3127, 1077 ZX,
Amsterdam |
The Netherlands |
Provision of financial services |
| HM do Brasil Ltda |
Indirectly |
CNPJ 07.819.038/0001-30 com sede na Avenida Amazonas, 2904, loja
511, Bairro Prado, Belo Horizonte – MG. CEP: 30.411-186 |
Brazil |
Mineral Exploration |
| Araguaia Niquel Metias
Ltda |
Indirectly |
CNPJ 97.515.035/0001-03 com sede na Avenida Amazonas, 2904, loja
511, Bairro Prado, Belo Horizonte – MG. CEP: 30.411-186 |
Brazil |
Mineral Exploration |
| Lontra Empreendimentos e
Participações Ltda |
Indirectly |
CNPJ 11.928.960/0001-32 com sede na Avenida Amazonas, 2904, loja
511, Bairro Prado, Belo Horizonte – MG. CEP: 30.411-186 |
Brazil |
Mineral Exploration |
| Typhon Brasil Mineração
Ltda |
Indirectly |
CNPJ 23.282.640/0001-37 com sede Alameda Ezequiel Dias, n. 427, 2º
andar, bairro Funcionários, Município de Belo Horizonte, Estado de
Minas Gerais, CEP 30.130-110. |
Brazil |
Mineral Exploration |
| Trias Brasil Mineração
Ltda |
Indirectly |
CNPJ 23.282.280/0001-73 com sede na Alameda Ezequiel Dias, n. 427,
2º andar, bairro Funcionários, Município de Belo Horizonte, Estado
de Minas Gerais, CEP 30.130-110 |
Brazil |
Mineral Exploration |
2.4 (b) Subsidiaries and AcquisitionsThe
consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the Company
(its subsidiaries) made up to 31 December each year. Control is
recognised where an investor is expected, or has rights, to
variable returns from its investment with the investee, and has the
ability to affect these returns through its power over the
investee. Based on the circumstances of the acquisition an
assessment will be made as to whether the acquisition represents an
acquisition of an asset or the acquisition of asset. In the event
of a business acquisition, the assets, liabilities and contingent
liabilities of a subsidiary are measured at their fair value at the
date of acquisition. Any excess of the cost of the
acquisition over the fair values of the identifiable net assets
acquired is recognised as a “fair value” adjustment.
If the cost of the acquisition is less than the fair value of
net assets of the subsidiary acquired, the difference is recognised
directly in profit or loss. In the event of an asset acquisition
assets and liabilities are assigned a carrying amount based on
relative fair value.
The results of subsidiaries acquired or disposed of during the
year are included in the statement of comprehensive income from the
effective date of acquisition or up to the effective date of
disposal, as appropriate.
Where necessary, adjustments are made to the financial
statements of subsidiaries to bring the accounting policies into
line with those used by the Group.
Contingent consideration as a result of business acquisitions is
included in cost at its acquisition date assessed value and,
in the case of contingent consideration classified as a financial
liability, remeasured subsequently through the profit and loss.
2.5 Intangible Assets
(a) Goodwill
Goodwill represents the excess of the cost of an acquisition
over the fair value of the Group’s share of the net identifiable
assets, liabilities and contingent liabilities of the acquired
subsidiary at the date of acquisition. Goodwill arising on the
acquisition of subsidiaries is included in ‘intangible assets’.
Goodwill is tested annually for impairment and carried at cost less
accumulated impairment losses. Impairment losses on goodwill are
not reversed. Gains and losses on the disposal of an entity include
the carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to cash generating units for the purpose
of impairment testing. The allocation is made to those
cash-generating units or groups of cash-generating units that are
expected to benefit from the business combination in which the
goodwill arose, identified according to operating segment.
(b) Exploration and evaluation assets
The Group capitalises expenditure in relation to exploration and
evaluation of mineral assets when the legal rights are obtained and
are initially valued and subsequently carried at cost less any
subsequent impairment. Expenditure included in the initial
measurement of exploration and evaluation assets and which are
classified as intangible assets relate to the acquisition of rights
to explore, topographical, geological, geochemical and geophysical
studies, exploratory drilling, trenching, sampling and activities
to evaluate the technical feasibility and commercial viability of
extracting a mineral resource.
Exploration and evaluation assets arising on business
combinations are included at their acquisition-date fair value in
accordance with IFRS 3 (revised) ‘Business combinations’. Other
exploration and evaluation assets and all subsequent expenditure on
assets acquired as part of a business combination are recorded and
held at cost.
Exploration and evaluation assets are assessed for impairment
when facts and circumstances suggest that the carrying amount of an
asset may exceed its recoverable amount. The assessment is carried
out by allocating exploration and evaluation assets to cash
generating units, which are based on specific projects or
geographical areas.
Impairment reviews for deferred exploration and evaluation
expenditure are carried out on a project by project basis, with
each project representing a potential single cash generating unit.
In accordance with the requirements of IFRS 6, an impairment review
is undertaken when indicators of impairment arise such as:
- unexpected geological occurrences that render the resource
uneconomic;
- title to the asset is compromised;
- variations in mineral prices that render the project
uneconomic;
- substantive expenditure on further exploration and evaluation
of mineral resources is neither budgeted nor planned; and
- the period for which the Group has the right to explore has
expired and is not expected to be renewed.
See note 2.7 for impairment review process if impairment
indicators are identified.
Whenever the exploration for and evaluation of mineral resources
does not lead to the discovery of commercially viable quantities of
mineral resources or the Group has decided to discontinue such
activities of that unit, the associated expenditures are written
off to profit or loss. Whenever a commercial discovery is the
direct result of the exploration and evaluation assets, upon the
decision to proceed with development of the asset and initial
funding arrangements are in place the costs shall be transferred to
a Mine Development asset within property, plant and
equipment.
(c) Acquisitions of Mineral
Exploration Licences
Acquisitions of Mineral Exploration Licences through acquisition
of non-operational corporate structures that do not represent a
business, and therefore do not meet the definition of a business
combination, are accounted for as the acquisition of an asset and
recognised at the fair value of the consideration. Related future
consideration if contingent is recognised if it is considered that
it is probable that it will be paid.
2.6 Property, plant and equipmentMine
development property
Following determination of the technical feasibility and
commercial viability of a mineral resource, the relevant
expenditure is transferred from exploration and evaluation assets
to mine development property.
Further development costs are capitalised to mine development
properties, if and only if, it is probable that future economic
benefits associated with the item will flow to the entity and the
cost can be measured reliably. Cost is defined as the purchase
price and directly attributable costs. Once the asset is considered
to be capable of operating in a manner intended by management,
commercial production is declared, and the relevant costs are
depreciated. Evaluated mineral property is carried at cost less
accumulated depreciation and accumulated impairment losses.
Short lived Property, plant and equipment
All other property, plant and equipment is stated at historic
cost less accumulated depreciation. Historic cost includes
expenditure that is directly attributable to the acquisition of the
items.
Subsequent costs are included in the asset’s carrying amount or
recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item
will flow to the Group and the cost of the item can be measured
reliably. All repairs and maintenance costs are charged to profit
or loss during the financial period in which they are incurred.
Depreciation and amortisation
Mine development property is not depreciated prior to commercial
production but is reviewed for impairment annually (see “Impairment
of assets” section below). Upon commencement of commercial
production, mine development property is transferred to a mining
property and is depreciated on a units-of-production basis. Only
proven and probable reserves are used in the tonnes mined units of
production depreciation calculation.
Depreciation is charged on a straight-line basis for all other
property, plant and equipment, so as to write off the cost of
assets, over their estimated useful lives, using the straight-line
method, on the following bases:
|
Office equipment |
25% |
| Vehicles and other field
equipment |
25% – 33% |
The asset’s residual values and useful lives are reviewed, and
adjusted if appropriate, at the end of each reporting
period.
An asset’s carrying amount is written down immediately to its
recoverable amount if the assets carrying amount is greater than
its estimated recoverable amount.
2.7 Impairment of non-financial assets
Assets that have an indefinite useful life, such as goodwill are
not subject to amortisation and are tested annually for impairment.
Exploration assets and property, plant and equipment are reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. An impairment loss
is recognised for the amount by which the asset’s carrying amount
exceeds its recoverable amount. The recoverable amount is the
higher of an asset’s fair value less costs to sell and value in
use. For the purposes of assessing impairment, assets are grouped
at the lowest levels for which there are separately identifiable
cash flows (cash generating units). Non-financial assets other than
goodwill that suffered an impairment are reviewed for possible
reversal of the impairment at each reporting date.
2.8 Foreign currency translation
(a) Functional and presentation currency
Items included in the Financial Statements of the Group’s
entities are measured using the currency of the primary economic
environment in which the entity operates (the ‘functional
currency’). The functional currency of the UK and Isle of Man
entities is Pounds Sterling and the functional currency of the
Brazilian entities is Brazilian Real. The functional currency of
the project financing 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.
2.9 Financial instruments
Financial instruments are measured as set out
below. Financial instruments carried on the statement of
financial position include cash and cash equivalents, trade and
other receivables, trade and other payables and loans to group
companies.
Financial instruments are initially recognised
at fair value when the group becomes a party to their contractual
arrangements. Transaction costs directly attributable to the
instrument’s acquisition or issue are included in the initial
measurement of financial assets and financial liabilities, except
financial instruments classified as at fair value through profit or
loss (FVTPL). The subsequent measurement of financial instruments
is dealt with below.
Financial assets
On initial recognition, a financial asset is classified as:
- Amortised cost;
- Fair value through other comprehensive income (FVTOCI) - equity
instruments; or
- FVTPL.
The group does not currently have any financial
assets classified as FVTOCI.
Fair value through profit or
loss
This category comprises in-the-money
derivatives. They are carried in the statement of financial
position at fair value with changes in fair value recognised in the
profit loss statement.
Amortised cost
Financial assets that arise principally from
assets where the objective is to hold these assets in order to
collect contractual cash flows and the contractual cash flows are
solely payments of principal and interest. They are initially
recognised at fair value plus transaction costs that are directly
attributable to their acquisition or issue, and are subsequently
carried at amortised cost using the effective interest rate method,
less provision for impairment.
Any gain or loss arising on derecognition is
recognised directly in profit or loss and presented in other gains
or losses, together with foreign exchange gains or losses.
Impairment losses are presented as separate line item in the
statement of profit or loss. A gain or loss on a debt investment
that is subsequently measured at FVTPL is recognised in profit or
loss and presented net within other gains or losses in the period
in which it arises. On derecognition of a financial asset, the
difference between the proceeds received or receivable and the
carrying amount of the asset is included in profit or loss.
Financial assets at amortised cost consist of
trade receivables and other receivables (excluding taxes), cash and
cash equivalents, and related party intercompany loans
Impairment provisions for receivables and loans
to related parties are recognised based on a forward looking
expected credit loss model. The methodology used to determine the
amount of the provision is based on whether there has been a
significant increase in credit risk since initial recognition of
the financial asset. For those where the credit risk has not
increased significantly since initial recognition of the financial
asset, twelve month expected credit losses along with gross
interest income are recognised. For those for which credit risk has
increased significantly, lifetime expected credit losses along with
the gross interest income are recognised. For those that are
determined to be credit impaired, lifetime expected credit losses
along with interest income on a net basis are recognised.
