Horizonte Minerals Plc
Annual Report 2022

Plain-text annual report

A YEAR OF TRANSITION 2022 Report and Accounts HORIZONTE MINERALS PLC IS DEVELOPING TWO TIER ONE NICKEL PROJECTS IN BRAZIL Who we are Horizonte Minerals is a leading nickel company that is developing the Araguaia ferronickel project and the Vermelho nickel-cobalt project, both high-grade, low­ er quartile of the cost curve, and long mine life projects. As a critical component in both stainless steel and electric vehicle battery technology, nickel is a key enabler of the clean energy transition. Listed on the AiM and TSX Stock Exchanges, we have been operating in Brazil for over a decade and have a long-term commitment to generate sustainable value for the societies and environments where we operate. What we do We are constructing Line 1 of the Araguaia Project, a 14,500 tonne per annum nickel mine with first production due in 1Q 2024 with an initial mine life of 28 years. The infrastructure of the site is designed to accommodate the Line 2 expansion, which will double production to 29,000 tonnes per annum. Our second Project, Vermelho, is undergoing a Feasibility Study. The Project is comprised of a 38-year mine life with average annual production expected to be 24,000 tonnes of nickel and 1,250 tonnes of cobalt. @HorizontePLC Horizonte Minerals Horizonte Minerals Plc For more information visit www.horizonteminerals.com How we do it We are developing a new sustainable supply of nickel to enable the clean energy transition with our focus on building a profitable company which will generate long- term value for all our stakeholders. CONTENTS 2022 highlights 1 At a glance 2 2022 in review 4 STRATEGIC REPORT Chair's statement 6 Building a sustainable business 8 Business model 10 Market review 12 Strategy 14 Key performance indicators 16 Chief Executive’s review 18 Projects 20 Financial review 24 Sustainability governance 26 Sustainability highlights 28 Sustainability strategy 30 Stakeholder engagement 32 Managing our risks and opportunities 34 CORPORATE GOVERNANCE Note from the Chair 42 Approach 44 Corporate governance structure 45 Board of directors 46 Board report 48 Directors’ report 54 Statement of directors’ responsibilities 56 FINANCIAL STATEMENTS Independent auditor’s report 57 Consolidated statement of comprehensive income 64 Consolidated statement of financial position 65 Company statement of financial position 66 Consolidated statement of changes in equity 67 Company statement of changes in equity 68 Consolidated statement of cash flows 69 Company statement of cash flows 70 Notes to the financial statements 71 Statutory information 113 2022 HIGHLIGHTS Araguaia Project approval Breaking ground at Araguaia Long term power offtake supply secured from renewable sources Zero fatal injuries and zero lost time recordable injuries Strategic partnerships with SENAI and FIEPA for local skills development initiated Secured US$633 million for Araguaia line 1 Vermelho Feasibility Study initiation First draw down of senior debt facility Critical risk controls implemented 34% project completion as of 31 December 2022 COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 2 3 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT Paved Road Power Line 500 kV, in construction Power Line 500 kV Carajás Mining District Nickel Mines Copper Mines Iron Mines Tucuruí Dam (hydropower) Itaqui Port (contingency port) Vila Do Conde Port (Primary Port) Belo Monte Dam (hydropower) Puma Sossego Canaã dos Carajás Salobo N1 N4 SL1 S11D Onça Xinguara Floresta do Araguaia Conceição do Araguaia Parauapebas Vermelho Araguaia North Araguaia South 1. Scale and distances are approximate 1 Infrastructure VNCP ANP North ANP South AT A GLANCE Low cost Both Araguaia and Vermelho are expected to be in the lower quartile of the cost curve for C1 costs, recently demonstrated by the signing of a ten-year power contract for Araguaia, locking in a price 30% lower than that used in the feasibility study. Scalable Over 3Mt of contained nickel re­ sources and the potential for over 60,000t per annum production, would position Horizonte as a signif­ icant global nickel producer. We are building a low-cost, scalable, nickel operation, focused on producing a low-carbon product, ethically, safely and responsibly Pará Brazil Nickel operation Nickel is fundamental in the production of stainless steel and in battery chemistry as part of the green energy transition and the drive towards the decarbonisation and electrification of the global economy. Low carbon product Leveraging the abundant re­ newable energy sources found in Brazil, Horizonte is able to ensure that the production from Araguaia emits lower levels of carbon than alternate produc­ ers reliant on hydrocarbons & non-renewable power sources. Ethically, safely and responsibly Horizonte has a long-standing commitment to contribute to the sustainable development of the communities associated with our operations, to conduct ourselves ethically in all our business ac­ tivities and with a focus on the responsible management of ESG aspects of our projects. Project location Horizonte draws on the country’s significant geological resources pro­ viding potential for future growth. We benefit from Brazil’s skilled work­ force and well developed infrastruc­ ture, we are proud to be playing an important part in developing Brazil’s strategically important nickel indus­ try. Following the construction of Araguaia, we are securing valuable employment for around 450 