Annual Report 2019
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Horizonte Minerals
is an AIM and TSX listed
nickel development company
focused in Brazil.
Company Overview
01 2019 Highlights
02 Horizonte Minerals at a Glance
03 Araguaia Nickel Project Overview
04 Vermelho Nickel Cobalt
Project Overview
Our Year in Review
05 Chairman’s Statement
Business Review
08 Operations Review
21 Strategic Report
28 Financial Review
Corporate Governance
30 Board of Directors
and Key Management
32 Directors’ Report
35 Statement of Directors’
Responsibilities
36 Corporate Governance Report
Financial Statements
38 Independent Auditor’s Report
45 Consolidated Statement
of Comprehensive Income
46 Consolidated Statement
of Financial Position
47 Company Statement
of Financial Position
48 Statement of Changes in Equity
49 Consolidated Statement
of Cash Flows
50 Company Statement of Cash Flows
51 Notes to the Financial Statements
83 Statutory Information
2019 Highlights
1
2019 Highlights
Horizonte Minerals plc (the “Company“ or “Horizonte”) continued to make solid progress on all fronts
during 2019 at both the advanced Araguaia Nickel Project (“Araguaia”) as well as the Vermelho Nickel-
Cobalt Project (“Vermelho”).
Having delivered the Feasibility Study (“FS”) for Araguaia in October 2018, the company has made
significant advances towards securing the required project finance and advancing the early works in
anticipation of commencing construction and ultimately a producing mine.
The FS results confirmed Araguaia as a Tier 1 project with a large high-grade scalable resource, a
long mine life and a low-cost source of ferronickel. The Base Case delivered a post-tax net present
value (“NPV8”) of US$401 million and indicates over US$1.6 billion of free cash flow over the 25-year
life of mine.
In January we were awarded the construction licence by SEMAS, the Brazilian Pará State Environmental
Agency, for Araguaia. This licence was a a major de-risking step for Araguaia and allows construction
to begin on the processing plant and associated infrastructure, once financing is secured.
We released results of two sets of test work from Vermelho in the year, showing ore from the project
to be amenable to multiple processing routes.
The first batch of test work confirmed that it is possible to produce high grade, commercial specification
ferronickel from the saprolite and transition ore at Vermelho. These results confirm the suitability of
the proposed conventional Rotary Kiln Electric Furnace process selected for the Company’s Araguaia
ferronickel project is also suitable for processing Vermelho ore.
In parallel the test work at SGS Lakefield, Canada on limonite samples from Vermelho ore demonstrated
the suitability for production of high purity nickel and cobalt sulphate to supply the EV battery markets,
with samples of both produced.
August saw the release of the new NI 43-101 Mineral Resource covering the Serra do Tapa deposit,
previously acquired from Glencore, with a measured and indicated capacity of 70.3 million tonnes
grading 1.22% nickel. This deposit has the potential to be a satellite pit to add further supply to the
Araguaia operation and potentially extend the mine life.
Also, in August we were able to announce a US$25 million royalty agreement with Orion Mine Finance
(OMF) to begin development of the Araguaia project. This upfront cash payment was secured in
exchange for a royalty on the first 426k tonnes of nickel produced and sold from the project.
In October, we released the Vermelho Prefeasibility Study, demonstrating that the project can be a
significant low-cost supplier of nickel in the form of battery grade nickel-sulphate. Over the 38-year
mine life using a Base Case nickel price of $16,400/t, the operation is expected to generate cash flows
after taxation of US$7.3 billion, an IRR of over 26%, and sits on the lower half of the global cost curve.
SUMMARY of 2019 Achievements
Construction Licence awarded for Araguaia Project
Tests confirm ability to produce ferronickel from Vermelho’s
saprolite and transition ore
Tests confirm ability to produce nickel and cobalt sulphate from limonite
ore at Vermelho
Release of NI 43-101 Mineral Resource for the Serra do Tapa deposit
& US$25 million royalty agreement with Orion Mine Finance to begin
development of Araguaia
January 2019
March 2019
June 2019
August 2019
Vermelho pre-feasibility study returns NPV of US$1.7 billion and confirms low cost,
long life nickel sulphate.
October 2019
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSCOMPANYOVERVIEW 2
Horizonte Minerals at a Glance
Horizonte Minerals at a Glance
Azul (Mn)
!(
!(
!(
N5 (Fe)
N4 (Fe)
!(
Águas Claras (Au)
!(
S11D (Fe)
Canaã dos Carajás
Parauapebas
!(
!(
Stage 1 & 2 HPAL
Xinguara
!(
5
5
R-1
B
Vermelho total average
production 24,000 TPA/Ni
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Scalable Production
Potential of ~50,000 TPA Ni
TO-22 6
T O - 2 3 0
3
5
-1
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B
Araguaia total potential
production 29,000 TPA/Ni
4
P
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!(
Redenção
PA-287
Conceição do Araguaia
!(
6
1
T O -
Stage 1
14,500 TPA/Ni
Stage 2
14,500 TPA/Ni
Power Line
Vale operations
Roads
Railway
Horizonte Nickel
20
30
District
!(
Colinas
0
10
km
Horizonte wholly owns the advanced
Araguaia Nickel Project
(“Araguaia”),
and the Vermelho Nickel-Cobalt Project
(“Vermelho”), located in the south of the
Carajàs mineral district in northern Brazil.
The Araguaia project will utilise the proven
RKEF process to produce approximately
50,000 tonnes of ferronickel per year,
grading 30% Nickel. A feasibility study
for Araguaia was published in October
2018. The study demonstrated the robust
economics of Araguaia and places it as
one of the lowest-cost new ferronickel
development projects globally. The Vermelho
project is a nickel cobalt project, located
approximately 80 kilometres north west of
the Company's Araguaia North ferronickel
project. Vermelho was acquired from
Vale SA who completed a detailed feasibility
study demonstrating the potential to
produce over 40,000 tons of nickel per year,
prior to giving the go ahead to construct in
2005. A pre-feasibility study representing
the economics of developing Vermelho on
a smaller scale than Vale’s original design
was released in October 2019. These two
located within trucking
Tier-1 projects
distance of each other create a large,
high-grade flexible resource base with the
combined potential to produce 50,000 to
60,000 tonnes of nickel per year.
Araguaia Nickel Project Overview
Araguaia Project Overview
3
Araguaia
is a construction ready
ferronickel project being developed by
the Company
> 100% owned by
Horizonte Minerals plc
> Located south of the Carajás Mining
district in Northern Brazil, with good
access to infrastructure
> The base case of the Feasibility
Study published in October
2018 assumes a nickel price
of US$14,000/t, and has the
following highlights;
Financial:
> Highly Cash Generative
– Around US$1.6B net cash flow
> NPV of US$401M
> Payback of 4.2 years
> IRR of 20.1%
> Low Capital Intensity – US$443M
Capital Cost equates to
US$31,000 /t Ni pa
> C1 Cost of US$8,193/t Ni
Mining:
Shallow open pit mining will be used
for the exploitation of the nickel rich
saprolite and transition zones. Ore
will be sourced from 8 open pits,
with a targeted 0.9mt per annum
of ore to a central processing and
smelting facility. A 28-year production
schedule is envisaged with a 2 - 3
year construction period followed by
ramp up over 13 months to full scale
commercial production.
Process:
The selected metallurgical process is
the widely used and proven Rotary Kiln
Electric Furnace (RKEF) technology.
There are over 40 operations using
this process worldwide and it accounts
for over 50% of all nickel produced
today. A successful pilot campaign
produced high grade commercial
quality
from the bulk
samples deemed representative of the
Araguaia ore.
ferronickel
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSCOMPANYOVERVIEW 4
Vermelho Project Overview
Vermelho Nickel Cobalt Project Overview
Acquired from Vale SA in early 2018, Vermelho is a Tier-1 asset in terms of size and grade, sitting on the upper end of the
global grade curve. Drilling programmes totalling 152,000 metres and detailed engineering studies have been completed
on the project by Vale and this high quality advanced work provides Horizonte a fast-track pathway to advance the project.
In 2019 the company conducted metallurgical testwork and produced a prefeasibility study on the project, showing its
potential to be a profitable, future supplier of battery grade nickel and cobalt to the world market.
Financial:
> Cash generative – Around US$7.3B net cash flow
> NPV of US$1.7B
> Payback of 4.2 years
> IRR of 26.3%
> Low Capital Intensity – US$652M Capital Cost equates to
US$26,080 /t Ni pa
> C1 Cost of US$8,020/t Ni
Mining:
Mining at Vermelho is planned to be undertaken with conventional open pit truck and excavator mining methods. Blasting
will be necessary for the upper parts of the deposit. Waste overburden will be stripped on 4 m benches, and ore on 2 m
benches for additional selectivity. The mine production schedule targeted a processing rate of 1 Mt/a HPAL feed for the
first three years and a doubling in capacity thereafter to 2 Mt/a.
Process:
The process selected for the Project is the production of a nickel and cobalt sulphate product via HPAL (high pressure
acid leach), mixed sulphide precipitation (‘MSP’), pressure oxidation leaching (‘POX’), cobalt solvent extraction
(‘CoSX’) and crystallization.
The compelling economic and technical results from the study support further development of the project towards a full
Feasibility Study;
The close proximity of the Vermelho and Araguaia projects have allowed the Company to consolidate a major district in
Brazil’s Pará state, growing its nickel resources by over 600% in just six years, resulting in two Tier-1, scalable, high-grade
nickel deposits.
Our Year in Review
Jan 2019
Approved the Construction Licence for Araguaia
ferronickel project
Mar 2019
Positive Metallurgical Testwork Results for
Vermelho Nickel Cobalt Project
August 2019
Initial NI 43-101 Mineral Resource Estimate for the
Serra do Tapa nickel deposit.
Closed a US$ 25 million Royalty funding with
Orion Mine Finance
June 2019
Successful completion of the previously announced
testwork on samples owned by Vermelho nickel project
October 2019
Appointed Project Director to lead the construction of the Araguaia
ferronickel project.
Vermelho Pre-Feasibility Results
July 2019
Power utilisation permit for the Araguaia ferronickel project
December 2019
Updated the Corporate Social Responsibility policies
Chairman’s Statement David J Hall
Chairman’s Statement
5
largest decline recorded
Dear Shareholders
Late 2019 and early 2020 has thrown up
a number of global challenges: Firstly, the
continuation of the US China trade war;
and secondly, the more serious challenge
of the Covid-19 virus. The effects of the
virus on global trade and commodities
have been unprecedented, oil prices have
in
seen their
history and the S&P500 posting its worst
daily performance since December 2008.
This will all have a knock-on effect in the
short term for nickel markets and in the
mining project finance arena. Despite the
current market volatility, the Company
has a strong cash position of £17.8 Million,
one of the lowest cost nickel development
projects globally, and a strong shareholder
base. Our team remains focused on
the execution of our plans to begin
construction at Araguaia and complete
the next stage of the feasibility study at
Vermelho. The Company will continue
monitor the situation closely and adapt its
business strategy to the market conditions.
The year 2019 saw some major steps
taken for us as a company as we continued
to progress two of the most exciting nickel
projects in the global pipeline. Araguaia, a
project that we have developed from a
grassroots exploration discovery through
to being construction ready, is now at the
funding stage. It will be a key source of
high grade ferronickel for the stainless
steel markets in the future. Vermelho,
meanwhile, has now got a Pre-Feasibility
Study behind it, and looks set to benefit
from the significant growth in the electric
vehicle market given the battery grade
nickel and cobalt product it will produce
and the timing at which it will come in to
production. In parallel to the development
of the projects, the fundamentals around
the nickel market are robust. Nickel
was the best performing metal on the
LME during 2019, with the price rising by
more than 34%, closing the year at the
US$14,000/t mark.
to
Despite the current challenging global
environment, we continue to work on the
various workstreams required to achieve
including advancing
our stated goals,
"construction-ready"
the
Araguaia
phase and progressing the
financing
process. There is a possibility that the
effects of Covid-19 might result in a delay
to the project finance process however the
nickel market fundamentals remain robust
for the medium-term and aligned with the
planned start of production at Araguaia.
On the ground in Brazil, our team is well
prepared to continue their work while
at the same time ensuring the safety of
those in our employ as a top priority. We
have implemented strict health and safety
policies specifically tailored to Covid-19.
We announced important news on both
projects during the course of 2019,
securing significant funding for Araguaia
via a royalty agreement with Orion
Mine Finance
(OMF), while producing
a prefeasibility study at Vermelho that
showed robust economics for our second
100% owned project.
The timeline to development of our
projects is well timed to match an expected
increase in demand for nickel, due to
continued stainless steel growth and
the emerging, but fast-growing, demand
from the electric vehicle market. During
2019 market sentiment around a pending
Indonesian nickel ban, caused a sharp price
increase and major reduction in nickel
inventories during the year. This has since
reversed due in part to the effects of the
Covid-19. The nickel market that has seen
a lack of investment over recent years,
combined with a pending uptick in demand,
align well for the development of Araguaia.
There
remains a significant concern
amongst many market commentators and
end users of nickel regarding the future
availability of supply, especially with the
anticipated widespread adoption of Electric
Vehicles and the impact this is likely to have
on already constrained nickel supplies.
Wood Mackenzie has previously forecast a
long-term incentive price of $19,800/t Ni,
which represents the price environment
which would incentivise enough production
to come online to satisfy expected future
demand. Due to their quality, Horizonte’s
two projects provide strong returns at
prices well below this incentive and are
therefore well positioned to help contribute
to the envisioned supply gap.
Additionally, the
long-term consensus
pricing for nickel remains around $16,400/t
Ni which shows some further upside to the
current price environment. These positive
forecasts continue to roll in with Bank
of America Merrill Lynch recently tipping
nickel prices of US$17,375/t next year and
US$20,000/t the year after.
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSCOMPANYOVERVIEW 6
Chairman’s Statement
Chairman’s Statement continued
Conclusion
We continue to believe that Horizonte
is uniquely placed to benefit from the
improving nickel market fundamentals,
driven by
for
stainless steel combined with the fast
growing EV market.
robust market
the
this
benefit
requires
these projects
a
Achieving
jointly
management team capable of
progressing
towards
production from a technical and regulatory
point of view, while, at the same time,
creating the relationships in the investor
community to access the funding to
develop them.
This year the team has once again proved
themselves on both accounts, advancing
Araguaia and Vermelho at a rapid rate,
while bringing OMF on board as a financing
partner, with its US$25 million investment
in the Araguaia royalty.
On behalf of the Board, I would like to
thank management for its contribution
to another successful year. I would like to
say thank you to the shareholders for your
continued support as we look forward to
updating the market on further positive
developments as during 2020.
David J Hall
Chairman
7 April 2020
7
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSCOMPANYOVERVIEW 8 Operations Review
Operations Review – Araguaia Nickel Project
Jeremy Martin
Horizonte Minerals (the Company) is developing its 100% owned Araguaia Nickel Project
(Araguaia) as Brazil’s next major ferronickel mine. Araguaia is a Tier 1 mining project with
a high-grade scalable resource, located south of the Carajás Mining District in the Pará
State, north east Brazil. The area has a well-developed infrastructure, including roads,
rail, and hydroelectric power as a result of the sustained mining activity in Carajás.
The Feasibility Study (FS), comprises an open pit nickel laterite mining operation
that delivers ore from a number of pits to a central rotary kiln electric furnace (RKEF)
metallurgical processing facility. The metallurgical process comprises a single line (RKEF)
to extract FeNi from the ore. After an initial ramp-up period, the plant will reach a full
capacity of approximately 900,000 tonnes of dry ore feed per year to produce 52,000
tonnes of ferronickel (FeNi), in turn containing 14,500 tonnes of nickel per year. The FeNi
product will be transported by road to the port of Vila do Conde in the north of the State
for sale to overseas customers.
Highlights of the Stage 1 Feasibility Study are:
> At the assumed base case Nickel price of US$14,000/t, the project delivers cash
flows after taxation of US$1.6 billion, from a 28-year mine life, with sufficient Mineral Resources to extend beyond 28 years;
> Estimated post-tax Net Present Value1 (‘NPV8’) of US$401 million and Internal Rate of Return (‘IRR’) of 20.1% using the base case
nickel price forecast of US$14,000/t;
> Upon development the Project is expected to produce an average of 14,500 tonnes of nickel per year contained
within approximately 52,000 tonnes FeNi per annum, utilising the proven RKEF technology currently used at over
40 mines around the world;
> C1 (Brook Hunt) cash cost of US$3.72 per pound (‘/lb’) of nickel (US$8,193/t), making Araguaia a low-cost
producer relative to its peers.
> Using the consensus mid-term nickel price of US$16,800/t, the post-tax NPV8 increases to US$740 million with an IRR of 28.1%,
reflecting the significant leverage that the Project returns have to any future increase in nickel prices;
> Capital cost estimate of US$443 million (AACE class 3), including US$65.3 million of contingencies and growth equating to 17.2% of
total capex budget;
> Araguaia is set to deliver significant socio-economic benefits for communities in the Pará state, including over 1,000 direct jobs in
the construction phase, and around 500 jobs during operation, as well as additional economic and social development programs.
1 NPV calculated using 8% discount rate.
A key part of the FS Stage 1 Project design was that the RKEF plant and associated infrastructure was designed to accommodate the
addition of a second RKEF process line (Stage 2 expansion), which is intended to double Araguaia's production capacity from 14,500 t/a
nickel up to 29,000 t/a nickel. The Project Mineral Resource inventory has the grade and scale to support the increase in plant through-
put from 900 kt/pa (Stage 1) to the Stage 2 rate of 1.8 Mt/a supporting the twin line RKEF flow sheet. The Stage 2 expansion assumes
operating at Stage 1 production rate of 900 kt/pa for three years, after which free cash flows would be reinvested to expand the plant
to 1.8 Mt/pa by the addition of a second line.
Operations Review
9
Highlights of the Stage two expansion1 Scenario are:
> The Stage 2 expansion, assumed in year 3 of operation, supports a 26-year mine life generating cash flows after
taxation of US$2.6 billion;
> No increase in the initial capital cost which remains at the same level at the FS Stage 1 of US$443 million, the Stage 2 expansion is
financed through operational cash flow;
> Estimated post-tax NPV8 of US$741 million and IRR of 23.8% using the base case nickel price forecast of US$14,000/t;
> Using a nickel price of US$11,000/t generates cash flows after taxation and payback of capital of US$1.0 billion;
> Nickel grade of 1.82% for the first 10 years of the Stage 2 operation;
> Annual nickel production of approximately 29,000 t/a;
> C1 (Brook Hunt) cash cost year 1 to Year 10 of US$3.00 per pound ('/lb') of nickel (US$6,613/t), making Araguaia a low-cost producer.
Life of mine C1 cash cost of US$3.51 per pound ('/lb') of nickel (US$7,737/t); and
> Using the consensus mid-term nickel price of US$16,800/t, the post-tax NPV8 for the Stage 2 option increases to US$1,264 million
with an IRR of 31.8%.
The economic and technical results from the FS have been utilised as the basis for advancing project financing, offtake agreements and
other investment discussions with the aim of securing a project finance package to enable the construction of the Araguaia project at a
time of expected growth in demand for nickel.
Orion Royalty Financing
In August 2019, the Company agreed a royalty financing arrangement from Orion Mine Finance (“OMF”) for a $25 million investment
into the Araguaia project. OMF has a strong track record in financing successful mining projects and has deployed approximately US$1.5
billion in royalties, streams, debt and equity over the past 3 years. The upfront payment of $25 million was in exchange for a royalty ap-
plied to the first 426,429 tonnes of contained nickel within the final product produced and sold. This is equivalent to the nickel production
estimated over the life of mine for Araguaia in the Stage 1 Feasibility Study.
Securing this royalty with OMF, one of the largest mining finance groups in the marketplace today with approximately $5.1 billion under
management, was an important milestone for the Company as it means that OMF has validated the investment proposition and it se-
cures a long term partnership for the Company with a large financing partner.
This royalty financing is non-dilutive for shareholders, and has been pre-designed to be compatible with the project funding package and
was secured with the intention of advancing the project towards the completion of the complete Project Finance investment. The funds
secured enable the Company to further build out the owner's team, advance engineering and early works packages and proceed towards
the start of full construction at Araguaia.
1 The Stage 2 expansion case was developed to a scoping study level of accuracy
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSBUSINESSREVIEW 10
Operations Review
Project finance
The Company is working with Endeavour Financial (a leading PF advisory group) to provide advice during the project finance process with
a focus on the debt and offtake package for Araguaia. Endeavour Financial is a well-regarded firm with a strong track record of success
in the mining industry, specialising in arranging multisource financing for single asset development companies, an example being the
recently closed US$750 million financing package for Lundin Gold's Fruta del Norte project in Ecuador.
The Company is advanced in its negotiations with respect to securing its desired project finance package and indications received to date
imply that a debt ratio of 60-65% of the total required investment is achievable. Discussions are proceeding with 5 international banks as
well as several Brazilian banks, who have all expressed their interest in forming part of the lending group. In addition to the commercial
debt, the Company has been negotiating with several government backed, export and import linked credit agencies, which, if secured,
could lead to longer tenor and lower interest rates.
Good progress has been made on the negotiations with potential off takers, with numerous expressions of interest having been received.
The Company is working towards securing a complete project finance package, comprising offtake, debt, ECA as well as equity. All areas
of the financing package are progressing well, but due to the recent Covid-19 travel restrictions and social distancing measures in force
throughout the world, it is realistic to expect the process could be delayed.
Owners team
Following the agreement with OMF, the Company has expanded its operational team to ensure we have the inhouse capability to man-
age the construction of the Araguaia Project. This was led by the appointment of Pedro Rodrigues dos Reis ('Mr Rodrigues') in a non-
board position as Project Director to lead the construction team.
Mr Rodrigues is a qualified Civil Engineer with over 30 years' experience in capital infrastructure projects in the mining industry, princi-
pally in Brazil, Chile and Peru. He has a wealth of mining project experience having worked for both EPCM engineering companies and
owner's project execution teams. His most recent roles as part of Senior team of Jacob's Engineering Group for Latin America involved
the execution of a number of projects from feasibility through to construction. Prior to this he was Project Director for MMG Limited
where he led the construction of the US$7 billion Las Bambas copper Project in Peru, which was delivered successfully and brought into
production ahead of schedule and under budget. He has worked across a variety of commodities, and has managed multiple EPCM's, for
major and junior companies such as Minsur/Marcobre, MMG and Newmont Mining. As a Brazilian national with almost two decades of
international experience, Mr Rodrigues brings a unique mix of skills and expertise to lead the construction of Araguaia.
Vermelho Nickel-Cobalt Project
The Company’s 100% owned Vermelho Nickel-Cobalt (“Vermelho”) project was acquired from Vale in early 2018, it is located in the east-
ern part of the Carajás mining district and approximately 180 kilometres north west of the Company's Araguaia project.
During the year the Company completed and filed a Pre-Feasibility Study for the Vermelho project the results of which
are summarised below:
Highlights:
• The Study confirms Vermelho as a large, high-grade resource, with a long mine life and low-cost source of nickel sulphate for the
battery industry;
• The economic and technical results from the study support further development of the project towards a full Feasibility Study;
• A 38-year mine life estimated to generate total cash flows after taxation of US$7.3 billion1;
• An estimated Base Case post-tax NPV8 of US$1.7 billion2 and IRR of 26%;
• At full production capacity the Project is expected to produce an average of 25,000 tonnes of nickel and 1,250 tonnes of cobalt
per annum utilising the High-Pressure Acid Leach process;
• The base case PFS economics assume a flat nickel price of US$16,400 per tonne (‘/t’) for the 38-year mine life;
• C1 (Brook Hunt) cash cost of US$8,020/t Ni (US$3.64/lb Ni), defines Vermelho as a low-cost producer amongst its peers.
• Initial Capital Cost estimate is US$652 million (AACE class 4), including US$97.7 million of contingencies (equating to
approximately 18% of capital); and
• Vermelho is set to deliver significant socio-economic benefits for communities in the Pará state, including over 1,800 direct jobs
in the construction phase, and over 600 jobs during operation, as well as additional economic and social development programs.
¹At a nickel price of $US16,400/t, a cobalt price of US$34,000 and includes a Nickel Sulphate premia of $US2,000/t of Nickel Sulphate produced,. These calculates were made
using USD/BRL 1/3.8 exchange rate applied for life-of-mine
Operations Review
11
Vermelho Pre-Feasibility Study - Detailed Information and Project Summary
The Project comprises a planned 38 year mining operation with an open pit nickel laterite mine that extracts a 141.3 million tonne (Mt)
Probable Mineral Reserve (at a cut-off of 0.7% Ni) to produce 924,000 tonnes of nickel contained in nickel sulphate, 36,000 tonnes of
cobalt contained in cobalt sulphate and a saleable by-product, kieserite (a form of fertiliser) of which 4.48 Mt are produced. The Ver-
melho project will utilise a hydro-metallurgical process comprised of a beneficiation plant where ore is upgraded prior to being fed to a
High-Pressure Acid Leach (HPAL) and refining Plant which produces the sulphates. The plant will be constructed in two phases, with an
initial capacity of 1 Mt per annum (Mt/a) autoclave feed (Stage 1), then after three years of production, a second process train (Stage 2
Expansion) will be constructed effectively doubling the autoclave feed rate to 2 Mt/a. The Stage 1 plant and project infrastructure will
be constructed over a 31-month period. The nickel and cobalt sulphate products will be transported by road to the port of Vila do Conde
(the same facility planned for Araguaia) for sale to overseas customers. The kieserite will be transported to consumers within Pará state.
The engineering has been developed for the process plant, mining, infrastructure and utilities to support capital (‘capex’) and operating
expenditure (‘opex’) estimates to an Association for the Advancement of Cost Engineering (AACE) class 4 standard. This means that
capex and opex estimates have a combined accuracy of between -25% and +20% at a confidence level of 50%. The capex and opex are
dated Q2 2019 and are exclusive of future escalation.
The results of the PFS demonstrate that Vermelho shows positive economics (Table 1, below).
Table 1: Key Feasibility Study Project Economic Indicators (post taxation)
Item
Net cash flow
NPV8
IRR
Breakeven (NPV8) nickel price
C1 cost (Brook Hunt)
C1 cost (Brook Hunt) years 1–10
Production year payback
LOM nickel recovered
LOM cobalt recovered
LOM kieserite produced
LOM Total revenue
LOM Total costs
Operating cash flow
Capital intensity – initial capex/t Ni
Unit
US$ M
US$ M
%
US$/t
US$/t Ni
US$/t Ni
years
kt
kt
kt
US$ M
US$ M
US$ M
US$/t Ni
Nickel price basis (US$/t Ni)**
Base Case 16,400
Long Term 19,800
7,304
1,722
26.3%
7,483
8,029
7,286
4.2
924.0
46.61
4,482
19,034
11,729
8,451
635
9,546
2,373
31.5%
7,483
8,029
7,286
3.6
924.0
46.61
4,482
22,175
12,629
10,693
635
Note: ** US$2,000/t premium for battery sulphate production has been added to Nickel revenue, US$34,000/t for the cobalt produced as cobalt sulphate, and a net
revenue of US$100/t of the by-product, kieserite.