Cash and cash equivalents
Cash and cash equivalents are carried in the
statement of financial position at cost. For the purpose of
the cash flow statement, cash and cash equivalents comprise cash on
hand, deposits held at call with banks, other short term highly
liquid investments with a maturity of three months or less at the
date of purchase and bank overdrafts. In the statement of
financial position, bank overdrafts are included in borrowings in
current liabilities.
Financial liabilities
The Group classifies its financial liabilities into one of two
categories, depending on the purpose for which the liability was
acquired.
Fair value through profit or loss
The group does not currently have any financial liabilities
carried at Fair value through Profit and loss.
Other financial liabilitiesFinancial
liabilities are subsequently measured at amortised cost using the
effective interest method, except for financial liabilities
designated at fair value through profit or loss, that are carried
subsequently at fair value with gains and losses recognised in the
profit and loss statement.
The effective interest method is a method of calculating the
amortised cost of a financial liability and of allocating interest
expense over the relevant period. The effective interest rate is
the rate that exactly discounts estimated future cash payments
through the expected life of the financial liability, or, where
appropriate, a shorter period.
The Group’s financial liabilities initially measured at fair
value and subsequently recognised at amortised cost include
accounts payables and accrued liabilities as well as the Group’s
Royalty liability.
2.10 Taxation
The tax credit or expense for the period comprises current and
deferred tax. Tax is recognised in the Income Statement, except to
the extent that it relates to items recognised in other
comprehensive income or directly in equity. In this case, the tax
is also recognised in other comprehensive income or directly in
equity, respectively.
The charge for current tax is calculated on the basis of the tax
laws enacted or substantively enacted by the end of the reporting
period in the countries where the company and its subsidiaries
operate and generate taxable income. Management periodically
evaluates positions taken in tax returns with respect to situations
in which applicable tax regulation is subject to interpretation. It
establishes provisions where appropriate on the basis of amounts
expected to be paid to the tax authorities.
Deferred tax is accounted for using the liability method in
respect of temporary differences arising from differences between
the carrying amount of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation
of taxable profit. However, deferred tax liabilities are not
recognised if they arise from the initial recognition of goodwill;
deferred tax is not accounted for if it arises from initial
recognition of an asset or liability in a transaction other than a
business combination that at the time of the transaction affects
neither accounting nor taxable profit or loss.
Deferred tax liabilities are recognised for all taxable
temporary differences and deferred tax assets are recognised to the
extent that it is probable that taxable profits will be available
against which deductible temporary differences can be utilised.
Deferred tax assets are recognised on tax losses carried forward to
the extent that the realisation of the related tax benefit through
future taxable profits is probable.
Deferred tax liabilities are recognised for taxable temporary
differences arising on investments in subsidiaries and associates,
and interests in joint ventures, except where the Company is able
to control the reversal of the temporary difference and it is
probable that the temporary difference will not reverse in the
foreseeable future.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred tax assets and
liabilities relate to taxes levied by the same taxation authority
on either the same taxable entity or different taxable entities
where there is an intention to settle the balances on a net
basis.
Deferred tax is calculated at the tax rates (and laws) that have
been enacted or substantively enacted by the Statement of Financial
Position date and are expected to apply to the period when the
asset is realised or the liability is settled.
Deferred tax assets and liabilities are not discounted.
2.11 Share capital
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of new ordinary shares or
options are shown in equity as a deduction, net of tax, from the
proceeds.
2.12 Trade payables
Trade payables are obligations to pay for goods or services that
have been acquired in the ordinary course of business from
suppliers. Accounts payable are classified as current liabilities
if payment is due within one year or less. If not, they are
presented as non-current liabilities.
Trade payables are initially recognised at fair value and
subsequently measured at amortised cost using the effective
interest method.
2.13 Leases
All leases are accounted for by recognising a right-of-use
assets due to a lease liability except for:
> Lease of low value assets; and
> Leases with duration of 12 months or less
The Group only has such short duration leases and lease payments
are charged to the income statement.
2.14 Share-based payments and incentives
The Group operates equity-settled, share-based compensation
plans, under which the entity receives services from employees as
consideration for equity instruments (options) of the Group. The
fair value of employee services received in exchange for the grant
of share options are recognised as an expense. The total expense to
be apportioned over the vesting period is determined by reference
to the fair value of the options granted:
> including any market performance
conditions;
> excluding the impact of any service and
non-market performance vesting conditions; and
> including the impact of any non-vesting
conditions.
Non-market performance and service conditions are included in
assumptions about the number of options that are expected to vest.
The total expense is recognised over the vesting period, which is
the period over which all of the specified vesting conditions are
to be satisfied. At the end of each reporting period the Group
revises its estimate of the number of options that are expected to
vest.
It recognises the impact of the revision of original estimates,
if any, in profit or loss, with a corresponding adjustment to
equity.
When options are exercised, the Company issues new shares. The
proceeds received net of any directly attributable transaction
costs are credited to share capital (nominal value) and share
premium.
The fair value of goods or services received in exchange for
shares is recognised as an expense.
2.15 Segment reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the Chief Executive Officer, the
Company’s chief operating decision-maker (“CODM”).
2.16 Finance income
Interest income is recognised using the effective interest
method, taking into account the principal amounts outstanding and
the interest rates applicable.
2.17 Provisions and Contingent Liabilities
Provisions are recognised when the Group has a
present legal or constructive obligation as a result of past
events; it is probable that an outflow of resources will be
required to settle the obligation; and the amount can be reliably
estimated.
Provisions are measured at the present value of
the expenditures expected to be required to settle the obligation
using a pre-tax rate that reflects current market assessments of
the time value of money and the risks specific to the obligation.
The increase in the provision due to passage of time is recognised
as finance cost.
Contingent liabilities are potential obligations that arise from
past events and whose existence will only be confirmed by the
occurrence of one or more uncertain future events that, however,
are beyond the control of the Group. Furthermore, present
obligations may constitute contingent liabilities if it is not
probable that an outflow of resources will be required to settle
the obligation, or a sufficiently reliable estimate of the amount
of the obligation cannot be made.
The company has contingent consideration arising in respect of
mineral asset acquisitions. Details are disclosed in note 4.2.
Restoration, Rehabilitation and Environmental
Provisions
Management uses its judgement and experience to provide for and
amortise the estimated mine closure and site rehabilitation over
the life of the mine. Provisions are discounted at a risk-free rate
and cost base inflated at an appropriate rate. The ultimate closure
and site rehabilitation costs are uncertain and cost estimates can
vary in response to many factors including changes to relevant
legal requirements or the emergence of new restoration techniques.
The expected timing and extent of expenditure can also change, for
example in response to changes in ore reserves or processing
levels. As a result, there could be significant adjustments to the
provisions established which could affect future financial results.
Currently there is no provision as all restoration and
rehabilitation for activities undertaken to date in line with the
agreements for access to land. Once construction and mining
operations commence however this is anticipated to become more
significant.
Trade and other
payablesAccounts payable and other short term monetary
liabilities, are initially recognised at fair value, which equates
to the transaction price, and subsequently carried at amortised
cost using the effective interest method.
3 Financial risk management
The Group is exposed through its operations to the following
financial risks:
- Credit risk
- Interest rate risk
- Foreign exchange risk
- Price risk, and
- Liquidity risk.
In common with all other businesses, the Group is exposed to
risks that arise from its use of financial instruments. This note
describes the Group's objectives, policies and processes for
managing those risks and the methods used to measure them. Further
quantitative information in respect of these risks is presented
throughout these financial statements. There have been no
substantive changes in the Group's exposure to financial instrument
risks, its objectives, policies and processes for managing those
risks or the methods used to measure them from previous periods
unless otherwise stated in this note.
(i) Principal financial instruments
The principal financial instruments used by the Group, from
which financial instrument risk arises, are as follows:
- Trade and other receivables
- Cash and cash equivalents
- Trade and other payables
- Royalty finance
- Derivative financial assets
3.1 Financial risk factors
The main financial risks to which the Group’s activities are
exposed are liquidity and fluctuations on foreign currency. The
Group’s overall risk management programme focusses on the
unpredictability of financial markets and seeks to minimise
potential adverse effects on the Group’s financial performance.
Risk management is carried out by the Board of Directors under
policies approved at the quarterly Board meetings. The Board
frequently discusses principles for overall risk management
including policies for specific areas such as foreign exchange.
(a) Liquidity risks
In keeping with similar sized mineral exploration groups, the
Group’s continued future operations depend on the ability to raise
sufficient working capital through the issue of equity share
capital. The Group monitors its cash and future funding
requirements through the use of cash flow forecasts.
All cash, with the exception of that required for immediate
working capital requirements, is held on short-term deposit.
(b) Foreign currency risks
The Group operates internationally and is exposed to foreign
exchange risk arising from various currency exposures, primarily
with respect to the Brazilian Real, US Dollar and the Pound
Sterling.
Foreign exchange risk arises from future commercial
transactions, recognised assets and liabilities and net investments
in foreign operations that are denominated in a foreign currency.
The Group holds a proportion of its cash in US Dollars and
Brazilian Reals to hedge its exposure to foreign currency
fluctuations and recognises the profits and losses resulting from
currency fluctuations as and when they arise. The volume of
transactions is not deemed sufficient to enter into forward
contracts.
At 31 December 2019, if the Brazilian Real had
weakened/strengthened by 20% against Pound Sterling with all other
variables held constant, post tax loss for the year would have been
approximately £102,936 lower/higher mainly as a result of foreign
exchange losses/gains on translation of Brazilian Real expenditure
and denominated bank balances. If the USD:GBP rate had increased by
5% the effect would be £799,698.
As of 31 December 2019 the Group's net exposure to foreign
exchange risk was as follows:
|
|
Functional Currency |
|
|
USD2019 |
USD2018 |
GBP 2019 |
GBP2018 |
BRL2019 |
BRL2018 |
Total2019 |
Total2018 |
| Currency of
net |
£ |
£ |
£ |
£ |
£ |
£ |
£ |
£ |
| Financial
assets/liabilities |
|
|
|
|
|
|
|
|
| GBP |
- |
- |
- |
- |
- |
- |
- |
- |
| USD |
- |
- |
(10,822,512) |
(4,928,732) |
- |
- |
(10,822,512) |
(4,928,732) |
| BRL |
- |
- |
- |
- |
- |
- |
- |
- |
|
CAD |
- |
- |
28,686 |
88,326 |
- |
- |
28,686 |
88,326 |
|
Total net exposure |
- |
- |
(9,207,410) |
505,478 |
- |
- |
(9,097,947) |
1,274,435 |
(c) Interest rate risk
As the Group has no borrowings, it is not exposed to interest
rate risk on financial liabilities. The Group’s interest rate risk
arises from its cash held on short-term deposit for which the
Directors use a mixture of fixed and variable rate deposits. As a
result, fluctuations in interest rates are not expected to have a
significant impact on profit or loss or equity.