people in the operational phase and expect to generate in excess of US$700 million of direct socio-economic value over the life of mine. COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 4 5 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT 2022 IN REVIEW APRIL MAY MARCH 4 HORIZONTE MINERALS 2022 ANNUAL REPORT SECURED US$633 MILLION FOR ARAGUAIA LINE 1 Financing secured through a project finance debt facility of US$346.2 million from BNP Paribas, ING, Natixis, Société Générale, SEK and two export credit agencies Finnvera and EFK. The balance of the financing was through equity, cornerstoned by La Mancha, Glencore and Orion BROKE GROUND AT ARAGUAIA Construction of the Araguaia project began, marking the Projects transition from development to the construction phase ENTERED STRATEGIC PARTNERSHIPS WITH LEADING BRAZILIAN SOCIAL AGENCIES As part of Horizonte’s Local Content Initiative, the Company entered partnerships with SENAI and FIEPA for local skills development VERMELHO FEASIBILITY STUDY INITIATED The Feasibility Study is an important step in determining the overall operational parameters and economics of this Tier 1 nickel-cobalt project Background photo — aerial view of the Tucuruí hydroelectric power plant OCTOBER NOVEMBER DECEMBER 5 HORIZONTE MINERALS 2022 ANNUAL REPORT 34% PROJECT COMPLETION AS OF 31 DECEMBER 2022 Araguaia on schedule for first production in 1Q 2024 LONG TERM POWER OFFTAKE SUPPLY SECURED FROM RENEWABLE SOURCES Electrical power will represent roughly a third of Araguaia’s operational cost, by securing a 10-year fixed-price power contract 30% lower than that used in the feasibility study, Horizonte has ensured that operational costs will be in the lower quartile of the nickel cost curve FIRST DRAW DOWN OF SENIOR DEBT FACILITY Following the culmination of a multi-year effort to sufficiently de-risk Araguaia, the first tranche of low-cost debt was received ZERO LOST TIME INJURIES RECORDED AFTER 990,000 HOURS WORKED We aim to provide a safe working environment for all our people COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 6 7 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT CHAIR'S STATEMENT William Fisher Interim Non-Executive Chair I am pleased to present my first Annual Report statement as interim Chair of Horizonte. Having been a long serving member of the Board, I am very familiar with the Company, and to that end, I would like to reiterate that we find ourselves in a truly exciting period of progression. The transition from a developer into construction is the next phase for the business but our objectives, commitments and vision have remained the same: positioning Horizonte to be a significant global producer, committed to the ethical, safe and responsible production of a low-carbon nickel product. We have built an extremely capable management team and I have every confidence that we will deliver on our mission. Following the completion of our US$633 million funding package at the end of 2021, the transformation of Araguaia and the rate at which construction has advanced is notable and a testament to the hard work and commitment of our workforce and partners. More than 2,000 people are now employed on the Project, demonstrating the transformational potential for jobs and growth that the Project is providing to the local area. Given the challenging nature of the market across the board in 2022, we believe that the standout quality of the asset has been the biggest reason for the success of the construction fundraise. Araguaia’s long mine life of 28 years (with potential for expansion), low-cost, low-carbon nickel product is what underpins the business. The build-out of the electrification market and the move away from carbon as a fuel source have also contributed to the nickel market’s strong performance over the last 12 months. Read more about our markets on pages 12-13. During the year we also made strong progress at our second project, Vermelho, a large high-grade, long mine life, scalable resource, designed to be a low-cost producer of nickel and cobalt for the battery industry. Having successfully completed a Pre-Feasibility study in 2019, this year we initiated a Feasibility study, an important step forward in unlocking Vermelho’s significant value. Read more about Vermelho on pages 22-23. 2022 was the year Horizonte transitioned from developer to construction Unique Investment Opportunity World-class portfolio of 100% owned projects in established mining jurisdiction Funding package for Araguaia Stage 1 with a clear path to cash flow with key strategic shareholder support Funding in place to complete a Feasibility Study on Vermelho (results due early 2024) Exposure to robust stainless steel and high-growth battery markets Targeting ~60,000t per annum of low-cost, long- life and scalable nickel production – Tier 1 quality and scale Clean Energy transition driving significant nickel demand Strong corporate and project team Potential re-rating as Araguaia transitions to a producer Scarcity of near-term Tier 1 nickel projects Board development Horizonte’s successful move to construction, inevitably, necessitated a reinvigoration of our governance structures and leadership at Board level. It is on this basis that, in 2022, a number of changes to the Board were effected. I’d like to formally welcome Dr Gillian Davidson and Mr Vincent Benoit, who joined the Board in March 2022. Gillian’s sustainability experience in the extractives and natural resources sectors is a fantastic