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 2018.
Highlights
- Successful completion of Araguaia Feasibility Study
demonstrating robust economics; Initial 28-year mine life generates
cash flows after taxation of US$1.6 billion with sufficient Mineral
Resources to extend beyond 28 years.
- Base Case post-tax Net Present Value1 (‘NPV’) of US$401
million2 and Internal Rate of Return (‘IRR’) of 20.1% using. Using
the consensus mid-term nickel price of US$16,800/t, the post-tax
NPV increases to US$740 million with an IRR of 28.1%
- Award of the Construction Licence for Araguaia Nickel Project
in January 2019 for the construction of the Project, including
mine, associated infrastructure and pyro-metallurgical processing
plant
- Cash position of £6.5 Million
- Endeavour Financial appointed to lead the project financing for
the Araguaia Nickel Project. Endeavour have a proven
track record, recent success include the financing of the US$750
million Fruta Del Norte Gold Project in Ecuador for Lundin
Gold.
- Compelling nickel market fundamentals, continued reduction of
nickel inventories on the LME, with levels now at 6 year lows,
robust demand from stainless steel and the EV battery
market.
- Pre-Feasibility study underway for the Vermelho Nickel Cobalt
Project, completion planned for mid-year 2019
Chairman’s Statement
Dear Shareholders
It is with pride that I share with you the
notable achievements made by Horizonte throughout 2018. 2018
was the year that set the Company on the pathway for growth. The
Company has taken the 100% Araguaia Project from initial discovery,
through to a NI 43-101 compliant Feasibility Study (“FS”), with a
Construction Licence.
Nickel like most metals experienced a lull both
in price and market interest in the back end of 2018. However,
Horizonte is well placed to benefit from the widely anticipated
upwards trend in nickel demand from both the traditional
stainless-steel markets as well as the new demand from Electric
Vehicles (EVs).
The agreement to purchase Vermelho from Vale SA
completed in early 2018 will allow the Company to take advantage of
the EV market by potentially supplying nickel sulphate and cobalt,
key battery ingredients into the industry at a time when they are
expected to be most in demand.
Araguaia which as at the date of this report is
construction ready, subject to financing, will target the more
established stainless-steel market by the production of
ferronickel.
Having fallen from 470,000 tonnes to
approximately 200,000 tonnes at present, nickel inventories on the
LME have continued to drop and are now at their lowest level in
five years. Significant new supply is required for the
stainless-steel market which is growing at around 5% annually, with
further additional new demand driven from the EV battery sector.
Whilst the physical number of EVs on the roads throughout the world
remains relatively low at 3 million cars today, forecasts for the
acceleration of adoptions of EV's vary from 20 to 40 million cars
on the road by 2030, representing an estimated 10-fold increase. At
present it is difficult to see where significant new supply to meet
this demand is going to materialise making it a driving force
behind the widely held views from industry professionals that
Nickel prices are anticipated to rise. The current consensus short
term forecast for the Nickel price stands at $16,500/t Ni compared
with a price of US$13,000/t at the date of this report.
Horizonte, with the construction ready Araguaia
ferronickel project and Vermelho’s potential to produce nickel
sulphate and cobalt, is uniquely positioned to take advantage of
the current demand forecast. Araguaia is well positioned as one of
only a few construction ready ferro nickel projects in the world.
With the average time to get from initial discovery to first
production estimated at approximately 8 to 10 years for most mining
projects, Horizonte through Araguaia represents a unique
opportunity to capitalise on the fundamentals of the nickel market
as highlighted above.
AraguaiaThe Company has made significant
advances and has delivered a number of key milestones during 2018
as we work towards developing the Araguaia ferronickel project and
move towards becoming a nickel producer. The major milestone was
the release of the FS demonstrating robust economics on the single
line RKEF process plant. The FS has also been designed to allow for
a second production line. In December last year we filed the NI
43-101 technical report for Araguaia including the FS results and
the potential upside which could be realised from doubling
production by adding a second line. At 29,000/t per annum
production of nickel, the expanded project would become globally
significant production unit.
If one applies the FS base case nickel price of
US$14,000/t, the Stage-2 expansion demonstrates a step-change in
the economics of Araguaia: increasing cash flows after taxation
from US$1.6 billion to US$2.6 billion; and NPV from US$401 million
up to US$741 million. The economics at this nickel price are
outstanding. The expansion would require no additional upfront
capital as the second line would be funded through reinvestment of
free cash flows generated from the existing operation.
Most importantly, post the year end, we
announced the granting of the Construction Licence (“LI”) which
provides Horizonte with the permits required to construct the
Araguaia RKEF processing plant and associated infrastructure. The
LI approval represents a major de-risking step for Araguaia, which
is now fully permitted to commence construction, subject to
financing. This is something the Company will prioritise in 2019,
as well as working out how to optimise the structure for maximum
shareholder value.
Vermelho
In January 2018, we completed the acquisition of
the nearby Vermelho nickel-cobalt project from Vale, which
represents a significant development for the Company. This
acquisition has transformed Horizonte into a multi-asset company
bringing together two large, advanced nickel deposits located in
the established mining region in the Pará State in northern
Brazil.
The combined resources of Araguaia and Vermelho
positions the Company with one of the largest undeveloped nickel
resource bases in the world.
A full Feasibility Study on Vermelho had been
completed by Vale and it was scheduled for construction in 2006.
The project appealed to Horizonte because, as well as a large
nickel resource it also contains a large cobalt resource which Vale
planned to process alongside the nickel. The Company is in the
process of undertaking a Pre-Feasibility Study for processing both
the nickel and cobalt which is due to be released later in 2019.
This acquisition gives Horizonte exposure to the additional
commodity stream of cobalt, for which there is growing interest for
use in the EV battery market.
Conclusion
We believe that Horizonte is currently 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. The multi-asset approach covering both
sections of the nickel market along with the cobalt market means
that the potential revenue streams are more diversified and
de-risked compared to a single asset company.
On behalf of the Board, I would like to thank
the entire Horizonte team for their contributions to a successful
2018. I would like to say thank you to the shareholders for your
continued support in what has been a difficult year for the market.
We now look forward to updating the market on positive developments
as we prepare Araguaia for construction and complete the PFS on
Vermelho that should see significant success during 2019.
David J Hall
Chairman 29 March 2019
INDEPENDENT AUDITOR’S REPORT TO THE
MEMBERS OF HORIZONTE MINERALS PLC
Opinion
We have audited the financial statements of Horizonte Minerals
plc (the ‘parent company’) and its subsidiaries (‘the group’) for
the year ended 31 December 2018 which comprise the consolidated
statement of comprehensive income, the consolidated and company
statements of financial position, the consolidated and company
statements of changes in equity, the consolidated and company
statements 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) as adopted by the European Union and, as regards
the parent company financial statements, as applied in accordance
with the provisions of the Companies Act 2006.
In our opinion:
- the financial statements give a true and fair view of the state
of the group’s and of the parent company’s affairs as at 31
December 2018 and of the group’s loss for the year then ended;
- the group financial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union;
- the parent company financial statements have been properly
prepared in accordance with IFRSs as adopted by the European Union
and as applied in accordance with the provisions of the Companies
Act 2006; and
- the financial statements have been prepared in accordance with
the requirements of the Companies Act 2006.
Separate opinion in relation to IFRSs as
issued by the IASB
As explained in note 2.1 to the group financial statements, the
group in addition to complying with its legal obligation to apply
IFRSs as adopted by the European Union, has also applied IFRSs as
issued by the International Accounting Standards Board (IASB).
In our opinion the group financial statements give a true and
fair view of the consolidated financial position of the group as at
31 December 2018 and of its consolidated financial performance and
its consolidated cash flows for the year then ended in accordance
with IFRSs as issued by the IASB.
Basis for Opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) 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
and the parent company in accordance with the ethical requirements
that are relevant to our audit of the financial statements in the
UK, including the FRC’s Ethical Standard as applied to listed
entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
Material uncertainty relating to going
concern
We draw attention to the disclosures made in
note 2.4 to the financial statements concerning the group and
parent company’s ability to continue as a going concern. The note
explains that the group will need to raise further funds in the
next twelve months in order to continue to operate and meet its
liabilities as they fall due. These conditions indicate that a
material uncertainty exists that may cast significant doubt on the
group and parent company’s ability to continue as a going concern.