(d) Commodity price risk
The group is exposed to the price fluctuation of its primary
product from the Araguaia project, being FerroNickel. The Group has
a royalty over its Araguaia project which is denominated as a fixed
percentage of the product over a certain number of tonnes produced.
Given the Group is current in the development phase and is not yet
producing any revenue, the costs of managing exposure to commodity
price risk exceed any potential benefits. The Directors monitor
this risk on an ongoing basis and will review this as the group
moves towards production. The Groups exposure to nickel price
amounted to the carrying value of the Royalty liability of
£20,570,411 (2018: £nil). If the long term nickel price assumption
used in the estimation were to increase or decrease by 10% then the
effect on the carrying value of the liability would be an
increase/decrease of £2,107,418 (2018: £nil).
(e) Credit risk
Credit risk arises from cash and cash equivalents and
outstanding receivables. The Group maintains cash and short-term
deposits with a variety of credit worthy financial institutions and
considers the credit ratings of these institutions before investing
in order to mitigate against the associated credit risk.
The Company’s exposure to credit risk amounted to £73,189,301
(2018: £54,106,065). Of this amount £55,795,528 (2018: £48,618,726)
is due from subsidiary companies, £17,393,773 represents cash
holdings (2018: £5,487,339). See note 27 for adjustments for
provisions for expected credit losses.
3.2 Capital risk management
The Group’s objectives when managing capital are to safeguard
the Group’s ability to continue as a going concern, in order to
provide returns for shareholders and to enable the Group to
continue its exploration and evaluation activities. The Group has
no repayable debt at 31 December 2019 and defines capital based on
the total equity of the Group. The Group monitors its level of cash
resources available against future planned exploration and
evaluation activities and may issue new shares in order to raise
further funds from time to time.
As indicated above, the Group holds cash reserves on deposit at
several banks and in different currencies until they are required
and in order to match where possible with the corresponding
liabilities in that currency.
3.3 Fair value estimation
The carrying values of trade receivables and payables are
assumed to be approximate to their fair values, due to their
short-term nature. The value of contingent consideration is
estimated by discounting the future expected contractual cash flows
at the Group’s current cost of capital of 7% based on the interest
rate available to the Group for a similar financial instrument.
During the year the Group entered into a royalty funding
arrangement with Orion Mine Finance securing a gross upfront
payment of $25,000,000 before fees in exchange for a royalty over
the first 426k tonnes of nickel produced from the Araguaia
Ferronickel project. The agreement includes several prepayment
options embedded within the agreement enabling the Group to reduce
the royalty rate, these options are carried at fair value. Details
of this agreement are included in note 18.
The future expected nickel price and, volatility of the nickel
prices are key estimates that are critical in the fair value of the
Buy Back Option associated with the Royalty financing.
The fair value of cash, other receivables, accounts payable and
accrued liabilities and the joint venture obligation approximate
their carrying values due to the short-term nature of the
instruments.
Fair value measurements recognised in the statement of financial
position subsequent to initial fair value recognition can be
classified into Levels 1 to 3 based on the degree to which fair
value is observable.
Level 1 – Fair value measurements are those derived from quoted
prices in active markets for identical assets and liabilities.
Level 2 – Fair value measurements are those derived from inputs
other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly, or
indirectly.
Level 3 – Fair value measurements are those derived from
valuation techniques that include inputs for the asset or liability
that are not based on observable market data.
Information relating to the basis of determination of the level
3 fair value for the buyback option and consideration of
sensitivity to changes in estimates is disclosed in note 18b).
There were no transfers between any levels of the fair value
hierarchy in the current or prior years.
4 Critical accounting estimates and
judgements
The preparation of the Financial Statements in conformity with
IFRSs requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the end of the
reporting period and the reported amount of expenses during the
year. Actual results may vary from the estimates used to produce
these Financial Statements.
Estimates and judgements are continually evaluated and are based
on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances.
Significant items subject to such judgements and estimates
include, but are not limited to:
Estimates
Company – Application of the expected credit loss model
prescribed by IFRS 9
IFRS 9 requires the Parent company to make assumptions when
implementing the forward-looking expected credit loss model. This
model is required to be used to assess the intercompany loan
receivables from the company’s Brazilian subsidiaries for
impairment.
Arriving at the expected credit loss allowance involved
considering different scenarios for the recovery of the
intercompany loan receivables, the possible credit losses that
could arise and the probabilities for these scenarios. The
following was considered; the exploration project risk for Vermelho
as well as the potential economics as derived from the PFS,
positive NPV of the Araguaia projects as demonstrated by the
Feasibility Study, ability to raise the finance to develop the
projects, ability to sell the projects, market and technical risks
relating to the project, participation of the subsidiaries in the
Araguaia projects. See note 27 for a discussion on the adjustment
passed concerning the impairment loss.
Valuation of derivative financial assets
Valuing derivatives inherently relies on a series of estimates
and assumptions to derive what is deemed to be a fair value
estimate for a financial instrument. The royalty financing
arrangement entered into by the Group includes a Buyback option, an
embedded derivatives which was valued using a Monte Carlo
simulation method. This methodology of determining fair value is
reliant upon estimations including the probability of certain
scenarios occurring, the estimated production rate and timeline of
production from the Araguaia project, future nickel prices as well
as discount factors. The most important estimates in determining
the valuation of the Buyback option are the future nickel price and
its price volatility. The sensitivity of the valuation to these
estimates are considered in note 18b).
Judgements
4.1 Impairment of exploration and evaluation
costs
Exploration and evaluation costs which in 2019 relate solely to
Vermelho have a carrying value at 31 December 2019 of £6,846,859
(2018: £35,511,145). Each exploration project is subject to an
annual review by either a consultant or senior company geologist to
determine if the exploration results returned to date warrant
further exploration expenditure and have the potential to result in
an economic discovery. This review takes into consideration
long-term metal prices, anticipated resource volumes and grades,
permitting and infrastructure. In the event that a project does not
represent an economic exploration target and results indicate there
is no additional upside, a decision will be made to discontinue
exploration. The judgement exercised by management relates to
whether there is perceived to be an indicator of impairment and
that management have concluded that there is not, due to the
recovery in the Nickel prices, favourable economics of the
Pre-Feasibility Study as well as the fundamentals of the nickel
market and expected supply gap in the mid-term.
4.2 Contingent consideration
Contingent consideration has a carrying value of £6,246,071, at
31 December 2019 (2018: £3,461,833). Deferred consideration has a
carrying value of £nil at 31 December 2019 (2018: £1,360,792).
There are two contingent consideration arrangements in place as at
31 December 2019:
Xstrata – Araguaia
- A contingent consideration arrangement that requires the Group
to pay Xstrata Brasil Mineração Ltda consideration after the date
of issuance of a Feasibility Study (‘FS’) comprising the Araguaia
project and the Vale dos Sonhos (‘VdS’) (US$330,000) and Serra do
Tapa (‘SdT’) (US$670,000) project areas (‘GAP’) (together the
‘Enlarged Project’), to be satisfied in shares in the Company (at
the 5 day volume weighted average price taken on the tenth business
day after the date of such issuance) or cash, at the election
of the Company. The VdS project area was included in the FS
published in October 2018 and this contingent consideration was
satisfied by the issue of shares in the Company in January 2019,
the SdT deposit is not currently included in the Araguaia project
development plan as so no contingent consideration has been
recognised in respect of the US$670,000 that might become payable;
and
- Remaining contingent consideration of US$5,000,000 to be paid
in cash, as at the date of first commercial production from any of
the resource areas within the Enlarged Project area. Given the
recent publication of the Feasibility Study which includes an area
purchased from Glencore and the securing of the royalty funding for
the development of the project, this continues to be recognised as
contingent consideration as it will become payable when the
project enters commercial production. It is carried at £2,975,935,
reflecting that it is discounted to reflect its current value. The
carrying value has been adjusted to reflect that the date of
commercial production has been reassessed in the year.
A key judgement in determining the estimated value of the
contingent consideration for Glencore is the timing of the assumed
date of first commercial production.
Vale - Vermelho
- On 19 December 2017 the Company announced that it had reached
agreement with Vale Metais Basicos S.A. (“Vale”) to indirectly
acquire through a wholly owned subsidiaries in Brazil, 100% of the
advanced Vermelho nickel-cobalt project in Brazil
(“Vermelho”).
- A final payment of US$6,000,000 in cash is payable by Horizonte
within 30 days of first commercial sale of product from Vermelho.
Management have assessed that given the finalisation and
publication of a pre-feasibility study on the Vermelho project
during 2019, the project is likely to have progressed to a stage
where this final payment can be considered probable and have
therefore recognised this contingent consideration within
liabilities for the first time during 2019. It is carried at
£3,270,134, reflecting that it is discounted to reflect its current
value.
Management have sensitized the fair value calculations for both
contingent considerations to reasonable changes in the unobservable
inputs and note that if the discount rate were to increase from 7%
to 10% then the FV would decrease by £789,008 (2018: £221,263) to
£5,457,061 (2018: £3,240,600).
The determination of the probability of the Vermelho project
entering into commercial production is a judgement made by the
Company based upon the demonstrated economics from the PFS
published during 2019. The PFS identifies the ability of the
Company to demonstrate economic viability of the project at the
long-term consensus nickel pricing for a capital cost estimate that
is considered achievable in the current market. It has therefore
been concluded that with the project suitably advanced it is now
probable that the project will advance towards production and the
consideration become payable.
A key judgement in determining the estimated value of the
deferred consideration for Vermelho is the timing of the assumed
date of first commercial production. Management have undertaken a
sensitivity and if the date of commercial production were to be
delayed by 1 year then the fair value of deferred consideration for
Vermelho would decrease by £213,933 and for Araguaia it would
decrease by £195,202.
There has been no change in valuation technique during the
period. Please refer to Note 17 for an analysis of the contingent
and deferred consideration.
4.3 Current and deferred taxation
The Group is subject to income taxes in numerous jurisdictions.
Judgment is required in determining the worldwide provision for
such taxes. The Group recognises liabilities for anticipated tax
issues based on estimates of whether additional taxes will be due.
Where the final tax outcome of these matters is different from the
amounts that were initially recorded, such differences will affect
the current and deferred income tax assets and liabilities in the
period in which such determination is made.
Deferred tax liabilities have been recognised on the fair value
gains in exploration assets arising on the acquisitions of Araguaia
Niquel Mineração Ltda (formerly Teck Cominco Brasil S.A) and Lontra
Empreendimentos e Participações Ltda in 2010. A deferred tax asset
in respect of the losses has been recognised on acquisition of
Araguaia Niquel Mineração Ltda to the extent that it can be set
against the deferred tax liability arising on the fair value gains.