asset to Horizonte as we transition into a producer, as is her role as founding member and chair of the Global Battery Alliance, an initiative created to drive a sustainable battery value chain. Vincent also brings a wealth of knowledge in the mining sector with 30 years’ experience in corporate finance, business development and M&A. Vincent has been a partner at La Mancha since 2012, where his work on developing greenfield sites with Endeavour Mining saw its market capitalisation quadruple and positioned La Mancha as a leading private investor in the gold mining sector. We’re very pleased to have their expertise on board, and you will likely see new additions to the Board in 2023 as we transition towards becoming a producing nickel company. David Hall, my predecessor as Chair, Allan Walker and Sepanta Dorri stepped down from the Board and I would like to thank them sincerely for their important contributions to Horizonte’s success in recent years. The Board remains committed to good corporate governance, the Quoted Company Alliance’s Corporate Governance Code (QCA Code) and to aligning the skills and experience of the Directors and management with the needs of Horizonte as it advances toward production. Read more about our Governance on pages 42-49. Sustainability As a Company, we are committed to positioning Horizonte as a long-term partner for our stakeholders. We have always worked hard to ensure that we engage effectively with all of our local stakeholders around our projects, from local individuals and families to municipal authorities. 2022 was no exception, with the highlight of this engagement being our community development agreement with Serviço Nacional de Aprendizagem Industrial (SENAI), which we signed in July. SENAI is Brazil’s leading national industrial training provider and our partnership is a key component of Araguaia's Local Content Initiative to train and develop local community members in core skills required during Araguaia's construction and operational phases. Horizonte has funded classrooms and upskilling courses in critical skills like welding and electromechanical insulation, and so far this year over 420 people have enrolled in two cohorts, including a high proportion of women, which bodes well for a diverse and educated future workforce. As a demonstration of our commitment to responsible mining, at the end of the year we completed the construction of our biodiversity centre, where as part of our significant biodiversity programme, we will see close to eighty thousand seedlings of native species grown on-site each year, helping to replant and rehabilitate large areas of degraded land following prior agricultural practices surrounding Araguaia, including biodiversity corridors to link key areas of biodiversity habitat around the project area. You can read more about our sustainability programmes in our 3rd annual Sustainability Report found on our website as well as an update on activities during the year on pages 26-31. Positioning Horizonte for the future Our strategy now is to focus on the con­ struction of Araguaia, defining the ex­ pansion potential of Araguaia as well as advancing Vermelho towards a construc­ tion decision, thereby delivering value to shareholders. As we move through this critical phase in our Company’s develop­ ment, on behalf of the Board, I would like to take this opportunity to thank all of our workforce partners and stakeholders for their ongoing contribution towards deliv­ ering on our vision of becoming a signifi­ cant global nickel producer. William Fisher Interim Chair of the Board COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 8 9 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT BUILDING A SUSTAINABLE BUSINESS Our actions are informed by our guiding principles: Operational Excellence We achieve our goals for growth We act with integrity Stakeholders are proud to partner with Horizonte Horizonte is a great place to work Read more about our actions in our Sustainability strategy on pages 30-31 When we consistently apply these principles to how we do our work, we will achieve: We are focused on generating value for all our stakeholders through our purpose of “Sustainably supplying nickel to enable the clean energy transition”. This purpose directs decisions, and actions, shapes our culture and drives our strategy Values In order to deliver our vision, all team members must share and uphold a universal set of values that are critical to the evolution of an enhanced culture. Our values guide our behaviours and define the way we work with each other and within the wider society. Integrity Prevents the negative consequences of unethical actions, acting with full transparency and honesty. Our behaviour and actions should always reflect our ethical culture. Operating with integrity is the only way to contribute to the well-being of people Trust Makes strategic relations more appreciated and resilient. We build trust when we engage our people, communities, authorities and shareholders on the issues that matter to them. We trust in our people and their talent to deliver on our company Purpose Responsibility & Accountability We empower our people to take responsibility and accountability in the workplace. We manage our operations and projects responsibly. Our social acceptability relies on being accountable for our positive and negative impacts on our people, communities and the environment Sustainability & Innovation We put the health and safety of our people first, actively considering the environment and communities in the choices we make, always learning and looking for ways to improve through innovation 8 HORIZONTE MINERALS 2022 ANNUAL REPORT 9 HORIZONTE MINERALS 2022 ANNUAL REPORT Our culture is inclusive and supportive, encouraging all employees to take ownership of their work, lead by example and be accountable for their successes and failures. Proudly Brazilian, we promote local employment wherever possible and provide continual training to upskill our workforce. Purpose Sustainably supply nickel to enable the clean energy transition Strategy