Our opinion is not modified in respect of this matter.
Given the conditions and uncertainties noted above we considered
going concern to be a Key Audit Matter. We have performed the
following work as part of our audit:
We critically challenged the directors’ forecasts to assess the
group and parent company’s ability to meet their financial
obligations as they fall due for a period of at least 12 months
from the date of approval of the financial statements and assessed
and corroborated the key underlying assumptions, Including:
- Assessing the reasonableness of forecast expenditure by
reference to actual expenditures in 2018, the directors’ planned
activities and the requirement to make a contractual payment of
$1,850,000 in December 2019 for deferred consideration relating to
the acquisition of the Vermelho asset.
- Discussing with directors’ whether there are any other matters
that may adversely impact upon their assessment of going
concern.
- Understanding the directors’ expectations regarding further
fund raisings.
We reviewed the adequacy of the disclosures in the financial
statements in respect of the material uncertainty.
Key audit matters
In addition to the matter described in the material uncertainty
related to going concern section, 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 intangible assets and loans to
subsidiaries
Key Audit
Matter |
See notes 4.1,10
and 25 for disclosures in respect of intangible assets and loans to
subsidiaries. As detailed in note 2.5b, the group’s intangible
assets represent the legal rights to explore for minerals together
with the expenditure incurred in its exploration and evaluation of
the mineral assets. As detailed in note 25 the loans to subsidiary
companies represent the funding provided by the parent company to
its Brazilian subsidiaries to use over the course of the
exploration stage and is the main source of funding for the costs
capitalised under intangible assets. Each year the directors are
required to assess whether there has been any indication that the
intangible assets may be impaired. The directors have carried out a
review for indicators of impairment and have not identified any
such indicators. The introduction of IFRS 9 – Financial
Instruments, for the year ended 31 December 2018 has required
Management to make judgements in terms of the expected credit
losses (impairment) attached to the loans to subsidiaries of £48.6m
(2017:£48.9m) as well as their classification in the financial
statements. Reviewing indicators of impairment and assessment of
carrying values often require significant estimates and judgements
and therefore we identified this as a key audit matter. |
Audit Response |
Our audit work included, but was not restricted to the following:
We considered the directors’ assessment of the indicators of
impairment (in accordance with accounting standards) and we
confirmed that there is an ongoing plan to develop the licence
areas. For Araguaia, which is carried on the balance sheet at 31
December 2018 at £34.2m 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%, and an internal rate of return (IRR) of approximately
20.1%. We have assessed the reasonableness of the 8% discount rate
against third party comparators and re performed the calculation of
the discount rate using source data. For the Vermelho project,
which is carried on the balance sheet at 31 December 2018 at £1.3m
we reviewed the updated resource statement for the project that has
been prepared by the Group and obtained an understanding of the
directors’ intentions to progress exploration and evaluation work
on the project during 2019. We reviewed the correspondence,
contracts and other documents regarding the licenses to confirm
that the group has the relevant contractual rights for exploration
in the stated areas for Araguaia and Vermelho. We also agreed the
validity of licences held by the group to the Brazilian
Government’s DNPM website.We considered whether there were any
additional matters requiring consideration when assessing the
carrying value of the parent company’s loan to subsidiaries, in
light of our knowledge and understanding of the business.We
reviewed the director’s assessment of the carrying value of
intercompany loans and the terms of all intercompany loans, to
check that they have been accounted for in accordance with those
terms.We assessed the key judgements made relating to the expected
credit loss adjustment and the evidence available to support these
judgements. This included assessments of both value through
development and sale.We evaluated the adequacy of the disclosures
in respect of the assessment of impairment indicators for the
recorded intangible assets and the expected credit loss adjustment
for the loans to subsidiary companies. |
Valuation of contingent consideration
Key Audit
Matter |
In prior years,
the group acquired assets and licences relating to the Araguaia
Nickel and Glencore Araguaia projects and the acquisition gave rise
to contingent consideration. In early 2018 the group also completed
its acquisition of the Vermelho project from Vale S.A. which
included mineral rights for a new area separate from its current
holdings. Details of this contingent consideration and the related
critical judgements and estimates are disclosed in notes 17 and 4.2
The assessment of the contingent consideration payable requires
management to make judgements and estimates in respect of a
significant number of factors which influence the anticipated
timing and value of cash flows arising from the Araguaia and
Vermelho nickel projects, which in turn impact on the assessment of
the estimated consideration payable. The directors are also
required to reassess and adjust the contingent consideration
payable for any changes in the accounting estimates as new
information and events arises. |
Audit Response |
Our audit work included, but was not restricted to the following:
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 have reviewed the contingent consideration
calculations and key judgements and estimates made by management
supporting these calculations. We have challenged the judgements
and estimates, referring to supporting documentation and considered
the sensitivity of the calculations to changes in the judgements
and estimates.We have also checked the accounting adjustments for
any change in estimates, foreign exchange retranslation and the
unwinding of the discount factor.We have evaluated the adequacy of
the disclosures of contingent consideration to ensure that they
have adequately explain the key judgements and estimates made by
the directors. |
Our application of materiality
We apply the concept of materiality both in
planning and performing our audit and in evaluating the effect of
misstatements. We consider materiality to be the magnitude by which
misstatements, including omissions, could influence the economic
decisions of reasonable users that are taken on the basis of the
financial statements. In order to reduce to an appropriately
low level the probability that any misstatements exceed
materiality, we use a lower materiality level, performance
materiality, to determine the extent of testing needed.
Importantly, misstatements below these levels will not necessarily
be evaluated as immaterial as we also take account of the nature of
identified misstatements, and the particular circumstances of their
occurrence, when evaluating their effect on the financial
statements as a whole.
Our basis for the determination of materiality has remained
unchanged from prior year. We consider total assets to be the most
significant determinant of the group’s financial performance as the
group is engaged in mineral exploration and evaluation activities
and the principal focus of the users is likely to be the gross
assets of the group. The benchmark percentage for calculating
materiality has also remained unchanged from the prior year at
1.5%.
Whilst materiality for the financial statements
as a whole was £630,000 (2017:£570,000), each significant component
of the group was audited to a lower level of materiality. The
Parent Company’s materiality was set at £488,000 (2017:£456,000)
and the materialities of the subsidiary components ranged from
£488,000 to £61,000 (2017:£456,000 to £57,000).These materiality
levels were used to determine the financial statement areas that
are included within the scope of our audit work and the extent of
sample sizes during the audit.
Performance materiality is the application of
materiality at the individual account or balance level set at an
amount to reduce to an appropriately low level the probability that
the aggregate of uncorrected and undetected misstatements exceeds
materiality. Performance materiality was set at 75% (2017: 75%) of
the above materiality levels.
We agreed with the audit committee that we would
report to the committee all individual audit differences identified
during the course of our audit in excess of £30,500 (2016:
£28,500). We also agreed to report differences below these
thresholds that, in our view warranted reporting on qualitative
grounds.
No revisions were made to materiality levels
during the course of the audit.
An overview of the scope of our audit
Our group audit was scoped by obtaining an
understanding of the group and its environment, including the
group’s system of internal control, and assessing the risks of
material misstatement in the financial statements at the group
level.
Whilst Horizonte Minerals Plc is a company
registered in England & Wales and its head office is located in
the UK the group’s principal operations are located in
Brazil. In approaching the audit, we considered how the group
is organised and managed. We assessed the activities of the
group as being two nickel projects, Araguaia and Vermehlo and
primarily comprising a number of Brazilian subsidiary entities each
holding capitalised exploration and evaluation costs and
exploration licences and permits. The parent company was subject to
a full scope audit.
The group audit team performed audit work in
respect of the assessed risks. One subsidiary was assessed as
significant due to size and risk and three subsidiaries were
classified as significant due to specific risks. The group audit
engagement team also engaged BDO’s network firm in Brazil to carry
out specific audit procedures for these subsidiaries in respect of
certain of the assessed risks.
The remaining non-significant subsidiaries of
the group were principally subject to analytical review
procedures.
Other information
The other information comprises the information included in the
annual report, 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, except to the extent otherwise
explicitly stated in our report, 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.