In determining whether a deferred tax asset in excess of this
amount should be recognized management must make an assessment of
the probability that the tax losses will be utilized and a deferred
tax asset is only recognised if it is considered probable that the
tax losses will be utilized.
Other estimates include but are not limited to future cash flows
associated with assets, useful lives for depreciation and fair
value of financial instruments.
4.4 Accounting for the royalty finance
arrangements
The Group has a $25m royalty funding arrangement which was
secured in order to advance the Araguaia project towards
construction. The treatment of this financing arrangements as a
financial liability, calculated using the effective interest rate
methodology is a key judgement that has been made by the Company
and which has been taken following obtaining independent expert
advice. The carrying value of the financing liability is also
sensitive to assumptions regarding the royalty rate and future
nickel prices. Further information relating to the accounting for
this liability and the sensitivity of the carrying value to these
estimates is provided in note 18a).
The future price of nickel and date of commencement of
commercial production are key estimates that are critical in the
determination of the carrying value of the royalty liability.
The future expected nickel price and, volatility of the nickel
prices are key estimates that are critical in the fair value of the
Buy Back Option associated with the Royalty financing.
5 Segmental reporting
The Group operates principally in the UK and Brazil, with
operations managed on a project by project basis within each
geographical area. Activities in the UK are mainly administrative
in nature whilst the activities in Brazil relate to exploration and
evaluation work. The newly established 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.
|
2019 |
UK 2019 £ |
Brazil 2019 £ |
Netherlands 2019 £ |
Total 2019 £ |
| Intragroup sales |
171,712 |
|
(171,712 |
) |
- |
- |
|
| Administrative expenses |
(1,840,348 |
) |
(723,532 |
) |
- |
(2,563,880 |
) |
| Profit/(loss) on foreign
exchange |
6,796 |
|
(78,839 |
) |
15,782 |
(56,261 |
) |
|
Loss from operations per reportable segment |
(1,833,552 |
) |
(802,371 |
) |
15,782 |
(2,620,141 |
) |
| Depreciation charges |
- |
|
- |
|
- |
- |
|
| Additions to non-current
assets |
- |
|
3,595,775 |
|
- |
3,595,775 |
|
| Reportable segment assets |
17,785,624 |
|
39,428,141 |
|
2,246,089 |
59,459,854 |
|
| Reportable segment non-current
assets |
- |
|
39,317,989 |
|
- |
39,317,989 |
|
|
Reportable segment liabilities |
6,572,952 |
|
569,434 |
|
20,925,405 |
28,067,791 |
|
|
2018 |
UK 2018 £ |
Brazil 2018 £ |
Total 2018 £ |
| Revenue |
|
|
|
|
Intra-group sales |
1,416,698 |
|
(1,416,698 |
) |
- |
|
| Administrative
expenses |
(1,336,093 |
) |
- |
|
(1,336,093 |
) |
| Loss on foreign
exchange |
186,209 |
|
(3 |
) |
186,206 |
|
|
Loss from operations per reportable segment |
266,814 |
|
(1,416,701 |
) |
(1,149,887 |
) |
| Depreciation
charges |
- |
|
- |
|
- |
|
| Additions to
non-current assets |
- |
|
1,353,439 |
|
1,353,439 |
|
| Reportable segment
assets |
5,627,373 |
|
36,663,073 |
|
42,290,446 |
|
| Reportable segment
non-current assets |
- |
|
35,739,088 |
|
35,739,088 |
|
|
Reportable segment liabilities |
4,998,760 |
|
443,866 |
|
5,442,626 |
|
Inter segment revenues are calculated and recorded in accordance
with the underlying intra group service agreements.
A reconciliation of adjusted loss from operations per reportable
segment to loss before tax is provided as follows:
|
|
2019£ |
2018 £ |
| Loss from operations per
reportable segment |
(2,620,141 |
) |
(1,149,885 |
) |
| Changes in estimate for
contingent and deferred consideration (refer note 17) |
598,660 |
|
139,392 |
|
| Charge for share options
granted |
(326,413 |
) |
(837,172 |
) |
| Finance income |
110,036 |
|
89,446 |
|
| Finance
costs |
(933,351 |
) |
(181,442 |
) |
| Loss
for the year from continuing operations |
(3,171,214 |
) |
(1,939,663 |
) |
6 Expenses by nature
| |
2019 |
2018 |
|
Group |
£ |
£ |
| Charge for share options
granted |
326,413 |
837,172 |
|
Depreciation (note 11) |
- |
— |
7 Auditor remuneration
During the year the Group (including its overseas subsidiaries)
obtained the following services from the Company’s auditor and its
associates:
|
Group |
2019 £ |
2018 £ |
| Fees payable to the Company’s
auditor and its associates for the audit of the parent company and
consolidated financial statements |
58,200 |
38,000 |
| Fees payable to the Company’s
auditor and its associates for other services: |
|
|
| – Audit related assurance
services |
- |
- |
| – Tax
compliance services |
48,563 |
4,850 |
8 Finance income and costs
|
Group |
2019 £ |
2018 £ |
| Finance
income: |
|
|
| – Interest income on cash and
short-term bank deposits |
110,036 |
|
89,446 |
|
| Finance
costs: |
|
|
| – Contingent and deferred
consideration: unwinding of discount |
(344,953 |
) |
(181,442 |
) |
| – Amortisation of Royalty
financing |
(572,294 |
) |
- |
|
| – Fair Value adjustment on
royalty |
(91,476 |
) |
- |
|
| –
movement in fair value of derivative asset |
75,372 |
|
- |
|
| Total
finance costs |
(933,351 |
) |
(181,442 |
) |
|
Net finance costs |
(823,315 |
) |
(91,996 |
) |
9 Income Tax
|
Group |
2019 £ |
2018 £ |
| Tax
charge: |
|
|
| Current
tax charge for the year |
— |
— |
|
Deferred tax charge for the year |
— |
— |
|
Tax on loss for the year |
— |
— |
Reconciliation of current tax
|
Group |
2019 £ |
2018 £ |
| Loss before income tax |
(3,171,214 |
) |
(1,939,663 |
) |
| Current tax at 19% (2018:
19.25%) |
(602,530 |
) |
(368,536 |
) |
| Effects of: |
|
|
| Expenses not deducted for tax
purposes |
281,391 |
|
174,095 |
|
| Utilisation of tax losses
brought forward |
— |
|
— |
|
| Tax losses carried forward for
which no deferred income tax asset was recognised |
473,130 |
|
194,441 |
|
| Effect of higher overseas tax
rates |
(88,990 |
) |
— |
|
|
Total tax |
— |
|
— |
|
No tax charge or credit arises on the loss for the year.
The corporation tax rate in Brazil is 34%, the Netherlands 21%
and the United Kingdom 19%. The group incurred expenses in all of
these jurisdictions during the year, in 2018 the effective rate was
19.25% as all of the losses arose in the UK.
Deferred income tax
An analysis of deferred tax assets and liabilities is set out
below.
|
Group |
2019 £ |
2018 £ |
|
Deferred tax assets |
1,412,509 |
|
1,522,700 |
|
|
|
|
|
| Deferred tax
liabilities |
|
|
| –
Deferred tax liability to be settled after more than 12 months |
1,624,891 |
|
(1,751,391 |
) |
|
|
|
|
|
Deferred tax liabilities (net) |
(212,382 |
) |
(228,691 |
) |
The movement on the net deferred tax liabilities is as
follows:
|
Group |
2019 £ |
2018 £ |
|
At 1 January |
(228,691 |
) |
(253,205 |
) |
|
Exchange differences |
16,309 |
|
24,514 |
|
|
At 31 December |
(212,382 |
) |
(228,691 |
) |
Deferred tax assets are recognised on tax losses carried forward
to the extent that the realisation of the related tax benefit
through future taxable profits is probable.
Deferred tax liabilities are recognised in respect of fair value
adjustments to the carrying value of intangible assets as a result
of the acquisition of such assets.
The Group has tax losses of approximately £16,810,975 (2018:
£22,778,401) in Brazil and excess management charges of
approximately £nil (2018: £834,644) in the UK available to carry
forward against future taxable profits. Deferred tax assets have
been recognised up to the amount of the deferred tax liability
arising on the fair value adjustments. Potential deferred tax
assets of £5,715,731 (2018: £6,221,957) have not been
recognised.
Tax losses are available indefinitely.
10 Intangible assets
Intangible assets comprise exploration licenses, exploration and
evaluation costs and goodwill. Exploration and evaluation costs
comprise acquired and internally generated assets.
|
Group |
Goodwill £ |
Exploration Licenses £ |
Exploration and evaluation costs £ |
Total £ |
| Cost |
|
|
|
|
| At 1 January 2018 |
251,063 |
|
5,165,529 |
|
28,891,686 |
|
34,308,278 |
|
| Additions |
- |
|
1,245,111 |
|
3,236,829 |
|
4,481,940 |
|
|
Exchange rate movements |
(24,306 |
) |
(280,344 |
) |
(2,747,666 |
) |
(3,052,316 |
) |
| Net
book amount at 31 December 2018 |
226,757 |
|
6,130,296 |
|
29,380,849 |
|
35,737,903 |
|
| Transfer to PPE |
- |
|
(3,483,363 |
) |
(29,808,123 |
) |
(33,291,486 |
) |
| Additions |
- |
|
3,324,005 |
|
2,604,911 |
|
5,928,916 |
|
|
Exchange rate movements |
(16,172 |
) |
(813,572 |
) |
(488,143 |
) |
(1,317,887 |
) |
|
Net book amount at 31 December 2019 |
210,585 |
|
5,157,366 |
|
1,689,495 |
|
7,057,444 |
|
In December 2018, the Group published a technical Feasibility
Study for the Araguaia Ferronickel project in accordance with NI
43-101. Under IFRS 6 — Exploration for and Evaluation of Mineral
Resources, an impairment test is required when the technical
feasibility and commercial viability of extracting a mineral
resource become demonstrable, at which point the asset falls
outside the scope of IFRS 6 and has been reclassified in the
Financial Statements to mine development project upon completion of
the royalty financing, which is deemed to be the date at which
commercial viability had been determined. The Feasibility Study
financial assessment performed by independent mining specialists,
Ausenco, gave a post-tax discounted cash flow valuation of US$401M
at 8% discount factor based on a longterm Nickel price of
US$14,000/t Ni. Thus, there is no impairment for these mining
assets as the combined value of the exploration & evaluation
assets only totaled £34,244,817, giving significant headroom. As a
result, these costs were transferred to evaluated mining property,
as part of PPE as at the date of financial close of the royalty
agreement.