Operate responsibly
Deliver low cost, low carbon nickel & cobalt
Capital efficiently Values
Integrity
Trust
Responsibility & Accountability
Sustainability & Innovation Vision To be a globally significant, sustainable producer of nickel COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 10 11 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT Inputs Our Sustainable Business Model Market fundamentals Global demand Read about the demand trends on pages 12-13 Global supply Read about expected supply shortages on pages 12-13 Commodity price Read about the nickel price trend on pages 12-13 Integrated approach Responsible approach Read about our approach to sustainability on pages 26-31 Good corporate governance Read about our corporate governance on pages 42-49 Stakeholder engagement Read about our stakeholder engagement on page 32-33 Assets Tier 1 projects Read about our projects on pages 20-23 Our people Read about our experienced team on pages 18-19 Financial position Read about our strong financial position on pages 24-25 Renewable electricity source Read more about our renewable sources of electricity on page 19 Integrity Trust Explore Maximising our geological under­ standing is the foundation of our busi­ ness model, to ensure predictability and consistency of ore. Our geologists systematically and methodically ex­ plore our prospective land holdings, having been fundamental to deliver­ ing a resource of over 3 million tonnes of contained nickel Operate Through our commitment to sus­ tainable business practices, we are building a portfolio of high-quality assets. At all times, we target safe, environmentally responsible working practices and a high-performing cul­ ture that delivers results on time and on budget Develop Every investment decision is careful­ ly evaluated around risk, with a focus on potential returns, long-term val­ ue and sustainability. Once we have approved an investment, the design and construction process is informed by input from our partners and those stakeholders most affected. We aim to develop every potential site with safety as our first priority and to achieve optimal, long-term produc­ tivity while minimising risks and our environmental footprint Sustain By embedding our sustainability frameworks into our workplaces, meeting our own high standards and being aware of the needs and re­ quirements of our local communities, we strive to reach the highest expec­ tations of ethical behaviour, health and safety, environmental steward­ ship and governance BUSINESS MODEL Underpinned by our values Our ability to create value is underpinned by the quality of our assets, the capability of our people, our operational performance, mitigation of risks and disciplined capital allocation Value created outputs Sustainability & Innovation Responsibility & Accountability Suppliers and customers Through building long-term, mutually beneficial relationships, our goal is to supply our customers with low-carbon, responsibly sourced nickel Employees We strive to provide a safe, inclusive working environment, empowering our employees and contracts to fulfil their potential Local community Proudly Brazilian, we promote local employment and provide continual training to upskill our workforce, committed to leaving a strong legacy Shareholders We aim to deliver long-term value to shareholders Environment Horizonte is committed to responsible environmental stewardship and efficient use of natural resources COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 10 11 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 12 13 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT MARKET REVIEW Nickel has an essential role to play in delivering the low carbon, renewable energy that the world requires to help combat climate change. The International Energy Agency’s roadmap to achieve net zero emissions by 2050 identifies the contributions of various renewable technologies to electrical capacity. Nickel’s properties in stainless steel and battery technology are helping to reduce greenhouse gas emissions - enabling clean energy solutions to be a central part of our effort to tackle global warming. The transition to a net-zero economy will be metal-intensive Nickel’s role in the clean energy transition Nickel, a naturally occurring, lustrous, silvery-white metallic element has out­ standing physical and chemical proper­ ties, which make it essential in hundreds of thousands of products. Its biggest use is in alloying - particularly with chromium and other metals to produce stainless and heat-resisting steels, with two-thirds of global nickel production used for its man­ ufacture. Here nickel provides toughness, strength and enhanced corrosion resist­ ance, significantly increasing the end product’s life. As the world transitions towards a green economy, nickel’s role has begun to evolve, as its critical role in sustainable energy