Opinion on other matters prescribed by the Companies Act
2006
In our opinion, based on the work undertaken in the course of
the audit:
- the information given in the strategic report and directors’
report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
- the strategic report and directors’ report have been prepared
in accordance with applicable legal requirements.
Matters on which we are required to
report by exception
In the light of the knowledge and understanding
of the group and the parent company and its environment obtained in
the course of the audit, we have not identified material
misstatements in the strategic report or the directors’ report.
We have nothing to report in respect of the
following matters in which the Companies Act 2006 requires us to
report to you if, in our opinion:
- adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been received
from branches not visited by us; or
- the parent company financial statements are not in agreement
with the accounting records and returns; or
- certain disclosures of directors’ remuneration specified by law
are not made; or
- we have not received all the information and explanations we
require for our audit.
Responsibilities of directors
As explained more fully in the directors’ responsibilities
statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true
and fair view, and for such internal control as the directors
determine 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.
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 ISAs (UK) 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.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council’s website at: www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditor’s report.
Use of our report
This report is made solely to the company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might
state to the company’s members those matters we are required to
state to them in an auditor’s report and for no other
purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the company
and the company’s members as a body, for our audit work, for this
report, or for the opinions we have formed.
Stuart Barnsdall (Senior Statutory Auditor)For
and on behalf of BDO LLP, Statutory AuditorLondon, UK29 March
2019
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
Consolidated Statement of Comprehensive
IncomeFor the year ended 31 December 2018
|
|
Year ended |
Year
ended |
|
|
31 December |
31
December |
|
|
2018 |
2017 |
|
Notes |
£ |
£ |
Administrative expenses |
|
(1,336,093) |
(1,093,132) |
Charge for share options granted |
|
(837,172) |
(678,652) |
Changes in estimate for contingent and deferred consideration |
17 |
139,392 |
621,545 |
Gain/(Loss) on foreign exchange |
|
186,206 |
(299,834) |
Operating loss |
6 |
(1,847,667) |
(1,450,073) |
Finance income |
8 |
89,446 |
15,854 |
Finance costs |
8 |
(181,442) |
(232,937) |
Loss before taxation |
|
(1,939,663) |
(1,667,156) |
Income tax |
9 |
— |
— |
Loss for the year from continuing operations attributable
to owners of the parent |
|
(1,939,663) |
(1,667,156) |
Other comprehensive income |
|
|
|
Items that may be reclassified subsequently to profit or
loss |
|
|
|
Currency translation differences on translating foreign
operations |
16 |
(3,028,006) |
(3,479,050) |
Other comprehensive income for the year, net of
tax |
|
(3,028,006) |
(3,479,050) |
Total comprehensive income for the year attributable to
owners of the parent |
|
(4,967,669) |
(5,146,206) |
Profit/(Loss) per share from continuing operations
attributable to owners of the parent |
|
|
|
Basic and diluted (pence per share) |
19 |
(0.136) |
(0.142) |
|
|
|
|
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 2018
|
|
31 December |
31 December |
|
|
2018 |
2017 |
|
Notes |
£ |
£ |
Assets |
|
|
|
Non-current assets |
|
|
|
Intangible assets |
10 |
35,737,902 |
34,308,278 |
Property, plant &
equipment |
|
1,186 |
2,051 |
|
|
35,739,088 |
34,310,329 |
Current
assets |
|
|
|
Trade and other
receivables |
|
24,243 |
153,105 |
Cash
and cash equivalents |
12 |
6,527,115 |
9,403,825 |
|
|
6,551,358 |
9,556,930 |
Total assets |
|
42,290,446 |
43,867,259 |
Equity and
liabilities |
|
|
|
Equity attributable to
owners of the parent |
|
|
|
Share capital |
13 |
14,325,218 |
13,719,343 |
Share premium |
14 |
41,664,018 |
40,422,258 |
Other reserves |
16 |
(2,039,991) |
988,015 |
Retained losses |
|
(16,990,290) |
(15,887,801) |
Total equity |
|
36,958,955 |
39,241,815 |
Liabilities |
|
|
|
Non-current
liabilities |
|
|
|
Contingent consideration |
17 |
3,461,833 |
3,635,955 |
Deferred tax liabilities |
9 |
228,691 |
253,205 |
|
|
3,690,524 |
3,889,160 |
Current
liabilities |
|
|
|
Trade and other payables |
17 |
280,175 |
736,284 |
Deferred Consideration |
17 |
1,360,792 |
- |
|
|
1,640,967 |
736,284 |
Total liabilities |
|
5,331,491 |
4,625,444 |
Total equity and liabilities |
|
42,290,446 |
43,867,259 |
|
|
|
|
The above Consolidated Statement of Financial
Position should be read in conjunction with the accompanying
notes.
The Financial Statements were authorised for
issue by the Board of Directors on 28 March 2019 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 2018
|
|
31 December |
31
December |
|
Notes |
2018 £ |
2017 £ |
Non-Current Assets |
|
|
|
Property, plant &
equipment |
11 |
- |
- |
Investment in subsidiaries |
24 |
2,348,042 |
2,348,042 |
Loans to Subsidiaries |
25 |
49,478,251 |
48,890,013 |
|
|
51,826,293 |
51,238,055 |
Current assets |
|
|
|
Trade
and other receivables |
|
19,388 |
41,773 |
Cash and cash equivalents |
12 |
5,487,339 |
9,238,827 |
|
|
5,506,725 |
9,280,600 |
Total assets |
|
57,333,020 |
60,518,655 |
Equity and liabilities |
|
|
|
Equity attributable to equity shareholders |
|
|
|
Share
capital |
13 |
14,325,218 |
13,719,343 |
Share
premium |
14 |
41,664,018 |
40,422,258 |
Merger
reserve |
16 |
10,888,760 |
10,888,760 |
Retained losses |
|
(14,852,732) |
(8,960,902) |
Total equity |
|
52,025,264 |
56,069,459 |
Liabilities |
|
|
|
Non-current liabilities |
|
|
|
Contingent consideration |
17 |
3,461,833 |
3,635,955 |
|
|
3,461,833 |
3,635,955 |
Current liabilities |
|
|
|
Trade
and other payables |
17 |
485,131 |
813,241 |
Deferred Consideration |
17 |
1,360,792 |
- |
|
|
1,845,923 |
813,241 |
Total liabilities |
|
5,307,756 |
4,449,196 |
Total equity and liabilities |
|
57,333,020 |
60,518,655 |
|
|
|
|
The above Company Statement of Financial
Position should be read in conjunction with the accompanying notes,
loss for the period was £1,782,260 (2017:£ 275,945). 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 28 March 2019 and were
signed on its behalf.
David J Hall
Jeremy J MartinChairman
Chief Executive Officer
Statement of Changes in
EquityFor the year ended 31 December 2018
|
Attributable to owners of the parent |
|
Share |
Share |
Retained |
Other |
|
|
capital |
premium |
losses |
reserves |
Total |
Consolidated |
£ |
£ |
£ |
£ |
£ |
As at 1 January
2017 |
11,719,343 |
35,767,344 |
(14,899,297) |
4,467,064 |
37,054,454 |
Loss
for the year |
- |
- |
(1,667,156) |
- |
(1,667,156) |
Other
comprehensive income: |
|
|
|
|
|
Currency translation differences on translating foreign
operations |
- |
- |
- |
(3,479,050) |
(3,479,050) |
Total comprehensive income for the year |
- |
- |
(1,667,156) |
(3,479,050) |
(5,146,206) |
Issue
of ordinary shares |
2,000,000 |
5,000,000 |
- |
- |
7,000,000 |
Issue
costs |
- |
(345,086) |
- |
- |
(345,086) |
Share-based payments |
- |
- |
678,652 |
- |
678,652 |
Total transactions with owners, recognised directly in
equity |
2,000,000 |
4,654,914 |
678,652 |
- |
7,333,566 |
As at 31 December 2017 |
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 |
|
|
|
|
|
|
A breakdown of other reserves is provided in
note 16.
