TIDMHZM
RNS Number : 3969U
Horizonte Minerals PLC
29 March 2019
NEWS RELEASE
29 March 2019
FINAL RESULTS FOR YEARED 31 DECMEBER 2018
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 Value([1]) ('NPV') of US$401
million([2]) 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 GBP6.5 Million;
-- Endeavour Financial appointed to lead the project financing
for the Araguaia Nickel Project. Endeavour have a proven track
record, recent success includes 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;
and
-- 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.
Araguaia
The 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
28 March 2019
INDEPENT 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 See notes 4.1,10 and 25 for disclosures in respect
Matter 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 GBP48.6m (2017:GBP48.9m) 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 GBP34.2m this assessment is supported by
the externally prepared feasibility study published
in October 2018, which indicates a post-tax net
present value of GBP401m 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 GBP1.3m 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 In prior years, the group acquired assets and licences
Matter 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
GBP630,000 (2017:GBP570,000), each significant component of the
group was audited to a lower level of materiality. The Parent
Company's materiality was set at GBP488,000 (2017:GBP456,000) and
the materialities of the subsidiary components ranged from
GBP488,000 to GBP61,000 (2017:GBP456,000 to GBP57,000).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 GBP30,500 (2016: GBP28,500). 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 Auditor
London, UK
28 March 2019
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2018
Year ended Year ended
31 December 31 December
2018 2017
Notes GBP GBP
----------------------------------------------------------------------------------- ----- ----------- -----------
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 Position
Company number: 05676866
As at 31 December 2018
31 December 31 December
2018 2017
Notes GBP GBP
--------------------------------------------- ------ ------------- -------------
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 Martin
Chairman Chief Executive Officer
Company Statement of Financial Position
Company number: 05676866
As at 31 December 2018
31 December 31 December
2018 2017
Notes GBP GBP
------------------------------------------- ----- ------------ -----------
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
GBP1,782,260 (2017:GBP 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 Martin
Chairman Chief Executive Officer
Statement of Changes in Equity
For the year ended 31 December 2018
Attributable
to owners of
the parent
=================== ======================= ====================
Share Share Retained Other
capital premium losses reserves Total
Consolidated GBP GBP GBP GBP GBP
----------------------------------- ---------- ------------ ------------ ------------- -----------
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 GBP GBP GBP GBP GBP
----------------------------------- ---------- -------------- ---------------- ------------ ------------
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 Flows
For the year ended 31 December 2018
31 December 31 December
2018 2017
Notes GBP GBP
----------------------------------------------------- ----- ----------- -----------
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 Flows
For year ended 31 December 2018
31 December 31 December
2018 2017
Notes GBP GBP
----------------------------------------------------- ----- ----------- -----------
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 GBP7,746,012 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
-------- ------------------------------------------------------- ----------
Amendments to IFRS 9: Prepayment Features with Negative
IFRS 9 Compensation 1 Jan 2019
-------- ------------------------------------------------------- ----------
Amendments to IAS 28: Long-term interests in Associates
IAS 28 and Joint Ventures1 1 Jan 2019
-------- ------------------------------------------------------- ----------
Annual Improvements to IFRSs (2015-2017 Cycle) 1 Jan 2019
-------- ------------------------------------------------------- ----------
Amendments to IAS 19: Plan Amendment, Curtailment
IAS 19 or Settlement 1 Jan 2019
-------- ------------------------------------------------------- ----------
Amendments to References to the Conceptual Framework
in IFRS Standards 1 Jan 2020
-------- ------------------------------------------------------- ----------
Amendments to IFRS 3 Business Combinations - Definition
IFRS 3 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
GBP80,000 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:
Registered Address Country Nature
Subsidiary undertaking Held of incorporation of business
--------------------------------- ---------- ----------------------------------- ----------------- ------------
Rex House, 4-12 Regents
Horizonte Exploration Street, London SW1Y Mineral
Ltd Directly 4RG England Exploration
Devonshire House, 15
Horizonte Minerals St Georges St, Douglas, Isle of Holding
(IOM) Ltd Indirectly Ilse of Man, Man company
Devonshire House, 15
HM Brazil (IOM) St Georges St, Douglas, Isle of Holding
Ltd Indirectly Ilse of Man, Man company
Devonshire House, 15
St Georges St, Douglas, Isle of Holding
Cluny (IOM) Ltd Indirectly Ilse of Man, Man company
Devonshire House, 15
St Georges St, Douglas, Isle of Holding
Champol (IOM) ltd Indirectly Ilse of Man, Man company
Devonshire House, 15
Horizonte Nickel St Georges St, Douglas, Isle of Holding
(IOM) Ltd Indirectly Ilse of Man, Man company
CNPJ 07.819.038/0001-30
com sede na Avenida
Amazonas, 2904, loja
511, Bairro Prado, Belo