The economic model assumes 100% equity, providing the opportunity for increased returns leveraging commercial or other debt. The
base case was developed using a flat nickel price of US$16,400/t Ni. An alternate case using the Wood Mackenzie long term Nickel price
of US$19,800/t Ni was also developed.
As shown in Table 1 (above), for the base case the project has a 4.2-year payback period with cumulative gross revenues of US$19,034
million. The economic analysis indicates a post-tax NPV8 of US$1,722 million and an IRR of 26.3% using the base case forecast of
US$16,400/t Ni, this increases to US$2,373 million and 31.5% when using the Wood Mackenzie long term price of US$19,800/t Ni.
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSBUSINESSREVIEW 12 Operations Review
Operations Review continued
Resources / Reserves and Mining
The Vermelho nickel deposit consist of two hills named V1 and V2 (after Vermelho 1 and Vermelho 2), aligned on a northeast-southwest
trend, overlying ultramafic bodies. A third ultramafic body, named V3, also located in the same trend lies on flat terrain, southwest of V2.
The ultramafic bodies have had an extensive history of tropical weathering, which has produced a thick profile of nickel-enriched lateritic
saprolite at V1 and V2.
The Vermelho area was explored in various stages by Companhia Vale do Rio Doce (‘Vale’) from 1974 to 2004 involving approximately
152,000 m of combined drilling and pitting. The drilling density was substantially enhanced in 2002 to 2004, with the majority of the
resource upgraded to the Measured category as defined in JORC (2004) and CIM Definition Standards (2014). Pilot plant metallurgical
studies were conducted in Australia focused on the HPAL processing method. A PFS was prepared in 2003, and a Feasibility Study (‘FS’)
was completed in August 2004 by GRD-Minproc (2005). This study confirmed the positive economics supporting the outcomes obtained
in previous studies and showed production capacity of 46,000 tonnes per annum (t/a) of metallic nickel, and 2,500 t/a of metallic cobalt.
The Vermelho project was given construction approval by Vale in 2005 however later that year Vale elected to place the project on hold
after Vale acquired Canadian nickel producer Inco.
Mineral Resources
Snowden Mining and Industry Consultants (‘Snowden’) were commissioned by the Company to produce the Geology and Mineral Re-
sources sections of the PFS for the Project.
Within the mining licence, at a cut-off grade of 0.7% Ni, a total of 140.8 Mt at a grade of 1.05% Ni and 0.05% Co is defined as a Measured
Mineral Resource and a total of 5.0 Mt at a grade of 0.99% Ni and 0.06% Co is defined as an Indicated Mineral Resource. This gives a
combined tonnage of 145.7 Mt at a grade of 1.05% Ni and 0.05% Co for Measured and Indicated Mineral Resources. A further 3.1 Mt at a
grade of 0.96% Ni and 0.04% Co is defined as an Inferred Mineral Resource at a cut-off grade of 0.7% Ni.
The Mineral Resource is summarised in Table 2.
Table 2 V1 + V2 – combined classified Mineral Resource report for Vermelho above 0.7% Ni cut-off within the mining licence
Classification
Measured
Indicated
Measured +
Indicated
Inferred
Tonnage
(Mt)
140.8
5.0
145.7
3.1
Ni
%
1.05
0.99
1.05
0.96
Ni metal
(kt)
1,477
49
1,526
29
Co
%
0.05
0.06
0.05
0.04
Co metal
(kt)
74.6
2.8
77.3
Fe2O3
%
31.1
26.3
30.9
MgO2
%
11.3
8.6
11.2
SiO2
%
41.0
49.0
41.3
1.4
24.0
15.5
42.2
Notes
1. Mineral Resources are not Mineral Reserves and do not have demonstrated economic viability. All figures are rounded to reflect the relative accuracy of the estimate and
have been used to derive subtotals, totals and weighted averages. Such calculations inherently involve a degree of rounding and consequently introduce a margin of error.
Where these occur, Snowden does not consider them to be material.
2. Mineral Resources are reported inclusive of Mineral Reserves.
3. The reporting standard adopted for the reporting of the Mineral Resource estimate uses the terminology, definitions and guidelines given in the CIM Standards on
Mineral Resources and Mineral Reserves (May 2014) as required by NI 43-101.
4. Mineral Resources are reported on 100% basis for all Project areas.
5. Snowden completed a site inspection of the deposit by Mr Andy Ross FAusIMM, an appropriate "independent qualified person" as such term is defined in NI 43-101.
6. kt = thousand tonnes (metric).
Operations Review
13
Mineral Reserves
Mineral Reserves were prepared for the Project as part of the PFS, using the CIM Definition Standards (2014).
In accordance with the CIM Definition Standards on Mineral Resources and Mineral Reserves (as adopted and amended), Mineral Re-
serves are classified as either “Probable” or “Proven” Mineral Reserves and are based on Indicated and Measured Mineral Resources
only in conjunction “estimation of Mineral Resource and Mineral Reserve best practice guidelines” as provided by the CIM. No Mineral
Reserves have been estimated using Inferred Mineral Resources.
All economic Measured and Indicated Resources within the pit designs were classified as Probable Reserves. A summary of the Mineral
Reserves is provided in Table 3.
Table 3 Open pit Mineral Reserves reported as of October 2018
Value
Ore (Mt)
Ni (%)
Co (%)
Fe (%)
Mg (%)
Al (%)
Probable
141.3
0.91
0.052
23.1
3.81
0.79
Notes
1. Cut-off varies by resource model block depending on individual block geochemistry, however, as a guide the cut-off is approximately 0.5% Ni.
2. A site inspection on was completed four occasions between March 2017 and September 2019 by Mr Anthony Finch P. Eng. MAusIMM (CP Min.), an appropriate
“independent qualified person” as such term is defined in NI 43-101.
Mining
Snowden was commissioned by the Company to produce the mining plans of the PFS.
Mining at Vermelho is planned to be undertaken with conventional open pit truck and excavator mining methods. Blasting will be neces-
sary for the upper parts of the deposit. Waste overburden will be stripped on 4 m benches, and ore on 2 m benches for additional selectivity.
Reverse circulation (‘RC’) grade control drilling will be completed at 12.5 m x 12.5 m spacing to define the waste/ore/ore type boundary
ahead of mining.
Waste will be stored in dumps adjacent to the pits. Ore will be transported to the run of mine (‘ROM’) stockpile near the processing plant
or the low-grade stockpiles for later processing.
Due to the wet season, mining (including stockpile rehandling) will be reduced between October and March (as is standard practice in
the region). It was assumed that a fleet of Scania G500 8x4 22 m3 heavy tippers will be used as part of the fleet and coarse beneficiation
rejects will be used as sheeting, to mitigate trafficability issues.
The mine production schedule targeted a processing rate of 1 Mt/a HPAL feed for the first three years and a doubling in capacity there-
after to 2 Mt/a. To facilitate this, ROM feed of approximately 2.25 Mt/a to 4.5 Mt/a is required as well as an acid production capacity of
350 kt/a to 700 kt/a.
The annual mining rate starts at 8 Mt/a and peaks at 12 Mt/a between production years 5 and 11. Strip ratios for the deposit are ex-
tremely low (0.14 Waste:Ore) consequently waste dumps are relatively small.
The mine supplies higher grade ore in the early mine life to the HPAL circuit, reaching up to 2% Ni and 0.1% Co in the first four production
years. The HPAL feed grade (after beneficiation) is above 1.5% Ni and 0.08% Co for the majority of the first 17 years of production and
decreases over the remaining LOM as feed is sourced from large lower grade stockpiles that are to be developed in the early years and
are processed in the later years.
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSBUSINESSREVIEW 14 Operations Review
Operations Review continued
Processing
The process plant design, along with capital and operating cost estimates were completed by Simulus (Engineers) Pty Ltd, Perth Australia
(‘Simulus’). Simulus is a specialist in nickel and cobalt laterite project metallurgical testwork, piloting and process design.
The process selected for the Project is the production of a nickel and cobalt sulphate product via HPAL, mixed sulphide precipitation
(‘MSP’), pressure oxidation leaching (‘POX’), cobalt solvent extraction (‘CoSX’) and crystallization. Prior to the HPAL process, barren free
silica is removed from the ore via a beneficiation process which involves crushing, scrubbing, washing and separation by screening and
hydrocyclones. To avoid accumulation of magnesium sulphate in the recycled process water, a portion is sent to the kieserite (magne-
sium sulphate monohydrate, MgSO4•H2O) crystallization area where kieserite is recovered and crystallised for potential sale as fertiliser.
The process plant has been designed to process 4.34 Mt/a of ROM ore at 1.07% Ni. Of this total feed, 2.34 Mt/a is rejected as coarse,
low grade siliceous waste from the beneficiation plant. The 2 Mt/a beneficiated product at 1.85% Ni grade is then fed to the HPAL
processing plant as upgraded feed (1 Mt/a per train). A common refining circuit treats the MSP produced from each train via POX,
CoSX and crystallization.
The proposed process plant has been designed to recover 94.4% and 94.9% of the nickel and cobalt from the HPAL feed at an acid con-
sumption of 347 kg/t. The nickel and cobalt sulphate products are of high purity suitable for sale directly into the battery market. The
kieserite by-product is of appropriate quality to be sold to the local fertiliser market.
Extensive metallurgical testwork and process design was undertaken on the Project by the former owner, Vale, at scoping, prefeasibility
and feasibility stages, included drilling and pitting programs totalling 152,000 m, variability batch testwork, full-scale pilot testwork and
detailed engineering studies. A five-year, exhaustive, metallurgical testwork and pilot plant program demonstrated that a high degree
of mined ore upgradable using a simple beneficiation processes was possible. The resultant feed delivered 96% average leach extraction
for nickel and cobalt via HPAL technology.
Additional testwork has been completed by the Company during 2018 and 2019. This testwork on selected samples from Vermelho
validated the potential to produce high-grade sulphate products using the HPAL process.
The 6,000 plus samples totalling over 160t used for PFS and Final Feasibility Study (FFS) piloting were large diameter drill core and were
representative (geographically, of depth, ore type and by lithology). Additionally, 10% of the samples (1 m from every 10 m) was used for
variability testing so piloting and variability were related.
Financial Evaluation
Capital Cost
The estimate is based on the AACE class 4 standard, with an estimated accuracy range between -25% and +20% of the final project cost
(excluding contingency).
The largest capital item is the HPAL plant. In order to manage initial capital, this is constructed in two phases. The first phase (Stage 1) has
a capacity of 1 Mt/a autoclave feed. Stage 2 is brought online in year 3 of production and effectively doubles the HPAL feed rate to 2 Mt/a.
The capex estimate includes all the direct and indirect costs, local taxes and duties and appropriate contingencies for the facilities re-
quired to bring the Project into production, including the process plant, power line, water pipelines and associated infrastructure as
defined by the PFS. The estimate is based on an Engineering Procurement and Construction Management (‘EPCM’) implementation
approach and this is the contracting strategy expected to be utilised for the Project.
The total estimated initial (pre-production) capex for the Vermelho project is US$652.2 million (after tax, including contingency, excluding
growth and escalation). A summary of the capex is shown in Table 4.
Table 4: Summary of capex
Capital cost component
Process plant
Mining pre-production
Tailings and sediment
Pumping
Initial
(US$ M)
575.06
10.78
24.12
2.34
Train 2 (year 3)
(US$ M)
446.68
—
—
—
Remainder
(US$ M)
—
—
—
—
LOM
(US$ M)
1,022
10.78
24.12
2.34
Operations Review
15
Capital cost component
Powerline
Road
Permitting and land acquisition
Mining sustaining
Other sustaining (including land permitting and land)
Closure
TOTAL
Initial
(US$ M)
14.16
2.59
23.19
—
—
—
Train 2 (year 3)
(US$ M)
Remainder
(US$ M)
—
—
—
—
—
—
—
—
—
21.58
1.33
29.37
52.28
652.24
446.68
LOM
(US$ M)
14.16
2.59
23.19
21.58
1.33
29.37
1,151
The costs in Table 4 include all direct and indirect costs including owners costs, supply, shipping and site installation. The total contingency
carried in the capex is US$97.7 million, this represents 18% of the initial capex (excluding contingency) and 25% of the plant direct costs.
Operational costs
The operating costs shown in Table 5 (below) represent the average over the LOM; actual costs for these vary from year-to-year de-
pending on the fixed and variable costs as well as sustaining capital requirement for the given year. The operating costs cover the mine,
process plant, ore preparation, social and environmental, royalties and general and administrative costs. The main contributors of the
overall operating costs are power, sulphur, (for acid and power production) labour and mining costs, with additional consumables and
other indirect costs, including G&A.
Table 5: Summary of opex
Area
Mining
Rejects and tails handling
Processing costs
Royalties (CFEM)
Royalty (Vale)
G&A and other costs
SHE
TOTAL
LOM total (US$ M)
US$/t nickel**
US$/t ore
Average annual
(US$ M)
981
414
5,785
23
66
215
24
7,508
1,062
448
6,261
25
72
233
26
6.94
2.93
40.93
0.16
0.47
1.52
0.17
25.81
10.89
152.23
0.60
1.74
5.67
0.63
8,126
53.13
197.57
Summary Economics
The financial model is based on 100% equity. The Base Case was developed using a flat nickel price of US$16,400/t Ni for LOM. The
second case was prepared using the Wood Mackenzie long term price of US$19,800/t Ni.
The revenue breakdown by product is shown in Table 6.
Table 6: LOM Revenue by product
Revenue by product
Ni Sulphate
Co Sulphate
Kieserite
LOM Revenue
(US $M)**
17,001
1,585
448
19,034
% of total
89%
8%
2%
100%
Note: ** A US$2,000/t Ni premium for battery sulphate production has been added to Nickel revenue, US$34,000/t for the cobalt produced as cobalt sulphate, and a net
revenue of US$100/t of the by-product, kieserite
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSBUSINESSREVIEW
16
Operations Review
Operations Review continued
As shown in Table 1, the post taxation model for the Base Case has a 4.6-year payback period with cumulative gross revenues of
US$19,034 million. The economic analysis indicates a post-tax NPV of US$1,722 million and an IRR of 26.3% using the Base Case of
US$16,400/t Ni. These figures increase to US$2,373 million and 31.5% when using the Wood Mackenzie long term price of US$19,800/t
Ni. Table 7 shows the pre-taxation results.
Table 7: Project economic performance (pre-taxation)
Item
Net cash flow
NPV8
IRR
Breakeven (NPV8) Ni price
C1 Cost (Brooke Hunt)
Production year payback
Cash costs
Operating cash flow
Unit
US$ million
US$ million
%
US$/t
US$/t
Years
US$ million
US$ million
Nickel price basis (US$/t Ni)**
Base Case
(consensus) 16,400
WM Long Term
19,800
10,379
13,509
2,342
28.8%
6,946
8,029
4.0
7,508
11,526
3,185
34.5%
6,946
8,029
3.5
7,520
14,655
Note: ** US$2,000/t premium for battery sulphate production has been added to Nickel revenue, US$34,000/t for the cobalt produced as cobalt sulphate, and a net revenue
of US$100/t of the by-product, kieserite.
Sensitivity Analysis
The sensitivity analysis demonstrates how the NPV8 is affected by changes to one variable while holding the other variables constant.
The results of the sensitivity analysis are presented in Table 8 and Figure 1.
Table 8: Sensitivity table for the Base Case (US$16,400/t) NPV8, after taxation
Sensitivity parameter
Price/Grade/Recovery of Ni
Price/Grade/Recovery of Co
Net revenue from kieserite
Pre-Production Capital
Stage 2 Capital
Mining Cost
USD:BRL FX Rate
Sulphur Price
Power Cost
Discount Rate
Beneficiation Efficiency
-30%
661
1,617
1,693
1,873
1,802
1,799
1,535
1,911
1,735
2,523
1,298
-20%
1,016
1,652
1,703
1,823
1,775
1,773
1,613
1,848
1,730
2,217
1,439
-10%
1,369
1,687
1,712
1,772
1,749
1,748
1,674
1,785
1,726
1,952
1,581
0%
1,722
1,722
1,722
1,722
1,722
1,722
1,722
1,722
1,722
1,722
1,722
10%
20%
30%
2,074
1,757
2,427
1,792
1,731
1,741
1,671
1,621
1,695
1,696
1,761
1,659
1,718
1,521
1,863
1,668
1,670
1,794
1,596
1,713
1,345
2,004
2,779
1,827
1,751
1,570
1,642
1,645
1,821
1,532
1,709
1,189
2,146
Operations Review
17
Figure 1: Sensitivity analysis
)
M
S
U
$
(
V
P
N
3,000
2,500
2,000
1,500
1,000
500
0
-30%
-20%
-10%
0%
10%
20%
30%
Change in value of factor
Price/Grade/Recovery of Ni
Price/Grade/Recovery of Co
Net revenue from Kieserite
Pre-production Capital
Stage 2 Capital
Power cost
Mining cost
Discount rate
Fx rate
Sulphur Price
Benefication efficacy
The sensitivity analysis shows that the Project is more sensitive to nickel price, nickel recovery and grade than it is to either opex or capex.
Market Review and Nickel Pricing
In June 2019, the Company commissioned Wood Mackenzie to develop a report on the market for nickel sulphate. As consequence of
that report the following assumptions with respect to commodity pricing were used in the PFS.
> The consensus nickel price of US$16,400/t (US$7.44/lb) was used in the Base Case for the PFS along with a US$2,000/t
(US$0.91/lb) nickel sulphate product premium. The nickel sulphate premium is driven by the battery market (where nickel sulphate
is valued higher than class 1 nickel) and is supported by very strong growth in the EV car market. The US$2,000/t (US$0.91/lb)
sulphate premium is the average value realised in the market over the last 12 months. The Wood Mackenzie long-term price
currently stands at approximately US$19,800/t (US$8.98/lb); this was used as an alternative case for the PFS. A fixed price for nickel
was applied over the LOM. The Qualified Person has reviewed the above and consider that the results support the assumptions in
this Technical Report.
> The cobalt price assumption of US$34,000/t (US$15.43/lb) used in this study is significantly below the long-term consensus bank/
broker forecasts which stand at US$55,000/t (US$25/lb).
Kieserite
In July 2019, the Company commissioned a report on the market for kieserite in Brazil from Dr Fabio Vale (Director Técnico/Technical
Manager) of Adubai Consultoria Agronômica (Adubai).
The study concludes that:
The fertilizer market in Brazil is large. In 2018, 35.6 Mt of fertilizer was sold, of this 77.5% was imported and 22.5% was manufactured
locally. The most likely consumers of the kieserite produced at the Project are the palm oil growers in Pará state, as palm oil trees have
a very high demand for both magnesium and sulphur, although it has been demonstrated that coffee and cotton would also benefit
from kieserite. The location of the Vermelho plant in the centre of the Pará state gives its distribution a competitive advantage over the
imported product. The Project will produce approximately 150,000 t of kieserite a year, which is 10 times the current market for imported
kieserite. This means there would be oversupply which would be expected to dictate a lower realised price then the current market, and
substitution of other agro-products would be required for all Project kieserite to be consumed in the local market. This suggest that it
would be unlikely for current prices (approximately US$380/t FOB Barcarena) to be realised. For the study, the Company has assumed
a kieserite price of US$180/t (delivered) – about half of the current price realised at the port of Barcarena. The study assumes a cost of
US$80/t for delivery and marketing of kieserite.
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSBUSINESSREVIEW
18
Operations Review
Operations Review continued
Community, Environment and Permitting
The Vermelho project is located 3km from the town of Canaã dos Carajás, founded in 1994, which forms the southern limit of the Carajás
Mining District (CMD) Pará state, north of Brazil. The CMD is host to a number of tier 1 iron, nickel and copper mines operated by Vale.
Mining and related industries in the CMD play a vital role in the socio-economic fabric of the region, with the municipality presenting
considerable per capita income, the second highest of the Pará state.
In 2004, Vale started to operate the Sossego Copper Mine after several infrastructure municipality improvements, and most recently
(2017) ramped-up the S11D project, one of the largest standalone iron operations in the world. As a result of the advances of mining
in the region, there has been a significant influx of people and investment, which has in turn promoted changes and improvements
in the areas of economic growth, cultural diversity and a more developed economy than nearby towns, heavily centred around
mining related activities.
Key environmental studies for the advancement of the Vermelho project licensing stages were completed by Vale. The Company will
utilize the studies and baseline data collected by previous owners to inform and expedite new EIA RIMA studies.
Whilst a new permit pathway is proposed, the previously awarded permits for the Vermelho project provide a solid basis from which to
progress the Vermelho project permitting
The Company will utilize the Vale studies and baseline data collected to inform and expedite new EIA RIMA studies. As the Company
will recommence the licensing for the Vermelho project, the Company will both update studies and undertake new studies to accurately
characterize the current physical environment, biological environment and social settings.
Next Phase of Vermelho Project Development
The PFS demonstrates that the Vermelho project is technically, economically viable, and is expected to obtain all the regulatory and
permitting requirements. Consequently, the Vermelho project should progress to a Feasibility Stage.
Serra do Tapa
During the year the Company published an initial NI43-101 Mineral Resource Estimate for the Serra do Tapa nickel deposit ('Serra do
Tapa'). The Companies 100% owned Serra do Tapa nickel deposit, was acquired from Glencore/Xstrata in October 2015, and is near the
Carajás mining district and approximately 90 kilometres North of the Company's Araguaia project.
The Serra do Tapa resource is high grade and scalable, using a 1.2% nickel cut-off grade it delivers over 41 million tonnes of Mineral
Resource in the Measured and Indicated category grading 1.4% nickel. With the addition of Serra do Tapa, the company now has 100%
ownership of a nickel district, with over 280 million tonnes of resource (in the measured and indicated category), in one of the largest
mining districts in Brazil, the Carajás district, which has good infrastructure, water, energy and skilled labour. This generates the potential
for the Company to develop two mining centres within trucking distance of each other, the first in the south at Araguaia, the second
production centre in the north, at Vermelho. The additional material from the Serra do Tapa deposit could serve either operation.
Highlights
> The Serra do Tapa Mineral Resources, in the Measured and Indicated category, are 70.3 million tonnes grading 1.22% nickel (at 0.9%
nickel cut off);
> The Company's 100% owned aggregate Mineral Resource inventory shows a 30% increase in tonnage with the addition of the Serra
do Tapa deposit;
> A significant portion of high grade saprolite within the deposit is amenable to the Rotary Kiln Electric Furnace ('RKEF') process route
to produce ferro-nickel, potentially providing a further high-grade feed source for the Araguaia project;
A total of 48,845 metres of diamond drilling (952 holes) were used in the evaluation of the Serra do Tapa deposit and for the development
the Mineral Resource Estimates disclosed herein.
Nickel cut-off grades and corresponding estimated Mineral Resources at Serra do Tapa are presented in Table 1. The Mineral Resource
is reported by a series of nickel cut-offs. The Mineral Resource was estimated in 2016 by Snowden Mining Industry Consultants using
Datamine Studio 3 mining software.
Operations Review
19
Table 1: Combined Classified Mineral Resource Report for Serra do Tapa by Nickel cut-off
Cut-off Ni%
Tonnage
(Mt)
0.8
0.9
1.0
1.2
0.8
0.9
1.0
1.2
0.8
0.9
1.0
1.2
0.8
0.9
1.0
1.2
16.5
14.3
12.1
10.0
71.1
56.0
43.0
31.7
87.7
70.3
55.1
41.7
4.0
2.7
1.9
1.3
Ni%
1.25
1.31
1.38
1.45
1.12
1.2
1.27
1.35
1.15
1.22
1.3
1.37
1.04
1.14
1.22
1.31
Contained Ni
(kt)
Co%
Fe%
MgO%
SiO2%
Al2O3%
Measured
0.05
0.05
0.05
0.05
Indicated
0.05
0.05
0.05
0.05
206.9
187.9
167.0
144.7
798.3
669.5
546.1
427.7
Measured + Indicated
1,005.1
857.4
713.1
572.5
41.7
30.5
22.8
16.7
0.05
0.05
0.05
0.05
Inferred
0.06
0.06
0.06
0.06
16.6
16.4
16.5
16.6
17.0
17.0
17.1
17.3
16.9
16.9
17.0
17.2
21.9
22.3
22.0
21.6
18.4
18.1
17.7
17.1
18.5
17.9
17.1
16.2
18.5
17.9
17.3
16.4
13.5
12.3
11.7
11.3
40.9
41.3
41.6
41.9
40.2
40.6
41.1
41.4
40.3
40.8
41.2
41.5
35.6
35.9
37.0
38.0
3.6
3.6
3.6
3.6
3.8
3.8
3.9
4.0
3.8
3.8
3.8
3.9
5.9
6.0
5.9
5.8
Note: Totals in tables may not add due to rounding. Mineral resources which are not mineral reserves do not have demonstrated economic viability. The
estimate of mineral resources may be materially affected by environmental, permitting, legal, title, taxation, sociopolitical, marketing, or other relevant
issues. The quantity and grade of reported Inferred resources in this estimation are uncertain in nature and there has been insufficient exploration to define
these Inferred resources as an Indicated or Measured mineral resource and it is uncertain if further exploration will result in upgrading them to the Indicated
or Measured mineral resource category.
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSBUSINESSREVIEW 20
Operations Review
Operations Review continued
Disclosure of the Serra do Tapa Mineral Resource brings the Company's total disclosed Measured and Indicated nickel laterite
Mineral Resources in Brazil to 280 million tonnes (at a 0.9% nickel cut-off) including 3.5 million tonnes of contained nickel, see table 2,
below for details:
Table 2: Combined Classified Mineral Resources for the Company at a 0.9% Ni Cut-off
Project
Araguaia
Resource Classification
Material type
Tonnage (MT)
Ni(%)
Contained Ni
metal (kt)
Co (%)
Contained Co Metal
(kt)
Measured
Indicated
Measured+Indicated
Inferred
Serra Do Tapa
Measured
Vermelho
Totals
Indicated
Measured+Indicated
Inferred
Measured
Indicated
Measured+Indicated
Inferred
Measured
Indicated
Measured+Indicated
Inferred
All
All
All
All
All
All
All
All
All
All
All
All
All
All
All
All
18.2
101.2
119.3
12.9
14.3
56.0
70.3
2.7
87.6
2.8
90.4
1.3
120.0
160.0
280.0
16.9
1.44
1.25
1.27
1.19
1.31
1.20
1.22
1.14
1.23
1.18
1.22
1.14
1.27
1.23
1.25
1.18
261
1264
1525
154
188
670
857
31
1,073
33
1,107
15
1,522.4
1,964.1
3,486
200
0.05
0.06
0.06
0.06
0.05
0.05
0.05
0.06
0.06
0.06
0.06
0.05
0.05
0.06
0.06
0.06
9.9
60.9
70.7
7.9
7.1
28.0
35.1
1.5
47.5
1.7
49.2
0.6
64.5
90.6
155.1
10.1
Note: Totals in tables may not add due to rounding. Mineral resources which are not mineral reserves do not have demonstrated economic viability. The estimate of
mineral resources may be materially affected by environmental, permitting, legal, title, taxation, sociopolitical, marketing, or other relevant issues. The quantity and grade
of reported Inferred resources in this estimation are uncertain in nature and there has been insufficient exploration to define these Inferred resources as an Indicated or
Measured mineral resource and it is uncertain if further exploration will result in upgrading them to the Indicated or Measured mineral resource category.