(a) Exploration and evaluation assets
The exploration and evaluation costs are split between Araguaia
and Vermelho as follows:
|
|
Exploration licences £ |
Exploration and evaluation costs £ |
Total £ |
| Araguaia |
4,863,968 |
29,380,849 |
34,244,817 |
|
Vermelho |
1,266,328 |
- |
1,266,328 |
| Net
book amount at 31 December 2018 |
6,130,296 |
29,380,849 |
35,737,903 |
| |
|
|
|
| Vermelho |
5,157,366 |
1,689,495 |
6,846,860 |
|
Net book amount at 31 December 2019 |
5,157,366 |
1,689,495 |
6,846,860 |
No indicators of impairment were identified during the year for
the Vermelho project.
Vermelho
In January 2018, the acquisition of the Vermelho project was
completed, which resulted in a deferred consideration of $1,850,000
being recognised and accordingly an amount of £1,245,111 was
capitalised to the exploration licences held within intangible
assets shown above. On 17 October the Group published the results
of a Pre-Feasibility Study on the Vermelho Nickel Cobalt Project,
which confirms Vermelho as a large, high-grade resource, with a
long mine life and low-cost source of nickel sulphate for the
battery industry.
The economic and technical results from the study support
further development of the project towards a full Feasibility Study
and included the following:
- A 38-year mine life estimated to generate total cash flows
after taxation of US$7.3billion;
- An estimated Base Case post-tax Net Present Value1 (‘NPV’) of
US$1.7 billion and Internal Rate of Return (‘IRR’) of
26%;
- At full production capacity the Project is expected to produce
an average of 25,000 tonnes of nickel and 1,250 tonnes of cobalt
per annum utilising the High-Pressure Acid Leach process;
- The base case PFS economics assume a flat nickel price of
US$16,400 per tonne (‘/t’) for the 38-year mine life;
- C1 (Brook Hunt) cash cost of US$8,020/t Ni (US$3.64/lb Ni),
defines Vermelho as a low-cost producer; and
- Initial Capital Cost estimate is US$652 million (AACE class
4).
It has been therefore concluded there are no
indicators if impairment.
(b) Goodwill
Goodwill arose on the acquisition of Lontra Empreendimentos e
Participações Ltda in 2010. The Directors have determined the
recoverable amount of goodwill based on the same assumptions used
for the assessment of the Lontra exploration project detailed
above. As a result of this assessment, the Directors have concluded
that no impairment charge is necessary against the carrying value
of goodwill.
11 Property, plant and equipment
|
Group |
Mine Development Property £ |
Vehicles and other field equipment £ |
Office equipment £ |
Total £ |
| Cost |
|
|
|
|
|
At 1 January 2017 |
— |
|
106,304 |
|
14,398 |
|
120,702 |
|
| Foreign exchange
movements |
— |
|
(10,630 |
) |
(796 |
) |
(11,426 |
) |
|
Additions |
— |
|
2,236 |
|
— |
|
2,236 |
|
|
At 31 December 2017 |
— |
|
97,910 |
|
13,602 |
|
111,512 |
|
| Foreign exchange
movements |
— |
|
8,812 |
|
822 |
|
9,634 |
|
|
Additions |
— |
|
— |
|
— |
|
— |
|
|
At 31 December 2018 |
— |
|
106,722 |
|
14,424 |
|
121,146 |
|
| Foreign exchange
movements |
(1,270,125 |
) |
— |
|
— |
|
(1,270,125 |
) |
| Transfer from exploration and
evaluation assets1 |
33,291,486 |
|
|
|
33,291,486 |
|
|
Additions |
238,701 |
|
— |
|
— |
|
238,701 |
|
|
At 31 December 2019 |
32,260,061 |
|
— |
|
— |
|
32,260,061 |
|
| Accumulated
depreciation |
|
|
|
|
| At 1 January 2018 |
— |
|
95,859 |
|
13,602 |
|
109,461 |
|
| Charge for the year |
— |
|
436 |
|
— |
|
436 |
|
| Foreign
exchange movements |
— |
|
9,241 |
|
822 |
|
10,063 |
|
|
At 31 December 2018 |
— |
|
105,536 |
|
14,424 |
|
119,960 |
|
| Charge for the year |
— |
|
703 |
|
— |
|
703 |
|
| Foreign exchange
movements |
— |
|
— |
|
— |
|
— |
|
|
At 31 December 2019 |
— |
|
106,239 |
|
14,424 |
|
120,663 |
|
|
Net book amount as at 31 December 2019 |
32,260,061 |
|
483 |
|
- |
|
32,260,544 |
|
| Net
book amount as at 31 December 2018 |
— |
|
1,186 |
|
— |
|
1,186 |
|
| Net
book amount as at 1 January 2018 |
— |
|
2,051 |
|
— |
|
2,051 |
|
1Following determination of the technical feasibility and
commercial viability of the Araguaia Ferronickel Project, the
relevant expenditure has been transferred from exploration and
evaluation assets to evaluated mineral property
Depreciation charges of £703 (2018: £436) have been
capitalised and included within intangible exploration and
evaluation asset additions for the year. The remaining depreciation
expense for the year ended 31 December 2019 of £nil (2018: £nil)
has been charged in ‘administrative expenses’ under
‘Depreciation.’
|
Company |
|
Field equipment £ |
Office equipment £ |
Total £ |
| Cost |
|
|
|
|
| At 1 January 2018 |
|
4,208 |
7,403 |
11,611 |
| Additions |
|
— |
— |
— |
|
At 31 December 2018 and 2019 |
|
4,208 |
7,403 |
11,611 |
| Accumulated
depreciation |
|
|
|
|
|
At 1 January 2018 |
|
4,208 |
7,403 |
11,611 |
| Charge for the year |
|
— |
— |
— |
|
At 31 December 2018 |
|
4,208 |
7,403 |
11,611 |
| Charge
for the year |
|
— |
— |
— |
|
At 31 December 2019 |
|
4,208 |
7,403 |
11,611 |
|
Net book amount as at 31 December 2019 |
|
— |
— |
— |
|
Net book amount as at 31 December 2018 |
|
— |
— |
— |
|
Net book amount as at 1 January 2018 |
|
— |
283 |
283 |
In December 2018, a Canadian NI 43-101 compliant Feasibility
Study (“FS’) was published by the Company regarding the enlarged
Araguaia Project which included the Vale dos Sonhos deposit
acquired from Glencore. The financial results and conclusions of
the FS clearly indicate the economic viability of the Araguaia
Project with an NPV of $401M using a nickel price of $14,000/t Ni.
Nothing material had changed with the economics of the FS between
the publication date and the date of this report and the Directors
undertook an assessment of impairment through evaluating the
results of the FS along with recent market information relating to
capital markets and nickel prices and judged that there are no
impairment indicators with regards to the Araguaia Project.
Impairment assessments for exploration and evaluation assets are
carried out either on a project by project basis or by geographical
area.
The adjacent Araguaia/Lontra/Vila Oito and Floresta exploration
sites (‘the Araguaia Project’), together with the Vale dos Sonhos
deposit acquired from Xstrata Brasil Mineração Ltda comprise a
resource of a sufficient size and scale to allow the Company to
create a significant single nickel project. For this reason, at the
current stage of development, these two projects are viewed and
assessed for impairment by management as a single cash generating
unit.
The mineral concession for the Vale dos Sonhos deposit was
acquired from Xstrata Brasil Mineração Ltda, a subsidiary of
Glencore Canada Corporation, in November 2015.
The NPV has been determined by reference to the FS undertaken
during the year on the Araguaia Project. The key inputs and
assumptions in deriving the value in use were, the discount rate of
8%, which is based upon an estimate of the risk adjusted cost of
capital for the jurisdiction, capital costs of $443 million,
operating costs of $8,194/t Nickel, a Nickel price of US$14,000/t
and a life of mine of 28 years.
Sensitivity to changes in assumptions
For the base case NPV8 of the Araguaia Project of US$401 million
using a nickel price of US$14,000/t and US$740 million using
US$16,800/t as per the FS to be reduced to the book value of the
Araguaia Project as at 31 December 2019, the discount rate applied
to the cash flow model would need to be increased from 8% to
17%.
12 Cash and cash equivalents
| |
Group |
Company |
|
|
2019 £ |
2018 £ |
2019 £ |
2018 £ |
| Cash at bank and on hand |
2,219,850 |
422,501 |
1,854,329 |
194,149 |
|
Short-term deposits |
15,540,480 |
6,104,614 |
15,540,480 |
5,293,190 |
|
|
17,760,330 |
6,527,115 |
17,394,809 |
5,487,339 |
The Group’s cash at bank and short-term deposits are held with
institutions with the following credit ratings (Fitch):
| |
Group |
Company |
|
|
2019 £ |
2018 £ |
2019 £ |
2018 £ |
| A |
17,338,016 |
5,551,299 |
17,338,016 |
5,431,914 |
|
BBB- |
422,314 |
975,816 |
56,793 |
55,425 |
|
|
17,760,330 |
6,527,115 |
17,394,809 |
5,487,339 |
The cash deposited with the institution with a BBB rating is
only held short term and the expected credit loss is not assessed
as material.
13 Share capital
| Group
and Company |
2019 Number |
2019 £ |
2018 Number |
2018 £ |
| Issued and fully
paid |
|
|
|
|
| Ordinary shares of 1p
each |
|
|
|
|
| At 1 January |
1,432,521,800 |
14,325,218 |
1,371,934,300 |
13,719,343 |
| Issue
of ordinary shares |
13,855,487 |
138,555 |
60,587,500 |
605,875 |
| At 31
December |
1,446,377,287 |
14,463,773 |
1,432,521,800 |
14,325,218 |
Share capital comprises amount subscribed for shares at the
nominal value.
2019
On 24 January 2019 the Company issued 13,855,487 as settlement
for $330,000 of deferred contingent consideration that became
payable following the issuance of a Feasibility Study including the
Vale dos Sonhos deposit originally acquired from Glencore.
2018
On 11 January 2018, the Company issued 60,587,500 new ordinary
shares through a private placement in Canada at a price of C$0.06
per share raising gross cash proceeds of CAD$3,635,250 before
expenses.
14 Share premium
| Group
and Company |
2019 £ |
2018 £ |
| At 1 January |
41,664,018 |
40,422,258 |
|
| Premium arising on issue of
ordinary shares |
121,288 |
1,451,723 |
|
| Issue
costs |
- |
(209,964 |
) |
| At 31
December |
41,785,306 |
41,664,018 |
|
Share premium comprises the amount subscribed for share capital
in excess of nominal value.
15 Share-based payments
The Directors have discretion to grant options to the Group
employees to subscribe for Ordinary shares up to a maximum of 10%
of the Company’s issued share capital. One third of options are
exercisable at each six months anniversary from the date of grant,
such that all options are exercisable 18 months after the date of
grant and all lapse on the tenth anniversary of the date of grant
or the holder ceasing to be an employee of the Group. Should
holders cease employment then the options remain valid for a period
of 3 months after cessation of employment, following which they
will lapse. Neither the Company nor the Group has any legal or
constructive obligation to settle or repurchase the options in
cash.