systems and new battery tech­ nology has emerged. The move to energy storage systems has largely been driven by significant growth in renewable en­ ergy resources, primarily wind and solar. In the US, wind and solar made up more than half of all new generating capacity in the past three years. Asia and Europe are also investing billions in renewables. However, the challenge is that the wind doesn’t blow and the sun doesn’t shine on demand. This is why batteries are being deployed to capture the energy and re­ lease it when required, helping stabilise our complex and widespread electricity infrastructure. Nickel’s role in the clean energy transition, includes: ~ 325m EVs expected to be in operation globally by 2040. A 60Kwh NMC battery needs 39kg of nickel ~ Carbon Capture & storage - 200t of nickel required to capture and store 1.5mt CO2 / per annum ~ Nickel improves the strength & durability of wind turbines. Each turbine requires 2,000 kg of nickel ~ Hydro-electric plants need durable nickel-rich stainless-steel turbines. Global hydro-electric capacity is expected to grow 70% by 2040 ~ Nickel alloys play an important role in ensuring the integrity, durability & long-term performance of nuclear power stations. Growing demand in 2022 2022 global nickel demand was 3 million tonnes. To put this in context, in 2000 demand had not surpassed 1.1 million tonnes. This demand growth is set to continue if the world hopes to achieve the targets set out by the Paris agreement on climate change. Governments around the world have been enacting policy change in order to hit these targets, the United States of America for instance passed the US Inflation Reduction Act in August this year, promising US$369 billion for climate and clean energy policies, at the same time setting out an ambitious tar­ get to extract and process key battery minerals locally, with an aim of reducing carbon emissions by roughly 40% by 2030. Affirmative actions such as this will help drive the change towards a green econo­ my and to becoming net zero. Turning to supply, despite a complicated geopolitical situation coupled with the en­ ergy crisis and rising inflation, the nickel deficit that emerged in 2021 swung to a surplus in 2022 on the back of strong Indo­ nesian supply. The surplus observed was driven by low-grade Nickel Pig Iron (NPI), while the current Class 1 nickel tightness is likely to hold given the potential sup­ ply disruptions and bottlenecks that ma­ jor existing producers are facing and the challenges in bringing online the new mine supply from outside of Indonesia. Looking forwards, while Indonesia will be the primary source of increased nickel supply globally, the country still heavily relies on powering their processing plants through coal-fired electricity resulting in high carbon emissions. This will be a key point of difference compared to the renewable sources Horizonte will use. This is increasingly important as end users and consumers focus on transparency and the sourcing of the metals that are used in their products. Accelerating battery demand will fundamentally alter the market Stainless steel continues to be nickel’s main driver of demand, representing around two thirds of global nickel demand. With a balanced demand profile between investment and consumption, and rea­ sonable leverage to growing wealth, stainless steel offers annuity demand growth linked to global GDP. Longer term, BMO Commodities research believe that demand for nickel in the use of batteries is set to match or exceed that from stainless steel over the coming years positioning Horizonte well to capitalise on the poten­ tial supply demand imbalance. Nickel’s volatile year Nickel has continued to attract a lot of attention over the course of 2022, in par­ ticular following an unprecedented short squeeze in the first quarter of the year, resulting in a 250% surge in prices for the metal on the London Metal Exchange (LME) in the space of twenty-four hours. Prior to the event, nickel prices were on the rise as demand in most nickel consuming sectors continued to recover from wide­ spread COVID-19 disruptions two years earlier, whilst strong underlying demand trends driven by the global energy transi­ tion continued to propel nickel prices higher. Following the event, the nickel market entered a state of paralysis, with limited material being traded given concerns over further price volatility and distrust of the LME. As we moved through the year, elec­ tric vehicle (EV) demand began to pick up as inventories were worked through and restocking began, with nickel ending the year at US$29,901 per tonne, 43% higher than at the start of the year. COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 14 15 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT STRATEGY STRATEGIC PILLARS 2022 PERFORMANCE 2023 PRIORITIES Operate responsibly Horizonte has a long-standing commitment to contribute to the sustainable development of the communities associated with our operations, to conduct ourselves ethically in all our business activities and with a focus on the professional management of ESG aspects of our projects ~ Zero fatal injuries and zero recordable injuries ~ Golden Rules implemented ~ Critical risk controls implemented ~ Inaugural employee satisfaction survey completed ~ Long term power offtake supply secured from renewable sources ~ Submitted Social Environmental Impact Assessment for Vermelho ~ Appointed Gillian Davidson as an independent non- executive director and Vincent