Strategic Report Simon Retter
Strategic Report
21
The Directors of the Company and its subsidiary undertakings (which together comprise
‘the Group’) present their Strategic Report for the year ended 31 December 2019.
Review of the Business
The Group is focused on the development of the Araguaia and Vermelho projects, both
of which are located in Brazil. See the Chairman’s Statement on page 6 and Operations
review on page 8 for detailed reviews of the business during the year.
Aims, Strategy & Business Plan
The Group’s aim is to create value for shareholders through the development of the
Araguaia Project through to feasibility stage and into development.
The Group’s strategy is to continue to progress the development of the 100% owned
Araguaia project towards construction as well as undertaking a pre-feasibility study on the
newly acquired Vermelho project. The Group also evaluates on an ad hoc basis with a view
to eventual acquisition, exploration and development of mineral projects in jurisdictions in
which it holds a presence, and/or in sectors in which management has expertise.
The Group’s business plan is to advance the Araguaia project towards construction and
ultimately bring the asset into production in order to enhance shareholder value whilst
advancing the Group’s second asset, the Vermelho project towards defining economic
feasibility. A Feasibility Study was published late in 2018 on Araguaia and during 2019
a significant financing partner, Orion Mine finance (OMF) invested $25m to advance the
project, build out the team in anticipation for construction and advance the wider project
finance negotiations. A Pre-Feasibility Study was published, on Vermelho which was a
significant milestone in progressing the project following its acquisition in early 2018.
The Board seeks to run the Group with a low-cost base in order to maximise the amount
that is spent on exploration and development as this is where value can be added. To this
extent, the corporate office is run on a streamlined basis by a core team, and specialist
skills and activities are outsourced as appropriate, both in the United Kingdom and in Brazil.
The Group finances its activities through periodic capital raisings with share placings. As
the Group continues to develop its projects, there may be opportunities to obtain funding
through other financial instruments, including royalty, debt or other arrangements with
strategic parties.
Principal Risks and Uncertainties
Set out below are the principal risks and uncertainties facing the Group:
Exploration risks
The exploration and mining business is controlled by a number of global factors, principally
supply and demand which in turn is a key driver in global metal prices; these factors are
beyond the control of the Group. Exploration is a high-risk business and there can be no
guarantee that any mineralisation discovered will result in proven and probable reserves
or go on to be an operating mine. At every stage of the exploration process the projects are
rigorously reviewed, both internally and by qualified third party consultants to determine
if the results justify the next stage of exploration expenditure, ensuring that funds are
only applied to high priority targets.
The principal assets of the Group, comprising the mineral exploration licences are
subject to certain financial and legal commitments. If these commitments are not
fulfilled the licences could be revoked. The Group closely monitors on an ongoing basis
its commitments and the expiry terms of all licences in order to ensure good title is
maintained. They are also subject to legislation defined by the government in Brazil; if this
legislation is changed it could adversely affect the value of the Group’s assets.
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSBUSINESSREVIEW 22 Strategic Report
Resource and Reserves Estimates
The Group’s reported resources and reserves are only estimates. No assurance can be given that the estimated resources will be
recovered or that they will be recovered at the rates estimated. Mineral reserve and resource estimates are based on limited sampling
and as a result are uncertain because the samples may not be fully representative of the full resource. Mineral resource estimates may
require revision (either up or down) in future periods based on further drilling or actual production experience.
Any future resource figures will be estimates and there can be no assurance that the minerals are present, will be recovered or that
they can be brought into profitable production. Furthermore, a decline in the market price for natural resources, particularly nickel, could
render reserves containing relatively lower grades of these resources uneconomic to recover.
Country risk
The Group’s licences and operations are located in foreign jurisdictions. As a result, the Group is subject to political, economic and
other uncertainties, including but not limited to, changes in policies or the personnel administering them, appropriation of property
without fair compensation, cancellation or modification of contract rights, royalty and tax increases and other risks arising out of foreign
governmental sovereignty over the area in which these operations are conducted.
Brazil is the current focus of the Group’s activity and offers stable political frameworks and actively supports foreign investment. It has
a well-developed exploration and mining code with proactive support for foreign companies.
Volatility of commodity prices
Historically, commodity prices (including in particular the price of nickel) have fluctuated and are affected by numerous factors beyond
the Group’s control. The aggregate effect of these factors is impossible to predict. Fluctuations in commodity prices in the long-term
may adversely affect the returns of the Group’s exploration projects.
Whilst the outlook and forecasts for nickel prices are generally positive, any significant reduction in the global demand for nickel, leading
to a fall in nickel prices, could lead to a significant fall in the cash flow of the Group in future periods and/or delay in exploration and
production, which may have a material adverse impact on the operating results and financial position of the Group.
Financing
The successful exploration of natural resources on any project requires significant capital investment. The Group currently sources finance
through the issue of additional equity capital. The Group’s ability to raise further funds will depend on the success of its investment
strategy and acquired operations. The Group successfully raised capital recently, which places it in a strong position, however, the Group
may not be successful in procuring the requisite funds on terms which are acceptable to take the project forwards and, if such funding
is unavailable, the Group may be required to reduce the scope of its investments or anticipated expansion. As the Group is currently in
the exploration stage it does not generate revenues and is therefore reliant on its cash resources and obtaining additional financing to
fund its operations, should the cash resources deplete and should there be a lack of available financing alternatives the Group may find
it difficult to fund its working capital.
Dependence on key personnel
The Group is dependent upon its executive management team. Whilst it has entered into contractual agreements with the aim of securing
the services of these personnel, as well as a long-term incentive plan comprising options and milestone incentives, the retention of their
services cannot be guaranteed. The development and success of the Group depends on the ability to recruit and retain high quality and
experienced staff. The loss of service of key personnel or the inability to attract additional qualified personnel as the Group grows could
have an adverse effect on future business and financial conditions. To date the Group has been successful in recruiting and retaining
high quality staff.
Title risk
The Group’s current and future operations will require approvals and permits from various federal, state and local governmental authorities,
and such operations are and will be governed by laws and regulations governing prospecting, development, mining, production, taxes,
labour standards, health, waste disposal, toxic substances, land use, environmental protection, mine safety and other matters. There
is no assurance that delays will not occur in connection with obtaining all necessary renewals of such approvals and permits for the
existing operations or additional approvals or permits for any possible future changes to operations. Prior to any development on any
of its properties, the Group must receive permits from appropriate governmental authorities. There can be no assurance that the Group
will continue to hold all permits necessary to develop or continue operating at any particular property or obtain all required permits on
reasonable terms or on a timely basis.
Uninsured risk
The Group, as a participant in exploration and development programmes, may become subject to liability for hazards that cannot
be insured against or third party claims that exceed the insurance cover. The Group may also be disrupted by a variety of risks and
hazards that are beyond its control, including geological, geotechnical and seismic factors, environmental hazards, industrial accidents,
occupation and health hazards and weather conditions or other acts of God.
Strategic Report
23
Financial risks
The Group’s operations expose it to a variety of financial risks, particularly relating to foreign currency exchange rates as a result of the
Group’s foreign operations. The Group has a risk management programme in place that seeks to limit the adverse effects of these risks
on the financial performance of the Group.
Details of the Group’s financial risk management objectives and policies are set out in note 3 to the Financial Statements.
Covid-19
Since the year end there has been a significant global pandemic which has had significant knock on effects for the majority of the world’s
population, by way of the measures governments are taking to tackle the issue. This represents a risk to the Group’s operations by
restricting travel, the potential to detriment the health and wellbeing of its employees, as well as the effects that this might have on the
ability of the Group to finance and advance its operations in the timeframes envisaged.
Financial Performance Review
The Group is not yet producing minerals and so has no income other than bank interest. Consequently, the Group is not expected to
report profits until it disposes of or is able to profitably develop or otherwise turn to account its exploration and development projects.
The principal financial key performance indicators (‘KPIs’) monitored by the Board concern levels and usage of cash.
The four main financial KPIs for the Group allow it to monitor costs and plan future exploration and development activities
and are as follows:
Cash and cash equivalents
Administrative expenses as a percentage of Total assets
Funds raised to advance Araguaia
Exploration costs capitalised as intangible assets during the year
2019
2018
£17,760,330
£6,527,115
4.3%
USD25M
3.2%
—
£5,928,916
£4,481,940
KPI’s are not GAAP measurements and are not intended to be a substitute for these measures. The KPI’s used by the Group may not be
the same as those used by other companies and so should not be used as such.
Administrative expenses as a percentage of total assets have increased, as a result of an increase in professional advisers fees due to
the commencement of project finance negotiations.
Exploration costs capitalised as intangible assets predominantly relate to expenditure on the Vermelho project during 2019 as a result of
the completion of a Pre-Feasibility Study combined with the recognition of the deferred consideration due to Vale now that a probable
path to production has been demonstrated.
Given the key strategy of the Group is advance the Araguaia project through to construction, we have included the quantum of funds
raised to meet this target as a KPI for the first time this year. A $25 million payment for a royalty over the first 426k tonnes of nickel
produced from Araguaia was secured with Orion Mine Finance during the year. This royalty was secured as part of a process which was
commenced in April 19, was in line with expectations and enabled the group to start certain key workstreams ahead of the finalisation of
the broader project finance package which is currently being undertaken. It also secures a key relationship with one of the largest mine
finance funds operating in the market at present.
At 31 December 2019, the Group’s intangible assets had a carrying value of £7,057,445, representing a significant reduction compared
to the prior year following a transfer of the Araguaia project to a new Mine Development Project category within fixed assets.
Fundraising
On 20th October 2019, the Group completed the drawdown of a $25m royalty financing arrangement secured from Orion Mine Finance
in exchange for a revenue royalty over the first 426k tonnes of nickel produced from the Araguaia project. This financing arrangement
secures a partnership with one of the largest mine finance funds in the market at present and constituted an important approval of the
project. The funds were raised to ensure the project could advance in areas such as securing a team for construction, further engineering
work, early works and land acquisitions whilst the Group works towards securing the main project finance package.
Non-Financial Key Performance Indicators (‘KPIs’)
The Board monitors the following non-financial KPIs on a regular basis:
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSBUSINESSREVIEW 24 Strategic Report
Strategic Report continued
Health and Safety – number of reported incidents
There were no significant reportable incidents in the current or prior year.
Operational performance
Good progress was made during the year with the completion of a royalty funding arrangement of $25m for a headline revenue royalty
on the Company’s flagship Araguaia nickel project. In addition a Pre-Feasibility Study was published on the Vermelho Nickel-Cobalt
project demonstrating robust economics and a potential source of conflict free cobalt sulphate.
Directors’ section 172 statement
The following disclosure describes how the Directors have had regard to the matters set out in section 172(1)(a) to (f) and forms the
Directors’ statement required under section 414CZA of The Companies Act 2006. This new reporting requirement is made in accordance
with the new corporate governance requirements identified in The Companies (Miscellaneous Reporting) Regulations 2018, which apply
to company reporting on financial years starting on or after 1 January 2019.
The matters set out in section 172(1) (a) to (f) are that a Director must act in the way they consider, in good faith, would be most likely to
promote the success of the Company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to:
> the likely consequences of any decision in the long term;
> the interests of the Company’s employees;
> the need to foster the Company’s business relationships with suppliers, customers and others;
> the impact of the Company’s operations on the community and the environment;
> the desirability of the Company maintaining a reputation for high standards of business conduct; and
> the need to act fairly between members of the Company.
In the above Strategic Report section of this Annual Report, the Company has set out the short to long term strategic priorities, and
described the plans to support their achievement.
We have split our analysis into two distinct sections, the first to addresses Stakeholder engagement, which provides information on
stakeholders, issues and methods of engagement, disclosed by stakeholder group. The second section addresses principal decisions
made by the Board and focuses on how the regard for stakeholders influenced decision-making.
Section 1. Stakeholder mapping and engagement activities within the reporting period.
The Company continuously interacts with a variety of stakeholders important to its success, such as equity investors, royalty holders,
workforce, government bodies, local community & vendor partners. The Company strives to strike the right balance between engagement
and communication. Furthermore, the Company works within the limitations of what can be disclosed to the various stakeholders with
regards to maintaining confidentiality of market and/or commercially sensitive information.
Who: Key Stakeholder Groups
Why: why is it important to
engage this group of stakeholders
How: how Horizonte engaged with
the stakeholders
What: what came of the
engagement
Equity Investors
Equity Investors
All substantial shareholders that
own more than 3% of the Company’s
shares are listed on page 51 within
the Governance Report.
The Company requires further
funding to develop the Araguaia and
Vermelho Projects. As such, existing
and prospective equity investors as
well as Project level partners are
important stakeholders.
We engaged with investors on
topics of strategy, governance,
project updates and performance.
The CEO and CFO presented at a
number of investor roadshows
and one-to-one meetings and
have increased the profile of the
Group with an international base of
potential investors.
The existing substantial
shareholders have regular meetings
with the CEO and CFO.
Prospective and existing investors
> The AGM and Annual and Interim
Reports.
> Investor roadshows and
presentations.
> One-on-one investor meetings
with the Chairman, CEO and CFO.
> Access to the Company’s brokers
and advisers
> Regular news and project
updates.
> Social media accounts e.g. Twitter
@Horizonteplc
> Site visits for potential
cornerstone investors.
Access to capital is of vital
importance to the long-term
success of our business to be able
to construct the Araguaia and
Vermelho Projects. Without the
provision of significant new financial
investment, the Company cannot
create value for our shareholders
by producing nickel products
and therefore a return on the
investment.
Through our engagement activities,
we strive to obtain investor buy-in
into our strategic objectives detailed
on page 22 and how we go about
executing them.
We are seeking to promote an
investor base that is interested in a
long term holding in the Company
and will support the Company in
achieving its strategic objectives.
Over the course of 2019, the
number of shares held in public
hands has increased and the overall
daily volume of shares traded has
increased significantly.
Strategic Report
25
Who: Key Stakeholder Groups
Why: why is it important to
engage this group of stakeholders
How: how Horizonte engaged with
the stakeholders
What: what came of the
engagement
Workforce
The Company has seven UK
employees including its Directors.
Three of the Directors are UK
residents and three are overseas
resident Directors
Both the CEO and CFO are UK based.
The rest of the Company’s workforce
is based in Brazil.
The vast majority of its employees
going forward will be based in
Brazil and the Directors consider
workforce issues holistically
for the Group.
The Company’s long-term success
is predicated on the commitment of
our workforce to our vision and the
demonstration of our values on a
daily basis.
The Board have identified that
reliance on key personnel is a
known risk.
Government bodies
The Company is impacted by local
governmental organisations in the
UK and Brazil.
The Company has its licence to
construct the processing plant but
will only be able to commence
production once it receives relevant
licences and permits from
government to mine and undertake
chemical processing.
UK Employees
The Board met with management
to discuss long term remuneration
strategy. The Remuneration
committee have undertaken a
review to examine and benchmark
Non-executive Director and
Executive team remuneration.
Board reporting has been optimised
to include sections on engagement
with workforce.
Brazil
Following the appointment of
a project director a new set of
policies and procedures has been
implemented.
The team were trained in aspects of
corporate policies and procedures to
engender positive corporate culture
aligned with the Company code of
conduct.
Meetings were held with staff to
provide project updates and ongoing
business objectives.
To date, the Company has received
its requisite environmental and land
use permits to enable construction
to commence as soon as financing
is secured. With this in place, the
Company is now focused on
secondary permitting such as the
powerline.
General Workforce:
> The Company maintains an
open line of communication
between its employees, senior
management and Board of
Directors.
UK employees
> The CEO and CFO report regularly
to the Board, including the
provision of board information.
> There is a formalised employee
induction into the Company’s
corporate governance policies
and procedures.
Brazil
> The Company maintains an HR
Function in both the UK and Brazil.
> The Company maintains
an anonymous email
correspondence address that
feeds directly into the UK
office for any employee or
safety/social concerns
> Senior management regularly
visit the operations in Brazil
and engage with its employees
through one-on-one and staff
meetings, employee events,
project updates, etc.
> Safety is a key factor in the
governance of the Group and
senior management hold
frequent safety meetings.
The Company provides general
corporate presentations regarding
the Araguaia Project development
as part of ongoing stakeholder
engagement with the state, local
and federal governments agencies.
The Company maintained its good
relations with the respective
government bodies and frequently
communicated progress.
The Company engages with the
relevant departments of the
Brazilian government in order to
progress the operational licences it
will require.
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSBUSINESSREVIEW 26
Strategic Report
Who: Key Stakeholder Groups
Why: why is it important to
engage this group of stakeholders
How: how Horizonte engaged with
the stakeholders
What: what came of the
engagement
Community
The local community at the project
site and surrounding area.
The Company has ongoing
engagements with the local
community as part of the
development of its sustainability
initiatives.
Stakeholder identification has
enabled the Company to ensure
that representatives of all
stakeholder groups may participate
in the community engagement
programme.
The community provides social
licence to operate.
We need to engage with the local
community to build trust. Having
the community’s trust will mean
it is more likely that any fears the
community has can be assuaged
and our plans and strategies
are more likely to be accepted.
Community engagement will inform
better decision making.
The local community in Para state
and the Araguaia area will provide
employees to the mine and our
suppliers.
The Company will in due course
have a social and economic impact
on the local community and
surrounding area. The Company is
committed to ensuring sustainable
growth minimising adverse impacts.
The Company will engage these
stakeholders as appropriate.
The Company has a Community
Relations Officer and head of
Communications based between
Brazil and the UK
> The Company has identified all
key stakeholders with the local
community within the reporting
period.
> The Group has open dialogue
with the local government and
community leaders regarding the
project development.
> The Company has existing ESG/
CSR policies and management
structure at corporate level. The
Company will expand on these
policies and structures at a local
project level as the Company
moves into construction and then
production.
Strategic Report
27
Who: Key Stakeholder Groups
Why: why is it important to
engage this group of stakeholders
How: how Horizonte engaged with
the stakeholders
What: what came of the
engagement
Suppliers
During the construction phase,
we will be using key suppliers
under commercial engineering
contracts to deliver the mine
and plant, all of whom are large
international vendors.
At a local level, we also partner with
a variety smaller companies, some
of whom are independent or family
run businesses.
Our suppliers are fundamental
to ensuring that the Company
can construct the project on
time and budget.
Using quality suppliers ensures that
as a business we meet the high
standards of performance
that we expect of ourselves
and vendor partners.
Royalty Holder
The Company has a royalty holder
with rights over revenue from the
Araguaia project.
The Company is moving toward the
construction stage of its project and
a key metric to sourcing the capital
required, is securing its royalty and
offtake agreements.
> Management team continue to
work closely with engineering
and specialised consultancy firms
including:
> One on one meetings between
management and suppliers.
> Vendor site visits and facility
Large vendors and engineering firms
have been engaged and agreed to
work within the Groups policies and
objectives
Small local vendors were engaged at
a broader level to better align with
company objectives.
audits to ensure supplier able to
meet requirements.
> Contact with procurement
department and accounts
payable.
> Visits to suppliers of key pieces
of equipment that are due to
be sourced as soon as project
finance is secured
The royalty holder had regular
meetings and presentations with
the CEO, CFO and wider team
prior to making an investment
into the Group. These meetings,
presentations and dialogue on the
wider progress of the project have
continued following the investment.
The Company was successful in
securing a Royalty partner for
its Araguaia project, who is one
of the largest investors in mine
construction projects globally.
This secured a $25m investment
enabling the Group to continue to
advance the project whilst work
continues on securing the balance of
the project finance package.
Section 2, Principal decisions by the board during the period.
We define principal decisions as both those that have long-term strategic impact and are material to the Group, but also those that
are significant to our key stakeholder groups. In making the following principal decisions, the Board considered the outcome from its
stakeholder engagement, the need to maintain a reputation for high standards of business conduct and the need to act fairly between
the members of the Company:
a) Royalty Agreement with Orion Mine Finance:
The Company undertook a review of its financing options at the beginning of the year and commenced a formal royalty process during
Q1 2019. This was based up on the desire to advance the project with certain critical work streams in advance of securing the remained
of the project finance for the development of Araguaia This resulted in OMF investing $25 million and obtaining a royalty over revenue
generated from the Araguaia Ferronickel project.
The decision is aligned with several of the key parts of the Company’s business model and corporate strategy, namely, to continue to
advance the Araguaia project towards being construction ready, to bring in a strategic financial partner to assist in the ultimate financing
of the project and to maximise shareholder value by limiting shareholder dilution.
The key stakeholder groups that could be materially impacted: Existing shareholders and potential investors, governmental bodies and
Company employees.
Existing shareholders may have conflicting interests with the OMF due to the payments under the Royalty being derived purely from
revenue as well as the associated security package provided to OMF by the parent and other subsidiaries to guarantee the payments
under the Royalty The Directors considered the impact and concluded that obtaining a strategic and cornerstone financial investor in
OMF, significantly de-risks completing the funding package for the development of the Araguaia Project, which will create shareholder
value in the longer term and that a non-dilutive source of financing for the project was highly desirable at the time, given the comparison
to issuing equity at the prevailing share price at that time.
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSBUSINESSREVIEW
28
Strategic Report
Adding a significant financial partner who could potentially provide further capital into the Project would strengthen the likelihood of the
project successfully completing its project financing and thus moving into production.
The Directors also considered the potential impact of the investment on local communities, employees and governmental bodies The
Board concluded that securing a significant financial investment thereby enabling the project to advance towards its stated goals of
constructing the Araguaia project would likely be beneficial to all these stakeholders. The employment generated as a result of the
continued development of the project as well local taxes and overall economic activity were overall in the interest of stakeholders.
b) Completion of a Pre Feasibility Study on the Vermelho Nickel Cobalt project
The Company undertook the bulk of the work on a Pre-Feasibility Study during the year and published its findings during October
2019. The results of the PFS demonstrated compelling economics and it estimated that the proposed processing route of High
Pressure Acid Leaching could be constructed within the capital cost environment for securing financing for mining projects in the
prevailing economic climate.
The key stakeholder groups that could be materially impacted: Existing shareholders and potential investors, governmental bodies and
Company employees.
The Directors are of the opinion that it is in the interest of existing shareholders and potential investors to demonstrate the potential
economic viability of the project and to proceed with advancing the project towards a Feasibility Study and ultimate construction decision.
It is in interest of local governments and all group employees to understand the potential economic viability of the Group’s Vermelho
project, which could, if brought into production, generate a significant amount of tax revue and employment.
In making the above principal decisions, the Directors believe that they have considered all relevant stakeholders, potential impact and
conflicts, the Company’s business model and its long-term strategic objectives, and have acted accordingly to promote the success of
the Company for the benefit of its members as a whole.
Financial Review
Loss before taxation
Cash and cash equivalents
Exploration & Mine Development assets
Royalty liability
Fair value of derivative asset
Net assets
Loss per share (pence)
Year ended
31 December 2019
£
(3,171,214)
17,760,330
39,317,506
(20,570,411)
2,246,809
31,747,057
0.219p
Year ended
31 December 2018
£
(1,939,663)
6,527,115
35,737,902
—
—
36,958,955
0.136p
Loss for the year
The loss for the year increased to £3,171,214 from £1,939,662 in 2018 primarily due to an overall increase in the level of administrative
expenses, increase in finance costs as a result of the unwinding of discount on the newly secured royalty funding, and a loss as a result
of foreign exchange movements.
The Group has continued to keep a tight control on its administrative costs, but these are expected to rise as the Group increases is
headcount and activity as it progresses towards securing project finance and ultimately commencement of construction at Araguaia.
As a result of this the administrative expenses increased during the year by £1,227,787 to £2,563,880.
Furthermore, total comprehensive loss attributable to equity holders of £5,798,153 included loss on currency translation differences of
£2,626,939. This was due to the weakening of BRL against both USD and GBP as at 31 December 2019, as compared to 31 December 2018.
Strategic Report
29
Cash and cash equivalents
The group held cash and cash equivalents of £17,760,330 compared to £6,527,115 in the prior year. The increase was due to $25 million
of new funding secured by issuing a royalty over 2.25% of revenue for the first 426k tonnes of nickel produced from Araguaia.
Royalty Liability
The $25 million upfront payment for a royalty secured during the year has been valued using the amortised cost basis and is valued as
a liability of £20,570,511 at 31 December 2019. This funding is not repayable until the project enters into commercial production and
following that payments are made at a variable rate of 2.25% potentially increasing to 3.0% based upon the date that project finance
is secured and certain level of construction expenditure is committed. The current assumed royalty rate is 2.45%. The royalty is due on
revenue less some associated costs on a quarterly basis and has been fair valued based on the expectation of the future payments
under the agreement. Included in the agreement are certain embedded derivatives which can under certain circumstances result in
the Company having the ability to buy back certain levels of the royalty, the purchase price is driven by the holder obtaining certain
milestones on its return on investment. The result of these derivatives are a fair value of derivative asset being recognised on the
balance sheet of £2.2 million.
Exploration Assets
Exploration assets, which comprise both the Araguaia and Vermelho projects, have decreased to £6,055,346 as at 31 December 2019
as compared to £35,737,902 at 31 December 2018 this is due to the transfer of the Araguaia to fixed assets following the finalisation
of the feasibility study in late 2018 and securing of significant amount of finance by way of a $25m royalty during the year: The Group
incurred addition expenditure in the year, which included £6,222,796 in relation to work undertaken on Araguaia and the Vermelho Pre-
Feasibility Study as well as a significant foreign exchange revaluation loss of £2,610,847 as Sterling appreciated against the Brazilian
Real. The exploration assets of the business are recorded in the functional currency of Brazil, the country in which they are located.