Movements on number of share options and their related exercise
price are as follows:
|
|
Number of options 2018 |
Weighted average exercise price 2018
£ |
Number of options 2018 |
Weighted average exercise price 2018 £ |
| Outstanding at 1 January |
134,300,000 |
0.056 |
94,650,000 |
0.059 |
| Forfeited |
- |
- |
- |
- |
| Granted |
2,000,000 |
0.048 |
39,650,000 |
0.048 |
|
Outstanding at 31 December |
136,300,000 |
0.055 |
134,300,000 |
0.056 |
|
Exercisable at 31 December |
134,966,667 |
0.055 |
109,026,667 |
0.058 |
The options outstanding at 31 December 2019 had a weighted
average remaining contractual life of 6.38 years (2018: 7.37
years).
The fair value of the share options was determined using the
Black-Scholes valuation model.
The parameters used are detailed below.
| Group
and Company |
2019 options |
2018 options |
| Date of grant |
11/02/2019 |
30/05/2018 |
| Weighted average share
price |
2.29 pence |
4.30 pence |
| Weighted average exercise
price |
4.80 pence |
4.80 pence |
| Weighted average fair value at
the measurement date |
1.05 pence |
2.51 pence |
| Expiry date |
11/2/2029 |
30/5/2028 |
| Options granted |
2,000,000 |
39,650,000 |
| Volatility |
51% |
51% |
| Dividend yield |
Nil |
Nil |
| Option life |
10 years |
10 years |
| Annual
risk free interest rate |
1.22% |
1.22% |
The expected volatility is based on historical volatility for
the six months prior to the date of grant. The risk free rate of
return is based on zero yield government bonds for a term
consistent with the option life.
The range of option exercise prices is as follows:
| Range
of exercise prices (£) |
2019 Weighted
average exercise price
(£) |
2019 Number of
shares |
2019 Weighted
average remaining life
expected (years) |
2019 Weighted
average remaining life
contracted (years) |
2018 Weighted average exercise price (£) |
2018 Number of shares |
2018 Weighted average remaining life expected (years) |
2018 Weighted average remaining life contracted (years) |
| 0–0.1 |
0.04 |
121,150,000 |
7.02 |
7.02 |
0.04 |
119,150,000 |
8.02 |
8.02 |
|
0.1–0.2 |
0.16 |
15,150,000 |
1.55 |
1.55 |
0.16 |
15,150,000 |
2.55 |
2.55 |
16 Other reserves
| |
|
Merger |
Translation |
Other |
|
| |
|
reserve |
reserve |
reserve |
Total |
|
Group |
|
£ |
£ |
£ |
£ |
| At 1
January 2018 |
|
10,888,760 |
(8,852,646 |
) |
(1,048,100 |
) |
998,014 |
|
| Other comprehensive
income |
|
— |
— |
|
— |
|
— |
|
|
Currency translation differences |
|
— |
(3,028,006 |
) |
— |
|
(3,208,006 |
) |
|
At 31 December 2018 |
|
10,888,760 |
(11,880,652 |
) |
(1,048,100 |
) |
(2,039,991 |
) |
| Other comprehensive
income |
|
— |
— |
|
— |
|
— |
|
|
Currency translation differences |
|
— |
(2,626,938 |
) |
— |
|
(2,626,938 |
) |
|
At 31 December 2019 |
|
10,888,760 |
(14,507,590 |
) |
(1,048,100 |
) |
(4,666,930 |
) |
|
Company |
Merger reserve £ |
Total £ |
| At 1
January 2018 and 31 December 2018 |
10,888,760 |
10,888,760 |
|
At 1 January 2019 and 31 December 2019 |
10,888,760 |
10,888,760 |
The merger and other reserve as at 31 December 2019 arose on
consolidation as a result of merger accounting for the acquisition
of the entire issued share capital of Horizonte Exploration Limited
during 2006 and represents the difference between the value of the
share capital and premium issued for the acquisition and that of
the acquired share capital and premium of Horizonte Exploration
Limited.
Currency translation differences relate to the translation of
Group entities that have a functional currency different from the
presentation currency (refer note 2.8). Movements in the
translation reserve are linked to the changes in the value of the
Brazilian Real against the Pound Sterling: the intangible assets of
the Group are located in Brazil, and their functional currency is
the Brazilian Real, which decreased in value against Sterling
during the year.
17 Trade and other payables
| |
Group |
Company |
| |
2019 |
2018 |
2019 |
2018 |
|
|
£ |
£ |
£ |
£ |
|
Non-current |
|
|
|
|
| Contingent consideration
payable to Xstrata Brasil Mineração Ltda (refer note 17) |
2,975,935 |
3,461,833 |
2,975,935 |
3,461,833 |
|
Vale Metais Basicoc S.A. (refer note 17) |
3,270,134 |
- |
3,270,134 |
- |
| Total
contingent consideration |
6,246,069 |
3,461,833 |
6,246,069 |
3,461,833 |
| Current |
|
|
|
|
| Deferred consideration payable
to former owners of Vermelho. |
- |
1,360,792 |
- |
1,360,792 |
| Trade and other payables |
538,933 |
215,175 |
176,588 |
6,201 |
| Amounts due to related parties
(refer note 22) |
- |
- |
413,930 |
413,930 |
| Social security and other
taxes |
30,000 |
20,000 |
30,000 |
20,000 |
| Accrued
expenses |
115,000 |
45,000 |
115,000 |
45,000 |
|
|
683,933 |
1,640,967 |
735,518 |
1,845,923 |
| Total
trade and other payables |
6,930,002 |
5,102,800 |
6,981,587 |
5,307,756 |
Trade and other payables include amounts due of £317,816 (2018:
£111,815) in relation to exploration and evaluation
activities. Contingent and deferred consideration also relate
to exploration and evaluation activities.
Contingent Consideration payable to Xstrata Brasil
Mineração Ltda
On 28 September 2015 the Company announced that it had reached
agreement to indirectly acquire through wholly owned subsidiaries
in Brazil the advanced high-grade Glencore Araguaia nickel project
(‘GAP’) in north central Brazil. GAP is
located in the vicinity of the Company’s Araguaia Project.
Pursuant to a conditional asset purchase agreement
(‘Asset Purchase Agreement’) between, amongst
others, the Company and Xstrata Brasil Exploraçâo Mineral Ltda
('Xstrata'), a wholly-owned subsidiary of Glencore
Canada Corporation ('Glencore'), the Company has
agreed to pay a total consideration of US$8 million to Xstrata,
which holds the title to GAP. The consideration is to be paid
according the following schedule;
- US$2,000,000 in ordinary shares in the capital of the Company
which was settled by way of issuing new shares in the Company as
follows: US$660,000 was paid in shares to a subsidiary of Glencore
during 2015 and the transfer of the Serra do Tapa and Pau Preto
deposit areas (together: ‘SdT’) during 2016 initiated the final
completion of the transaction with a further US$1,340,000 shares in
the Company issued.
- US$1,000,000 after the date of issuance of a joint Feasibility
Study for the combined Araguaia & GAP project areas, to be
satisfied in HZM Shares (at the 5 day volume weighted average price
taken on the tenth business day after the date of such issuance) or
cash, at the election of the Company. Of this $330,000 is due upon
the inclusion of Vale dos Sonhos in a Feasibility Study and
$670,000 for Serra do Tapa, as at 31 December a Feasibility Study
including Vale dos Sonhos has been published and the consideration
settled by way of issuing 13,855,487 new Shares in the Company.
Serra do Tapa is not included in the current project plans,
therefore management have concluded it’s not currently probable
that the consideration for Serra do Tapa will be paid. This
consideration is therefore not included in contingent
consideration; and
- The remaining US$5,000,000 consideration will be paid in cash,
as at the date of first commercial production from any of the
resource areas within the Enlarged Project area. Following transfer
of the concession for the VdS deposit area to a subsidiary of the
Company, this has been included in contingent consideration
payable.
Deferred consideration payable to Vale S.A
- On 19 December 2017 the Company announced that it had reached
agreement with Vale S.A (“Vale”) to indirectly acquire through
wholly owned subsidiaries in Brazil, 100% of the advanced Vermelho
nickel-cobalt project in Brazil (“Vermelho”).
- The terms of the Acquisition required Horizonte to pay an
initial cash payment of US$150,000 with a further US$1,850,000 in
cash payable on the second anniversary of the signing of the asset
purchase agreement. This was paid by the Group in December 2019 and
is no longer included in deferred consideration.
- A final payment of US$6,000,000 in cash is payable by Horizonte
within 30 days of first commercial sale of product from Vermelho.
Management have assessed that with the publication of the
Pre-Feasibility Study during 2019 for the Vermelho project, there
is a reasonable probability that the project will advance through
to production and therefore have recognised this contingent
consideration within liabilities for the first time during the
year.
The critical assumptions underlying the treatment of the
contingent consideration are set out in note 4.2.
As at 31 December 2019, there was a finance expense of £344,952
(2018: £181,441) recognised in finance costs within the Statement
of Comprehensive Income in respect of the contingent and deferred
consideration arrangements, as the discount applied to the
consideration at the date of acquisition was
unwound.
|
|
Contingent consideration £ |
Deferred consideration £ |
Total £ |
|
At 1 January 2018 |
3,635,955 |
|
— |
|
3,635,955 |
|
| Initial
recognition - Vale |
— |
|
1,144,621 |
|
1,144,621 |
|
| Unwinding of discount |
94,625 |
|
86,816 |
|
181,441 |
|
| Change
in estimate |
(268,747 |
) |
129,355 |
|
139,391 |
|
| 31
December 2018 |
3,461,833 |
|
1,360,792 |
|
4,822,626 |
|
| Initial recognition -
Vale |
3,324,004 |
|
- |
|
3,324,004 |
|
| Unwinding of discount |
253,439 |
|
91,513 |
|
344,952 |
|
| Change in estimate |
(534,201 |
) |
(64,459 |
) |
(598,660 |
) |
| Settlement of
consideration |
(259,006 |
) |
(1,387,846 |
) |
(1,646,852 |
) |
|
At 31 December 2019 |
6,246,069 |
|
- |
|
6,246,069 |
|
18 a) Royalty financing liability
On 29 August 2019 the Group entered into a
royalty funding arrangement with Orion Mine Finance (“OMF")
securing a gross upfront payment of $25,000,000 before fees in
exchange for a royalty, the rate being in a range from 2.25% to
3.00% and determined by the date of funding and commencement of
major construction. At inception of the loan and at the year end
the rate has been estimates at 2.45%. The royalty is paid
over the first 426k tonnes of nickel produced from the Araguaia
Ferronickel project. The Royalty agreement has certain provisions
to increase the headline royalty rate should there be delays in
securing project financing beyond a pre agreed timeframe. The
royalty is linked to production and therefore does not become
payable until the project is constructed and commences commercial
production. The agreement contains certain embedded derivatives
which as per IFRS9 have been separately valued and included in the
fair value of the financial instrument in note 18 b).