Statement of Changes in Equity
(continued) |
|
Attributable to equity shareholders |
|
Share |
Share |
Retained |
Merger |
|
|
capital |
premium |
losses |
reserves |
Total |
Company |
£ |
£ |
£ |
£ |
£ |
As at 1 January
2017 |
11,719,343 |
35,767,344 |
(9,915,498) |
10,888,760 |
48,459,949 |
Profit and total comprehensive income for the year |
— |
— |
275,945 |
— |
275,945 |
Issue
of ordinary shares |
2,000,000 |
5,000,000 |
— |
— |
7,000,000 |
Issue
costs |
— |
(345,086) |
— |
— |
(345,086) |
Share-based payments |
— |
— |
678,652 |
— |
678,652 |
Total transactions with owners, recognised directly in equity |
2,000,000 |
4,654,914 |
678,652 |
— |
7,333,566 |
As at 31 December 2017 (previously stated) |
13,719,343 |
40,422,258 |
(8,960,901) |
10,888,760 |
56,069,460 |
Changes in Accounting policy-IFRS 9 |
— |
— |
(4,946,743) |
— |
(4,946,743) |
As at 1 January 2018 |
13,719,343 |
40,422,258 |
(13,907,644) |
10,888,760 |
(51,122,717) |
Loss and total comprehensive loss 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 |
1,241,760 |
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 |
|
|
|
|
|
|
A breakdown of the Changes in Accounting
policy-IFRS 9 adjustment is provided in note 25.
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 2018
|
|
31
December |
31 December |
|
|
2018 |
2017 |
|
Notes |
£ |
£ |
Cash flows from operating activities |
|
|
|
Loss
before taxation |
|
(1,939,663) |
(1,667,156) |
Finance
income |
|
(89,446) |
(15,854) |
Finance
costs |
|
181,442 |
232,937 |
Charge
for share options granted |
|
837,172 |
678,652 |
Exchange
differences |
|
(313,049) |
(117,606) |
Change
in fair value of contingent consideration |
|
(139,392) |
(621,545) |
Depreciation |
|
- |
283 |
Operating loss before changes in working
capital |
|
(1,462,136) |
(1,510,298) |
Decrease/(increase) in trade and other receivables |
|
128,862 |
(117,612) |
Increase/(decrease) in trade and other payables |
|
(456,109) |
344,298 |
Net cash used in operating activities |
|
(1,790,183) |
(1,283,612) |
Cash flows from investing activities |
|
|
|
Purchase
of exploration and evaluation assets |
|
(3,221,062) |
(5,102,852) |
Purchase
of property, plant and equipment |
|
- |
(2,236) |
Interest received |
|
89,446 |
15,854 |
Net cash used in investing activities |
|
(3,131,616) |
(5,089,234) |
Cash flows from financing activities |
|
|
|
Proceeds
from issue of ordinary shares |
|
2,057,599 |
7,000,000 |
Issue costs |
|
(209,965) |
(241,276) |
Net cash generated from financing activities |
|
1,847,634 |
6,758,724 |
Net increase/(decrease) in cash and cash
equivalents |
|
(3,074,164) |
385,878 |
Cash and
cash equivalents at beginning of year |
|
9,403,825 |
9,317,781 |
Exchange gain/(loss) on cash and cash equivalents |
|
197,454 |
(299,834) |
Cash and cash equivalents at end of the year |
12 |
6,527,115 |
9,403,825 |
|
|
|
|
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 2018
|
|
31
December |
31 December |
|
|
2018 |
2017 |
|
Notes |
£ |
£ |
Cash flows from operating activities |
|
|
|
Loss
before taxation |
|
(1,782,260) |
275,945 |
IFRS 9
Expected credit loss |
|
1,939,745 |
|
Finance
income |
|
(74,909) |
(13,882) |
Finance
costs |
|
181,442 |
232,937 |
Charge
for share options granted |
|
837,172 |
678,652 |
Exchange
differences |
|
(40,661) |
(255,717) |
Change
in fair value of contingent consideration |
|
(139,392) |
(621,545) |
Depreciation |
|
- |
283 |
Operating profit before changes in working
capital |
|
921,137 |
296,673 |
Decrease/(increase) in trade and other receivables |
|
22,446 |
(6,351) |
Decrease/(increase) in trade and other payables |
|
(328,111) |
66,186 |
Net cash flows generated from operating
activities |
|
(615,472) |
356,508 |
Cash flows from investing activities |
|
|
|
Loans to
subsidiary undertakings |
|
(6,475,397) |
(6,821,063) |
Interest received |
|
74,909 |
13,881 |
Net cash used in investing activities |
|
(6,400,488) |
(6,807,182) |
Cash flows from financing activities |
|
|
|
Proceeds
from issue of ordinary shares |
|
2,057,599 |
7,000,000 |
Issue costs |
|
(209,965) |
(241,276) |
Net cash generated from financing activities |
|
1,847,634 |
6,758,724 |
Net increase/(decrease) in cash and cash
equivalents |
|
(3,937,382) |
308,050 |
Exchange
gain/(loss) on cash and cash equivalents |
|
185,954 |
(213,215) |
Cash and
cash equivalents at beginning of year |
|
9,238,827 |
9,143,993 |
Cash and cash equivalents at end of the year |
12 |
5,487,399 |
9,238,827 |
|
|
|
|
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 Changes in accounting policy and
disclosures
a) New and amended standards adopted by
the Group
IFRS 9 ‘Financial Instruments’ has replaced IAS
39 ‘Financial Instruments: Recognition and Measurement’ (IAS 39),
and has had a significant effect on the Group in the following
areas:
The group applied the expected credit loss model when
calculating impairment losses on its financial assets measured at
amortised costs (trade receivables and loans due from related
parties). This resulted in increased impairment provisions and
greater judgement due to the need to factor in forward looking
information when estimating the appropriate amount of provisions.
In applying IFRS 9 the group considered the probability of a
default occurring over the life of its loans and asset balances on
initial recognition of those assets. Under the existing incurred
loss model, no historical loss rate has typically been recognised.
Under the new model an impairment loss of £7,746,012 has been
recognised in the Company in respect of intercompany loans. See
note 25 for a discussion on the adjustment passed concerning the
impairment loss.
The group has chosen not to restate comparatives
on adoption of IFRS 9 and, therefore, these changes have been
processed at the date of initial application (i.e. 1 January 2018),
and presented in the statement of changes in equity.
IFRS 15 ‘Revenue from Contracts with Customers’
does not have a material impact on the Group at this stage of the
Group’s operations as the group is not generating any revenue.
b) New and amended standards, and interpretations issued
but not yet effective for the financial year beginning 1 January
2018 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:
New Standards |
Effective
period commencing on or after |
IFRS 16 |
Leases |
1 Jan 2019 |
IFRS 17 |
Insurance contracts |
1 Jan 2021 |
|
|
|
Amendments to existing standards |
|
IFRIC 23 |
IFRIC 23 Uncertainty over Income Tax Treatments |
1 Jan 2019 |
IFRS 9 |
Amendments to IFRS 9: Prepayment Features with Negative
Compensation |
1 Jan 2019 |
IAS 28 |
Amendments to IAS 28: Long-term interests in Associates and Joint
Ventures1 |
1 Jan 2019 |
|
Annual Improvements to IFRSs (2015-2017 Cycle) |
1 Jan 2019 |
IAS 19 |
Amendments to IAS 19: Plan Amendment, Curtailment or
Settlement |
1 Jan 2019 |
|
Amendments to References to the Conceptual Framework in IFRS
Standards |
1 Jan 2020 |
IFRS 3 |
Amendments to IFRS 3 Business Combinations – Definition of a
Business |
1 Jan 2020 |
|
Definition of Material - Amendments to IAS 1 and IAS 8 |
1 Jan 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.
IFRS 16 ‘Leases’ does not have a material impact
on the Group at this stage of the Group’s operations.
The only leases that it holds relate to a short-term lease held for
office space in both the United Kingdom and its office in
Brazil. These total approximately £80,000 per year and are
renewed for a maximum of 12 months at a time.