The strategic report was approved by the board on 7 April and is signed on its behalf by Simon Retter
Simon Retter
Company Secretary
7 April 2020
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSBUSINESSREVIEW 30
Board of Directors and Key Management
Board of Directors and Key Management
A wealth of experience
David J. Hall, BA (Hons), MSc, Fellow SEG,
P.Geo, Non-Executive Chairman
Mr. Hall is a graduate in geology from Trinity
College Dublin and holds a Master’s Degree in
Mineral Exploration from Queen’s University,
Kingston, Ontario. He has over 30 years of
experience in the exploration and mining sector
and has worked on and assessed exploration
projects and mines in over 40 countries. From
1992, Mr. Hall was Chief Geologist for Minorco,
responsible for Central and Eastern Europe,
Central Asia and the Middle East. He moved
to South America in 1997 as a Consultant
geologist for Minorco South America and
subsequently became exploration manager
for AngloGold South America in 1999, where
he was responsible for exploration around
the Cerro Vanguardia gold mine in Argentina,
around the Morro Velho and Crixas mines
in Brazil and establishing the exploration
programme that resulted in the discovery
of the La Recantada gold deposit in Peru as
well as certain joint ventures in Ecuador and
Colombia. In April 2002, Mr. Hall became an
executive director of Minmet and operations
director in September 2002. Mr. Hall led the
divestment of Minmet’s exploration assets
in the Dominican Republic into GoldQuest
Mining Corporation, which is listed on the TSX
Venture Exchange. Mr. Hall was also founder
of Stratex International Plc, that discovered
the Oksut gold deposit now in production
with Centerra Gold. Mr. Hall is a fellow of the
Society of Economic Geologists and EuroGeol.
from
Jeremy J. Martin, MSc, ASCM Director and
Chief Executive Officer
Mr. Martin holds a degree
in Mining
Geology from the Camborne School of
Mines, and a Master's Degree in mineral
exploration
the University of
Leicester. He has worked in South America,
Central America and Europe, where he
was responsible for grassroots regional
metalliferous exploration programmes
through to resources definition and mine
development. Mr. Martin has established
a number of JV partnerships with major
mining companies and has been involved in
the formation of four AIM and TSX traded
companies. He has served on a number of
public company boards and is a member of
the Society of Economic Geologists and the
Institute of Mining Analysts.
Simon J Retter BSc (Hons), ACA Chief
Financial Officer and Company Secretary
Mr Retter has a degree in Accounting and
Finance from the University of Bristol
and is a Chartered Accountant with over
10 years of experience
in the mining
industry. He has undertaken numerous
corporate finance transactions across a
broad range of industries including initial
public offerings, reverse take overs and
secondary fund raisings. He has served
as finance director of Paragon Diamonds
Ltd and currently holds the role of Non-
Executive Director of HRC World plc, which
holds the franchise for Hard Rock Cafes in
greater China. Mr Retter is a member of
the Institute of Chartered Accountants in
England and Wales.
Owen A. Bavinton, BSc (Hons), MSc, DIC,
PhD, Non-Executive Director
Dr. Bavinton graduated from the University
of Queensland in Geology in 1969, holds a
Master’s Degree in Mineral Exploration
from Imperial College, London and a PhD
in Economic Geology from ANU, Canberra,
Australia. He has over 45 years of varied
international experience in the minerals
exploration and mining sector in several
commodities. After brief periods as a
junior consultant and an underground
mine geologist on a Witwatersrand gold
mine, from 1974 to 1985 he had several
positions with Western Mining Corporation,
finally as director of WMC’s activities in
Brazil. From 1986 to 1992 he was Chief
Executive Officer of Aredor Guinea SA. In
1992 he joined the Anglo American group
where he stayed until his retirement
in 2010. Based initially in Turkey and
then in Budapest, he was responsible
for Anglo American’s exploration and
project evaluation activities in the FSU,
Central Europe and the Middle East. He
moved to London in 1998, initially as
Head of Exploration for Minorco, and later
Group Head of Exploration and Geology
for the Anglo American Group. In those
roles, he was responsible for worldwide
exploration and geosciences covering a
range of exploration projects, through
all stages of development,
including
advanced projects and feasibility studies,
as well as providing geoscience input into
numerous acquisitions. He
is a fellow
of the Society of Economic Geologists,
the Association of Applied Geochemists
and the Institute of Materials, Mining
and Metallurgy. Dr. Bavinton is currently
an independent consultant and speaks
French and Portuguese.
in
Allan M. Walker, MA, Non-Executive Director
Mr. Walker has over 35 years of
experience
investment banking and
funds management, primarily focused
on energy sector project finance and
private equity, particularly
in emerging
markets. He has extensive contacts in
the energy, infrastructure and resources
sectors worldwide, as well as with
governments, multilateral
agencies
and regional development banks. Mr.
Walker is currently a consultant with UK
Department for International Trade, where
he is Head of Project Finance. Previously
he was with Masdar Capital in Abu Dhabi,
as Executive Director, responsible for
managing the third party private equity
funds management business for Masdar,
the Abu Dhabi government’s clean energy
and sustainability company. Prior to that
he founded (in 2005) and ran a similar
private equity fund for Black River Asset
Management (UK) Limited, an indirectly
held subsidiary of Cargill Inc. Prior to Black
River, Mr. Walker was head of power and
infrastructure in London for Standard Bank
Plc, a world leader in emerging markets
resource banking. Mr. Walker was also
previously a director in the Global Energy
and Project Finance Group of Credit
Suisse First Boston in London and ran
the energy group at CSFB Garantia in Sao
Paulo, Brazil from 1998 to 2001, where he
spent seven years covering Latin America.
He also spent three years in the energy
group of ING Barings in New York. Mr.
Walker graduated with an MA in economic
geography from Cambridge University in
1982 and received his financial training on
a one year residential training programme
with JP Morgan in New York in 1983. He
speaks Portuguese and Spanish.
Board of Directors and Key Management
31
Pedro Rodrigues dos Reis
Project Director
Mr Rodrigues is a highly qualified Civil
Engineer with over 30 years' experience
in capital infrastructure projects in the
mining industry, principally in Brazil, Chile
and Peru. He has a wealth of mining project
experience having worked for both EPCM
engineering companies and owner's project
execution teams. His most recent roles as
part of Senior team of Jacob's Engineering
Group for Latin America
involved the
execution of a number of projects from
feasibility through to construction. Prior
to this he was Project Director for MMG
Limited where he led the US$7 billion Las
Bambas copper Project in Peru, which was
delivered successfully and brought into
production ahead of schedule and under
budget. He has worked across a variety of
commodities, and has managed multiple
EPCM's, for major and junior companies
such as Minsur/Marcobre, MMG and
Newmont Mining. As a Brazilian national
with almost two decades of international
experience, Mr Rodrigues brings a unique
mix of skills and expertise to lead the
construction of Araguaia.
Alexander N. Christopher, BSc (Hons), P.Geo,
Non-Executive Director
Mr. Christopher, a professional geologist, has over
30 years of experience in mineral exploration
and the mining industry. He is a member of
the Association of Professional Engineers and
Geoscientists BC and possesses an Honours
B.Sc. in Geology from McMaster University and
an Environmental Biology Technology diploma
from Canadore College. Mr. Christopher currently
holds the position of Senior Vice President,
Exploration, Projects & Technical Services at Teck.
Mr. Christopher has been with Teck since the
mid-1980’s holding a number of positions within
the company. He is also currently a member of
the Board of Directors of the Prospectors and
Developers Association of Canada where he
holds the position of First Vice President.
William Fisher, P.Geo,
Non-Executive Director
Mr. Fisher graduated as a geologist in 1979
and has extensive
industry experience
which has included a number of residential
in Africa, Australia, Europe and
posts
Canada in both exploration and mining
positions. Under his leadership, Karmin
Exploration discovered the Aripuanã base
metal sulphide deposits in Brazil. From
1997 to 2001 Mr. Fisher was Vice President,
Exploration for Boliden AB, a major
European mining and smelting company
where he was responsible for thirty five
projects in nine countries. From 2001 to
2008, Bill led GlobeStar Mining Corp. from
an exploration company to an emerging
base metal producer in the Dominican
Republic which developed and operated
the Cerro de Maimon mine until it was sold
to Perilya for USD 186 million. Mr. Fisher
was also Chairman of Aurelian Resources
which was acquired by Kinross in 2008 for
USD 1.2 Billion after the discovery of the
Fruta del Norte gold deposit in Ecuador.
Mr. Fisher currently serves as Executive
Chairman of Goldquest Mining Corp. (TSX:
GCQ), independent director of Treasury
Metals Inc. (TSX: TML) and Chairman of
Rame Energy (AIM: RAME).
Key Advisers
Dr Philip Mackey P.Eng, PhD, FCIM
Senior Metallurgical Adviser
Dr Mackey is a consulting metallurgical en-
gineer with over forty years’ experience in
non-ferrous metals processing with a par-
ticular focus on nickel and copper sulphide
smelting and nickel laterite processing. He
has worked for leading producers of nick-
el including Falconbridge and Xstrata and
throughout his career he has been involved
in a number of nickel sulphide projects and
later on, nickel laterite projects at vari-
ous stages of the development cycle. Dr
Mackey’s extensive experience has seen
him take projects from the start-up stage,
through the feasibility stages and into the
processing and production of non-ferrous
metals. Dr Mackey is a Member and Fellow
of the Canadian Institute of Mining and
Metallurgy as well as the Metals and Min-
erals Society USA. He has also authored or
co-authored over 100 publications regard-
ing metallurgy with a particular focus on
nickel and copper.
a
is
and
recycling
operation
Dr Nic Barcza P.Eng, PhD
Senior Pyrometallurgical Adviser
Dr. Nic Barcza, has a PhD in Metallurgical
Engineering
registered
Professional Engineer. Nic is an Executive
Consultant to Mintek in South Africa. He
was the Chairman of Mintek's wholly-
owned subsidiary Mindev Pty (Ltd), until
the end of 2005 and has served on a
number of Boards such as Mogale Alloys
(Pty) Ltd, a ferroalloy and stainless steel
near
dust/alloy
Johannesburg. He is a past-President and
Honorary Life Fellow of the South African
Institute of Mining and Metallurgy (SAIMM),
chairman of the International Committee
of INFACON, a Fellow of the South African
Academy of Engineering and has served
on several academic advisory Boards and
the Council of Wits University. Nic has
worked on several titaniferous magnetite
projects and also advises and consults for
several other companies in South Africa
and abroad including Anfield Nickel Corp.
(Canada) and Oriel Resources Ltd (UK) on
nickel and chrome projects.
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSCORPORATEGOVERNANCE 32
Directors’ Report
Directors’ Report
The Directors present their Annual Report on the affairs of Horizonte Minerals Plc, together with the audited Financial Statements for
the year ended 31 December 2019.
Principal activities
The principal activity of the Group and Company is the identification, acquisition, exploration and development of mineral projects.
The main area of activity comprises the development of the Araguaia nickel project, located in Pará State in north-eastern Brazil.
Financial review
The Group recorded a loss for the year of £3,171,214 (2018: £1,939,663). The Group is currently involved in exploration and evaluation
activities and not actively mining. As a result, the Group is not revenue generative.
On 20th October 2019, the Group completed the drawdown of a $25m royalty financing arrangement secured from Orion Mine
Finance in exchange for a revenue royalty over the first 426k tonnes of nickel produced from the Araguaia project. This financing
arrangement secures a partnership with one of the largest mine finance funds in the market at present and constituted an
important approval of the project.
At 31 December 2019, the Group had cash and cash equivalents of £17,760,330 (2018: £6,527,115). The Directors have prepared
cash flow forecasts for the 12 months from the date of signing of these Financial Statements. The Directors have formed a judgement
at the time of approving the Financial Statements that there is a reasonable expectation that the Company and Group have adequate
resources to continue operations for the foreseeable future. For this reason, the Directors continue to adopt the going concern basis in
preparing the Financial Statements. Further details of the Directors’ conclusions regarding going concern are detailed in note 2.4 to the
Financial Statements.
The Directors do not recommend payment of a dividend (2018: £Nil).
Sustainability
Safety
Company continues its strong safety track record with
0 LTIs (lost time injury) throughout 2019.
Health
All employees now participating in the Company’s medical and
vaccination program.
Social
The Company spent approximately R$100,000 on social
investment projects in the region throughout 2019
and additionally provided in-kind support through
employee volunteering.
Rehabilitation
In 2019 Horizonte commenced seedling production at its pilot
greenhouse project and a number of local springs in the region
have been rehabilitated with local shrubs and fencing.
Economy
Over 15% of all purchases were made within the Para State and
around half a million Reais in the local towns surrounding our
projects.
People
Strong and diverse owners team, including a good presence of local
and female employees. In 2018, approximately 50% of our direct
employees originated from the Pará State.
Directors’ Report
33
Environment & Social
In January of 2019, the award of the Construction Licence, Licença de Instalação (“LI”) in Portuguese, was granted by SEMAS, the Brazilian
Pará State Environmental Agency (‘SEMAS’) for Araguaia.
The granting of the LI provides Horizonte with the permits required to construct the Araguaia rotary kiln electric furnace (“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.
In partnership with ERM, Brandt, Integratio and Ramboll consultants; the Company conducted a range of studies over 2019 to align with
international banking standards, such as, the International Finance Corporation (IFC) Environmental and Social Performance Standards
and Equator Principles.
Recommendations from the Feasibility Study were implemented throughout 2019, such as an independent expert review as well as
detailed water flow data collection along the river and springs nearby the project area. All data collected confirms assessments made in
the Water Balance produced by ERM and has further de-risked the Araguaia project.
Horizonte is working closely with local communities and developed a number of new partnerships in the towns nearby our planned
projects throughout 2019. These projects include:
> Strengthening the local supply chain (FIEPA partnership);
> Sex education and reproductive health (Barong NGO partnership); and
> Diversification of the rural economy (EMMATUR and COPAG rural partnerships).
• The Company advanced a number of environment stewardship projects in 2019, including: Full implementation of pilot
greenhouse project, with approximately native 2000 shrubs grown;
• Rehabilitation of two native springs within Araguaia project influence area;
• Clean-up of Araguaia river after the local summer festival;
• Cultural and environmental heritage education projects.
The sustainability team also commenced baseline data collections at Vermelho in 2019 and is commencing Vermelho along the
permitting pathway. We expect to announce a partner consultant group to lead the social and environmental impact assessment for
Vermelho in the first half of 2020.
Permitting
The Company took significant strides in de-risking the Araguaia Project in 2019 through licence approvals and construction permit
requests, culminating in the award of the Construction Licence for Araguaia.
Multiple permits were granted/progressed in 2019, including:
> Approval of the Construction Licence (LI) for Araguaia South plant and associated infrastructure;
> Approval of the water-use permit for dewatering of seven pits in the Araguaia South project area;
> Approval of vegetation removal permit for Araguaia South;
> Approval of fauna capture and fauna monitoring permit for Araguaia South;
> Approval of completed archaeology works for Araguaia South;
> Power utilisation permit for the Araguaia ferronickel project and submission of simplified environmental impact assessment for the
Transmission Line;
> Approval of Archaeology study methodology for Transmission Line and Araguaia North infrastructure;
> Approval of fauna capture licence for the Araguaia North deposit;
> Progress of environmental studies for the Araguaia North deposit including fauna and flora studies.
All of the major permits are in place for the Araguaia project. In 2020 the sustainability team will prioritise the progress of the remaining
Araguaia licences to take Araguaia to shovel-ready phase.
In addition to this, the team is commencing the Vermelho project’s environmental impact assessment with key consulting partner to be
announced during 2020.
Health and safety
Horizonte operates a comprehensive health and safety programme to ensure the wellness and security of its employees. We are proud
to have operated throughout 2019 with no lost time incidents. We are proud to have completed two injury-free years consecutively.
The Group operates with 6 ‘golden rules’ aimed at mitigating the majority of health and safety risks applicable to exploration and
development projects. Annually, Horizonte management provides a detailed in-house review of the Company’s health and safety
programme hand in hand with all members of the Brazil site team.
A health and safety audit was conducted by FAC consultants in 2018 and results of this were implemented throughout 2018 and 2019. The
Araguaia project will bring health & safety specialists into the Owners team and the project expects to conduct new HAZID and HAZOP workshops
mid-year as part of the engineering work in the lead up to Araguaia’s construction.
Operational Governance
The Company has operated a Business Integrity Policy for a number of years. This policy has undergone a comprehensive review by internal and
external lawyers and the updated policy was decimated amongst all employees including Board and management levels throughout 2019.
Since the recruitment of Pedro Rodrigues as Araguaia Project Director, a number of governance procedures have been implemented to
ensure integrity and alignment with Company requirements. A Project Governance policy has been approved and implemented through
communications and training to all employees.
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSCORPORATEGOVERNANCE 34
Directors’ Report
Directors’ Report continued
The Company operates an anonymous complaint handling procedure within communities, including email and telephone contact. Site
employees also regularly visit and engage with locals to ensure open and transparent communications between the Company and its
local stakeholders. Horizonte has a good diversity and equity record, with approximately 40% of its employees as female and almost half
from within the local Para state. Further diversity and equity/human resources policies are planned for implementation throughout 2020.
Substantial shareholdings
The Directors are aware of the following substantial interests or holdings in 3% or more of the Company’s ordinary called up share capital as at
6 April 2020.
Major shareholders
Teck Resources Limited
Hargreaves Lansdown
Canaccord Genuity Group
Interactive Investor
JP Morgan
Glencore
Lombard Odier Asset Management
HSDL
AJ Bell
Number of shares
% of issued capital
210,207,179
201,828,142
128,481,667
120,374,666
115,995,186
88,362,682
59,720,418
54,087,257
43,633,112
14.5%
14.0%
8.9%
8.3%
8.0%
6.1%
4.1%
3.7%
3.0%
Share capital
Changes in the share capital of the Company are set out in note 13 of the Financial Statements.
Directors and their interests
The names of the Directors of the Company at the date of this report are shown in the Statutory Information. Refer to note 24 for
further details.
The Directors who served during the year, together with their directly beneficial interests in the shares of the Company as at
31 December 2019 are as follows:
Director
David Hall
Jeremy Martin
Owen Bavinton
Allan Walker
William Fisher
Alex Christopher
31 December 2019
31 December 2018
Shares
Options
Shares
Options
1,039,955
16,000,000
1,039,955
16,000,000
2,028,908
28,500,000
2,028,908
28,500,000
2,000,000
13,000,000
2,000,000
13,000,000
705,479
13,900,000
705,479
13,900,000
1,975,000
13,000,000
1,975,000
13,000,000
—
—
None of the Directors exercised any share options during the year.
There has been no change in the interests set out above between 31 December 2019 and 7 April 2020.
Directors’ statement as to disclosure of information to auditor
The Directors who held office at the date of approval of this Directors’ Report confirm that, so far as they are individually aware, there is no relevant
audit information of which the Company’s auditor is unaware and the Directors have taken all the steps that they ought to have taken to make
themselves aware of any relevant audit information and to establish that the auditor is aware of the information.
Matters covered in the Business Review
The business review and review of KPIs are included in the Operations Review and Strategic Report.
Financial risk management
The Company is exposed through its operations to the following financial risks:
> Commodity price risk
> Foreign currency risk
> Credit risk
> Interest rate risk
> Liquidity risk
In common with all other businesses, the Group is exposed to risks that arise from its area of operation, these along with managements policies
surrounding risk management are included in note 3.
Statement of Directors’ Responsibilities
35
Events after the reporting date
The events after the reporting date are set out in note 32 to the Financial Statements.
Future developments
In 2020 the Group will be working towards securing the required project finance in order to construct and bring the Araguaia project into commercial
production. Having published a Pre-Feasibility Study on the Vermelho project during 2019, the Group is focused on further advancing the VNCP project
towards a Feasibility Study and eventual construction decision.
Directors and Officers Insurance
The Group provided Directors and Officers insurance for both the current and prior periods.
Annual General Meeting
The Notice of the Annual General Meeting of the Company and the Management Information Circular together with Management Discussion and
Analysis as at 31 December 2019 will be distributed to shareholders together with the Annual Report. Full details of the business to be considered
at that meeting can be found in the Notice.
Independent auditor
The auditor, BDO LLP, will be proposed for reappointment in accordance with section 485 of the Companies Act 2006.
BDO LLP has signified its willingness to continue in office as auditor.
By Order of the Board
Simon Retter
Company Secretary
7 April 2020
Statement of Directors’ Responsibilities
The directors are responsible for preparing the strategic report, annual report and the financial statements in accordance with applicable
law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to
prepare the group and company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted
by the European Union. Under company law the directors must not approve the financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the group and company and of the profit or loss of the group and company for that
period. The directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for
companies trading securities on the Alternative Investment Market and in accordance with the rules of the Toronto Stock Exchange.
In preparing these financial statements, the directors are required to:
> select suitable accounting policies and then apply them consistently;
> make judgements and accounting estimates that are reasonable and prudent;
> state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material
departures disclosed and explained in the financial statements;
> prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will
continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions
and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial
statements comply with the requirements of the Companies Act 2006. They are also responsible for safeguarding the assets of the
company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Website publication
The directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial
statements are published on the company's website in accordance with legislation in the United Kingdom governing the preparation
and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the
company's website is the responsibility of the directors. The directors' responsibility also extends to the ongoing integrity of the financial
statements contained therein.
By Order of the Board
Simon James Retter
Company Secretary
7 April 2020
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSCORPORATEGOVERNANCE 36 Corporate Governance Report
Corporate Governance Report
Corporate governance practices
The Board recognises the importance of
sound corporate governance commensurate
with the size of the Company and the interests
of Shareholders. The Company strives
to ensure that
its corporate governance
policies and procedures which are in place
across the Group are of a high standard.
The Board acknowledges the importance
of good corporate governance and in light
of the Group’s size and rate of progression,
decided to adopt the provisions of the QCA
Corporate Governance Code in September
2018 (“the Code”).
The Corporate Governance Statement in
relation to the principles of the QCA Corporate
Governance Code is provided on the Company
website at https://horizonteminerals.com/
uk/en/governance/
The Code
is described as a practical,
outcome orientated approach to corporate
governance that is tailored for small and mid-
size companies. It is a valuable reference for
growing companies wishing to follow good
governance practice. The Company has
adopted the Code because it allows it to take
a flexible yet adequate approach to corporate
governance, ensuring that the Company
places the right people in the right roles and
to ensure that right things are being done to
deliver value for all its stakeholders.
Further information on principal 1 which
sets out how the business establishes a
strategy and business model which promote
long term value for shareholders, which is
covered in the Strategy report on page 21.
The Board of Directors
As at 31 December 2019, the Board of
Directors comprised six members: one
Executive Director and five Non-Executive
Directors including the Chairman, Mr David
Hall. The Executive Director has a wealth
of minerals exploration and development
experience. Similarly, the Non-Executive
Directors have extensive mineral and
financial experience. Mr Owen Bavinton,
Mr William Fisher and Mr Allan Walker are
classified as Independent by the Toronto
Stock Exchange.
Directors who have been appointed to the
Company have been chosen because of
the skills and experience they offer. The
Board of Directors has strong, relevant
experience across the areas of mining,
geology, exploration and banking. The Board
is satisfied that, between the Directors, it
has an effective and appropriate balance of
skills and experience, including in the areas of
mining and exploration. All Directors receive
regular and timely information on the Group’s
operational and
financial performance.
Relevant information is circulated to the
Directors in advance of meetings.
Skills and knowledge have been gained
through aggregated experience in mining
and the wider sector and these are
maintained through ongoing involvement
and participation within the industry.
The Board of Horizonte
is responsible
for setting the vision and strategy for the
Company to deliver value to the Company’s
shareholders by effectively putting in place
its business model.
The roles and responsibility of the Chairman,
CEO and other directors are laid out below:
Chairman:
The primary responsibility of the chairman is
to lead the Board effectively and to oversee
the adoption, delivery and communication
of the Company’s corporate governance
model. The chair has adequate separation
from the day-to-day business to be able
to make independent decisions. Save in
exceptional (and well justified and explained)
circumstances, the chair should not also fulfil
the role of chief executive.
CEO:
The Company’s CEO is charged with the
delivery of the business model within
the strategy set by the Board. The CEO
works with the chair and NEDs in an open
and transparent way and keeps the chair
and NEDs up-to-date with operational
performance, risks and other
issues to
ensure that the business remains aligned
with the strategy.
Non-executive directors:
The Company’s NED`S participate
in all
board level decisions and play a particular
role in the determination and articulation
of strategy. The Company’s NED’s provide
oversight and scrutiny of the performance
of the executive directors, whilst both
inspiring
constructively challenging and
them,
the business
thereby ensuring
develops, communicates and executes the
agreed strategy and operates within the risk
management framework.
Board meetings
The Board ordinarily meets approximately
on a quarterly basis and as and when further
required, providing effective
leadership
and overall management of the Company’s
affairs by reference to those matters
reserved for its decision. This includes the
approval of the budget and business plan,
major capital expenditure, acquisitions and
disposals, risk management policies and the
approval of the financial statements. Formal
agendas, papers and reports are sent to the
Directors in a timely manner, prior to the
Board meetings. The Board delegates certain
aspects of its responsibilities to the Board
committees which have terms of reference
as listed below.
in an
Evaluating Board performance
Evaluation of the performance of the
Company’s Board has historically been
implemented
informal manner.
From the beginning of 2018 however, the
Board formally reviews and considers the
performance of each director at or around
the time of publication of the Company’s
annual
is
determined in accordance with the Articles
of Association. When determining executive
director remuneration policy and practices,
the Company’s remuneration committee
addresses the following:
> Clarity – remuneration arrangements
is transparent and promotes effective
engagement with shareholders and the
workforce;
remuneration
report. The
> Simplicity – remuneration structures
avoid complexity and their rationale and
operation are easy to understand;
> Risk – remuneration arrangements
ensure reputational and other risks from
excessive rewards, and behavioural risks
that can arise from target-based incentive
plans, are identified and mitigated;
> Proportionality – the link between
individual awards, the delivery of strategy
and the long-term performance of the
Group should be clear. Outcomes do not
reward poor performance;
> Alignment to culture – incentive schemes
drive behaviours consistent with company
purpose, values and strategy.
On an ongoing basis, Board members
maintain a watching brief to identify relevant
internal and external candidates who may
be suitable additions to or backup for current
Board members.
is
for
reviewing
responsible
Remuneration and audit committees
The remuneration committee comprises
David Hall, William Fisher and Allan Walker
the
and
performance of the Executive Director and
senior management and for setting the
framework and broad policy for the scale
and structure of their remuneration, taking
into account all factors which it shall deem
necessary. The remuneration committee
also recommends the allocation of share
options for the Board to approve and is
responsible for setting up any performance
criteria in relation to the exercise of options
granted under any share options schemes
adopted by the Group.