Horizonte - MG. CEP: Mineral
HM do Brasil Ltda Indirectly 30.411-186 Brazil Exploration
CNPJ 97.515.035/0001-03
com sede na Avenida
Amazonas, 2904, loja
511, Bairro Prado, Belo
Araguaia Niquel Horizonte - MG. CEP: Mineral
Metias Ltda Indirectly 30.411-186 Brazil Exploration
CNPJ 11.928.960/0001-32
com sede na Avenida
Amazonas, 2904, loja
Lontra Empreendimentos 511, Bairro Prado, Belo
e Participações Horizonte - MG. CEP: Mineral
Ltda Indirectly 30.411-186 Brazil Exploration
CNPJ 23.282.640/0001-37
com sede Alameda Ezequiel
Dias, n. 427, 2 andar,
bairro Funcionários,
Município de Belo
Typhon Brasil Mineração Horizonte, Estado de Mineral
Ltda Indirectly Minas Gerais, CEP 30.130-110. Brazil Exploration
CNPJ 23.282.280/0001-73
com sede na Alameda
Ezequiel Dias, n. 427,
2 andar, bairro Funcionários,
Município de Belo
Trias Brasil Mineração Horizonte, Estado de Mineral
Ltda Indirectly Minas Gerais, CEP 30.130-110 Brazil Exploration
2.3 (b) Subsidiaries and Acquisitions
The 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:
(i) unexpected geological occurrences that render the resource uneconomic;
(ii) title to the asset is compromised;
(iii) variations in mineral prices that render the project uneconomic;
(iv) substantive expenditure on further exploration and
evaluation of mineral resources is neither budgeted nor planned;
and
(v) 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 de nition 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 liabilities
Accounts 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 payables
Accounts 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 GBP45,059 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 GBP34,024.
As of 31 December 2018 the Group's net exposure to foreign
exchange risk was as follows:
Functional Currency
GBP GBP BRL BRL Total Total
2018 2017 2018 2017 2018 2017
----------------------------- ----------- ----------- ------- -------- ----------- -----------
Currency of net GBP GBP GBP GBP GBP GBP
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 GBP54,106,065
(2017: GBP58,128,840). Of this amount GBP48,618,726 (2017:
GBP48,890,013) is due from subsidiary companies, GBP5,487,339
represents cash holdings (2017: GBP9,238,827). 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 GBP35,511,145 (2017: GBP34,057,215). 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 GBP3,461,833,
at 31 December 2018 (2017: GBP3,635,955). Deferred consideration
has a carrying value of GBP1,360,792 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 GBP221,263 (2017: GBP269,255) to GBP3,240,600 (2017:
GBP3,366,700).
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.
UK Brazil Total
2018 2018 2018
2018 GBP GBP GBP
-------------------------------------------- ----------- ---------- -----------
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
-------------------------------------------- ----------- ---------- -----------
UK Brazil Total
2017 2017 2017
2017 GBP GBP GBP
-------------------------------------------- ------------- ---------- -----------
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 GBP1,416,698
(2017:GBP2,243,832) for service provided.
A reconciliation of adjusted loss from operations per reportable
segment to loss before tax is provided as follows:
2018 2017
GBP GBP
------------------------------------------------------------------------------ ----------- -----------
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 GBP GBP
---------------------------------- ------- -------
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:
2018 2017
Group GBP GBP
--------------------------------------------------------------------------------------------- ------ ------
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
2018 2017
Group GBP GBP
------------------------------------------------------------ --------- ---------
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
2018 2017
Group GBP GBP
-------------------------------- ---- ----
Tax charge:
Current tax charge for the year - -
-------------------------------- ---- ----
Deferred tax charge for the year - -
-------------------------------- ---- ----
Tax on loss for the year - -
-------------------------------- ---- ----
Reconciliation of current tax
2018 2017
Group GBP GBP
------------------------------------------------- ----------- -----------
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.
2018 2017
Group GBP GBP
------------------------------------------------------------ ----------- -----------
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:
2018 2017
Group GBP GBP
--------------------- --------- ---------
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 GBP21,728,566 (2017:
GBP22,282,173) in Brazil and excess management charges of
approximately GBP140,000 (2017: GBP835,000) 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 GBP2,274,335 (2017: GBP2,530,454) 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.
Exploration Exploration and
Goodwill Licenses evaluation costs Total
Group GBP GBP GBP GBP
------------------------------------ -------- ----------- ----------------- -----------
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
Exploration licences and evaluation costs Total
GBP GBP GBP
------------------------------------ -------------------- --------------------- ----------
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 NPV(8) 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 GBP1,245,111 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
Vehicles and
other field Office
equipment equipment Total
Group GBP GBP GBP
--------------------------------------- ------------ ---------- --------
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 GBP436 (2017: GBP358) 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 GBPnil (2017:
GBP283) has been charged in 'administrative expenses' under
'Depreciation.'