2.3 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 |
|
Devonshire House, 15 St Georges St, Douglas, Ilse of Man, |
|
Isle of
Man |
|
Holding
company |
HM Brazil
(IOM) Ltd |
Indirectly |
|
Devonshire House, 15 St Georges St, Douglas, Ilse of Man, |
|
Isle of
Man |
|
Holding
company |
Cluny (IOM)
Ltd |
Indirectly |
|
Devonshire House, 15 St Georges St, Douglas, Ilse of Man, |
|
Isle of
Man |
|
Holding
company |
Champol
(IOM) ltd |
Indirectly |
|
Devonshire House, 15 St Georges St, Douglas, Ilse of Man, |
|
Isle of
Man |
|
Holding
company |
Horizonte
Nickel (IOM) Ltd |
Indirectly |
|
Devonshire House, 15 St Georges St, Douglas, Ilse of Man, |
|
Isle of
Man |
|
Holding
company |
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 |
2.3 (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.
2.4 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 Group’s assets are not generating revenues and an operating
loss has been reported for the year. The Group is expected to
remain loss making until it enters into production, which is
conditional upon sufficient funding being obtained by the company
in order to enter into commercial production at one of its
projects. The Directors have reviewed cash flow forecasts for the
period to the end of 2020 and believe that the Group will need to
raise further funds in the next twelve months for corporate
overheads and committed project acquisition costs, which include
consideration of $1,850,000 payable in December 2019 for the
acquisition of Vermelho.
The Directors have a reasonable expectation that the Group has
the ability to raise additional funds required in order to continue
in operational existence for the foreseeable future and they
therefore continue to adopt the going concern basis of accounting
in preparing these Financial Statements. However, given the
uncertainty surrounding the ability and likely timing of securing
such investment finance the Directors are of the opinion that there
exists a material uncertainty exists that may cast significant
doubt on the Group and Parent Company’s ability to continue as a
going concern. The financial statements do not include the
adjustments that would result if the Group and Parent Company were
unable to continue as a going concern.
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
tangible assets.
(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.
(d) 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 exploration 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.
2.6 Property, plant and equipment
All 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 is charged on a straight-line basis 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 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 or FVTPL.
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 liabilitiesAccounts 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.
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 Operating leases
Leases of assets under which a significant amount of the risks
and benefits of ownership are effectively retained by the lessor
are classified as operating leases. Operating lease payments are
charged to the Income Statement on a straight-line basis over the
period of the respective leases.
2.14 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.
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
- Other market 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
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 2018, 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 £45,059 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 £34,024.
As of 31 December 2018 the Group's net exposure to foreign
exchange risk was as follows:
|
Functional
Currency |
|
GBP
2018 |
GBP 2017 |
BRL 2018 |
BRL2017 |
Total 2018 |
Total2017 |
Currency of
net |
£ |
£ |
£ |
£ |
£ |
£ |
Financial
assets/liabilities |
|
|
|
|
|
|
GBP |
5,345,884 |
8,026,182 |
- |
- |
5,345,884 |
8,026,182 |
USD |
(4,928,732) |
(3,426,561) |
- |
111,261 |
(4,928,732) |
(3,315,299) |
BRL |
- |
- |
768,958 |
(58,367) |
768,958 |
(58,367) |
CAD |
88,326 |
706,298 |
- |
- |
88,326 |
706,298 |
Total net exposure |
505,478 |
5,305,919 |
768,958 |
52,894 |
1,274,435 |
5,358,814 |
|
|
|
|
|
|
|
(c) Interest rate risk
As the Group has no borrowings, it is not exposed to interest
rate risk on financial liabilities. The Group’s interest rate risk
arises from its cash held on short-term deposit for which the
Directors use a mixture of fixed and variable rate deposits. As a
result, fluctuations in interest rates are not expected to have a
significant impact on profit or loss or equity.
(d) Price risk
Given the size and stage of the Group’s operations, the costs of
managing exposure to commodity price risk exceed any potential
benefits. The Directors will revisit the appropriateness of this
policy should the Group’s operations change in size or nature.
(e) Credit risk
Credit risk arises from cash and cash equivalents and
outstanding receivables. The Group maintains cash and short-term
deposits with a variety of credit worthy financial institutions and
considers the credit ratings of these institutions before investing
in order to mitigate against the associated credit risk.
The Company’s exposure to credit risk amounted to £54,106,065
(2017: £58,128,840). Of this amount £48,618,726 (2017: £48,890,013)
is due from subsidiary companies, £5,487,339 represents cash
holdings (2017: £9,238,827). See note 25 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 debt at 31 December 2018 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.
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
The new standard 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, 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 25 for a discussion on the adjustment
passed concerning the impairment loss.
Judgements
4.1 Impairment of exploration and evaluation
costs
Exploration and evaluation costs have a carrying value at 31
December 2018 of £35,511,145 (2017: £34,057,215). 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 Feasibility Study as well as ongoing support from the equity
markets to advance the project by way of closing a fund raise at
the beginning of 2018.
4.2 Contingent and deferred consideration
Contingent consideration has a carrying value of £3,461,833, at
31 December 2018 (2017: £3,635,955). Deferred consideration has a
carrying value of £1,360,792 at 31 December 2018 (2017: Nil). There
are two contingent and deferred consideration arrangements in place
as at 31 December 2018:
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 deferred 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 contingent consideration has been
derecognized in respect of this amount; and
- Remaining consideration of US$5,000,000 to be paid in cash, as
at the date of first commercial production from any of the resource
areas within the Enlarged Project area. Given the recent
publication of the Feasibility Study which includes an area
purchased from Glencore, this continues to be recognised as
contingent consideration as it will become payable should the
project enter commercial production.
Vale - Vermelho
- 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 require 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 is due to be paid in December 2019 and is
included in deferred consideration within current liabilities.
- 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 the Vermelho project has not yet
progressed to a stage where this final payment can be considered
probable and have therefore not recognised this contingent
consideration within liabilities.
Management have sensitized the fair value calculation 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 £221,263 (2017: £269,255) to £3,240,600 (2017:
£3,366,700).
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.
5 Segmental reporting
The Group operates principally in the UK and
Brazil, with operations managed on a project by project basis
within each geographical area. Activities in the UK are mainly
administrative in nature whilst the activities in Brazil relate to
exploration and evaluation work. The reports used by the chief
operating decision-maker are based on these geographical
segments.
|
|
|
|
2018 |
UK 2018 £ |
Brazil 2018 £ |
Total 2018 £ |
Revenue |
- |
|
- |
|
- |
|
Administrative expenses |
(1,336,093) |
|
- |
|
(1,336,093) |
|
Loss
on foreign exchange |
186,209 |
|
(3) |
|
186,206 |
|
Loss from operations per reportable segment |
(1,149,884) |
|
(3) |
|
(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 |
|
2017 |
UK 2017 £ |
Brazil 2017 £ |
Total 2017 £ |
Revenue |
- |
|
- |
|
- |
|
Administrative expenses |
(1,093,132) |
|
— |
|
(1,093,132) |
|
Loss
on foreign exchange |
(261,218) |
|
(38,616) |
|
(299,834) |
|
Loss from operations per reportable segment |
(1,354,350) |
|
(38,616) |
|
(1,392,966) |
|
Depreciation charges |
(283) |
|
— |
|
(283) |
|
Additions to non-current assets |
— |
|
2,319,479 |
|
2,319,479 |
|
Reportable segment assets |
9,359,155 |
|
34,508,104 |
|
43,867,259 |
|
Reportable segment non-current assets |
— |
|
34,308,278 |
|
34,308,278 |
|
Reportable segment liabilities |
4,029,066 |
|
596,378 |
|
4,625,444 |
|
Intra-group sales are calculated and recorded in
accordance with the underlying intra group service agreements. In
2018 the parent company charged the Brazilian subsidiaries
£1,416,698 (2017:£2,243,832) for service provided.
A reconciliation of adjusted loss from
operations per reportable segment to loss before tax is provided as
follows:
|
2018£ |
2017 £ |
Loss
from operations per reportable segment |
(1,149,885) |
(1,392,966) |
Changes in estimate for contingent and deferred consideration
(refer note 17) |
139,392 |
621,545 |
Charge for share options granted |
(837,172) |
(678,652) |
Finance income |
89,446 |
15,854 |
Finance costs |
(181,442) |
(232,938) |
Loss for the year from continuing operations |
(1,939,663) |
(1,667,156) |
6 Expenses by nature
|
2018 |
2017 |
Group |
£ |
£ |
Charge for share options granted* |
837,172 |
678,652 |
Depreciation (note 11) |
— |
283 |
Operating lease charges |
131,949 |
55,421 |
*please see note 15 for
movements in the share options and their related share price.