The audit committee, comprising Owen
Bavinton, David Hall, William Fisher and
Allan Walker, has primary responsibility for
monitoring the quality of internal controls,
ensuring that the financial performance
of the Group is properly measured and
reported on and for reviewing reports from
the Group’s auditors relating to the Group’s
accounting and internal controls.
Corporate Governance Report
37
Internal controls
The Board recognises the importance of both financial and non-financial controls and has reviewed the Group’s control environment and any
related shortfalls during the year. Since the Group was established, the Directors are satisfied that, given the current size and activities of the
Group, adequate internal controls have been implemented. Whilst they are aware that no system can provide absolute assurance against
material misstatement or loss, in light of the current activity and proposed future developments of the Group, continuing reviews of internal
controls will be undertaken to ensure that they are adequate and effective.
Risk management
The Board considers risk assessment to be important in achieving its strategic objectives. The Board’s current assessment of the principle risks
are set out in the Strategic Report and are monitored by the Board at their meetings.
Securities trading
The Group has adopted a share dealing code for dealings in shares by Directors and senior employees which is appropriate for an AIM and
TSX listed company. The Directors comply with relevant AIM and TSX rules relating to Directors’ dealings and take reasonable steps to ensure
compliance by the Group’s applicable employees.
Relations with shareholders
The Board is committed to providing effective communication with the shareholders of the Group. Significant developments are disseminated
through stock exchange announcements and regular updates on the Company website. The Board views the Annual General Meeting as a
forum for communication between the Group and its shareholders and encourages their participation in its agenda. As part of the Group’s AGM
Horizonte releases the results of the votes in a transparent fashion to all of the Group’s stakeholders.
In the occurrence where a significant proportion of votes (i.e. 20% and above) have been cast against a resolution at a general meeting, The
Group will include an explanation of what actions it intends to take to understand the reasons behind that vote result, and, where appropriate,
any different action it has taken, or will take, as a result.
Corporate Culture
The Board believes that the promotion of a corporate culture based on sound ethical values and behaviours is essential to maximise shareholder
value. Horizonte's company culture is consistent with the Group’s objectives, strategy and business model and is consistent with the Group’s
objectives, strategy and business model. The Board regularly meets and monitors the business and its stakeholders to ensure the values and
strategy, and satisfy itself that these and its culture are aligned. The Group’s directors act with integrity, lead by example and promote the
desired culture.
Attendance at meetings during 2019
In carrying out its mandate, the Board met six times during the year ended 31 December 2019. The following table sets out attendance by the
directors of the Group during those eight meetings of the Board:
Board Meeting Date
David Hall
Jeremy Martin
Allan Walker
Alex Christopher
Owen Bavinton
William Fisher
21 February 2019
18 March 2019
9 May 2019
9 May 2019 (AGM)
12 September 2019
7 November 2019
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Present
Y
Y
Y
Y
Y
Y
Y
Y
Y
N
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
N
Y
Y
The audit committee met twice during the year to consider the Audit planning report and Audit completion report presented by the auditors
regarding the year end audit process. The year end audit findings were focused on the key areas identified during the planning process, the main
items being:
> Internal controls and management override
> Carrying value and impairment of intangible exploration and evaluation assets
> Accounting for the royalty finance agreement
> Assessment recognition of contingent consolidation
> Going concern
The audit committee were in agreement with all the findings and recommendations.
The remuneration committee met twice during the year to consider the remuneration levels of the board and key officers of the company, to
consider and approve the basis of the long term incentive plan and to consider and award options to key members of the team.
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSCORPORATEGOVERNANCE 38 Independent Auditor’s Report
Independent Auditor’s Report to the Members
of Horizonte Minerals Plc
Opinion
We have audited the financial statements of Horizonte Minerals plc (the ‘Parent Company’) and it’s subsidiaries (the ‘Group’) for the
year ended 31 December 2019 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 the preparation of the financial statements 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
2019 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 2019 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.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
> the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
> the Directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt
about the Group’s or the Parent Company’s ability to continue to adopt the going concern basis of accounting for a period of at least
twelve months from the date when the financial statements are authorised for issue.
Independent Auditor’s Report
39
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements
of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified,
including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the
efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and
in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Carrying value of exploration and evaluation assets and mine development property
Key Audit Matter
As detailed in notes 4.1, 10 and 11 to the financial statements, the group holds the Araguaia mine development
property carried at a value of £32.3m and the Vermelho exploration and evaluation asset carried at a
value of £6.8m.
Each year management are required to assess whether there are any indicators that the exploration and
evaluation asset may be impaired. Management have carried out a review for indicators of impairment and have
not identified any indicators.
In 2019 the Araguaia asset was reclassified from an exploration and evaluation asset to a mine development
property. IFRS 6 requires that upon reclassification the asset is assessed for impairment. Management’s
impairment assessment indicated that no impairment was required.
Reviewing indicators of impairment and assessment of carrying values require significant estimates and
judgements and therefore we identified this as a key audit matter.
Audit Response
We have reviewed management’s impairment assessments for both projects and our procedures included the
following :
> We considered whether management’s assessments of impairment had been carried out in accordance with
the requirements of IFRS.
> We considered the appropriateness of management’s decision to reclassify the Araguaia project to a mine
development project, assessing the evidence of technical and commercial viability.
> We reviewed the feasibility studies prepared by independent consultants for consistency with management’s
representations and assessed the competence and independence of the experts used by management.
• For the Araguaia project, which is carried on the balance sheet at £32m this assessment is supported by
the externally prepared feasibility study published in October 2018, which indicates a post-tax net present
value of $401m at a discount rate of 8%.
• For the Vermelho project, which is carried on the balance sheet at £6.8m this assessment is supported
by the externally prepared pre-feasibility study published in October 2019, which indicates a post-tax net
present value of $1.7bn at a discount rate of 8%.
> For the Araguaia project we considered if key assumptions had changed unfavourable since the date of
publication of the study. The study’s results used a long term nickel price of $14,000 per tonne. In December
2019 the long term consensus price was higher, at $16,200 per tonne.
> We agreed the validity of licences held by the Group to the Brazilian Government’s DNPM website. We also
reviewed the correspondence, contracts and other documents regarding the licenses to confirm that the Group
has the relevant rights for its activities in the stated areas for Araguaia and Vermelho.
> We evaluated the adequacy of the disclosures in respect of the assessment of impairment indicators for the
exploration and evaluation asset and impairment assessment of the mine development project against the
requirements of the accounting standards.
Key Observation
Based on our work we concur with management’s assessment of the carrying value of the Group’s exploration
and evaluation asset and mine development property.
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSFINANCIALSTATEMENTS
40
Independent Auditor’s Report
Independent Auditor’s Report to the Members
of Horizonte Minerals Plc Continued
Recognition and valuation of contingent consideration
Key Audit Matter
In prior years the Group acquired assets and licences relating to the Glencore Araguaia and Vermelho projects
and these acquisitions gave rise to contingent consideration. Details of this contingent consideration and the
related critical judgements and estimates are disclosed in notes 17 and 4.2.
In late 2019, following the publication of the positive pre-feasibility study for Vermelho, the Company recognized
US$6m of contingent consideration payable to Vale S.A.
The assessment of the contingent consideration payable requires management to make judgements regarding
when they consider it probable that they will pay the consideration and estimates which determine the
anticipated timing of when the consideration will become payable. Management are also required to reassess
and adjust the contingent consideration payable for any changes in the accounting estimates as new information
and events arises. For these reasons we identified this as a key audit matter.
Audit Response
Our work included:
> We have reviewed the terms and conditions of the acquisition agreements relating to the contingent
consideration amounts payable and checked that the calculation of contingent considerations is in accordance
with them.
> We assessed management’s basis for recognising the Vermelho contingent consideration in the year following
the publication of the positive pre-feasibility study, including:
• We considered whether management’s policy to recognise the cash settled contingent consideration when
they assessed it to be probable that it would be paid was in accordance with IFRS.
• We considered whether management’s judgement that the publication of the project’s first financial
feasibility study showing a high net present value to be an appropriate point to recognise the contingent
consideration.
> We have reviewed the contingent consideration calculations and estimates made by management. We
have challenged the estimates, referring to supporting documentation and considered the sensitivity of
the calculations to changes in the judgements and estimates. We have also checked the calculation of the
accounting adjustments for changes in estimates, foreign exchange retranslation and the unwinding of the
discount factor.
> We evaluated the adequacy of the disclosures against the requirements of the accounting standards and to
check that they have adequately explain the key judgements and estimates made by management.
Key Observation
Based on our work we concur with management’s assessment of the recognition and valuation of contingent
consideration.
Independent Auditor’s Report
41
Accounting for and valuation of the royalty funding agreement
Key Audit
Matter
During the year, Horizonte has entered into a US$25m royalty funding agreement with Orion Mine Finance in
exchange for future royalty payments linked to the future revenues of the Araguaia project. The royalty agreement
includes a buyback option enabling Horizonte to reduce the royalty rate and other cash payment options (the call,
make whole and put options) for part reduction in the royalty rate, which require the occurrence of certain events.
Details of the agreement and the related critical judgements and estimates are disclosed in notes 18 and 4.4.
The accounting for this agreement is complex and therefore management obtained advice from an independent
expert. The accounting analysis concluded that the agreement is a hybrid contract that contains a non-derivative
host loan and prepayment options in the form of embedded derivatives which should be separated for accounting
purposes. The embedded derivatives are initially recognised at fair value and subsequently revalued at each period
end. Management engaged an independent expert to calculate the fair value of the buyback option. The fair value
calculation utilised Monte-Carlo simulation methodology.
The call, make whole and put options can only be exercised if two specific events occur, being:
> A change of control and;
> Commencement of major construction work after 31 March 2021.
Management assessed the probability of both of these events arising to be remote and have determined the
valuation of these options at the inception of the loan and at the year end to be not material.
Judgement was required in determining the accounting treatment of the royalty funding agreement and the approach
to valuing the options. The valuation of these financial instruments also required management to make a number of
key estimates. Accordingly, the accounting for the royalty funding agreement is considered to be a key audit matter.
Audit
Response
Our procedures in relation to the accounting for and valuation of the royalty funding loan and embedded derivatives
are set our below.
In respect of the host loan:
> We reviewed the accounting analysis prepared by the expert, assessing its factual accuracy and basis for the
technical analysis and we discussed the findings with management to understand their assessment of the analysis.
We also consulted with our own technical experts as to the appropriateness of the proposed accounting treatment.
> We assessed the competence and independence of the accounting experts used by management.
> We tested the valuation model prepared by management, ensuring the model’s methodology was in agreement
with the royalty agreement and IFRS requirements and that the assumptions were in agreement with
management’s justifications and explanations. We also checked the arithmetical accuracy of the amortised loan
model.
> We critically assessed management’s key assumptions, including long term nickel price, nickel price inflation and
the adopted royalty rate by reference to independent sources of data and supporting documentation held by
the Group.
In respect of the fair value of the buyback option:
> We reviewed the option valuation methodology adopted to check that the features of the option had been
appropriately modelled and we also confirmed with management that the modelling is in line with their
understanding of the option features.
> We checked that the key assumptions used were in agreement with those used for the valuation of the host loan.
The nickel price volatility is an additional key assumption for the option valuation. We recalculated the nickel price
volatility using independently sourced data and it was in close proximity to that used by management.
> The option valuation is sensitive to the nickel price volatility. Based on the features of the option management
considered volatility based on five years historic nickel prices to be appropriate. We calculated an alternative
reasonable volatility based on ten years and it was in close proximity, being 1% lower than the five year volatility.
> We assessed the competence and independence of the valuation expert used by management.
> We discussed the valuation with the expert and management to ensure that we understood the methodology that
they had adopted and the rationale behind it.
> We consulting with our own valuation experts on the methodology adopted and the reasonableness of the
macroeconomic assumptions.
In respect of the call, make whole and put options:
We discussed with management their basis for concluding that the probability of the events allowing exercise of
these options was remote. We corroborated this by reference to press announcements, internal board minutes
and other operational documentation and concluded that their assessment was appropriate and supported by the
evidence.
Key
Observation
Based on our work we concur with management’s approach to the accounting for the royalty agreement, that the
valuation methodology adopted for the host loan and the options is appropriate, and that the key assumptions
adopted are reasonable and supported by available evidence.
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSFINANCIALSTATEMENTS
42
Independent Auditor’s Report
Independent Auditor’s Report to the Members
of Horizonte Minerals Plc Continued
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.
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 total assets of the group. The benchmark percentage for calculating materiality was 1.5%,
however, this was applied to a reduced total asset figure, reflecting that a significant amount of cash was held by the Group as a result
of the £18.2m net proceeds from the royalty fund raising. Group financial statement materiality was set at £619,000 (2018:£630,000),
Each significant component of the group was audited to a lower level of materiality . The Parent Company’s materiality was set at
£557,000 (2018:£567,000), based on 90% of group materiality and the materiality of the subsidiary components ranged from £489,000
to £27,000 (2018:£567,000 to £61,000). 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% (2018: 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 £10,800 (2018: £30,500).
We also agreed to report differences below these thresholds that, in our view warranted reporting on qualitative grounds.
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 Vermelho and primarily comprising a number of Brazilian subsidiary
entities holding a mine development property and exploration and evaluation assets.
Our group audit scope focused on the group’s principal operating subsidiaries, being Araguaia Niquel Mineracao Ltda and Typhon Brasil
Mineracao Ltda, which were subject to a full scope audit together with the parent company. In addition, Trias Brasil Mineracao Ltda and
Lontra Empr. e Participacoes Ltda, also Brazilian operating subsidiaries were subject to specific audit procedures on the significant risk
areas. BDO LLP performed the audit of the parent company and the BDO network member firm in Portugal performed the audits and
specific audit procedures for the Brazilian components.
The remaining components of the group were considered non-significant and these components were principally subject to analytical
review procedures, together with additional substantive testing over the risk areas detailed above where applicable to that component.
The Group audit team was actively involved in the direction of the audits and specific audit procedures performed by the component
auditor along with the consideration of findings and determination of conclusions drawn. As part of our audit strategy, we issued group
audit engagement instructions and discussed the instructions with the component auditor. A senior member of the group audit team
met with the component auditor and local management performed a review of the component audit files and we discussed the audit
findings with the component auditor. For the four principal operating subsidiaries in Brazil the group audit team also performed audit
procedures in respect of the significant risk areas.
Independent Auditor’s Report
43
Other information
The Directors are responsible for the other information. The other information comprises the information included in the annual
report other than the financial statements and our auditor’s report thereon. 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.
Opinions 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 the Directors’ report for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
> the strategic report and the 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 relation to 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 Statement of Directors’ Responsibilities, 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.
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSFINANCIALSTATEMENTS 44 Independent Auditor’s Report
Independent Auditor’s Report to the Members
of Horizonte Minerals Plc Continued
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 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 Parent 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 Parent 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 Parent Company and the Parent 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
7 April 2020
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 2019
Consolidated Statement of Comprehensive Income
45
Administrative expenses
Charge for share options granted
Changes in estimate for contingent and deferred consideration
Gain/(Loss) on foreign exchange
Operating loss
Finance income
Finance costs
Loss before taxation
Income tax
Year ended
31 December
2019
£
Year ended
31 December
2018
£
(2,563,880)
(1,336,093)
(326,413)
(837,172)
598,660
(56,261)
139,392
186,206
(2,347,899)
(1,847,667)
110,036
89,446
(933,351)
(181,442)
(3,171,214)
(1,939,663)
—
—
Notes
17
6
8
8
9
Loss for the year from continuing operations attributable to owners of the parent
(3,171,214)
(1,939,663)
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Currency translation differences on translating foreign operations
16
(2,626,939)
(3,028,006)
Other comprehensive income for the year, net of tax
Total comprehensive income for the year attributable to owners of the parent
Profit/(Loss) per share from continuing operations attributable to owners of the
parent
(2,626,939)
(3,028,006)
(5,798,153)
(4,967,669)
Basic and diluted (pence per share)
21
(0.219)
(0.136)
The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSFINANCIALSTATEMENTS 46
Consolidated Statement of Financial Position
Consolidated Statement of Financial Position
Company number: 05676866
As at 31 December 2019
Assets
Non-current assets
Intangible assets
Property, plant & equipment
Current assets
Trade and other receivables
Derivative financial asset
Cash and cash equivalents
Total assets
Equity and liabilities
Equity attributable to owners of the parent
Share capital
Share premium
Other reserves
Retained losses
Total equity
Liabilities
Non-current liabilities
Contingent consideration
Royalty Finance
Deferred tax liabilities
Current liabilities
Trade and other payables
Deferred Consideration
Total liabilities
Total equity and liabilities
31 December
2019
£
31 December
2018
£
Notes
10
11
18
12
7,057,445
35,737,902
32,260,544
1,186
39,317,989
35,739,088
134,726
2,246,809
24,243
—
17,760,330
6,527,115
20,141,865
6,551,358
59,459,854
42,290,446
13
14
16
14,463,773
14,325,218
41,785,306
41,664,018
(4,666,930)
(2,039,991)
(19,835,092)
(16,990,290)
31,747,057
36,958,955
17
18
9
17
17
6,246,071
3,461,833
20,570,411
—
212,382
228,691
27,028,864
3,690,524
683,933
280,175
—
1,360,792
683,933
27,712,864
1,640,967
5,331,491
59,459,854
42,290,446
The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.
The Financial Statements were authorised for issue by the Board of Directors on 7 April 2020 and were signed on its behalf.
David J Hall
Chairman
Jeremy J Martin
Chief Executive Officer
Company Statement of Financial Position
Company number: 05676866
As at 31 December 2019
Non-Current Assets
Property, plant & equipment
Investment in subsidiaries
Loans to Subsidiaries
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Equity and liabilities
Equity attributable to equity shareholders
Share capital
Share premium
Merger reserve
Retained losses
Total equity
Liabilities
Non-current liabilities
Contingent consideration
Current liabilities
Trade and other payables
Loans from subsidiary
Deferred Consideration
Total liabilities
Total equity and liabilities
Company Statement of Financial Position
47
Notes
11
26
27
31 December
2019
£
31 December
2018
£
—
—
2,348,042
2,348,042
55,413,147
49,478,251
57,761,189
51,826,293
135,376
19,388
12
17,393,773
5,487,339
17,529,149
5,506,727
75,290,338
57,333,020
13
14
16
14,463,773
14,325,218
41,785,306
41,664,018
10,888,760
10,888,760
(16,564,099)
(14,852,732)
50,573,740
52,025,264
17
6,246,071
3,461,833
6,246,071
3,461,833
17
17
735,518
485,131
17,735,009
—
—
1,360,792
18,470,527
1,845,923
24,716,598
5,307,756
75,290,338
57,333,020
The above Company Statement of Financial Position should be read in conjunction with the accompanying notes, loss for the period
was £2,037,780 (2018:£1,782,260 ). As permitted by section 408 of the Companies Act 2006, the statement of comprehensive
income of the Parent Company is not presented as part of these Financial Statements.
The Financial Statements were authorised for issue by the Board of Directors on 7 April 2020 and were signed on its behalf.
David J Hall
Chairman
Jeremy J Martin
Chief Executive Officer
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSFINANCIALSTATEMENTS
48
Statements of Changes in Equity
Statement of Changes in Equity
For the year ended 31 December 2019
Consolidated
As at 1 January 2018
Loss for the year
Other comprehensive income:
Currency translation differences on
translating foreign operations
Total comprehensive income for the year
Issue of ordinary shares
Issue costs
Share-based payments
Total transactions with owners, recognised directly in
equity
As at 31 December 2018
Loss for the year
Other comprehensive income:
Currency translation differences on translating
foreign operations
Total comprehensive income for the year
Issue of ordinary shares
Issue costs
Share-based payments
Total transactions with owners, recognised
directly in equity
As at 31 December 2019
A breakdown of other reserves is provided in note 16.
Company
As at 1 January 2018
Profit and total comprehensive income for the year
Issue of ordinary shares
Issue costs
Share-based payments
Total transactions with owners, recognised directly in
equity
As at 31 December 2018
Profit and total comprehensive income for the year
Issue of ordinary shares
Issue costs
Share-based payments
Total transactions with owners, recognised
directly in equity
As at 31 December 2019
Attributable to owners of the parent
Share
capital
£
Share
premium
£
Retained
losses
£
Other
reserves
£
Total
£
13,719,343 40,422,258 (15,887,801)
— (1,939,663)
—
988,015
39,241,815
— (1,939,663)
—
—
— (3,028,006)
(3,028,006)
—
605,875
1,451,724
— (209,964)
—
—
1,241,760
605,875
— (1,939,663)
—
—
837,172
837,172
(3,028,006)
(4,967,669)
— 2,057,599
— (209,964)
—
837,172
— 2,684,807
14,325,218 41,664,018 (16,990,290)
— (3,171,214)
—
(2,039,991)
36,958,955
— (3,171,214)
—
—
— (2,626,939)
(2,626,939)
—
138,555
—
—
138,555
— (3,171,214)
—
—
326,413
326,413
121,288
—
—
121,288
(5,798,153)
259,843
(2,626,939)
—
—
—
326,413
— 586,256
14,463,773 41,785,306 (19,835,092)
(4,666,930)
31,747,057
Attributable to equity shareholders
Share
capital
£
Share
premium
£
Retained
losses
£
Merger
reserves
£
Total
£
40,422,258
13,719,343
—
605,875
1,451,724
— (209,964)
—
—
1,214,760
605,875
(13,907,644)
— (1,782,260)
—
—
837,172
837,172
14,325,218
—
138,555
—
—
138,555
41,664,018
(14,852,732)
— (2,037,780)
—
—
326,413
(1,711,367)
121,288
—
—
121,288
10,888,760
(51,122,717)
— (1,782,260)
2,057,599
—
(209,964)
—
837,172
—
2,684,807
—
10,888,760
52,025,264
— (2,037,780)
259,843
—
—
—
—
326,413
— (1,451,524)
14,463,773
41,785,306
(16,564,099)
10,888,760
50,573,740
The above Statements of Changes in Equity should be read in conjunction with the accompanying notes.
Consolidated Statement of Cash Flows
For the year ended 31 December 2019
Cash flows from operating activities
Loss before taxation
Finance income
Finance costs
Charge for share options granted
Exchange differences
Change in fair value of contingent consideration
Depreciation
Operating loss before changes in working capital
Decrease/(increase) in trade and other receivables
Increase/(decrease) in trade and other payables
Net cash used in operating activities
Cash flows from investing activities
Purchase of exploration and evaluation assets
Purchase of property, plant and equipment
Interest received
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of royalty funding
Proceeds from issue of ordinary shares
Issue costs
Net cash generated from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Exchange gain/(loss) on cash and cash equivalents
Cash and cash equivalents at end of the year
Consolidated Statement of Cash Flows
49
31 December
2019
£
31 December
2018
£
Notes
(3,171,214)
(1,939,663)
(110,036)
933,351
326,413
(77,072)
(598,660)
(89,446)
181,442
837,172
(313,049)
(139,392)
—
—
(2,697,218)
(1,462,136)
(110,483)
128,862
403,758
(456,109)
(2,403,943)
(1,790,183)
(3,992,757)
(3,221,062)
(238,701)
110,036
—
89,446
(4,121,422)
(3,131,616)
18,241,205
—
—
—
2,057,599
(209,965)
18,241,205
1,847,634
11,715,840
(3,074,164)
6,527,825
9,403,825
(482,625)
197,454
12
17,760,330
6,527,115
On the 24 January 2019 the Company issued 13,855,487 as a non cash settlement for $330,000 of deferred contingent consideration
The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSFINANCIALSTATEMENTS 50
Company Statement of Cash Flows
Company Statement of Cash Flows
For year ended 31 December 2019
Cash flows from operating activities
Profit before taxation
IFRS9 Expected credit loss
Finance income
Finance costs
Charge for share options granted
Exchange differences
Change in fair value of contingent consideration
Depreciation
Operating profit before changes in working capital
Increase in trade and other receivables
Increase in trade and other payables
Net cash flows generated from operating activities
Cash flows from investing activities
Loans to subsidiary undertakings
Interest received
Net cash used in investing activities
Cash flows from financing activities
Proceeds from grant of Royalty
Proceeds from issue of ordinary shares
Issue costs
Net cash generated from financing activities
Net increase/(decrease) in cash and cash equivalents
Exchange gain/(loss) on cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of the year
31 December
2019
£
31 December
2018
£
Notes
(2,037,780)
(1,782,260)
440,579
(78,420)
344,952
326,413
(64,047)
1,939,745
(74,909)
181,442
837,172
(40,661)
(598,660)
(139,392)
—
—
(1,666,961)
(116,049)
250,387
(1,532,625)
921,137
22,446
(328,111)
(615,472)
(4,353,284)
(6,475,397)
78,420
74,909
(4,274,864)
(6,400,488)
18,241,205
—
—
—
2,057,599
(209,965)
18,241,205
1,847,634
12,433,716
(3,937,382)
(527,342)
185,954
5,487,399
9,238,827
12
17,393,773
5,487,399
On the 24 January 2019 the Company issued 13,855,487 as a non cash settlement for $330,000 of deferred contingent consideration
The above Company Statement of Cash Flows should be read in conjunction with the accompanying notes.
Notes to the Financial Statements
51
Notes to the Financial Statements
1 General information
The principal activity of Horizonte Minerals Plc (“the Company”) and its subsidiaries (together “the Group”) is the exploration and
development of base metals. The Company’s shares are listed on the AIM market of the London Stock Exchange and on the Toronto
Stock Exchange. The Company is incorporated and domiciled in England and Wales. The address of its registered office is Rex House,
4-12 Regents Street, London, SW1Y 4RG.
2 Summary of significant accounting policies
The principal accounting policies applied in the preparation of these Financial Statements are set out below. These policies have been
consistently applied to all the years presented.
2.1 Basis of preparation
These Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”) and IFRS
interpretations Committee (“IFRS IC”) interpretations as adopted by the European Union (“EU”) and with IFRS and their Interpretations
issued by the IASB. The consolidated financial statements have also been prepared in accordance with and those parts of the Companies
Act 2006 applicable to companies reporting under IFRS. The Financial Statements have been prepared under the historical cost
convention as modified by the revaluation of share based payment charges which are assessed annually.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires
management to exercise its judgement in the process of applying the Group’s Accounting Policies. The areas involving a higher degree of
judgement or complexity, or areas where assumptions and estimates are significant to the Financial Statements, are disclosed in Note 4.
2.2 Going concern
The Group’s business activities together with the factors likely to affect its future development, performance and position are set out
in the Chairman’s Statement on pages 5 and 6; in addition note 3 to the Financial Statements includes the Group’s objectives, policies
and processes for managing its capital; its financial risk management objectives; details of its financial instruments and its exposure to
credit and liquidity risk.