Field Office
equipment equipment Total
Company GBP GBP GBP
--------------------------------------- ---------- ---------- ------
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
GBP GBP GBP GBP
------------------------- --------- --------- --------- ---------
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
GBP GBP GBP GBP
----- --------- --------- --------- ---------
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
2018 2018 2017 2017
Group and Company Number GBP Number GBP
--------------------------- ------------- ---------- ------------- ----------
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 GBP0.035 per share to
raise GBP7,000,000 before expenses.
14 Share premium
2018 2017
Group and Company GBP GBP
------------------------- ---------- ----------
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:
Weighted Weighted
average average
Number of exercise Number of exercise
options price options price
2018 2018 2017 2017
GBP GBP GBP GBP
--------------------------- ----------- --------- ----------- ---------
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.
2018 2017
Group and Company options 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:
2018 2018 2017 2017
2018 Weighted Weighted 2017 Weighted Weighted
Weighted average average Weighted average average
Range of average remaining remaining average remaining remaining
exercise exercise 2018 life life exercise 2017 life life
prices price Number of expected contracted price Number of expected contracted
(GBP) (GBP) shares (years) (years) (GBP) shares (years) (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 GBP GBP GBP GBP
--------------------------------- ---------- ------------ ----------- -----------
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)
---------------------------------- ---------- ------------ ----------- -----------
Merger
reserve Total
Company GBP GBP
--------------------------------------- ---------- ----------
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
GBP GBP GBP GBP
------------------------------- --------- --------- --------- ---------
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 GBP111,815
(2017: GBP222,925) 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
GBP181,441 (2017: GBP222,836) 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
GBP GBP GBP
---------------------- ------------------------ ---------------------- ---------
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 GBP GBP
---------------------------------------------------- ------------- -------------
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 GBP399,762 (2017: GBP350,652) was charged to HM
do Brazil Ltda, GBP961,042 (2017: GBP980,108) to Araguaia Niquel
Mineração Ltda and GBP55,894 (2017: GBP55,894) to Typhon Brasil
Mineração Ltda by Horizonte Minerals Plc in respect of consultancy
services provided and funding costs.
Amounts totalling GBP1,416,698 (2017: GBP2,243,832) 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)
Post Cost to Company Non-Cash
Short term employment
benefits benefits
Social Share Based
Aggregate Other Pension Security Payment
emoluments emoluments costs Total costs Charge Grand Total
Group 2018 GBP GBP GBP GBP GBP GBP GBP
---------------- --------------- ----------- -------------- ------- --------------- --------------- -----------
Non-Executive
Directors
Alexander - - -
Christopher - - - -
David Hall 26,400 32,500(1) - 58,900 2,415 93,323 154,138
William Fisher 26,400 32,500(1) - 58,900 - 80,261 154,138
Allan Walker 26,400 34,500(1) - 60,900 7,242 80,261 148,403
Owen Bavinton - - 79,848 79,848 - 80,261 160,109
Executive
Directors
Jeremy Martin 216,157 150,000(1) 21,186 387,343 49,367 167,415 604,125
Key Management
Simon Retter 92,362 73,320(2) 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 GBP30,000 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.
Post Cost to Company Non-Cash
Short term employment
benefits benefits
Social Share Based
Aggregate Other Pension Security Payment
emoluments emoluments costs Total costs Charge Grand Total
Group 2017 GBP GBP GBP GBP GBP GBP GBP
---------------- --------------- ----------- -------------- ------- --------------- --------------- -----------
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 GBP GBP GBP GBP
------------------------------------------------------------------- --------- --------- --------- ---------
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 GBP685,477 (2017:
GBP1,062,396) of costs capitalised and included within intangible
non-current assets.
Share options granted include costs of GBP501,523 (2017:
GBP437,445) relating to Directors.
24 Investments in subsidiaries
2018 2017
Company GBP GBP
----------------------------- --------- ---------
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 GBP GBP
----------------------------------------- ---------- ----------
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
GBP
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
Amounts advanced For balances at 1 For balances advanced
2017 during year January 2018 in 2018 2018
Company GBP GBP GBP GBP GBP
---------------------- ---------- ---------------------- --------------------- --------------------- ----------
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 GBP GBP
------------------------ ------ ------
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 GBP GBP
----------------- ---- ----
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 GBP64,000.
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 GBP68,000
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 GBP GBP
---------------------------- --------- --------------
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 GBP GBP
---------------------------- --------- --------------
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 GBP GBP
Trade and other payables 260,175 720,480
Deferred Consideration 1,360,792 -
Total 1,620,967 720,480
-------------------------------------------- --------------- -----------
Amortised cost
2018 2017
Company GBP GBP
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 Tredway
Annabel 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
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SEUFWAFUSEID
(END) Dow Jones Newswires
March 29, 2019 03:00 ET (07:00 GMT)
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