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 |
2018 £ |
2017 £ |
Fees
payable to the Company’s auditor and its associates for the audit
of the parent company and consolidated financial statements |
38,000 |
35,350 |
Fees
payable to the Company’s auditor and its associates for other
services: |
|
|
–
Audit related assurance services |
- |
11,250 |
–Tax compliance services |
4,850 |
4,850 |
8 Finance income and costs
Group |
2018 £ |
2017
£ |
Finance income: |
|
|
–
Interest income on cash and short-term bank deposits |
89,446 |
15,854 |
Finance costs: |
|
|
– Contingent and deferred consideration: unwinding of discount |
(181,442) |
(232,938) |
Net finance costs |
(91,996) |
(217,084) |
9 Income Tax
Group |
2018
£ |
2017
£ |
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 |
2018 £ |
2017 £ |
Loss
before income tax |
(1,939,663) |
(1,667,156) |
Current tax at 19% (2017: 19.25%) |
(368,536) |
(320,928) |
Effects of: |
|
|
Expenses not deducted for tax purposes |
174,095 |
66,411 |
Utilisation of tax losses brought forward |
— |
— |
Tax
losses carried forward for which no deferred income tax asset was
recognised |
194,441 |
254,517 |
Total tax |
— |
— |
No tax charge or credit arises on the loss for
the year.
The weighted average applicable tax rate of
19.25% used is the effective standard rate of corporation tax in
the UK, where all of the current year losses originated. The
corporation tax rate in Brazil is 34%. The weighted average
applicable tax rate has remained the same at 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 |
2018 £ |
2017
£ |
Deferred tax assets |
4,678,544 |
5,426,717 |
|
|
|
Deferred tax liabilities |
|
|
– Deferred tax liability to be settled after more than 12
months |
(4,907,235) |
(5,679,922) |
|
|
|
Deferred tax liabilities (net) |
(228,691) |
(253,205) |
The movement on the net deferred tax liabilities
is as follows:
Group |
2018 £ |
2017
£ |
At 1 January |
(253,205) |
(282,450) |
Exchange differences |
24,514 |
29,245 |
At 31 December |
(228,691) |
(253,205) |
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
£21,728,566 (2017: £22,282,173) in Brazil and excess management
charges of approximately £140,000 (2017: £835,000) 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 £2,274,335 (2017: £2,530,454) 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 2017 |
280,060 |
5,645,185 |
26,092,551 |
32,017,796 |
Additions |
- |
- |
5,740,740 |
5,740,740 |
Exchange rate movements |
(28,997) |
(479,656) |
(2,941,605) |
(3,450,258) |
Net book amount at 31 December 2017 |
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 |
35,737,902 |
(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 |
35,511,145 |
In 2017 all costs related to Araguaia. No
indicators of impairment were identified during the year for the
Araguaia and Vermelho projects.
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 De Sohnos 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 2018, the discount
rate applied to the cash flow model would need to be increased from
8% to 17%.
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.
(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 |
Vehicles and other field equipment £ |
Office
equipment £ |
Total
£ |
Cost |
|
|
|
At 1
January 2016 |
74,647 |
12,596 |
87,243 |
Foreign exchange movements |
31,657 |
1,802 |
33,459 |
At 31 December 2016 |
106,304 |
14,398 |
120,702 |
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 |
Accumulated depreciation |
|
|
|
At 1
January 2017 |
105,725 |
14,115 |
119,840 |
Charge for the year |
358 |
283 |
641 |
Foreign exchange movements |
(10,224) |
(796) |
(11,020) |
At 31 December 2017 |
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 |
Net book amount as at 31 December 2018 |
1,186 |
— |
1,186 |
Net book amount as at 31 December 2017 |
2,051 |
— |
2,051 |
Net book amount as at 1 January 2017 |
579 |
283 |
862 |
Depreciation charges of £436 (2017: £358) 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 2018 of £nil (2017: £283)
has been charged in ‘administrative expenses’ under
‘Depreciation.’
Company |
Field equipment
£ |
Office equipment
£ |
Total £ |
Cost |
|
|
|
At 1
January 2017 |
4,208 |
7,403 |
11,611 |
Additions |
— |
— |
— |
At 31 December 2017 and 2018 |
4,208 |
7,403 |
11,611 |
Accumulated depreciation |
|
|
|
At 1 January 2017 |
4,208 |
7,120 |
11,328 |
Charge for the year |
— |
283 |
283 |
At 31 December 2017 |
4,208 |
7,403 |
11,611 |
Charge for the year |
— |
— |
— |
At 31 December 2018 |
4,208 |
7,403 |
11,611 |
Net book amount as at 31 December 2018 |
— |
— |
— |
Net book amount as at 31 December 2017 |
— |
— |
— |
Net book amount as at 31 January 2017 |
— |
283 |
283 |
12 Cash and cash
equivalents
|
Group |
Company |
|
2018
£ |
2017 £ |
2018
£ |
2017 £ |
Cash
at bank and on hand |
422,501 |
7,903,861 |
194,149 |
7,738,863 |
Short-term deposits |
6,104,614 |
1,499,964 |
5,293,190 |
1,499,964 |
|
6,527,115 |
9,403,825 |
5,487,339 |
9,238,827 |
The Group’s cash at bank and short-term deposits
are held with institutions with the following credit ratings
(Fitch):
|
Group |
Company |
|
2018
£ |
2017 £ |
2018
£ |
2017 £ |
A |
5,551,299 |
9,267,418 |
5,431,914 |
9,188,864 |
BBB- |
975,816 |
136,407 |
55,425 |
49,963 |
|
6,527,115 |
9,403,825 |
5,487,339 |
9,238,827 |
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 |
2018
Number |
2018
£ |
2017 Number |
2017 £ |
Issued and fully paid |
|
|
|
|
Ordinary shares of 1p each |
|
|
|
|
At 1
January |
1,371,934,300 |
13,719,343 |
1,171,934,300 |
11,719,343 |
Issue of ordinary shares |
60,587,500 |
605,875 |
200,000,000 |
2,000,000 |
At 31 December |
1,432,521,800 |
14,325,218 |
1,371,934,300 |
13,719,343 |
Share capital comprises amount subscribed for
shares at the nominal value.
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.
2017
On 22 December 2017, a total of 200,000,000
shares were issued through a private placement at a price of £0.035
per share to raise £7,000,000 before expenses.