The Financial Statements have been prepared on a going concern basis. Although the Group’s assets are not generating revenues and
an operating loss has been reported, the Directors consider that the Group has sufficient funds to undertake its operating activities for
a period of at least the next 12 months including any additional expenditure required in relation to its current exploration projects. The
Group has cash reserves which are considered sufficient by the Directors to fund the Group’s committed expenditure both operationally
and on its exploration project for the foreseeable future. However, as additional projects are identified and the Araguaia project moves
towards production, additional funding will be required.
The uncertainty as to the future impact of the Covid-19 pandemic has been considered as part of the Group’s adoption of the going
concern basis. In response to government instructions the Group’s offices in London and Brazil have been closed with staff working from
home, international travel has stopped and all site work for the two projects has been restricted to a minimum level. However, a number
of the key project milestones are still advancing and are currently on track being run by the teams in a virtual capacity.
Whilst the board considers that the effect of Covid-19 on the Group’s financial results at this time is constrained to inefficiencies due to
remote working, restrictions on travel and some minor potential delays to consultants work streams, the Board considers the pandemic
could delay the Araguaia project financing timeline by a number of months (this will be dependent on the duration of the effects of
the Covid-19 virus across global markers). In response to any potential delay management has prepared a revised cashflow forecast
for the next 24 months reflecting potential cost cutting in the parent company relating to reduced travel and lower levels of investor
relations and marketing activities together with delaying certain costs for the Araguaia project. This forecast indicates that the Group
has sufficient cash to survive beyond the next 24 months and it will be adopted should the Araguaia project financing not be able to be
progressed as quickly as anticipated.
As a result of considerations noted above, the Directors have a reasonable expectation that the Group and Company have adequate
resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis of
accounting in preparing these Financial Statements.
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSFINANCIALSTATEMENTS
52
Notes to the Financial Statements
2.3 Changes in accounting policy and disclosures
a) New and amended standards adopted by the Group
New standards impacting the Group that are adopted in the annual financial statements for the year ended 31 December 2019, are:
Standard
Detail
IFRS 16
IFRS 11
IAS 19
IAS 23
IAS 28
IFRIC 23
Leases
Amendment – annual improvements 2015-2017 cycle
Amendment – regarding plan amendments, curtailments or settlements
Amendment – annual improvements 2015-2017 cycle
Amendment – regarding long-term interests in associates and joint ventures
Uncertainty over income tax treatments
Effective date
1 January 2019
1 January 2019
1 January 2019
1 January 2019
1 January 2019
1 January 2019
IFRS 16, Leases
IFRS 16, which supersedes IAS 17, sets out principles for the recognition, measurement, presentation and disclosure of leases for both
parties to a contract, i.e. the customer (“lessee”) and the supplier (“lessor”). Lessee accounting has changed substantially under this
new standard while there is little change for the lessor. IFRS 16 has removed the classification of leases as either operating leases or
financing leases and, instead, introduced a single lessee accounting model. A lessee is required to recognise assets and liabilities for
all leases with a term of more than 12 months (unless the underlying asset is of low value) and is required to present depreciation of
leased assets separately from interest on lease liabilities in the Consolidated Statement of Comprehensive Income. A lessor continues
to classify its leases as operating leases or financing leases, and to account for those two types of leases separately.
On 1 January 2019, the Group adopted IFRS 16. The Group has reviewed its contracts and agreements and concluded the only leases
held by the Group relate to short term office leases which are not considered material to these financial statements. The impact of IFRS
16 is therefore nil on both current and prior periods.
b) New and amended standards, and interpretations issued but not yet effective for the financial year beginning 1 January 2019 and not
early adopted
Standards effective in future periods
Certain new standards, amendments and interpretations to existing standards have been published that are relevant to the group’s
activities and are mandatory for the group is accounting periods beginning after 1 January 2019 or later periods and which the group
has decided not to adopt early.
These include:
Standard
IFRS 17
IAS 1
IAS 1
Detail
Insurance contracts
Amendment – regarding the definition of material
Amendment – regarding the classification of liabilities
Amendment – References to the Conceptual Framework in IFRS Standards
Amendment – Business Combination: Definition of a Business
IFRS 3
IFRS 9, 7 & IAS 37 Amendments – Interest Rate Benchmark Reform
Effective date
1 January 2021
1 January 2020
1 January 2022
1 January 2020
1 January 2020
1 January 2020
The directors do not expect that the adoption of the Standards listed above will have a material impact on the financial statements of
the Group in future periods.
2.4 Basis of consolidation and business acquisitions
Horizonte Minerals Plc was incorporated on 16 January 2006. On 23 March 2006 Horizonte Minerals Plc acquired the entire issued
share capital of Horizonte Exploration Limited (HEL) by way of a share for share exchange. The transaction was treated as a group
reconstruction and was accounted for using the merger accounting method as the entities were under common control before and after
the acquisition.
Subsidiaries are entities controlled by the Group. Control is achieved when the Group is exposed, or has rights, to variable returns from
its involvement with the investee and has the ability to affect those returns through its power over the investee.
The Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:
> The contractual arrangement with the other vote holders of the investee.
> Rights arising from other contractual arrangements.
> The Group’s voting rights and potential voting rights.
Notes to the Financial Statements
53
Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control
of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the
consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.
Other than for the acquisition of HEL as noted above, the Group uses the acquisition method of accounting to account for business
combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities
incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability
resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed
in a business combination are measured initially at their fair values at the acquisition date. Acquisition-related costs are expensed as
incurred unless they result from the issuance of shares, in which case they are offset against the premium on those shares within equity.
If an acquisition is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquiree
is remeasured to fair value at the acquisition date through profit or loss.
Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to
the fair value of the contingent consideration that is deemed to be an asset or a liability is recognised in accordance with IFRS9 either
in profit or loss or as a change in other comprehensive income. The unwinding of the discount on contingent consideration liabilities
is recognised as a finance charge within profit or loss. Contingent consideration that is classified as equity is not remeasured, and its
subsequent settlement is accounted for within equity.
The excess of the consideration transferred and the acquisition date fair value of any previous equity interest in the acquiree over the
fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net
assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in profit or loss.
Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Accounting
policies of subsidiaries have been changed where necessary to ensure consistency with policies adopted by the Group.
Investments in subsidiaries are accounted for at cost less impairment.
The following 100% owned subsidiaries have been included within the consolidated Financial Statements:
Subsidiary undertaking
Held
Registered Address
Horizonte Exploration Ltd
Directly
Rex House, 4-12 Regents Street, London SW1Y 4RG
Country of
incorporation
England
Horizonte Minerals (IOM) Ltd
Indirectly 1st Floor, Viking House, St Pauls Square, Ramsey, IM8
Isle of Man
1GB, Ilse of Man
HM Brazil (IOM) Ltd
Indirectly 1st Floor, Viking House, St Pauls Square, Ramsey, IM8
Isle of Man
1GB, Ilse of Man
Cluny (IOM) Ltd
Indirectly 1st Floor, Viking House, St Pauls Square, Ramsey, IM8
Isle of Man
1GB, Ilse of Man
Champol (IOM) ltd
Indirectly 1st Floor, Viking House, St Pauls Square, Ramsey, IM8
Isle of Man
1GB, Ilse of Man
Horizonte Nickel (IOM) Ltd
Indirectly 1st Floor, Viking House, St Pauls Square, Ramsey, IM8
Isle of Man
Nickel Production Services B.V
Directly
1GB, Ilse of Man
Atrium Building, 8th floor, Strawinskylaan 3127, 1077
ZX, Amsterdam
The
Netherlands
HM do Brasil Ltda
Indirectly CNPJ 07.819.038/0001-30 com sede na Avenida
Amazonas, 2904, loja 511, Bairro Prado, Belo
Horizonte – MG. CEP: 30.411-186
Araguaia Niquel Metias Ltda
Indirectly CNPJ 97.515.035/0001-03 com sede na Avenida
Amazonas, 2904, loja 511, Bairro Prado, Belo
Horizonte – MG. CEP: 30.411-186
Lontra Empreendimentos e
Participações Ltda
Indirectly CNPJ 11.928.960/0001-32 com sede na Avenida
Amazonas, 2904, loja 511, Bairro Prado, Belo
Horizonte – MG. CEP: 30.411-186
Brazil
Brazil
Brazil
Nature of
business
Mineral
Exploration
Holding
company
Holding
company
Holding
company
Holding
company
Holding
company
Provision
of financial
services
Mineral
Exploration
Mineral
Exploration
Mineral
Exploration
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSFINANCIALSTATEMENTS 54
Notes to the Financial Statements
Subsidiary undertaking
Held
Registered Address
Typhon Brasil Mineração Ltda
Indirectly CNPJ 23.282.640/0001-37 com sede Alameda
Trias Brasil Mineração Ltda
Ezequiel Dias, n. 427, 2º andar, bairro Funcionários,
Município de Belo Horizonte, Estado de Minas Gerais,
CEP 30.130-110.
Indirectly CNPJ 23.282.280/0001-73 com sede na Alameda
Ezequiel Dias, n. 427, 2º andar, bairro Funcionários,
Município de Belo Horizonte, Estado de Minas Gerais,
CEP 30.130-110
Country of
incorporation
Brazil
Nature of
business
Mineral
Exploration
Brazil
Mineral
Exploration
2.4 (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.
2.5 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.
Notes to the Financial Statements
55
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)
(ii)
(iii)
(iv)
(v)
unexpected geological occurrences that render the resource uneconomic;
title to the asset is compromised;
variations in mineral prices that render the project uneconomic;
substantive expenditure on further exploration and evaluation of mineral resources is neither budgeted nor planned; and
the period for which the Group has the right to explore has expired and is not expected to be renewed.
See note 2.7 for impairment review process if impairment indicators are identified.
Whenever the exploration for and evaluation of mineral resources does not lead to the discovery of commercially viable quantities of
mineral resources or the Group has decided to discontinue such activities of that unit, the associated expenditures are written off to
profit or loss. Whenever a commercial discovery is the direct result of the exploration and evaluation assets, upon the decision to proceed
with development of the asset and initial funding arrangements are in place the costs shall be transferred to a Mine Development asset
within property, plant and equipment.
(c) Acquisitions of Mineral Exploration Licences
Acquisitions of Mineral Exploration Licences through acquisition of non-operational corporate structures that do not represent a
business, and therefore do not meet the definition of a business combination, are accounted for as the acquisition of an asset and
recognised at the fair value of the consideration. Related future consideration if contingent is recognised if it is considered that it is
probable that it will be paid.
2.6 Property, plant and equipment
Mine development property
Following determination of the technical feasibility and commercial viability of a mineral resource, the relevant expenditure is transferred
from exploration and evaluation assets to mine development property.
Further development costs are capitalised to mine development properties, if and only if, it is probable that future economic benefits
associated with the item will flow to the entity and the cost can be measured reliably. Cost is defined as the purchase price and directly
attributable costs. Once the asset is considered to be capable of operating in a manner intended by management, commercial production
is declared, and the relevant costs are depreciated. Evaluated mineral property is carried at cost less accumulated depreciation and
accumulated impairment losses.
Short lived Property, plant and equipment
All other property, plant and equipment is stated at historic cost less accumulated depreciation. Historic cost includes expenditure that
is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable
that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All
repairs and maintenance costs are charged to profit or loss during the financial period in which they are incurred.
Depreciation and amortisation
Mine development property is not depreciated prior to commercial production but is reviewed for impairment annually (see “Impairment
of assets” section below). Upon commencement of commercial production, mine development property is transferred to a mining
property and is depreciated on a units-of-production basis. Only proven and probable reserves are used in the tonnes mined units of
production depreciation calculation.
Depreciation is charged on a straight-line basis for all other property, plant and equipment, so as to write off the cost of assets, over
their estimated useful lives, using the straight-line method, on the following bases:
Office equipment
Vehicles and other field equipment
25%
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.
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSFINANCIALSTATEMENTS 56
Notes to the Financial Statements
2.7 Impairment of non-financial assets
Assets that have an indefinite useful life, such as goodwill are not subject to amortisation and are tested annually for impairment.
Exploration assets and property, plant and equipment are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying
amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use.
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows
(cash generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the
impairment at each reporting date.
2.8 Foreign currency translation
(a) Functional and presentation currency
Items included in the Financial Statements of the Group’s entities are measured using the currency of the primary economic environment
in which the entity operates (the ‘functional currency’). The functional currency of the UK and Isle of Man entities is Pounds Sterling and
the functional currency of the Brazilian entities is Brazilian Real. The functional currency of the project financing subsidiary incorporated
in the Netherlands is USD. The Consolidated Financial Statements are presented in Pounds Sterling, rounded to the nearest pound,
which is the Company’s functional and Group’s presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the
transactions or valuation where such items are re-measured. Foreign exchange gains and losses resulting from the settlement of such
transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies
are recognised in profit or loss.
(c) Group companies
The results and financial position of all the Group’s entities (none of which has the currency of a hyperinflationary economy) that have a
functional currency different from the presentation currency are translated into the presentation currency as follows:
1.
assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that
statement of financial position;
2. each component of profit or loss is translated at average exchange rates during the accounting period (unless this average is not
a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and
expenses are translated at the dates of the transactions); and
all resulting exchange differences are recognised in other comprehensive income.
3.
On consolidation, exchange differences arising from the translation of the net investment in foreign entities, and of monetary items
receivable from foreign subsidiaries for which settlement is neither planned nor likely to occur in the foreseeable future are taken to
other comprehensive income. When a foreign operation is sold, such exchange differences are recognised in profit or loss as part of the
gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity
and retranslated at the end of each reporting period.
2.9 Financial instruments
Financial instruments are measured as set out below. Financial instruments carried on the statement of financial position include cash
and cash equivalents, trade and other receivables, trade and other payables and loans to group companies.
Financial instruments are initially recognised at fair value when the group becomes a party to their contractual arrangements. Transaction
costs directly attributable to the instrument’s acquisition or issue are included in the initial measurement of financial assets and financial
liabilities, except financial instruments classified as at fair value through profit or loss (FVTPL). The subsequent measurement of financial
instruments is dealt with below.
Financial assets
On initial recognition, a financial asset is classified as:
> Amortised cost;
> Fair value through other comprehensive income (FVTOCI) — equity instruments; or
> FVTPL.
The group does not currently have any financial assets classified as FVTOCI.
Fair value through profit or loss
This category comprises in-the-money derivatives. They are carried in the statement of financial position at fair value with changes in
fair value recognised in the profit loss statement.
Notes to the Financial Statements
57
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
Financial liabilities are subsequently measured at amortised cost using the effective interest method, except for financial liabilities
designated at fair value through profit or loss, that are carried subsequently at fair value with gains and losses recognised in the profit
and loss statement.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over
the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected
life of the financial liability, or, where appropriate, a shorter period.
The Group’s financial liabilities initially measured at fair value and subsequently recognised at amortised cost include accounts payables
and accrued liabilities as well as the Group’s Royalty liability.
2.10 Taxation
The tax credit or expense for the period comprises current and deferred tax. Tax is recognised in the Income Statement, except to the
extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in
other comprehensive income or directly in equity, respectively.
The charge for current tax is calculated on the basis of the tax laws enacted or substantively enacted by the end of the reporting period
in the countries where the company and its subsidiaries operate and generate taxable income. Management periodically evaluates
positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes
provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred tax is accounted for using the liability method in respect of temporary differences arising from differences between the carrying
amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit.
However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill; deferred tax is not accounted
for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the
transaction affects neither accounting nor taxable profit or loss.
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSFINANCIALSTATEMENTS 58
Notes to the Financial Statements
Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent
that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax
assets are recognised on tax losses carried forward to the extent that the realisation of the related tax benefit through future taxable
profits is probable.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and
interests in joint ventures, except where the Company is able to control the reversal of the temporary difference and it is probable that
the temporary difference will not reverse in the foreseeable future.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax
liabilities and when the deferred tax assets and liabilities relate to taxes levied by the same taxation authority on either the same taxable
entity or different taxable entities where there is an intention to settle the balances on a net basis.
Deferred tax is calculated at the tax rates (and laws) that have been enacted or substantively enacted by the Statement of Financial
Position date and are expected to apply to the period when the asset is realised or the liability is settled.
Deferred tax assets and liabilities are not discounted.
2.11 Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or options are shown
in equity as a deduction, net of tax, from the proceeds.
2.12 Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from
suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as
non-current liabilities.
Trade payables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method.
2.13 Leases
All leases are accounted for by recognising a right-of-use assets due to a lease liability except for:
> Lease of low value assets; and
> Leases with duration of 12 months or less
The Group only has such short duration leases and lease payments are charged to the income statement.
2.14 Share-based payments and incentives
The Group operates equity-settled, share-based compensation plans, under which the entity receives services from employees as
consideration for equity instruments (options) of the Group. The fair value of employee services received in exchange for the grant of
share options are recognised as an expense. The total expense to be apportioned over the vesting period is determined by reference to
the fair value of the options granted:
> including any market performance conditions;
> excluding the impact of any service and non-market performance vesting conditions; and
> including the impact of any non-vesting conditions.
Non-market performance and service conditions are included in assumptions about the number of options that are expected to vest.
The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be
satisfied. At the end of each reporting period the Group revises its estimate of the number of options that are expected to vest.
It recognises the impact of the revision of original estimates, if any, in profit or loss, with a corresponding adjustment to equity.
When options are exercised, the Company issues new shares. The proceeds received net of any directly attributable transaction costs
are credited to share capital (nominal value) and share premium.
The fair value of goods or services received in exchange for shares is recognised as an expense.
2.15 Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Executive Officer, the
Company’s chief operating decision-maker (“CODM”).
Notes to the Financial Statements
59
2.16 Finance income
Interest income is recognised using the effective interest method, taking into account the principal amounts outstanding and the interest
rates applicable.
2.17 Provisions and Contingent Liabilities
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events; it is probable that an
outflow of resources will be required to settle the obligation; and the amount can be reliably estimated.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate
that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision
due to passage of time is recognised as finance cost.
Contingent liabilities are potential obligations that arise from past events and whose existence will only be confirmed by the occurrence
of one or more uncertain future events that, however, are beyond the control of the Group. Furthermore, present obligations may
constitute contingent liabilities if it is not probable that an outflow of resources will be required to settle the obligation, or a sufficiently
reliable estimate of the amount of the obligation cannot be made.
The company has contingent consideration arising in respect of mineral asset acquisitions. Details are disclosed in note 4.2.
Restoration, Rehabilitation and Environmental Provisions
Management uses its judgement and experience to provide for and amortise the estimated mine closure and site rehabilitation over
the life of the mine. Provisions are discounted at a risk-free rate and cost base inflated at an appropriate rate. The ultimate closure
and site rehabilitation costs are uncertain and cost estimates can vary in response to many factors including changes to relevant
legal requirements or the emergence of new restoration techniques. The expected timing and extent of expenditure can also change,
for example in response to changes in ore reserves or processing levels. As a result, there could be significant adjustments to the
provisions established which could affect future financial results. Currently there is no provision as all restoration and rehabilitation
for activities undertaken to date in line with the agreements for access to land. Once construction and mining operations commence
however this is anticipated to become more significant.
Trade and other 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
> Price risk, and
> Liquidity risk.
In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes
the Group's objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative
information in respect of these risks is presented throughout these financial statements. There have been no substantive changes in
the Group's exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used
to measure them from previous periods unless otherwise stated in this note.
(i) Principal financial instruments
The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:
> Trade and other receivables
> Cash and cash equivalents
> Trade and other payables
> Royalty finance
> Derivative financial assets
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSFINANCIALSTATEMENTS 60
Notes to the Financial Statements
3.1 Financial risk factors
The main financial risks to which the Group’s activities are exposed are liquidity and fluctuations on foreign currency. The Group’s overall
risk management programme focusses on the unpredictability of financial markets and seeks to minimise potential adverse effects on
the Group’s financial performance.
Risk management is carried out by the Board of Directors under policies approved at the quarterly Board meetings. The Board frequently
discusses principles for overall risk management including policies for specific areas such as foreign exchange.
(a) Liquidity risks
In keeping with similar sized mineral exploration groups, the Group’s continued future operations depend on the ability to raise sufficient
working capital through the issue of equity share capital. The Group monitors its cash and future funding requirements through the use
of cash flow forecasts.
All cash, with the exception of that required for immediate working capital requirements, is held on short-term deposit.
(b) Foreign currency risks
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with
respect to the Brazilian Real, US Dollar and the Pound Sterling.
Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign
operations that are denominated in a foreign currency. The Group holds a proportion of its cash in US Dollars and Brazilian Reals to hedge
its exposure to foreign currency fluctuations and recognises the profits and losses resulting from currency fluctuations as and when they
arise. The volume of transactions is not deemed sufficient to enter into forward contracts.
At 31 December 2019, if the Brazilian Real had weakened/strengthened by 20% against Pound Sterling with all other variables held
constant, post tax loss for the year would have been approximately £102,936 lower/higher mainly as a result of foreign exchange
losses/gains on translation of Brazilian Real expenditure and denominated bank balances. If the USD:GBP rate had increased by 5% the
effect would be £799,698.
Notes to the Financial Statements
61
As of 31 December 2019 the Group's net exposure to foreign exchange risk was as follows:
Functional Currency
USD
2019
USD
2018
£
GBP
2019
£
GBP
2018
£
Currency of net
Financial assets/liabilities
GBP
USD
BRL
CAD
Total net exposure
£
—
—
—
—
—
—
—
— (10,822,512)
—
—
—
28,686
— (9,207,410)
—
(4,928,732)
—
88,326
505,478
BRL
2019
£
—
—
—
—
—
BRL
2018
£
Total
2019
£
Total
2018
£
—
—
— (10,822,512)
—
—
—
28,686
— (9,097,947)
—
(4,928,732)
—
88,326
1,274,435
(c) Interest rate risk
As the Group has no borrowings, it is not exposed to interest rate risk on financial liabilities. The Group’s interest rate risk arises from
its cash held on short-term deposit for which the Directors use a mixture of fixed and variable rate deposits. As a result, fluctuations in
interest rates are not expected to have a significant impact on profit or loss or equity.
(d) Commodity price risk
The group is exposed to the price fluctuation of its primary product from the Araguaia project, being FerroNickel. The Group has a royalty
over its Araguaia project which is denominated as a fixed percentage of the product over a certain number of tonnes produced. Given the
Group is current in the development phase and is not yet producing any revenue, the costs of managing exposure to commodity price
risk exceed any potential benefits. The Directors monitor this risk on an ongoing basis and will review this as the group moves towards
production. The Groups exposure to nickel price amounted to the carrying value of the Royalty liability of £20,570,411 (2018: £nil). If
the long term nickel price assumption used in the estimation were to increase or decrease by 10% then the effect on the carrying value
of the liability would be an increase/decrease of £2,107,418 (2018: £nil).
(e) Credit risk
Credit risk arises from cash and cash equivalents and outstanding receivables. The Group maintains cash and short-term deposits with
a variety of credit worthy financial institutions and considers the credit ratings of these institutions before investing in order to mitigate
against the associated credit risk.
The Company’s exposure to credit risk amounted to £73,189,301 (2018: £54,106,065). Of this amount £55,795,528 (2018: £48,618,726)
is due from subsidiary companies, £17,393,773 represents cash holdings (2018: £5,487,339). See note 27 for adjustments for provisions
for expected credit losses.
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSFINANCIALSTATEMENTS 62
Notes to the Financial Statements
3.2 Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, in order to provide
returns for shareholders and to enable the Group to continue its exploration and evaluation activities. The Group has no repayable debt
at 31 December 2019 and defines capital based on the total equity of the Group. The Group monitors its level of cash resources available
against future planned exploration and evaluation activities and may issue new shares in order to raise further funds from time to time.
As indicated above, the Group holds cash reserves on deposit at several banks and in different currencies until they are required and in
order to match where possible with the corresponding liabilities in that currency.
3.3 Fair value estimation
The carrying values of trade receivables and payables are assumed to be approximate to their fair values, due to their short-term nature.
The value of contingent consideration is estimated by discounting the future expected contractual cash flows at the Group’s current cost
of capital of 7% based on the interest rate available to the Group for a similar financial instrument.
During the year the Group entered into a royalty funding arrangement with Orion Mine Finance securing a gross upfront payment of
$25,000,000 before fees in exchange for a royalty over the first 426k tonnes of nickel produced from the Araguaia Ferronickel project.
The agreement includes several prepayment options embedded within the agreement enabling the Group to reduce the royalty rate,
these options are carried at fair value. Details of this agreement are included in note 18.
The future expected nickel price and, volatility of the nickel prices are key estimates that are critical in the fair value of the Buy Back
Option associated with the Royalty financing.
The fair value of cash, other receivables, accounts payable and accrued liabilities and the joint venture obligation approximate their
carrying values due to the short-term nature of the instruments.
Fair value measurements recognised in the statement of financial position subsequent to initial fair value recognition can be classified
into Levels 1 to 3 based on the degree to which fair value is observable.
Level 1 – Fair value measurements are those derived from quoted prices in active markets for identical assets and liabilities.
Level 2 – Fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable
for the asset or liability, either directly, or indirectly.
Level 3 – Fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not
based on observable market data.
Information relating to the basis of determination of the level 3 fair value for the buyback option and consideration of sensitivity to
changes in estimates is disclosed in note 18b).
There were no transfers between any levels of the fair value hierarchy in the current or prior years.
4 Critical accounting estimates and judgements
The preparation of the Financial Statements in conformity with IFRSs requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the end of the reporting
period and the reported amount of expenses during the year. Actual results may vary from the estimates used to produce these
Financial Statements.
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of
future events that are believed to be reasonable under the circumstances.
Significant items subject to such judgements and estimates include, but are not limited to:
Estimates
Company – Application of the expected credit loss model prescribed by IFRS 9
IFRS 9 requires the Parent company to make assumptions when implementing the forward-looking expected credit loss model. This
model is required to be used to assess the intercompany loan receivables from the company’s Brazilian subsidiaries for impairment.
Arriving at the expected credit loss allowance involved considering different scenarios for the recovery of the intercompany loan
receivables, the possible credit losses that could arise and the probabilities for these scenarios. The following was considered; the
exploration project risk for Vermelho as well as the potential economics as derived from the PFS, positive NPV of the Araguaia projects
as demonstrated by the Feasibility Study, ability to raise the finance to develop the projects, ability to sell the projects, market and
technical risks relating to the project, participation of the subsidiaries in the Araguaia projects. See note 27 for a discussion on the
adjustment passed concerning the impairment loss.