Benoit as a non- executive director to the Board ~ Appointment of Philipa Varris as Head of Sustainability ~ Published our 3rd Annual Sustainability Report ~ Zero fatalities and zero recordable injuries ~ Authorise Group Health, Safety and Wellbeing Policy ~ Employee pulse survey program to monitor culture evolution through transition to operations ~ Zero reportable environmental incidents ~ HZM Supplier Code of Conduct implementation ~ Group level policies for governance framework endorsed ~ Continue critical risk control implementation through construction Deliver low cost, low carbon nickel and cobalt Progressing our two, tier one projects through construction and into production is central to our business model and allows us to deliver value to our stakeholders ~ Began construction of Araguaia ~ Araguaia approved as a Strategic Minerals Project by the Brazilian Government ~ Award of Electro-mechanical contract ~ Araguaia construction remains on schedule having advanced 34% ~ Initiated a Feasibility Study for Vermelho ~ Maintain construction schedule of Araguaia ~ Initiate Ore Stockpiling ~ Begin cold commissioning of Araguaia ~ Undertake a Feasibility Study on Line 2 expansion of Araguaia ~ Advance Vermelho development Capital efficiently A strong balance sheet and efficient capital allocation provides the financial security and flexibility, central to successfully delivering our vision ~ Secured the US$346.2m Senior Debt Facility ~ ~US$400m of key contracts awarded as of 31 December 2022 ~ Secured an oversubscribed equity fundraise of ~US$80m ~ Completed first draw down of Senior Debt ~ Cash balance of US$154 million as of 31 December 2022 ~ Liquidity of US$495 million as of 31 December 2022 ~ Remain within project budget for Araguaia ~ Maintain a strong balance sheet COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S Our vision is to be a globally significant, sustainable producer of nickel to fulfil our purpose of supplying sustainable metals to enable the clean energy transition 14 HORIZONTE MINERALS 2022 ANNUAL REPORT 15 HORIZONTE MINERALS 2022 ANNUAL REPORT COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 16 17 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT KEY PERFORMANCE INDICATORS We use various financial and non-financial performance measures to help evaluate the ongoing performance of our business. Linked to our strategic objectives, the following measures are considered by management to be some of the most important in evaluating our overall performance year on year ENVIRONMENTAL AND SOCIAL CONSTRUCTION FINANCIAL LOST TIME INJURY FREQUENCY RATE (per 1,000,000 hours worked) MAJOR ENVIRONMENTAL INCIDENTS LOCAL EMPLOYMENT SCHEDULE BUDGET LIQUIDITY KPI 2022: 0 2021: 0 2020: 0 2019: 0 2022: 0 2021: 0 2020: 0 2019: 0 2022: 39% 2021: 50% 2020: 53% 2019: 46% 34% constructed as of 31 December 2022 US$537 million 2022: US$495m1, 2021: US$211m2, 2020: US$15m3 Why we measure An indicator of safety in the workplace and the effectiveness of our management controls to protect our workforce. We aim to provide a safe working environment for all our people An indicator of environmental and social impact and the effectiveness of management controls to protect the area in which we operate, key to our long-term success. We operate in an environmentally conscientious manner and minimise the impact of our activities, targeting zero environmental incidents. An indicator of the socio-economic benefit to our host communities and our effectiveness to enhance our local economic participation in Pará state. We remain committed to delivering shared value to our local communities, partially achieved through creating employment opportunities for local community members. We refer to local employment as people from Pará state, not Brazil as a whole given the vast majority of our people are Brazilian Vital for the continued growth of Horizonte and our ability to deliver Araguaia on time An indicator of fiscal control and management’s ability to preserve value. Provides the capex budget for the construction of Araguaia We are focused on securing a strong balance sheet to fund the construction of Araguaia Stage 1 and maintain financial flexibility 2022 Performance We continue our demonstrable track record of zero LTIFR in 2022 We continue to maintain our strong track record of zero environmental incidents As Araguaia construction has ramped up, an experienced and technical workforce is required meaning we have sourced labour from outside of Pará state. As Horizonte transitions into an operator, the Company would expect for the downward trend to reverse, as we train more people from Pará state On schedule US$~80m of additional equity funding was raised in 2022 following cost to complete analysis, primarily driven by inflation and interest rates US$495m as of 31 December 2022, 135% higher year-on-year Link to Strategy Operate responsibly. Deliver low cost, low carbon nickel and cobalt Operate responsibly. Deliver low cost, low carbon nickel and cobalt Operate responsibly. Deliver low cost, low carbon nickel and cobalt Deliver low cost, low carbon nickel and cobalt Deliver low cost, low carbon nickel and cobalt. Capital efficiently Deliver low cost, low carbon nickel and cobalt. Capital efficiently Link to Risks Safety, Health and Wellbeing Stakeholder relations and social licence. Critical permits delayed or declined Stakeholder relations and social licence. Human Capital Capital project delivery and operational transition