The Royalty liability has initially been
recognised using the amortised cost basis using the effective
interest rate of 14.5%. When circumstances arise that lead to
payments due under the agreement being revised, the group adjusts
the carrying amount of the financial liability to reflect the
revised estimated cash flows. This is achieved by recalculating the
present value of estimated cash flows using the original effective
interest rate of 14.5%. any adjustment to the carrying value is
recognised in the income statement.
|
|
|
2019 |
|
|
|
|
£ |
|
| Initial recognition of
Royalty |
|
19,379,845 |
|
| Fees |
|
(1,138,640 |
) |
| Fair value of embedded
derivative on initial recognition |
|
2,232,558 |
|
| Unwinding of discount |
|
572,294 |
|
| Change in fair value |
|
91,476 |
|
| Effects of foreign
exchange |
|
(567,122 |
) |
| Value
as at 31 December 2019 |
|
20,570,411 |
|
Management have sensitised the carrying value of the royalty
liability by a change in the royalty rate of 0.1% and it would be
£840,081 higher/lower and for a $1,000/t Ni increase/decrease in
future nickel price the carrying value would change by
£1,301,840.
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:-- 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;-- 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-- 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 ($16,188/t Ni), the start date of commercial
production (2022), the prevailing royalty rate (2.45%), the
inflation rate (1%) and volatility of nickel prices (23.6%).
|
|
|
2019 |
|
|
|
|
£ |
|
| Initial recognition of
derivative |
|
2,232,558 |
|
| Change in fair value |
|
75,372 |
|
| Effects of foreign
exchange |
|
(61,121 |
) |
| Value
as at 31 December 2019 |
|
2,246,809 |
|
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.
19 Note to statement of cash flows
Below is a reconciliation of borrowings from financial
transactions:
|
|
|
Royalty Financing |
Derivative asset |
Total |
|
|
|
£ |
£ |
£ |
| As at 1 January 2019 |
|
- |
|
- |
|
- |
|
|
Cashflows |
|
|
|
|
| Gross proceeds |
|
19,379,845 |
|
- |
|
19,379,845 |
|
| Fees |
|
(1,138,640 |
) |
- |
|
(1,138,640 |
) |
| Non cash flows: |
|
|
|
|
| Fair value of embedded
derivative on initial recognition |
|
2,232,558 |
|
(2,232,558 |
) |
- |
|
| Unwinding of discount |
|
572,294 |
|
- |
|
572,294 |
|
| Change in fair value |
|
91,476 |
|
(75,372 |
) |
16,103 |
|
| Effects of foreign
exchange |
|
(567,411 |
) |
61,121 |
|
(567,411 |
) |
| Total
non-current borrowings |
|
20,570,411 |
|
(2,246,809 |
) |
18,323,602 |
|
20 Dividends
No dividend has been declared or paid by the Company during the
year ended 31 December 2019 (2018: nil).
21 Earnings per share
(a) Basic
The basic loss per share of 0.219p loss per share (2018 loss per
share: 0.136p) is calculated by dividing the loss attributable to
owners of the parent by the weighted average number of ordinary
shares in issue during the year.
|
|
2019 |
|
2018 |
|
|
Group |
£ |
|
£ |
|
| Loss attributable to owners of
the parent |
(3,171,214 |
) |
(1,939,662 |
) |
|
Weighted average number of ordinary shares in issue |
1,445,504,202 |
|
1,431,027,862 |
|
(b) Diluted
The basic and diluted loss per share for the years ended 31
December 2019 and 31 December 2018 are the same as the effect of
the exercise of share options would be anti-dilutive.
In January 2019 the Group issued a further 13,855,487 new
ordinary shares at a price of 1.875 pence per share in settlement
for deferred contingent consideration due to Glencore, had this
occurred prior to the end of the year this would have impacted the
basic and diluted earnings per share figures.
Details of share options that could potentially dilute earnings
per share in future periods are set out in note 15.
22 Related party transactions
The following transactions took place with subsidiaries in the
year:
A fee totalling £474,782 (2018: £399,762 was charged to HM do
Brazil Ltda, £1.950,790 (2018: £961,042 ) to Araguaia Niquel
Mineração Ltda and £120,197 (2018: £55,894) to Typhon Brasil
Mineração Ltda by Horizonte Minerals Plc in respect of consultancy
services provided and funding costs.
Amounts totalling £2,545,769 (2018: £1,416,698) were lent to HM
Brazil (IOM) Ltd, HM do Brasil Ltda, Araguaia Niquel Mineraçao Ltda
and Typhon Brasil Mineração Ltda to finance exploration work during
2019, by Horizonte Minerals Plc. Interest is charged at an annual
rate of 6% on balances outstanding during the year. The amounts are
repayable on demand.
See note 27 for balances with subsidiaries at the year end.
All Group transactions were eliminated on consolidation.
23 Ultimate controlling party
The Directors believe there to be no ultimate controlling
party.
24 Directors’ remuneration (including Key
Management)
| |
Short term benefits |
|
Post employment benefits |
|
Cost to Company |
Non-Cash |
|
| |
Aggregate emoluments |
Other emoluments |
Pension costs |
Total |
Social Securitycosts |
Share Based PaymentCharge |
Grand Total |
| Group
2019 |
£ |
£ |
£ |
£ |
£ |
£ |
£ |
| Non-Executive
Directors |
|
|
|
|
|
|
|
| Alexander Christopher |
— |
— |
— |
— |
— |
— |
— |
| David Hall |
30,234 |
32,5001 |
— |
62,824 |
2,981 |
34,224 |
100,029 |
| William Fisher |
26,400 |
32,5001 |
— |
58,900 |
— |
29,946 |
88,846 |
| Allan Walker |
30,359 |
32,5001 |
— |
62,859 |
7,483 |
29,946 |
100,288 |
| Owen Bavinton |
31,043 |
— |
39,396 |
70,439 |
1,696 |
29,946 |
102,081 |
| Executive
Directors |
|
|
|
|
|
|
|
| Jeremy Martin |
231,130 |
200,0001 |
16,662 |
447,792 |
51,405 |
68,448 |
567,645 |
| Key
Management |
|
|
|
|
|
|
|
| Simon
Retter |
155,640 |
94,1642 |
12,000 |
261,804 |
20,295 |
34,224 |
316,323 |
|
|
504,896 |
391,664 |
68,058 |
964,618 |
83,860 |
226,735 |
1,275,212 |
1 Denotes bonuses paid regarding a long term
incentive plan related to the successful publication of a
Feasibility Study for Araguaia, Pre-Feasibility Study for Vermelho
and closure of $25m royalty funding arrangement with OMF.
2 Includes £65,000 bonus paid regarding a long
term incentive plan related to the successful publication of a
Feasibility Study for Araguaia, Pre-Feasibility Study for Vermelho
and closure of $25m royalty funding arrangement with OMF.
| |
Short term benefits |
|
Post employment benefits |
|
Cost to Company |
Non-Cash |
|
| |
Aggregate emoluments |
Otheremoluments |
Pensioncosts |
Total |
Social Securitycosts |
Share Based Payment Charge |
Grand Total |
| Group
2018 |
£ |
£ |
£ |
£ |
£ |
£ |
£ |
| Non-Executive
Directors |
|
|
|
|
|
|
|
| Alexander Christopher |
— |
— |
— |
— |
— |
— |
— |
| David Hall |
26,400 |
32,5001 |
— |
58,900 |
2,415 |
93,323 |
154,138 |
| William Fisher |
26,400 |
32,5001 |
— |
58,900 |
— |
80,261 |
154,138 |
| Allan Walker |
26,400 |
34,5001 |
— |
60,900 |
7,242 |
80,261 |
148,403 |
| Owen Bavinton |
— |
— |
79,848 |
79,848 |
— |
80,261 |
160,109 |
| Executive
Directors |
|
|
|
|
|
|
|
| Jeremy Martin |
216,157 |
150,0001 |
21,186 |
387,343 |
49,367 |
167,415 |
604,125 |
| Key
Management |
|
|
|
|
|
|
|
| Simon
Retter |
92,362 |
73,3202 |
23,380 |
189,062 |
15,713 |
80,749 |
285,524 |
|
|
387,719 |
322,820 |
124,414 |
831,953 |
74,737 |
582,270 |
1,507,437 |
1 Denotes bonuses paid to senior staff regarding
a long term incentive plan upon publication of a bankable
feasibility study on the Araguaia FeNi project.2 Includes £30,000
bonus paid to Mr Retter regarding the successful completion of the
feasibility study on the Araguaia FeNi project. 3 The Group
has in place a long term incentive plan with certain key members of
management, including the CEO, CFO and certain Non-Executive
Directors. Awards are due to be made following the successful
completion of milestones deemed to be significant for the long term
value creation of the Group including completion of project
financing, commencement of commercial production and in the event
there is an offer for the asset or for the entire issued share
capital of the Group.
There are no other long term or termination benefits granted to
key management.
The Company does not operate a pension scheme. Pension costs
comprise contributions to Defined Contribution pension plans held
by the relevant Director or Key Management.
25 Employee benefit expense (including Directors and Key
Management)
| |
Group |
|
Company |
|
| |
2019 |
2018 |
2019 |
2018 |
|
Group |
£ |
£ |
£ |
£ |
| Wages and salaries |
1,856,864 |
1,450,771 |
1,220,693 |
856,288 |
| Social security costs |
254,503 |
244,590 |
125,626 |
105,337 |
| Indemnity for loss of
office |
16,865 |
10,472 |
- |
- |
| Share
options granted to Directors and employees (note 15) |
326,413 |
873,757 |
326,413 |
873,757 |
|
|
2,454,644 |
2,579,590 |
1,672,732 |
1,835,382 |
|
|
|
|
|
|
| Management |
10 |
11 |
8 |
6 |
| Field staff |
18 |
16 |
- |
- |
| Average
number of employees including Directors and Key Management |
28 |
27 |
8 |
6 |
Employee benefit expenses includes £892,500 (2018: £685,477) of
costs capitalised and included within intangible non-current
assets.
Share options granted include costs of £192,511 (2018: £501,523)
relating to Directors.
26 Investments in subsidiaries
| |
2019 |
2018 |
|
Company |
£ |
£ |
| Shares in Group
undertakings |
2,348,042 |
2,348,042 |
|
|
2,348,042 |
2,348,042 |
Investments in Group undertakings are stated at cost.
On 23 March 2006 the Company acquired the entire issued share
capital of Horizonte Exploration Limited by means of a share for
share exchange; the consideration for the acquisition was
21,841,000 ordinary shares of 1 penny each, issued at a premium of
9 pence per share. The difference between the total consideration
and the assets acquired has been credited to other reserves.