Notes to the Financial Statements
63
Valuation of derivative financial assets
Valuing derivatives inherently relies on a series of estimates and assumptions to derive what is deemed to be a fair value estimate for a
financial instrument. The royalty financing arrangement entered into by the Group includes a Buyback option, an embedded derivatives
which was valued using a Monte Carlo simulation method. This methodology of determining fair value is reliant upon estimations
including the probability of certain scenarios occurring, the estimated production rate and timeline of production from the Araguaia
project, future nickel prices as well as discount factors. The most important estimates in determining the valuation of the Buyback option
are the future nickel price and its price volatility. The sensitivity of the valuation to these estimates are considered in note 18b).
Judgements
4.1 Impairment of exploration and evaluation costs
Exploration and evaluation costs which in 2019 relate solely to Vermelho have a carrying value at 31 December 2019 of £6,846,859
(2018: £35,511,145). Each exploration project is subject to an annual review by either a consultant or senior company geologist to
determine if the exploration results returned to date warrant further exploration expenditure and have the potential to result in an
economic discovery. This review takes into consideration long-term metal prices, anticipated resource volumes and grades, permitting
and infrastructure. In the event that a project does not represent an economic exploration target and results indicate there is no
additional upside, a decision will be made to discontinue exploration. The judgement exercised by management relates to whether there
is perceived to be an indicator of impairment and that management have concluded that there is not, due to the recovery in the Nickel
prices, favourable economics of the Pre-Feasibility Study as well as the fundamentals of the nickel market and expected supply gap in
the mid-term.
4.2 Contingent consideration
Contingent consideration has a carrying value of £6,246,071, at 31 December 2019 (2018: £3,461,833). Deferred consideration has a
carrying value of £nil at 31 December 2019 (2018: £1,360,792). There are two contingent consideration arrangements in place as at
31 December 2019:
Xstrata – Araguaia
> A contingent consideration arrangement that requires the Group to pay Xstrata Brasil Mineração Ltda consideration after the date
of issuance of a Feasibility Study (‘FS’) comprising the Araguaia project and the Vale dos Sonhos (‘VdS’) (US$330,000) and Serra do
Tapa (‘SdT’) (US$670,000) project areas (‘GAP’) (together the ‘Enlarged Project’), to be satisfied in shares in the Company (at the 5
day volume weighted average price taken on the tenth business day after the date of such issuance) or cash, at the election of the
Company. The VdS project area was included in the FS published in October 2018 and this contingent consideration was satisfied by
the issue of shares in the Company in January 2019, the SdT deposit is not currently included in the Araguaia project development
plan as so no contingent consideration has been recognised in respect of the US$670,000 that might become payable; and
> Remaining contingent consideration of US$5,000,000 to be paid in cash, as at the date of first commercial production from any
of the resource areas within the Enlarged Project area. Given the recent publication of the Feasibility Study which includes an area
purchased from Glencore and the securing of the royalty funding for the development of the project, this continues to be recognised
as contingent consideration as it will become payable when the project enters commercial production. It is carried at £2,975,935,
reflecting that it is discounted to reflect its current value. The carrying value has been adjusted to reflect that the date of commercial
production has been reassessed in the year.
A key judgement in determining the estimated value of the contingent consideration for Glencore is the timing of the assumed date of
first commercial production.
Vale – Vermelho
> On 19 December 2017 the Company announced that it had reached agreement with Vale Metais Basicos S.A. (“Vale”) to indirectly
acquire through a wholly owned subsidiaries in Brazil, 100% of the advanced Vermelho nickel-cobalt project in Brazil (“Vermelho”).
> A final payment of US$6,000,000 in cash is payable by Horizonte within 30 days of first commercial sale of product from Vermelho.
Management have assessed that given the finalisation and publication of a pre-feasibility study on the Vermelho project during
2019, the project is likely to have progressed to a stage where this final payment can be considered probable and have therefore
recognised this contingent consideration within liabilities for the first time during 2019. It is carried at £3,270,134, reflecting that it
is discounted to reflect its current value.
Management have sensitized the fair value calculations for both contingent considerations to reasonable changes in the unobservable
inputs and note that if the discount rate were to increase from 7% to 10% then the FV would decrease by £789,008 (2018: £221,263)
to £5,457,061 (2018: £3,240,600).
The determination of the probability of the Vermelho project entering into commercial production is a judgement made by the Company
based upon the demonstrated economics from the PFS published during 2019. The PFS identifies the ability of the Company to
demonstrate economic viability of the project at the long-term consensus nickel pricing for a capital cost estimate that is considered
achievable in the current market. It has therefore been concluded that with the project suitably advanced it is now probable that the
project will advance towards production and the consideration become payable.
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSFINANCIALSTATEMENTS 64
Notes to the Financial Statements
A key judgement in determining the estimated value of the deferred consideration for Vermelho is the timing of the assumed date of first
commercial production. Management have undertaken a sensitivity and if the date of commercial production were to be delayed by 1 year
then the fair value of deferred consideration for Vermelho would decrease by £213,933 and for Araguaia it would decrease by £195,202.
There has been no change in valuation technique during the period. Please refer to Note 17 for an analysis of the contingent
and deferred consideration.
4.3 Current and deferred taxation
The Group is subject to income taxes in numerous jurisdictions. Judgment is required in determining the worldwide provision for such
taxes. The Group recognises liabilities for anticipated tax issues based on estimates of whether additional taxes will be due. Where the
final tax outcome of these matters is different from the amounts that were initially recorded, such differences will affect the current and
deferred income tax assets and liabilities in the period in which such determination is made.
Deferred tax liabilities have been recognised on the fair value gains in exploration assets arising on the acquisitions of Araguaia Niquel
Mineração Ltda (formerly Teck Cominco Brasil S.A) and Lontra Empreendimentos e Participações Ltda in 2010. A deferred tax asset
in respect of the losses has been recognised on acquisition of Araguaia Niquel Mineração Ltda to the extent that it can be set against
the deferred tax liability arising on the fair value gains. In determining whether a deferred tax asset in excess of this amount should be
recognized management must make an assessment of the probability that the tax losses will be utilized and a deferred tax asset is only
recognised if it is considered probable that the tax losses will be utilized.
Other estimates include but are not limited to future cash flows associated with assets, useful lives for depreciation and fair value of
financial instruments.
4.4 Accounting for the royalty finance arrangements
The Group has a $25m royalty funding arrangement which was secured in order to advance the Araguaia project towards construction.
The treatment of this financing arrangements as a financial liability, calculated using the effective interest rate methodology is a key
judgement that has been made by the Company and which has been taken following obtaining independent expert advice. The carrying
value of the financing liability is also sensitive to assumptions regarding the royalty rate and future nickel prices. Further information
relating to the accounting for this liability and the sensitivity of the carrying value to these estimates is provided in note 18a).
The future price of nickel and date of commencement of commercial production are key estimates that are critical in the determination
of the carrying value of the royalty liability.
The future expected nickel price and, volatility of the nickel prices are key estimates that are critical in the fair value of the Buy Back
Option associated with the Royalty financing.
5 Segmental reporting
The Group operates principally in the UK and Brazil, with operations managed on a project by project basis within each geographical area.
Activities in the UK are mainly administrative in nature whilst the activities in Brazil relate to exploration and evaluation work. The newly
established subsidiary responsible for the project finance for the Araguaia Project is domiciled in the Netherlands. The operations of this
entity are reported separately and so it is recognised as a new segment. The reports used by the chief operating decision-maker are
based on these geographical segments.
2019
Intragroup sales
Administrative expenses
Profit/(loss) on foreign exchange
UK
2019
£
171,712
(1,840,348)
6,796
Brazil
2019
£
(171,712)
(723,532)
(78,839)
Loss from operations per reportable segment
(1,833,552)
(802,371)
Depreciation charges
Additions to non-current assets
Reportable segment assets
Reportable segment non-current assets
Reportable segment liabilities
—
—
—
3,595,775
17,785,624
39,428,141
2,246,089
59,459,854
— 39,317,989
— 39,317,989
6,572,952
569,434
20,925,405
28,067,791
Netherlands
2019
£
—
Total
2019
£
—
— (2,563,880)
15,782
15,782
(56,261)
(2,620,141)
—
—
—
3,595,775
Notes to the Financial Statements
65
UK
2018
£
Brazil
2018
£
1,416,698
(1,416,698)
Total
2018
£
—
(1,336,093)
186,209
— (1,336,093)
(3)
186,206
266,814
(1,416,701)
(1,149,887)
—
—
—
—
1,353,439
1,353,439
5,627,373
36,663,073
42,290,446
— 35,739,088
35,739,088
4,998,760
443,866
5,442,626
2018
Revenue
Intra-group sales
Administrative expenses
Loss on foreign exchange
Loss from operations per reportable segment
Depreciation charges
Additions to non-current assets
Reportable segment assets
Reportable segment non-current assets
Reportable segment liabilities
Inter segment revenues are calculated and recorded in accordance with the underlying intra group service agreements.
A reconciliation of adjusted loss from operations per reportable segment to loss before tax is provided as follows:
Loss from operations per reportable segment
Changes in estimate for contingent and deferred consideration (refer note 17)
Charge for share options granted
Finance income
Finance costs
Loss for the year from continuing operations
6 Expenses by nature
Group
Charge for share options granted
Depreciation (note 11)
2019
£
2018
£
(2,620,141)
(1,149,885)
598,660
139,392
(326,413)
(837,172)
110,036
89,446
(933,351)
(181,442)
(3,171,214)
(1,939,663)
2019
£
2018
£
326,413
837,172
—
—
7 Auditor remuneration
During the year the Group (including its overseas subsidiaries) obtained the following services from the Company’s auditor
and its associates:
Group
Fees payable to the Company’s auditor and its associates for the audit of the parent company and
consolidated financial statements
Fees payable to the Company’s auditor and its associates for other services:
– Audit related assurance services
– Tax compliance services
2019
£
2018
£
58,200
38,000
—
48,563
—
4,850
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSFINANCIALSTATEMENTS 66
Notes to the Financial Statements
8 Finance income and costs
Group
Finance income:
2019
£
2018
£
– Interest income on cash and short-term bank deposits
110,036
89,446
Finance costs:
– Contingent and deferred consideration: unwinding of discount
– Amortisation of Royalty financing
– Fair Value adjustment on royalty
– movement in fair value of derivative asset
Total finance costs
Net finance costs
9 Income Tax
Group
Tax charge:
Current tax charge for the year
Deferred tax charge for the year
Tax on loss for the year
Reconciliation of current tax
Group
Loss before income tax
Current tax at 19% (2018: 19.25%)
Effects of:
Expenses not deducted for tax purposes
Utilisation of tax losses brought forward
Tax losses carried forward for which no deferred income tax asset was recognised
Effect of higher overseas tax rates
Total tax
No tax charge or credit arises on the loss for the year.
(344,953)
(572,294)
(91,476)
75,372
(933,351)
(823,315)
(181,442)
—
—
—
(181,442)
(91,996)
2019
£
—
—
—
2019
£
2018
£
—
—
—
2018
£
(3,171,214)
(1,939,663)
(602,530)
(368,536)
281,391
174,095
—
473,130
(88,990)
—
—
194,441
—
—
The corporation tax rate in Brazil is 34%, the Netherlands 21% and the United Kingdom 19%. The group incurred expenses in all of these
jurisdictions during the year, in 2018 the effective rate was 19.25% as all of the losses arose in the UK.
Deferred income tax
An analysis of deferred tax assets and liabilities is set out below.
Group
Deferred tax assets
Deferred tax liabilities
– Deferred tax liability to be settled after more than 12 months
Deferred tax liabilities (net)
The movement on the net deferred tax liabilities is as follows:
Group
At 1 January
Exchange differences
At 31 December
Notes to the Financial Statements
67
2019
£
2018
£
1,412,509
1,522,700
1,624,891
(1,751,391)
(212,382)
(228,691)
2019
£
2018
£
(228,691)
(253,205)
16,309
24,514
(212,382)
(228,691)
Deferred tax assets are recognised on tax losses carried forward to the extent that the realisation of the related tax benefit through
future taxable profits is probable.
Deferred tax liabilities are recognised in respect of fair value adjustments to the carrying value of intangible assets as a result of the
acquisition of such assets.
The Group has tax losses of approximately £16,810,975 (2018: £22,778,401) in Brazil and excess management charges of approximately
£nil (2018: £834,644) in the UK available to carry forward against future taxable profits. Deferred tax assets have been recognised up
to the amount of the deferred tax liability arising on the fair value adjustments. Potential deferred tax assets of £5,715,731 (2018:
£6,221,957) have not been recognised.
Tax losses are available indefinitely.
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSFINANCIALSTATEMENTS 68
Notes to the Financial Statements
10 Intangible assets
Intangible assets comprise exploration licenses, exploration and evaluation costs and goodwill. Exploration and evaluation costs
comprise acquired and internally generated assets.
Group
Cost
At 1 January 2018
Additions
Exchange rate movements
Net book amount at 31 December 2018
Transfer to PPE
Additions
Exchange rate movements
Net book amount at 31 December 2019
Goodwill
£
Exploration
Licenses
£
Exploration and
evaluation costs
£
Total
£
251,063
5,165,529
28,891,686
34,308,278
—
1,245,111
3,236,829
4,481,940
(24,306)
226,757
(280,344)
(2,747,666)
(3,052,316)
6,130,296
29,380,849
35,737,903
— (3,483,363)
(29,808,123)
(33,291,486)
—
3,324,005
2,604,911
5,928,916
(16,172)
210,585
(813,572)
(488,143)
(1,317,887)
5,157,366
1,689,495
7,057,444
In December 2018, the Group published a technical Feasibility Study for the Araguaia Ferronickel project in accordance with NI 43-101.
Under IFRS 6 — Exploration for and Evaluation of Mineral Resources, an impairment test is required when the technical feasibility and
commercial viability of extracting a mineral resource become demonstrable, at which point the asset falls outside the scope of IFRS 6
and has been reclassified in the Financial Statements to mine development project upon completion of the royalty financing, which is
deemed to be the date at which commercial viability had been determined. The Feasibility Study financial assessment performed by
independent mining specialists, Ausenco, gave a post-tax discounted cash flow valuation of US$401M at 8% discount factor based on a
longterm Nickel price of US$14,000/t Ni. Thus, there is no impairment for these mining assets as the combined value of the exploration
& evaluation assets only totaled £34,244,817, giving significant headroom. As a result, these costs were transferred to evaluated mining
property, as part of PPE as at the date of financial close of the royalty agreement.
(a) Exploration and evaluation assets
The exploration and evaluation costs are split between Araguaia and Vermelho as follows:
Exploration licences
£
Exploration and evaluation costs
£
Araguaia
Vermelho
Net book amount at 31 December 2018
Vermelho
Net book amount at 31 December 2019
4,863,968
1,266,328
6,130,296
5,157,366
5,157,366
29,380,849
—
29,380,849
1,689,495
1,689,495
Total
£
34,244,817
1,266,328
35,737,903
6,846,860
6,846,860
No indicators of impairment were identified during the year for the Vermelho project.
Vermelho
In January 2018, the acquisition of the Vermelho project was completed, which resulted in a deferred consideration of
$1,850,000 being recognised and accordingly an amount of £1,245,111 was capitalised to the exploration licences held within
intangible assets shown above.
On 17 October the Group published the results of a Pre-Feasibility Study on the Vermelho Nickel Cobalt Project, which confirms Vermelho
as a large, high-grade resource, with a long mine life and low-cost source of nickel sulphate for the battery industry.
The economic and technical results from the study support further development of the project towards a full Feasibility Study and
included the following:
> A 38-year mine life estimated to generate total cash flows after taxation of US$7.3 billion;
> An estimated Base Case post-tax Net Present Value1 (‘NPV’) of US$1.7 billion and Internal Rate of Return (‘IRR’) of 26%;
> At full production capacity the Project is expected to produce an average of 25,000 tonnes of nickel and 1,250 tonnes of cobalt
per annum utilising the High-Pressure Acid Leach process;
> The base case PFS economics assume a flat nickel price of US$16,400 per tonne (‘/t’) for the 38-year mine life;
> C1 (Brook Hunt) cash cost of US$8,020/t Ni (US$3.64/lb Ni), defines Vermelho as a low-cost producer; and
> Initial Capital Cost estimate is US$652 million (AACE class 4).
It has been therefore concluded there are no indicators if impairment.
Notes to the Financial Statements
69
(b) Goodwill
Goodwill arose on the acquisition of Lontra Empreendimentos e Participações Ltda in 2010. The Directors have determined the recoverable
amount of goodwill based on the same assumptions used for the assessment of the Lontra exploration project detailed above. As a result of
this assessment, the Directors have concluded that no impairment charge is necessary against the carrying value of goodwill.
11 Property, plant and equipment
Group
Cost
At 1 January 2017
Foreign exchange movements
Additions
At 31 December 2017
Foreign exchange movements
Additions
At 31 December 2018
Foreign exchange movements
Transfer from exploration and evaluation assets¹
Additions
At 31 December 2019
Accumulated depreciation
At 1 January 2018
Charge for the year
Foreign exchange movements
At 31 December 2018
Charge for the year
Foreign exchange movements
At 31 December 2019
106,722
14,424
121,146
Mine
Development
Property
£
Vehicles and
other field
equipment
£
106,304
(10,630)
2,236
97,910
8,812
—
—
—
—
95,859
436
9,241
—
—
—
—
—
—
—
(1,270,125)
33,291,486
238,701
32,260,061
—
—
—
—
—
—
—
Office
equipment
£
14,398
(796)
—
13,602
822
—
Total
£
120,702
(11,426)
2,236
111,512
9,634
—
— (1,270,125)
33,291,486
—
238,701
— 32,260,061
13,602
109,461
—
822
436
10,063
119,960
703
—
105,536
14,424
703
—
—
—
106,239
14,424
120,663
Net book amount as at 31 December 2019
Net book amount as at 31 December 2018
Net book amount as at 1 January 2018
32,260,061
—
—
483
1,186
2,051
— 32,260,544
—
—
1,186
2,051
1 Following determination of the technical feasibility and commercial viability of the Araguaia Ferronickel Project, the relevant expenditure
has been transferred from exploration and evaluation assets to evaluated mineral property
Depreciation charges of £703 (2018: £436) have been capitalised and included within intangible exploration and evaluation asset
additions for the year. The remaining depreciation expense for the year ended 31 December 2019 of £nil (2018: £nil) has been charged
in ‘administrative expenses’ under ‘Depreciation.’
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSFINANCIALSTATEMENTS 70
Notes to the Financial Statements
Company
Cost
At 1 January 2018
Additions
At 31 December 2018 and 2019
Accumulated depreciation
At 1 January 2018
Charge for the year
At 31 December 2018
Charge for the year
At 31 December 2019
Net book amount as at 31 December 2019
Net book amount as at 31 December 2018
Net book amount as at 1 January 2018
Field
equipment
£
Office
equipment
£
4,208
—
4,208
4,208
—
4,208
—
4,208
—
—
—
7,403
—
7,403
7,403
—
7,403
—
7,403
—
—
283
Total
£
11,611
—
11,611
11,611
—
11,611
—
11,611
—
—
283
In December 2018, a Canadian NI 43-101 compliant Feasibility Study (“FS’) was published by the Company regarding the enlarged
Araguaia Project which included the Vale dos Sonhos deposit acquired from Glencore.
The financial results and conclusions of the FS clearly indicate the economic viability of the Araguaia Project with an NPV of $401M
using a nickel price of $14,000/t Ni. Nothing material had changed with the economics of the FS between the publication date and the
date of this report and the Directors undertook an assessment of impairment through evaluating the results of the FS along with recent
market information relating to capital markets and nickel prices and judged that there are no impairment indicators with regards to the
Araguaia Project.
Impairment assessments for exploration and evaluation assets are carried out either on a project by project basis or
by geographical area.
The adjacent Araguaia/Lontra/Vila Oito and Floresta exploration sites (‘the Araguaia Project’), together with the Vale dos Sonhos deposit
acquired from Xstrata Brasil Mineração Ltda comprise a resource of a sufficient size and scale to allow the Company to create a significant
single nickel project. For this reason, at the current stage of development, these two projects are viewed and assessed for impairment by
management as a single cash generating unit.
The mineral concession for the Vale dos Sonhos deposit was acquired from Xstrata Brasil Mineração Ltda, a subsidiary of Glencore
Canada Corporation, in November 2015.
The NPV has been determined by reference to the FS undertaken during the year on the Araguaia Project. The key inputs and assumptions
in deriving the value in use were, the discount rate of 8%, which is based upon an estimate of the risk adjusted cost of capital for the
jurisdiction, capital costs of $443 million, operating costs of $8,194/t Nickel, a Nickel price of US$14,000/t and a life of mine of 28 years.
Sensitivity to changes in assumptions
For the base case NPV8 of the Araguaia Project of US$401 million using a nickel price of US$14,000/t and US$740 million using
US$16,800/t as per the FS to be reduced to the book value of the Araguaia Project as at 31 December 2019, the discount rate applied
to the cash flow model would need to be increased from 8% to 17%.
Notes to the Financial Statements
71
12 Cash and cash equivalents
Cash at bank and on hand
Short-term deposits
Group
2019
£
2018
£
Company
2019
£
2018
£
2,219,850
422,501
1,854,329
194,149
15,540,480
6,104,614
15,540,480
5,293,190
17,760,330
6,527,115
17,394,809
5,487,339
The Group’s cash at bank and short-term deposits are held with institutions with the following credit ratings (Fitch):
A
BBB-
Group
2019
£
2018
£
Company
2019
£
2018
£
17,338,016
5,551,299
17,338,016
5,431,914
422,314
975,816
56,793
55,425
17,760,330
6,527,115
17,394,809
5,487,339
The cash deposited with the institution with a BBB rating is only held short term and the expected credit loss is not assessed as material.
13 Share capital
Group and Company
Issued and fully paid
Ordinary shares of 1p each
At 1 January
Issue of ordinary shares
At 31 December
2019
Number
2019
£
2018
Number
2018
£
1,432,521,800
14,325,218
1,371,934,300
13,719,343
13,855,487
138,555
60,587,500
605,875
1,446,377,287
14,463,773 1,432,521,800
14,325,218
Share capital comprises amount subscribed for shares at the nominal value.
2019
On 24 January 2019 the Company issued 13,855,487 as settlement for $330,000 of deferred contingent consideration that became
payable following the issuance of a Feasibility Study including the Vale dos Sonhos deposit originally acquired from Glencore.
2018
On 11 January 2018, the Company issued 60,587,500 new ordinary shares through a private placement in Canada at a price of C$0.06
per share raising gross cash proceeds of CAD$3,635,250 before expenses.
14 Share premium
Group and Company
At 1 January
Premium arising on issue of ordinary shares
Issue costs
At 31 December
2019
£
2018
£
41,664,018
40,422,258
121,288
1,451,723
—
(209,964)
41,785,306
41,664,018
Share premium comprises the amount subscribed for share capital in excess of nominal value.
15 Share-based payments
The Directors have discretion to grant options to the Group employees to subscribe for Ordinary shares up to a maximum
of 10% of the Company’s issued share capital. One third of options are exercisable at each six months anniversary from
the date of grant, such that all options are exercisable 18 months after the date of grant and all lapse on the tenth
anniversary of the date of grant or the holder ceasing to be an employee of the Group. Should holders cease employment
then the options remain valid for a period of 3 months after cessation of employment, following which they will lapse.
Neither the Company nor the Group has any legal or constructive obligation to settle or repurchase the options in cash.
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSFINANCIALSTATEMENTS 72 Notes to the Financial Statements
Movements on number of share options and their related exercise price are as follows:
Number of
options
2019
£
Weighted
average
exercise
price
2019
£
Number of
options
2018
£
Outstanding at 1 January
134,300,000
0.056
94,650,000
Forfeited
Granted
Outstanding at 31 December
Exercisable at 31 December
—
2,000,000
136,300,000
134,966,667
—
0.048
0.055
0.055
—
39,650,000
134,300,000
109,026,667
Weighted
average
exercise
price
2018
£
0.059
—
0.048
0.056
0.058
The options outstanding at 31 December 2019 had a weighted average remaining contractual life of 6.38 years (2018: 7.37 years).
The fair value of the share options was determined using the Black-Scholes valuation model.
The parameters used are detailed below.
Group and Company
Date of grant
Weighted average share price
Weighted average exercise price
Weighted average fair value at the measurement date
Expiry date
Options granted
Volatility
Dividend yield
Option life
Annual risk free interest rate
2019
options
2018
options
11/02/2019
30/05/2018
2.29 pence
4.30 pence
4.80 pence
4.80 pence
1.05 pence
2.51 pence
11/2/2029
30/5/2028
2,000,000
39,650,000
51%
Nil
10 years
1.22%
51%
Nil
10 years
1.22%
The expected volatility is based on historical volatility for the six months prior to the date of grant. The risk free rate of return is based on
zero yield government bonds for a term consistent with the option life.
The range of option exercise prices is as follows:
2019
Weighted
average
exercise price
(£)
2019
Weighted
average
remaining life
expected
(years)
2019
Weighted
average
remaining life
contracted
(years)
2018
Weighted
average
exercise price
(£)
2018
Weighted
average
remaining life
expected
(years)
2018
Weighted
average
remaining life
contracted
(years)
2018
Number of
shares
2019
Number of
shares
0.04
121,150,000
0.16
15,150,000
7.02
1.55
7.02
1.55
0.04
119,150,000
0.16
15,150,000
8.02
2.55
8.02
2.55
Range of exercise
prices (£)
0–0.1
0.1–0.2
Notes to the Financial Statements
73
16 Other reserves
Group
At 1 January 2018
Other comprehensive income
Currency translation differences
At 31 December 2018
Other comprehensive income
Currency translation differences
At 31 December 2019
Company
At 1 January 2018 and 31 December 2018
At 1 January 2019 and 31 December 2019
Merger
reserve
£
Translation
reserve
£
Other
reserve
£
Total
£
(8,852,646)
10,888,760
—
—
— (3,028,006)
(11,880,652)
10,888,760
—
—
— (2,626,938)
(14,507,590)
10,888,760
998,014
(1,048,100)
—
—
— (3,208,006)
(2,039,991)
(1,048,100)
—
—
— (2,626,938)
(4,666,930)
(1,048,100)
Merger
reserve
£
Total
£
10,888,760
10,888,760
10,888,760
10,888,760
The merger and other reserve as at 31 December 2019 arose on consolidation as a result of merger accounting for the acquisition of the entire
issued share capital of Horizonte Exploration Limited during 2006 and represents the difference between the value of the share capital and
premium issued for the acquisition and that of the acquired share capital and premium of Horizonte Exploration Limited.
Currency translation differences relate to the translation of Group entities that have a functional currency different from the presentation
currency (refer note 2.8). Movements in the translation reserve are linked to the changes in the value of the Brazilian Real against the Pound
Sterling: the intangible assets of the Group are located in Brazil, and their functional currency is the Brazilian Real, which decreased in value
against Sterling during the year.