Capital project delivery and operational transition. Liquidity, access to capital and debt covenants Liquidity, access to capital and debt covenants 1. As of 31 December 2022 2. As of 31 December 2021 3. As of 31 December 2020 COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 18 19 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT CHIEF EXECUTIVE’S REVIEW Jeremy Martin CEO A ground breaking year for Horizonte It is a pleasure to reflect on the achieve­ ments of 2022 which was a ground break­ ing year for Horizonte and has laid the foundations for the years ahead, position­ ing the Company to be a significant global producer, committed to the ethical, safe and responsible production of a low carbon nickel product. Araguaia Nickel Project Our focus for 2022 at Araguaia was to secure the funding, build our team, award key equipment and construction contracts required for construction and the move to operations, commencing our 24-month journey to becoming a nickel producing Company. We’re delighted to have fin­ ished the year having advanced construc­ tion by 34% and importantly, remain on track to produce first metal in Q1 2024. The 2022 reporting period began by clos­ ing out the Araguaia construction funding package, in which a total of US$633 mil­ lion was raised comprising a combination of senior debt and equity with support from a number of high-quality, long-term financial institutions and leading mining sector investors. By the end of the year and following a multi-year effort to de- risk Araguaia, we were able to success­ fully access the low-cost debt and draw down on the first tranche of funds. The rigorous due diligence process, and the extensive list of obligations that Hori­ zonte was required to meet to access this funding, should provide all our stakehold­ ers with confidence in the robustness of Araguaia and the quality of the team working on the project. The first debt drawn-down milestone demonstrates that we had made signif­ icant progress on construction and were able to satisfy the Senior Lenders that we had, among others; i. shown that Araguaia is funded through to completion and first cash flows following the subsequent ~US$80m equity raise; ii. made significant progress with construction, and in line with the project schedule; iii. awarded all of the key material contracts, including equipment supply, Engineering Procurement and Construction Management (EPCM), port access and power supply; iv. have a long-term offtake in place for 100% of Araguaia’s production from line 1 with a high-quality counterparty in Glencore; and lastly, v. have built out an experienced team to deliver the Project. 18 HORIZONTE MINERALS 2022 ANNUAL REPORT To highlight, the most critical of these contracts, is the low-cost power contract. Electrical energy makes up approximately a third of our operating costs, so having a power contract with renewable sourcing, at the extremely competitive pricing that we were able to lock in, means that Araguaia will be operating in the lowest quartile of the cost curve for at least the ten-year duration of the initial contract life. Furthermore, this contract demonstrates our ability to become one of the lowest CO2 nickel producers, a major competitive advantage when compared to nickel peers. Turning to the physical progress that we saw on the ground at Araguaia, 2022 was a hugely transformative year in the process of developing the greenfield site into a producing asset. The foundations of the furnace and rotary kiln are now well-advanced and earthworks are close to completion. To facilitate reliable power to site, a 125 kilometre, 230kV powerline is being constructed and pre-assembly of the towers and construction of the main substations at site made good progress. Vermelho Horizonte has a second Tier 1 asset in Ver­ melho. 100% owned, it is an excellent op­ portunity to develop a low-cost supply of nickel and cobalt to meet the fast-grow­ ing demand due to global efforts to tran­ sition to net zero emissions. In October 2022 we awarded the prin­ cipal engineering contract to undertake the Feasibility Study (FS) at Vermelho to Wood plc, a major milestone in advancing the project through to a funding decision. Wood is a global engineering and techni­ cal services provider with extensive ex­ perience specifically in the nickel sector, and undertook the original Vermelho FS for its previous owner, Vale, from 2003 to 2006, resulting in a positive construction decision. We anticipate results from the Feasibility Study in 1H 2024. We were also pleased to announce the filing of the Social and Environmental Impact Assessment (EIA) for Vermelho in late 2022, an essential part of the per­ mitting process of the project. Approval of the EIA and subsequent granting of a preliminary licence is expected during 2024, the first stage in a three-stage environmental licencing process to devel­ op a mine in Brazil. This filing followed an 18-month period where Horizonte, in con­ junction with Rambol Group (“Rambol”) (a leading global environmental and social consultancy firm) together with Integra­ tio (a leading Brazilian social consultancy firm), undertook the collection and analy­ sis of the baseline social and environmen­ tal data specified by the Pará State Secre­ tariat for Environment and Sustainability (SEMAS), to reflect the current physical, biological and social settings at Vermelho. Health and Safety first Alongside the difficult macro inflation­ ary environment, there have been some challenges