14 Share premium
Group and
Company |
2018 £ |
2017
£ |
At 1
January |
40,422,258 |
35,767,344 |
Premium arising on issue of ordinary shares |
1,451,723 |
5,000,000 |
Issue costs |
(209,964) |
(345,086) |
At 31 December |
41,664,018 |
40,422,258 |
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 2017 £ |
Weighted average
exercise price 2017 £ |
Outstanding at 1 January |
94,650,000 |
0.059 |
55,310,000 |
0.079 |
Forfeited |
- |
- |
(1,660,000) |
0.065 |
Granted |
39,650,000 |
0.048 |
41,000,000 |
0.03 |
Outstanding at 31 December |
134,300,000 |
0.056 |
94,650,000 |
0.059 |
Exercisable at 31 December |
109,026,667 |
0.058 |
62,483,333 |
0.072 |
The options outstanding at 31 December 2018 had
a weighted average remaining contractual life of 7.37 years (2017:
7.56 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 |
2018 options |
2017
options |
Date
of grant |
30/05/2018 |
31/03/2017 |
Weighted average share price |
4.30 pence |
3.07 pence |
Weighted average exercise price |
4.80 pence |
3.20 pence |
Weighted average fair value at the measurement date |
2.51 pence |
2.02 pence |
Expiry date |
30/5/2028 |
31/3/2027 |
Options granted |
39,650,000 |
41,000,000 |
Volatility |
51% |
68% |
Dividend yield |
Nil |
Nil |
Option life |
10 years |
10 years |
Annual risk free interest rate |
1.22% |
1.19% |
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 (£) |
2018 Weighted
average exercise price
(£) |
2018 Number of
shares |
2018 Weighted
average remaining life
expected (years) |
2018 Weighted
average remaining life
contracted (years) |
2017 Weighted
average exercise price (£) |
2017 Number of
shares |
2017 Weighted
average remaining life expected (years) |
2017 Weighted
average remaining life contracted (years) |
0–0.1 |
0.04 |
119,150,000 |
8.02 |
8.02 |
0.04 |
79,500,000 |
8.32 |
8.32 |
0.1–0.2 |
0.16 |
15.150,000 |
2.55 |
2.55 |
0.16 |
15,150,000 |
3.55 |
3.55 |
16 Other reserves
|
Merger |
Translation |
Other |
|
|
reserve |
reserve |
reserve |
Total |
Group |
£ |
£ |
£ |
£ |
At 1 January 2017 |
10,888,760 |
(5,373,596) |
(1,048,100) |
4,467,064 |
Other
comprehensive income |
— |
— |
— |
— |
Currency translation differences |
— |
(3,479,050) |
— |
(3,479,050) |
At 31 December 2017 |
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) |
Company |
Merger reserve
£ |
Total £ |
At 1 January 2017 and 31 December 2017 |
10,888,760 |
10,888,760 |
At 1 January 2018 and 31 December 2018 |
10,888,760 |
10,888,760 |
The merger and other reserve as at 31 December
2018 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 |
|
2018 |
2017 |
2018 |
2017 |
|
£ |
£ |
£ |
£ |
Non-current |
|
|
|
|
Contingent consideration payable to Xstrata Brasil Mineração Ltda
(refer note 4) |
3,461,833 |
3,635,955 |
3,461,833 |
3,635,955 |
Total contingent consideration |
3,461,833 |
3,635,955 |
3,461,833 |
3,635,955 |
Current |
|
|
|
|
Deferred consideration payable to former owners of Vermelho. |
1,360,792 |
— |
1,360,792 |
— |
Trade
and other payables |
215,175 |
271,967 |
6,201 |
99,486 |
Amounts due to related parties (refer note 20) |
- |
— |
413,930 |
413,930 |
Social security and other taxes |
20,000 |
15,804 |
20,000 |
15,804 |
Accrued expenses |
45,000 |
448,513 |
45,000 |
284,021 |
|
1,640,967 |
736,284 |
1,845,923 |
813,241 |
Total trade and other payables |
5,102,800 |
4,372,239 |
5,307,756 |
4,449,196 |
Trade and other payables include amounts due of
£111,815 (2017: £222,925) in relation to exploration and evaluation
activities. Contingent and deferred consideration also relate
to exploration and evaluation activities.
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 De Sohnos in a Feasibility Study and $670,000
for Sierre do Tappa, as at 31 December a Feasibility Study
including Vale do Sohnos has published, with Sierra do Tappa not
included in the current project plans, therefore management have
concluded that it’s not currently probable that the consideration
for Sierre do Tappa will be paid and it is 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.
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 require 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 is due to be paid in December 2019 and is
included in deferred consideration above.
- 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 the Vermelho project has not yet
progressed to a stage where this final payment can be considered
probable and have therefore not recognised this contingent
consideration within liabilities.
The critical assumptions underlying the
treatment of the contingent consideration are set out in note
4.3.
As at 31 December 2018, there was a finance
expense of £181,441 (2017: £222,836) recognised in finance costs
within the Statement of Comprehensive Income in respect of the
contingent consideration arrangement, as the discount applied to
the contingent consideration at the date of acquisition was
unwound.
|
Contingent consideration £ |
Deferred
consideration £ |
Total £ |
At 1 January 2017 |
3,643,042 |
— |
3,643,042 |
Unwinding of discount |
222,836 |
— |
222,836 |
Change in estimate |
(229,923) |
— |
(229,923) |
31 December 2017 |
3,635,955 |
— |
3,635,955 |
Initial recognition |
— |
1,144,621 |
1,144,621 |
Unwinding of discount |
94,625 |
86,816 |
181,441 |
Change in estimate |
(268,747) |
129,355 |
139,391 |
At 31 December 2018 |
3,461,833 |
1,360,792 |
4,822,626 |
18 Dividends
No dividend has been declared or paid by the
Company during the year ended 31 December 2018 (2017: nil).
19 Earnings per share
(a) Basic
The basic loss per share of 0.136p loss per
share (2017 loss per share: 0.142p) 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.
|
2018 |
2017 |
Group |
£ |
£ |
Loss
attributable to owners of the parent |
(1,939,662) |
(1,667,156) |
Weighted average number of ordinary shares in issue |
1,431,027,862 |
1,177,413,752 |
(b) Diluted
The basic and diluted loss per share for the
years ended 31 December 2018 and 31 December 2017 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.
20 Related party
transactions
The following transactions took place with
subsidiaries in the year:
A fee totalling £399,762 (2017: £350,652) was
charged to HM do Brazil Ltda, £961,042 (2017: £980,108) to Araguaia
Niquel Mineração Ltda and £55,894 (2017: £55,894) to Typhon Brasil
Mineração Ltda by Horizonte Minerals Plc in respect of consultancy
services provided and funding costs.
Amounts totalling £1,416,698 (2017: £2,243,832)
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 2018, 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 25 for balances with subsidiaries at
the year end.
All Group transactions were eliminated on
consolidation.
21 Ultimate controlling
party
The Directors believe there to be no ultimate
controlling party.
22 Directors’ remuneration (including
Key Management)
|
Short term benefits |
|
Post employment
benefits |
|
Cost to Company |
Non-Cash |
|
|
Aggregate emoluments |
Other
emoluments |
Pension costs |
Total |
Social
Security costs |
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 |
834,953 |
74,737 |
582,270 |
1,506,437 |
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 During the year the group entered into 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.
|
Short term benefits |
|
Post employment
benefits |
|
Cost to Company |
Non-Cash |
|
|
Aggregate emoluments |
Other
emoluments |
Pension costs |
Total |
Social Security costs |
Share
Based Payment Charge |
Grand
Total |
Group
2017 |
£ |
£ |
£ |
£ |
£ |
£ |
£ |
Non-Executive
Directors |
|
|
|
|
|
|
|
Alexander
Christopher |
— |
— |
— |
— |
— |
— |
— |
David Hall |
31,200 |
— |
— |
31,200 |
3,203 |
90,395 |
124,798 |
William Fisher |
26,400 |
— |
— |
26,400 |
— |
75,919 |
102,319 |
Allan Walker |
26,400 |
— |
— |
26,400 |
3,163 |
75,919 |
105,482 |
Owen Bavinton |
— |
— |
29,332 |
29,332 |
— |
75,919 |
105,251 |
Executive
Directors |
|
|
|
|
|
|
|
Jeremy Martin |
190,400 |
68,876 |
— |
259,276 |
34,055 |
119,293 |
412,624 |
Key
Management |
|
|
|
|
|
|
|
Simon Retter |
39,997 |
54,250 |
23,999 |
118,246 |
5,290 |
43,428 |
166,964 |
|
314,397 |
123,126 |
53,331 |
490,854 |
45,711 |
480,873 |
1,017,438 |
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.
23 Employee benefit expense (including
Directors and Key Management)
|
Group |
|
Company |
|
|
2018 |
2017 |
2018 |
2017 |
Group |
£ |
£ |
£ |
£ |
Wages
and salaries |
1,450,771 |
1,144,253 |
856,288 |
588,498 |
Social security costs |
244,590 |
216,242 |
105,337 |
63,979 |
Indemnity for loss of office |
10,472 |
49,817 |
- |
- |
Share options granted to Directors and employees (note 15) |
873,757 |
678,652 |
873,757 |
678,652 |
|
2,579,590 |
2,088,964 |
1,835,382 |
1,331,129 |
|
|
|
|
|
Management |
11 |
10 |
6 |
6 |
Field
staff |
16 |
15 |
- |
— |
Average number of employees including Directors and Key
Management |
27 |
25 |
6 |
6 |
Employee benefit expenses includes £685,477
(2017: £1,062,396) of costs capitalised and included within
intangible non-current assets.
Share options granted include costs of £501,523
(2017: £437,445) relating to Directors.
24 Investments in
subsidiaries
|
2018 |
2017 |
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.