17 Trade and other payables
Non-current
Contingent consideration payable to Xstrata Brasil Mineração
Ltda (refer note 26)
Group
2019
£
2018
£
Company
2019
£
2018
£
2,975,935
3,461,833
2,975,935
3,461,833
Vale Metais Basicoc S.A. (refer note 17)
3,270,134
—
3,270,134
—
Total contingent consideration
Current
6,246,069
3,461,833
6,246,069
3,461,833
Deferred consideration payable to former owners of Vermelho.
—
1,360,792
—
1,360,792
Trade and other payables
Amounts due to related parties (refer note 17)
Social security and other taxes
Accrued expenses
538,933
215,175
—
30,000
115,000
683,933
—
20,000
45,000
1,640,967
176,588
413,930
30,000
115,000
735,518
6,201
413,930
20,000
45,000
1,845,923
Total trade and other payables
6,930,002
5,102,800
6,981,587
5,307,756
Trade and other payables include amounts due of £317,816 (2018: £111,815) in relation to exploration and evaluation activities.
Contingent and deferred consideration also relate to exploration and evaluation activities.
Contingent Consideration payable to Xstrata Brasil Mineração Ltda
On 28 September 2015 the Company announced that it had reached agreement to indirectly acquire through wholly owned subsidiaries
in Brazil the advanced high-grade Glencore Araguaia nickel project (‘GAP’) in north central Brazil. GAP is located in the vicinity of the
Company’s Araguaia Project.
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSFINANCIALSTATEMENTS 74
Notes to the Financial Statements
Notes to the Financial Statements
Pursuant to a conditional asset purchase agreement (‘Asset Purchase Agreement’) between, amongst others, the Company and Xstrata
Brasil Exploraçâo Mineral Ltda ('Xstrata'), a wholly-owned subsidiary of Glencore Canada Corporation ('Glencore'), the Company has
agreed to pay a total consideration of US$8 million to Xstrata, which holds the title to GAP. The consideration is to be paid according the
following schedule;
> US$2,000,000 in ordinary shares in the capital of the Company which was settled by way of issuing new shares in the Company as
follows: US$660,000 was paid in shares to a subsidiary of Glencore during 2015 and the transfer of the Serra do Tapa and Pau Preto
deposit areas (together: ‘SdT’) during 2016 initiated the final completion of the transaction with a further US$1,340,000 shares in
the Company issued.
> US$1,000,000 after the date of issuance of a joint Feasibility Study for the combined Araguaia & GAP project areas, to be satisfied
in HZM Shares (at the 5 day volume weighted average price taken on the tenth business day after the date of such issuance) or cash,
at the election of the Company. Of this $330,000 is due upon the inclusion of Vale dos Sonhos in a Feasibility Study and $670,000
for Serra do Tapa, as at 31 December a Feasibility Study including Vale dos Sonhos has been published and the consideration settled
by way of issuing 13,855,487 new Shares in the Company. Serra do Tapa is not included in the current project plans, therefore
management have concluded it’s not currently probable that the consideration for Serra do Tapa will be paid. This consideration is
therefore not included in contingent consideration; and
> The remaining US$5,000,000 consideration will be paid in cash, as at the date of first commercial production from any of the
resource areas within the Enlarged Project area. Following transfer of the concession for the VdS deposit area to a subsidiary of the
Company, this has been included in contingent consideration payable.
Deferred consideration payable to Vale S.A
> On 19 December 2017 the Company announced that it had reached agreement with Vale S.A (“Vale”) to indirectly acquire through
wholly owned subsidiaries in Brazil, 100% of the advanced Vermelho nickel-cobalt project in Brazil (“Vermelho”).
> The terms of the Acquisition required Horizonte to pay an initial cash payment of US$150,000 with a further US$1,850,000 in cash
payable on the second anniversary of the signing of the asset purchase agreement. This was paid by the Group in December 2019
and is no longer included in deferred consideration.
> A final payment of US$6,000,000 in cash is payable by Horizonte within 30 days of first commercial sale of product from Vermelho.
Management have assessed that with the publication of the Pre-Feasibility Study during 2019 for the Vermelho project, there
is a reasonable probability that the project will advance through to production and therefore have recognised this contingent
consideration within liabilities for the first time during the year.
The critical assumptions underlying the treatment of the contingent consideration are set out in note 4.2.
As at 31 December 2019, there was a finance expense of £344,952 (2018: £181,441) recognised in finance costs within the Statement
of Comprehensive Income in respect of the contingent and deferred consideration arrangements, as the discount applied to the
consideration at the date of acquisition was unwound.
At 1 January 2018
Initial recognition - Vale
Unwinding of discount
Change in estimate
31 December 2018
Initial recognition - Vale
Unwinding of discount
Change in estimate
Settlement of consideration
At 31 December 2019
Contingent consideration
£
Deferred consideration
£
3,635,955
—
94,625
(268,747)
3,461,833
3,324,004
253,439
(534,201)
(259,006)
6,246,069
—
1,144,621
86,816
129,355
1,360,792
—
91,513
(64,459)
(1,387,846)
—
Total
£
3,635,955
1,144,621
181,441
139,391
4,822,626
3,324,004
344,952
(598,660)
(1,646,852)
6,246,069
18 a) Royalty financing liability
On 29 August 2019 the Group entered into a royalty funding arrangement with Orion Mine Finance (“OMF") securing a gross upfront
payment of $25,000,000 before fees in exchange for a royalty, the rate being in a range from 2.25% to 3.00% and determined by the
date of funding and commencement of major construction. At inception of the loan and at the year end the rate has been estimates at
2.45%. The royalty is paid over the first 426k tonnes of nickel produced from the Araguaia Ferronickel project. The Royalty agreement
has certain provisions to increase the headline royalty rate should there be delays in securing project financing beyond a pre agreed
timeframe. The royalty is linked to production and therefore does not become payable until the project is constructed and commences
commercial production. The agreement contains certain embedded derivatives which as per IFRS9 have been separately valued and
included in the fair value of the financial instrument in note 18 b).
Notes to the Financial Statements
75
The Royalty liability has initially been recognised using the amortised cost basis using the effective interest rate of 14.5%. When
circumstances arise that lead to payments due under the agreement being revised, the group adjusts the carrying amount of the financial
liability to reflect the revised estimated cash flows. This is achieved by recalculating the present value of estimated cash flows using the
original effective interest rate of 14.5%. any adjustment to the carrying value is recognised in the income statement.
Initial recognition of Royalty
Fees
Fair value of embedded derivative on initial recognition
Unwinding of discount
Change in fair value
Effects of foreign exchange
Value as at 31 December 2019
2019
£
19,379,845
(1,138,640)
2,232,558
572,294
91,476
(567,122)
20,570,411
Management have sensitised the carrying value of the royalty liability by a change in the royalty rate of 0.1% and it would be £840,081
higher/lower and for a $1,000/t Ni increase/decrease in future nickel price the carrying value would change by £1,301,840.
b) Derivative financial asset
The aforementioned agreement includes several options embedded within the agreement as follows:
> If there is a change of control of the Group and the start of major construction works (as defined by the expenditure of in excess
of $30m above the expenditure envisaged by the royalty funding) is delayed beyond a certain pre agreed timeframe the following
options exist:
• Call Option – which grants Horizonte the option to buy back between 50 – 100% of the royalty at a valuation that meets certain
minimum economic returns for OMF;
• Make Whole Option – which grants Horizonte the option to make payment as if the project had started commercial production
and the royalty payment were due; and
• Put Option – should Horizonte not elect for either of the above options, this put option grants OMF the right to sell between 50 –
100% of the Royalty back to Horizonte at a valuation that meets certain minimum economic returns for OMF.
> Buy Back Option - At any time from the date of commercial production, provided that neither the Call Option, Make Whole Option
or the Put Option have been actioned, Horizonte has the right to buy back up to 50% of the Royalty at a valuation that meets certain
minimum economic returns for OMF.
The directors have undertaken a review of the fair value of all of the embedded derivatives and are of the opinion that the Call Option,
Make Whole Option and Put Option currently have immaterial values as the probability of both a change of control and project delay are
currently considered to be remote. There is considered to be a higher probability that the Group could in the future exercise the Buy Back
Option and therefore has undertaken a fair value exercise on this option.
The initial recognition of the Buy Back Option has been recognised as an asset on the balance sheet with any changes to the fair value
of the derivative recognised in the income statement. It been fair valued using a Monte Carlo simulation which runs a high number of
scenarios in order to derive an estimated valuation.
The assumptions for the valuation of the Buy Back Option are the future nickel price ($16,188/t Ni), the start date of commercial
production (2022), the prevailing royalty rate (2.45%), the inflation rate (1%) and volatility of nickel prices (23.6%).
Initial recognition of derivative
Change in fair value
Effects of foreign exchange
Value as at 31 December 2019
2019
£
2,232,558
75,372
(61,121)
2,246,809
Sensitivity analysis
The valuation of the Buyback option is most sensitive to estimates for nickel price and nickel price volatility.
An increase in the estimated future nickel price by $1,000 would give rise to a $1,190,000 increase in the value of the option.
The nickel price volatilities based on both 5 and 10 year historic prices are in close proximity and this is the period in which management
consider that the option would be exercised. Therefore, management have concluded that currently no reasonably possible alternative
assumption for this estimate would give rise to a material impact on the valuation.
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSFINANCIALSTATEMENTS 76
Notes to the Financial Statements
19 Note to statement of cash flows
Below is a reconciliation of borrowings from financial transactions:
As at 1 January 2019
Cashflows
Gross proceeds
Fees
Non cash flows:
Fair value of embedded derivative on initial recognition
Unwinding of discount
Change in fair value
Effects of foreign exchange
Total non-current borrowings
Royalty Financing
£
Derivative asset
£
—
—
Total
£
—
19,379,845
(1,138,640)
— 19,379,845
— (1,138,640)
2,232,558
(2,232,558)
572,294
91,476
—
(75,372)
—
572,294
16,103
(567,411)
61,121
(567,411)
20,570,411
(2,246,809)
18,323,602
20 Dividends
No dividend has been declared or paid by the Company during the year ended 31 December 2019 (2018: nil).
21 Earnings per share
(a) Basic
The basic loss per share of 0.219p loss per share (2018 loss per share: 0.136p ) is calculated by dividing the loss attributable to owners
of the parent by the weighted average number of ordinary shares in issue during the year.
Group
Loss attributable to owners of the parent
Weighted average number of ordinary shares in issue
2019
£
2018
£
(3,171,214)
(1,939,662)
1,445,504,202
1,431,027,862
(b) Diluted
The basic and diluted loss per share for the years ended 31 December 2019 and 31 December 2018 are the same as the effect of the
exercise of share options would be anti-dilutive.
In January 2019 the Group issued a further 13,855,487 new ordinary shares at a price of 1.875 pence per share in settlement for
deferred contingent consideration due to Glencore, had this occurred prior to the end of the year this would have impacted the basic and
diluted earnings per share figures.
Details of share options that could potentially dilute earnings per share in future periods are set out in note 15.
22 Related party transactions
The following transactions took place with subsidiaries in the year:
A fee totalling £474,782 (2018: £399,762 was charged to HM do Brazil Ltda, £1.950,790 (2018: £961,042 ) to Araguaia Niquel Mineração
Ltda and £120,197 (2018: £55,894 ) to Typhon Brasil Mineração Ltda by Horizonte Minerals Plc in respect of consultancy services
provided and funding costs.
Amounts totalling £2,545,769 (2018: £1,416,698 ) were lent to HM Brazil (IOM) Ltd, HM do Brasil Ltda, Araguaia Niquel Mineraçao Ltda
and Typhon Brasil Mineração Ltda to finance exploration work during 2019, by Horizonte Minerals Plc. Interest is charged at an annual
rate of 6% on balances outstanding during the year. The amounts are repayable on demand.
See note 27 for balances with subsidiaries at the year end.
All Group transactions were eliminated on consolidation.
23 Ultimate controlling party
The Directors believe there to be no ultimate controlling party.
Notes to the Financial Statements
77
24 Directors’ remuneration (including Key Management)
Group 2019
Non-Executive Directors
Alexander Christopher
David Hall
William Fisher
Allan Walker
Owen Bavinton
Executive Directors
Jeremy Martin
Key Management
Simon Retter
Short term
benefits
Aggregate
emoluments
£
Post employment
benefits
Pension
costs
£
Other
emoluments
£
Cost to Company
Social
Security
costs
£
Non-Cash
Share Based
Payment
Charge
£
Total
£
Grand Total
£
—
30,234
26,400
30,359
31,043
—
32,500¹
32,500¹
32,500¹
—
—
— 62,824
— 58,900
— 62,859
—
39,396
70,439
—
2,981
—
—
34,224
100,029
—
29,946
88,846
7,483
1,696
29,946
100,288
29,946
102,081
231,130
200,000¹
16,662
447,792
51,405
68,448
567,645
155,640
504,896
94,164²
391,664
12,000
261,804
68,058
964,618
20,295
83,860
34,224
316,323
226,735 1,275,212
¹ Denotes bonuses paid regarding a long term incentive plan related to the successful publication of a Feasibility Study for Araguaia,
Pre-Feasibility Study for Vermelho and closure of $25m royalty funding arrangement with OMF.
² Includes £65,000 bonus paid regarding a long term incentive plan related to the successful publication of a Feasibility Study for
Araguaia, Pre-Feasibility Study for Vermelho and closure of $25m royalty funding arrangement with OMF.
Group 2018
Non-Executive Directors
Alexander Christopher
David Hall
William Fisher
Allan Walker
Owen Bavinton
Executive Directors
Jeremy Martin
Key Management
Simon Retter
Short term
benefits
Aggregate
emoluments
£
Post employment
benefits
Pension
costs
£
Other
emoluments
£
Cost to Company
Social
Security
costs
£
Non-Cash
Share Based
Payment
Charge
£
Total
£
Grand Total
£
—
26,400
26,400
26,400
—
32,500¹
32,500¹
34,500¹
—
—
— 58,900
— 58,900
— 60,900
—
—
—
2,415
93,323
154,138
—
80,261
154,138
7,242
80,261
148,403
—
—
79,848
79,848
—
80,261
160,109
216,157
150,000¹
21,186
387,343
49,367
167,415
604,125
92,362
73,320²
23,380
189,062
387,719
322,820
124,414
831,953
15,713
74,737
80,749
285,524
582,270 1,507,437
¹ Denotes bonuses paid to senior staff regarding a long term incentive plan upon publication of a bankable feasibility study on the
Araguaia FeNi project.
² Includes £30,000 bonus paid to Mr Retter regarding the successful completion of the feasibility study on the Araguaia FeNi project.
³ The Group has in place a long term incentive plan with certain key members of management, including the CEO, CFO and certain
Non-Executive Directors. Awards are due to be made following the successful completion of milestones deemed to be significant for
the long term value creation of the Group including completion of project financing, commencement of commercial production and in
the event there is an offer for the asset or for the entire issued share capital of the Group.
There are no other long term or termination benefits granted to key management.
The Company does not operate a pension scheme. Pension costs comprise contributions to Defined Contribution pension plans held by
the relevant Director or Key Management.
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSFINANCIALSTATEMENTS 78
Notes to the Financial Statements
25 Employee benefit expense (including Directors and Key Management)
Group
Wages and salaries
Social security costs
Indemnity for loss of office
Group
2019
£
2018
£
Compnay
2019
£
1,856,864
1,450,771
1,220,693
254,503
244,590
125,626
2018
£
856,288
105,337
16,865
10,472
—
—
Share options granted to Directors and employees (note 15)
326,413
873,757
326,413
873,757
2,454,644
2,579,590
1,672,732
1,835,382
Management
Field staff
Average number of employees including Directors and Key Management
10
18
28
11
16
27
8
—
8
6
—
6
Employee benefit expenses includes £892,500 (2018: £685,477) of costs capitalised and included within intangible non-current assets.
Share options granted include costs of £192,511 (2018: £501,523) relating to Directors.
26 Investments in subsidiaries
Company
Shares in Group undertakings
2019
£
2018
£
2,348,042
2,348,042
2,348,042
2,348,042
Investments in Group undertakings are stated at cost.
On 23 March 2006 the Company acquired the entire issued share capital of Horizonte Exploration Limited by means of a share for share
exchange; the consideration for the acquisition was 21,841,000 ordinary shares of 1 penny each, issued at a premium of 9 pence per
share. The difference between the total consideration and the assets acquired has been credited to other reserves.
27 Loans to subsidiaries
Balances with subsidiaries at the year end were:
Company
HM do Brasil Ltda
HM Brazil (IOM) Ltd
Horizonte Nickel (IOM) Ltd
Araguaia Niquel Mineração Ltda
Horizonte Minerals (IOM) Ltd
Typhon Brasil Mineração Ltda
Trias Brasil Mineração Ltda
Total
2019
Assets
£
2018
Assets
£
944,928
883,909
3,149,326
3,021,172
35,641,959
33,145,934
10,244,039
9,747,741
253,004
253,004
4,378,487
1,625,087
801,403
801,403
55,413,147
49,478,251
The loans to Group undertakings are repayable on demand and currently carry no interest, however there is currently no expectation of
repayment within the next twelve months and therefore loans are treated as non-current.
Notes to the Financial Statements
79
Amounts
advanced
during year
£
Expected
credit loss for
balances at 1
January 2018
£
Expected
credit loss
for balances
advanced in
2018
£
1 January 2018
£
Amounts
advanced during
year
£
2018
£
Expected
credit loss
£
2019
£
1,263,644
504,174
(631,822)
(252,087)
883,909
122,038
(61,019)
944,928
5,405,662
636,683 (2,702,831)
(318,342)
3,021,172
256,307
(128,154)
3,149,326
31,136,784
2,009,153
6,594,120
3,153,621
253,004
—
—
—
—
— 33,145,934
2,496,025
— 35,641,959
— 9,747,741
496,298
— 10,244,039
—
253,004
—
—
253,004
3,224,179
25,994 (1,612,090)
(12,998)
1,625,087
3,004,807
(251,407)
4,378,487
1,012,620
—
— (1,012,620)
—
240
—
(240)
—
—
— 1,144,861
— (343,458)
801,403
—
—
—
—
—
—
—
—
801,403
Company
HM do Brasil
Ltda
HM Brazil
(IOM) Ltd
Horizonte
Nickel (IOM)
Ltd
Araguaia
Niquel
Mineração
Ltda
Horizonte
Minerals (IOM)
Ltd
Typhon Brasil
Mineração
Ltda
Trias Brasil
Mineração
Ltda
Champol (IOM)
Ltd
Cluny (IOM) Ltd
Total
48,890,013
7,474,726 (4,946,743)
(1,939,745)
49,478,251
6,375,388
(440,579)
55,413,147
The Group uses a forward-looking expected credit loss model approach in accordance with IFRS 9 which requires the parent to make an
allowance for lifetime expected credit losses.
The loan to the subsidiary companies, are classified as repayable on demand. IFRS 9 requires consideration of the expected credit risk
associated with the loans. As the subsidiary companies do not have any liquid assets to sell to repay the loan, should it be recalled, the
conclusion reached was that the loan should be categorised as credit impaired.
As part of the assessment of expected credit losses of the intercompany loan receivable, the Directors have assessed the cash flows
associated with a number of different recovery scenarios. This included consideration of the:
> exploration project risk,
> positive NPV of the Araguaia project as demonstrated by the Feasibility Study
> positive NPV of the Vermelho Nickel Cobalt Project demonstrated by the Pre-Feasibility Study
> ability to raise the finance to develop the projects
> ability to sell the projects
> market and technical risks relating to the projects
> participation of the subsidiaries in the Araguaia project
The directors have concluded that certain amounts may not be fully recovered giving rise to the expected credit loss adjustment.
The credit loss allowance was assessed at the date of 31 December 2019. There was no change in the expected credit loss allowance
at the year end.
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSFINANCIALSTATEMENTS 80
Notes to the Financial Statements
28 Commitments
Capital expenditure contracted for at the end of the reporting period but not yet incurred is as follows:
Group
Intangible assets
2019
£
—
2018
£
—
Capital commitments relate to contractual commitments for metallurgical, economic and environmental evaluations by third parties.
Once incurred these costs will be capitalised as intangible exploration asset additions.
29 Contingent Liabilities
Other Contingencies
The Group has received a claim from various trade union organisations in Brazil regarding outstanding membership fees due in relation
to various subsidiaries within the Group. Some of these claims relate to periods prior to the acquisition of the relevant subsidiary and
would be covered by warranties granted by the previous owners at the date of sale. The Directors are confident that no amounts
are due in relation to these proposed membership fees and that the claims will be unsuccessful. No subsequent actions, claims or
communications from the various trade union organisations have been received subsequent to the requests for payment. As a result, no
provision has been made in the Financial Statements for the year ended 31 December 2019 for amounts claimed. Should the claim be
successful, the maximum amount payable in relation to fees not subject to the warranty agreement would be approximately £64,000.
In December 2014, the Group received a writ from the State Attorney in Conceiçao do Araguaia regarding alleged environmental damages
caused by drilling activities in 2011. To ensure proper environmental stewardship, the Group conducts certified baseline studies prior
to all drill programmes and ensures that areas explored are properly maintained and conserved in accordance with local environmental
legislation. After drilling has occurred, drill sites and access routes are rehabilitated to equal or better conditions and evidence is retained
to demonstrate that such rehabilitation work has been completed. In January 2015 the Group filed a robust defence against the writ. A
court hearing was held in May 2015 at which documents were requested to confirm that valid environmental authorisations were in
place. These were subsequently submitted as requested. No substantive financial claim continues to be made against the Group under
the terms of the writ. The Group continues to believe that the writ is flawed and is working towards having it withdrawn in due course.
As a result, no provision has been made in the Financial Statements for the year ended 31 December 2019.
30 Financial Instruments
Financial Assets
Group
Cash and cash equivalents
Derivative financial asset
Trade and other receivables
Total
Company
Cash and cash equivalents
Loans to subsidiaries
Trade and other receivables
Total
Fair Value
2019
£
Amortised cost
2019
£
Total
2019
£
Amortised cost
2018
£
— 17,760,330
17,760,330
6,527,115
2,246,809
—
2,246,809
—
—
134,726
134,726
24,243
2,246,809
17,890,056
20,141,865
6,551,358
Amortised cost
2019
£
2018
£
17,393,773
5,487,339
55,413,060
49,478,251
135,376
19,327
72,942,209
54,984,977
Financial Liabilities
Group
Trade and other payables
Contingent consideration
Royalty Finance
Deferred Consideration
Total
Company
Trade and other payables
Contingent consideration
Loans from subsidiary
Deferred Consideration
Total
Notes to the Financial Statements
81
Amortised cost
2019
£
2018
£
683,933
280,175
6,246,071
3,461,833
20,570,411
—
—
1,360,792
27,500,415
5,102,800
Amortised cost
2019
£
2018
£
321,588
485,131
6,246,071
3,461,833
17,735,009
—
—
1,360,792
24,302,668
5,307,756
Financial instruments not measured at fair value includes cash and cash equivalents, trade and other receivables, trade and other
payables, and, contingent and deferred consideration which are discounted.
31 Parent Company Guarantee
Horizonte Minerals plc has, together with other group companies, provided a parent guarantee to Orion Mine Finance related to the
$25 Million Royalty Financing arrangement granted by Nickel Production Services B.V. in respect of the project owned by Araguia Niquel
Metais Ltda during the financial year. The royalty payments are conditional upon entering into commercial production and therefore
cannot become due until this is achieved. Horizonte Mineral plc’s obligation to pay under the guarantee only arises if Nickel Production
Services B.V. as grantor of the royalty or any of the other provider of a parent guarantee fails to make any payment under the royalty
agreement. The Company considers the probability of such scenarios to be minimal at the current stage of the business’ development
and therefore any fair value assessment of such potential financial liability has been deemed to be immaterial
32 Events after the reporting date
Following the end of the financial year the Covid-19 Pandemic expanded from being centred in China, to be a global issue and resulted
in widescale disruption to business and social activity. There is now significant and growing uncertainty around economic growth and
underlying business conditions. This has impacted both the nickel market and financial markets as well a logistical issue due to the
impact on the ability to travel. On the ground in Brazil, our team is well prepared to continue their work while at the same time ensuring
the safety of those in our employ as a top priority. We have implemented strict health and safety policies specifically tailored to Covid-19.
The Board considers the pandemic could delay the Araguaia project financing timeline by a number of months, (this will be dependent on
the duration of the effects of the Covid-19 virus across global markets).
COMPANYOVERVIEWBUSINESSREVIEWCORPORATEGOVERNANCEFINANCIALSTATEMENTSFINANCIALSTATEMENTS 82
8 3
Statutory Information
Directors
David John Hall (Non-Executive Chairman)
Jeremy John Martin (Chief Executive Officer)
William James Fisher (Non-Executive Director)
Allan Michael Walker (Non-Executive Director)
Alex Christopher (Non-Executive Director)
Owen Alexander Bavinton (Non-Executive Director)
Company Secretary
Simon James Retter
Company Number
05676866
Registered Office
Horizonte Minerals Plc
Rex House
4-12 Regents Street
London SW1Y 4RG
United Kingdom
Nominated Adviser and Broker
Numis Securities Ltd
The London Stock Exchange Building
10 Paternoster Square
London EC4M 7LT
United Kingdom
Independent Auditor
BDO LLP
55 Baker Street
Marylebone
London
W1U 7EU
United Kingdom
Solicitors to the Company
As to English law:
Greenberg Traurig Maher LLP
200 Gray’s Inn Road
London
WC1X 8HF
United Kingdom
As to Canadian law:
Cassels Brock and Blackwell LLP
2100 Scotia Plaza
Toronto ON
M5H 3C2
Canada
As to Brazilian law:
Freitas Ferraz Advogados
Belo Horizonte – MG
Rua Paraiba, no 550, 9 ander, Bairro Savassi
CEP 30.130.-141 Brazil
Registrar
For shares listed on the London Stock Exchange:
Computershare Investor Services (Ireland) Limited
3100 Lake Drive
Citywest Business Campus
Dublin 24
D24 AK82
Ireland
For shares listed on the Toronto Stock Exchange:
Computershare Investor Services Inc.
100 University Avenue
8th Floor
Toronto ON
M5J 2Y1
Canada
Horizonte Minerals Plc, Rex House, 4-12 Regents Street, London SW1Y 4RG, United Kingdom
T. +44 (0)203 356 2901
E. info@horizonteminerals.com
www.horizonteminerals.com
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Horizonte Minerals Plc
Rex House
4-12 Regents Street
London SW1Y 4RG
United Kingdom
T. +44 (0)203 356 2901
E. info@horizonteminerals.com
www.horizonteminerals.com