27 Loans to subsidiaries
Balances with subsidiaries at the year end were:
|
|
|
|
2019 |
2018 |
|
|
|
|
Assets |
Assets |
|
Company |
|
|
£ |
£ |
| HM do Brasil Ltda |
|
|
944,928 |
883,909 |
| HM Brazil (IOM) Ltd |
|
|
3,149,326 |
3,021,172 |
| Horizonte Nickel (IOM)
Ltd |
|
|
35,641,959 |
33,145,934 |
| Araguaia Niquel Mineração
Ltda |
|
|
10,244,039 |
9,747,741 |
| Horizonte Minerals (IOM)
Ltd |
|
|
253,004 |
253,004 |
| Typhon Brasil Mineração
Ltda |
|
|
4,378,487 |
1,625,087 |
| Trias
Brasil Mineração Ltda |
|
|
801,403 |
801,403 |
|
Total |
|
|
55,413,147 |
49,478,251 |
The loans to Group undertakings are repayable on demand and
currently carry no interest, however there is currently no
expectation of repayment within the next twelve months and
therefore loans are treated as non-current.
|
|
1 January 2018 |
Amounts advanced during year |
Expected credit loss for balances at 1 January
2018 |
Expected credit loss for balances advanced in
2018 |
2018 |
Amounts advanced during year |
Expected credit loss |
2019 |
|
Company |
£ |
£ |
£ |
£ |
£ |
£ |
£ |
£ |
|
HM do Brasil Ltda |
1,263,644 |
504,174 |
(631,822 |
) |
(252,087 |
) |
883,909 |
122,038 |
(61,019 |
) |
944,928 |
| HM Brazil (IOM) Ltd |
5,405,662 |
636,683 |
(2,702,831 |
) |
(318,342 |
) |
3,021,172 |
256,307 |
(128,154 |
) |
3,149,326 |
| Horizonte Nickel (IOM)
Ltd |
31,136,784 |
2,009,153 |
- |
|
- |
|
33,145,934 |
2,496,025 |
- |
|
35,641,959 |
| Araguaia Niquel Mineração
Ltda |
6,594,120 |
3,153,621 |
- |
|
- |
|
9,747,741 |
496,298 |
- |
|
10,244,039 |
| Horizonte Minerals (IOM)
Ltd |
253,004 |
- |
- |
|
- |
|
253,004 |
- |
- |
|
253,004 |
| Typhon Brasil Mineração
Ltda |
3,224,179 |
25,994 |
(1,612,090 |
) |
(12,998 |
) |
1,625,087 |
3,004,807 |
(251,407 |
) |
4,378,487 |
| Trias Brasil Mineração
Ltda |
1,012,620 |
- |
- |
|
(1,012,620 |
) |
— |
- |
- |
|
- |
| Champol (IOM) Ltd |
- |
240 |
- |
|
(240 |
) |
— |
- |
- |
|
- |
| Cluny
(IOM) Ltd |
- |
1,144,861 |
- |
|
(343,458 |
) |
801,403 |
- |
- |
|
801,403 |
|
Total |
48,890,013 |
7,474,726 |
(4,946,743 |
) |
(1,939,745 |
) |
49,478,251 |
6,375,388 |
(440,579 |
) |
55,413,147 |
The Group uses a forward-looking expected credit loss model
approach in accordance with IFRS 9 which requires the parent to
make an allowance for lifetime expected credit losses.
The loan to the subsidiary companies, are classified as
repayable on demand. IFRS 9 requires consideration of the
expected credit risk associated with the loans. As the
subsidiary companies do not have any liquid assets to sell to repay
the loan, should it be recalled, the conclusion reached was that
the loan should be categorised as credit impaired.
As part of the assessment of expected credit losses of the
intercompany loan receivable, the Directors have assessed the cash
flows associated with a number of different recovery scenarios.
This included consideration of the:
- exploration project risk
- positive NPV of the Araguaia project as demonstrated by the
Feasibility Study
- positive NPV of the Vermelho Nickel Cobalt Project demonstrated
by the Pre-Feasibility Study
- ability to raise the finance to develop the projects
- ability to sell the projects
- market and technical risks relating to the projects
- participation of the subsidiaries in the Araguaia project
The directors have concluded that certain amounts may not be
fully recovered giving rise to the expected credit loss
adjustment.
The credit loss allowance was assessed at the date of 31
December 2019. There was no change in the expected credit
loss allowance at the year end.
28 Commitments
Capital expenditure contracted for at the end of the reporting
period but not yet incurred is as follows:
| |
2019 |
2018 |
|
Group |
£ |
£ |
|
Intangible assets |
— |
— |
Capital commitments relate to contractual commitments for
metallurgical, economic and environmental evaluations by third
parties. Once incurred these costs will be capitalised as
intangible exploration asset additions.
29 Contingent Liabilities
Other Contingencies
The Group has received a claim from various trade union
organisations in Brazil regarding outstanding membership fees due
in relation to various subsidiaries within the Group. Some of these
claims relate to periods prior to the acquisition of the relevant
subsidiary and would be covered by warranties granted by the
previous owners at the date of sale. The Directors are confident
that no amounts are due in relation to these proposed membership
fees and that the claims will be unsuccessful. No subsequent
actions, claims or communications from the various trade union
organisations have been received subsequent to the requests for
payment. As a result, no provision has been made in the Financial
Statements for the year ended 31 December 2019 for amounts claimed.
Should the claim be successful, the maximum amount payable in
relation to fees not subject to the warranty agreement would be
approximately £64,000.
In December 2014, the Group received a writ from the State
Attorney in Conceiçao do Araguaia regarding alleged environmental
damages caused by drilling activities in 2011. To ensure proper
environmental stewardship, the Group conducts certified baseline
studies prior to all drill programmes and ensures that areas
explored are properly maintained and conserved in accordance with
local environmental legislation. After drilling has occurred, drill
sites and access routes are rehabilitated to equal or better
conditions and evidence is retained to demonstrate that such
rehabilitation work has been completed. In January 2015 the Group
filed a robust defence against the writ. A court hearing was held
in May 2015 at which documents were requested to confirm that valid
environmental authorisations were in place. These were subsequently
submitted as requested. No substantive financial claim continues to
be made against the Group under the terms of the writ. The Group
continues to believe that the writ is flawed and is working towards
having it withdrawn in due course. As a result, no provision
has been made in the Financial Statements for the year ended 31
December 2019.
30 Financial Instruments
Financial Assets
| |
|
Fair Value |
Amortised cost |
Total |
Amortised cost |
| |
|
|
2019 |
2019 |
2019 |
|
2018 |
|
Group |
|
|
£ |
£ |
£ |
|
£ |
| Cash and cash equivalents |
|
|
- |
17,760,330 |
17,760,330 |
|
6,527,115 |
| Derivative financial
asset |
|
|
2,246,809 |
- |
2,246,809 |
|
- |
| Trade and other
receivables |
|
|
- |
134,726 |
134,726 |
|
24,243 |
|
Total |
|
|
2,246,809 |
17,890,056 |
20,141,865 |
|
6,551,358 |
| |
|
|
Amortised cost |
| |
|
|
2019 |
|
2018 |
|
Company |
|
|
£ |
|
£ |
| Cash and cash equivalents |
|
|
17,393,773 |
|
5,487,339 |
| Loans to subsidiaries |
|
|
55,413,060 |
|
49,478,251 |
| Trade and other
receivables |
|
|
135,376 |
|
19,327 |
|
Total |
|
|
72,942,209 |
|
54,984,977 |
Financial Liabilities
| |
|
Amortised cost |
|
|
|
|
2019 |
|
|
2018 |
| Group |
|
|
£ |
|
|
£ |
| Trade and other payables |
|
|
683,933 |
|
|
280,175 |
| Contingent consideration |
|
|
6,246,071 |
|
|
3,461,833 |
| Royalty Finance |
|
|
20,570,411 |
|
|
- |
| Deferred Consideration |
|
|
- |
|
|
1,360,792 |
|
Total |
|
|
27,500,415 |
|
|
5,102,800 |
| |
|
Amortised cost |
|
|
|
|
2019 |
|
|
2018 |
| Company |
|
|
£ |
|
|
£ |
| Trade and other payables |
|
|
321,588 |
|
|
485,131 |
| Contingent consideration |
|
|
6,246,071 |
|
|
3,461,833 |
| Loans from subsidiary |
|
|
17,735,009 |
- |
|
|
| Deferred Consideration |
|
|
- |
|
|
1,360,792 |
|
Total |
|
|
24,302,668 |
|
|
5,307,756 |
Financial instruments not measured at fair value includes cash
and cash equivalents, trade and other receivables, trade and other
payables, and, contingent and deferred consideration which are
discounted.
31 Parent Company Guarantee
Horizonte Minerals plc has, together with other group companies,
provided a parent guarantee to Orion Mine Finance related to the
$25 Million Royalty Financing arrangement granted by Nickel
Production Services B.V. in respect of the project owned by Araguia
Niquel Metais Ltda during the financial year. The royalty payments
are conditional upon entering into commercial production and
therefore cannot become due until this is achieved. Horizonte
Mineral plc’s obligation to pay under the guarantee only arises if
Nickel Production Services B.V. as grantor of the royalty or any of
the other provider of a parent guarantee fails to make any payment
under the royalty agreement. The Company considers the probability
of such scenarios to be minimal at the current stage of the
business’ development and therefore any fair value assessment of
such potential financial liability has been deemed to be
immaterial
32 Events after the reporting date
Following the end of the financial year the Covid-19 Pandemic
expanded from being centred in China, to be a global issue and
resulted in widescale disruption to business and social activity.
There is now significant and growing uncertainty around economic
growth and underlying business conditions. This has impacted both
the nickel market and financial markets as well a logistical issue
due to the impact on the ability to travel. On the ground in
Brazil, our team is well prepared to continue their work while at
the same time ensuring the safety of those in our employ as a top
priority. We have implemented strict health and safety policies
specifically tailored to Covid-19. The Board considers the pandemic
could delay the Araguaia project financing timeline by a number of
months, (this will be dependent on the duration of the effects of
the Covid-19 virus across global markets).
For further information,
visit www.horizonteminerals.com or
contact:
Horizonte Minerals plcJeremy
Martin (CEO) +44 (0) 203 356 2901
Numis Securities Ltd (NOMAD & Joint
Broker)John Prior +44 (0) 207 260 1000Paul Gillam
Shard Capital (Joint
Broker)Damon Heath +44 (0) 20 186 9952Erik Woolgar
Tavistock (Financial PR)Gareth
Tredway +44 (0) 207 920 3150Annabel de Morgan
About Horizonte
Minerals:Horizonte Minerals plc is an AIM and TSX-listed
nickel development company focused in Brazil. The Company is
developing the Araguaia project, as the next major ferronickel mine
in Brazil, and the Vermelho nickel-cobalt project, with the aim of
being able to supply nickel and cobalt to the EV battery market.
Both projects are 100% owned.
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 as described herein, statements with
respect to the potential of the Company's current or future
property mineral projects; the success of exploration and mining
activities; cost and timing of future exploration, production and
development; 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 ability of the Company to
complete the Placing as described herein, and the realization of
mineral resource and reserve estimates. 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 as described herein, 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, the inability of the Company to complete the
Placing on the terms as described herein, and various risks
associated with the legal and regulatory framework within which the
Company operates. 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.
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