25 Loans to subsidiaries
Balances with subsidiaries at the year end
were:
|
|
|
2018 |
2017 |
|
|
|
Assets |
Assets |
Company |
|
|
£ |
£ |
HM do
Brasil Ltda |
|
|
883,909 |
1,263,644 |
HM
Brazil (IOM) Ltd |
|
|
3,021,173 |
5,405,662 |
Horizonte Nickel (IOM) Ltd |
|
|
33,145,934 |
31,136,784 |
Araguaia Niquel Mineração Ltda |
|
|
9,747,741 |
6,594,120 |
Horizonte Minerals (IOM) Ltd |
|
|
253,004 |
253,004 |
Typhon Brasil Mineração Ltda |
|
|
1,625,088 |
3,224,179 |
Trias Brasil Mineração Ltda |
|
|
801,402 |
1,012,620 |
Total |
|
|
49,478,251 |
48,890,013 |
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.
On 1 January 2018, the Group:
- Identified the business model used to manage its financial
assets and classified its financial instruments into the
appropriate IFRS 9 category;
- Applied the ‘expected credit loss’ (‘ECL’) model to financial
assets classified as measured at amortised cost.
Management’s assessment of the impact of IFRS 9
has focused on the change in IFRS 9 around expected credit losses
on intercompany balances.
The adoption of IFRS 9 has impacted the Company
as a result of the existing incurred loss approach under IAS 39
being replaced by the forward looking expected credit loss model
approach of IFRS 9. The expected credit loss model is required to
be applied to the intercompany loan receivable, which are
classified as held at amortised cost.
The transition method requires a retrospective
application for the first time adoption of IFRS 9, however the
standard has allowed an exemption to not restate the comparative
information with differences being recorded in opening retained
earnings. These changes have been processed at the date of initial
application (1 January 2018), and presented in the statement of
changes in equity for the year ended 31 December 2018.
The increase in credit loss allowance resulted
in a reduction to opening reserves, at 1 January 2018, as
follows:
Accounts
affected |
|
|
|
|
|
|
|
|
£ |
Intercompany loan receivable (opening balance as presented
under IAS39) |
|
|
|
48,890,013 |
Cumulative transition adjustment |
|
|
|
(4,946,743) |
Retained earnings as at 31 December 2017 |
|
|
|
(8,960,902) |
Restated Retained Earnings (in accordance with IFRS 9) as at 1
January 2018 |
|
|
|
(13,907,644) |
Movements during the year were as follows:
|
|
|
Expected credit loss |
|
|
2017 |
Amounts advanced
during year |
For balances at
1 January 2018 |
For
balances advanced in 2018 |
2018 |
Company |
£ |
£ |
£ |
£ |
£ |
HM do
Brasil Ltda |
1,263,644 |
504,174 |
(631,822) |
(252,087) |
883,909 |
HM
Brazil (IOM) Ltd |
5,405,662 |
636,683 |
(2,702,831) |
(318,342) |
3,021,172 |
Horizonte Nickel (IOM) Ltd |
31,136,784 |
2,009,153 |
— |
— |
33,145,937 |
Araguaia Niquel Mineração Ltda |
6,594,120 |
3,153,621 |
— |
— |
9,747,741 |
Horizonte Minerals (IOM) Ltd |
253,004 |
— |
— |
— |
253,004 |
Typhon Brasil Mineração Ltda |
3,224,179 |
25,994 |
(1,612,090) |
(12,998) |
1,625,085 |
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 |
Total |
48,890,013 |
7,474,726 |
(4,946,743) |
(1,939,745) |
49,478,251 |
The increase in the credit loss allowance is a
result of the application of the expected credit loss model. This
is a result of the existing incurred loss approach under IAS 39
being replaced by the forward-looking expected credit loss model
approach of IFRS 9 which requires the parent to make an allowance
for lifetime expected credit losses. No loss allowance had
previously been recognised, as no loss event had previously
occurred.
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 buy the
Feasibility Study
- ability to raise the finance to develop the project
- ability to sell the project
- market and technical risks relating to the project
- 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 provision in respect of Cluny
(IOM) Ltd relates to exploration project risk. The provision
in respect of the other subsidiaries relates to an assessment of
their ability to participate in the Araguaia project.
The credit loss allowance was assessed at the
date of initial application of IFRS 9, being 1 January 2018, and
again at 31 December 2018. There was no change in the
expected credit loss allowance at the year end.
26 Commitments
Operating lease commitments
The Group leases office premises under
cancellable and non-cancellable operating lease agreements. The
cancellable lease terms are up to one year and are renewable at the
end of the lease period at market rate. The leases can be cancelled
by payment of up to one month’s rental as a cancellation fee. The
lease payments charged to profit or loss during the year are
disclosed in note 6.
The future aggregate minimum lease payments
under non-cancellable operating leases are as follows:
|
2018 |
2017 |
Group |
£ |
£ |
Not
later than one year |
26,694 |
54,444 |
Between 1 – 5 years |
6,985 |
- |
Greater than 5 years |
- |
- |
Total |
33,680 |
54,444 |
Capital Commitments
Capital expenditure contracted for at the end of
the reporting period but not yet incurred is as follows:
|
2017 |
2016 |
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.
27 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
2018 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 2013 the Group received an infraction notice
from the Brazilian Environmental Agency’s (‘IBAMA’) district office
in Conceição do Araguaia in connection with carrying out drilling
activities in 2011 without the relevant permits. Drilling equipment
was furthermore impounded. The Group strongly believes that it
operated with all necessary permits and has initiated legal
proceedings to overturn the infraction notice. The Group has
secured cancellation of the injunction and has appealed the
associated fine and infraction notices of approximately £68,000
which has not been recognised in these financial statements.
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 2018.
28 Financial Instruments
Financial Assets
|
|
|
Amortised cost |
|
|
|
2018 |
|
2017 |
Group |
|
|
£ |
|
£ |
Cash
and cash equivalents |
|
|
6,527,115 |
|
9,403,825 |
Trade
and other receivables |
|
|
24,243 |
|
153,105 |
Total |
|
|
6,551,358 |
|
9,556,930 |
|
|
|
Amortised cost |
|
|
|
2018 |
|
2017 |
Company |
|
|
£ |
|
£ |
Cash
and cash equivalents |
|
|
5,487,339 |
|
9,238,827 |
Trade
and other receivables |
|
|
19,388 |
|
41,773 |
Total |
|
|
5,506,727 |
|
9,280,600 |
Financial Liabilities
|
|
|
Amortised cost |
|
|
|
2018 |
|
2017 |
Group |
|
|
£ |
|
£ |
Trade
and other payables |
|
|
260,175 |
|
720,480 |
Deferred Consideration |
|
|
1,360,792 |
|
- |
Total |
|
|
1,620,967 |
|
720,480 |
|
|
|
Amortised cost |
|
|
|
2018 |
|
2017 |
Company |
|
|
£ |
|
£ |
Trade
and other payables |
|
|
465,131 |
|
797,437 |
Deferred Consideration |
|
|
1,360,792 |
|
- |
Total |
|
|
1,825,923 |
|
797,437 |
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.
30 Events after the reporting
date
On 22 January 2019, the Company issued
13,855,487 new ordinary shares at a price of 1.875 pence per share
as settlement of $330,000 due to Xstrata Brasil Exploracao Mineral
Ltda a subsidiary of Glencore plc as per the asset purchase
agreement signed in 2015. The contingent consideration became due
following the publication of a definitive Feasibility Study on the
Araguaia project which included the Vale De Sonhos deposit
originally acquired.
For further information visit www.horizonteminerals.com or
contact:
Horizonte Minerals
plc |
|
Jeremy
Martin (CEO) |
+44 (0) 203 356 2901 |
|
|
Numis Securities Ltd (NOMAD & Joint
Broker) |
|
John
Prior Paul Gillam |
+44 (0) 207 260 1000 |
|
|
Shard Capital (Joint
Broker) |
|
Damon
Heath Erik Woolgar |
+44 (0) 20 186 9952 |
|
|
Tavistock (Financial PR) |
|
Gareth
TredwayAnnabel de Morgan |
+44 (0) 207 920 3150 |
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.
1 NPV calculated using 8% discount rate
2 USD/BRL 1/3.5 exchange rate applied for life-of-mine
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