specific to the construction phase. Brazil itself experienced a sudden step-up in industrial activity in 2022 fol­ lowing COVID-19 disruption, meaning that construction contractors were scarce, as was the labour force. Securing and main­ taining our high-quality team at Araguaia has therefore been an added challenge, but one which we have managed to overcome. We now have over 2,000 people working at site, with this number expected to increase to 3,100 by the end of Q2 2023. Notwith­ standing this sharp increase in employ­ ment and activity on site, we are extremely proud to have lost zero hours to injury this year, giving us a lost-time injury frequen­ cy rate (“LTIFR”) rate of 0.00, for the fifth consecutive year. There is of course no place for complacency and the health and safety of our people remains central to everything we do. Further information re­ lating to our health and safety can be found on pages 28-29 of this report and also in our 3rd annual Sustainability Report found on our website. Building out our Team As mentioned above, 2022 saw the Hori­ zonte owners team continue to grow as well. At the beginning of the year, we had a team of around 25 people. By year-end this had grown close to 150 people span­ ning across various disciplines from envi­ ronmental and social-focused activities to commissioning and Business readiness professionals. Creating a strong working culture is key for 2023 as we look to en­ gage our people over the long term to instil a culture that encourages commitment to results, empowerment, flexibility, collab­ oration, transparency and participation. New Chair I’d like to welcome Mr William (Bill) Fisher to the role of Interim Chair of the Board. Bill has served alongside me on the Board for the past eight years, so he is very fa­ miliar with the business. We have always had a view that we want to maintain continuity throughout the construction stages, and as we move into ramp-up, Bill brings this required balance. 2023 Objectives Looking ahead to the coming 12 months, we are cognisant of the work that lies ahead. Our primary focus will be on de­ livering Araguaia on-time, on-budget and safely. We are targeting cold com­ missioning towards the end of 2023 with hot commissioning and subsequent first nickel in 1Q 2024. Alongside this work, we are planning to conduct a feasibility study on the second line at Araguaia, a relatively low capex project that will dou­ ble production from 14,500 tonnes per annum to 29,000 tonnes per annum. Ver­ melho workflows will be centred around the Feasibility study and EIA permitting process, both expected to be finalized in 2024. Although these objectives are, in practice, considerable undertakings, we are reassured by the progress already made across the Group, and are confident in the ability of our teams on the ground to deliver. Thank you To conclude, I would like to thank all our stakeholders for your continued support which is never taken for granted. I would also like to take this opportunity to direct­ ly thank the Horizonte team, led on the ground in Brazil by Mike Drake, our Head of Projects and Leo Vianna, our Project Director. The whole team has achieved many significant milestones this year. We have entered 2023 with confidence and look forward to delivering and communi­ cating our progress as we continue to un­ lock value from across our portfolio. Jeremy Martin Chief Executive Officer 19 HORIZONTE MINERALS 2022 ANNUAL REPORT COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 20 21 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT PROJECTS ARAGUAIA Araguaia on schedule for first nickel in 1Q 2024 Ownership 100% Horizonte Minerals Location Para, Brazil Stage of development Construction Process Rotary Kiln and Electric Furnace (RKEF) Commercial production timeline 1Q 2024 Anticipated production from Line 1 Average annual production of 14,500 tonnes nickel Average grade over the first 10 years of mine life 1.8% Product Ferronickel (FeNi) Life of mine 28 years Total budgeted capex of Line 1 US$537 million Key contracts signed during the year included: ~ EPCM Contract ~ Earthworks contract ~ Civils contract ~ All major long-lead time process plant equipment contracts ~ 125km power line construction ~ Electro mechanical contract ~ Ten-year renewable power ~ Port contract Key operational developments in the year 2022 was a transformational year for Araguaia having broken ground in May when construction began. Over the following months, earthworks transformed the site, preparing the groundwork ahead of the plant foundations being laid mid-year. Construction work is now into the electro mechanical installation phase where steel work is being erected. By 31 December 2022, project construction had advanced 34%, importantly remaining on schedule for first nickel by 1Q 2024. As of 31 December, around US$400m of a total US$537m had been committed, representing close to three quarters of the total budget. About the project Araguaia is a 100% owned project compris­ ing of an open pit nickel laterite operation that will mine a 27.3 Mt mineral Reserve, part of a larger 119 Mt mineral resource. Annually, line 1 is designed to produce 52,000 tonnes of ferronickel (FeNi) con­ taining 14,500 tonnes of nickel over a 28- year mine life. The metallurgical process comprises of a Rotary Kiln and Electric Furnace (RKEF), a proven technology with over 60 years of commercial experience in more than 30 operations worldwide, three of which are located in Brazil, oper­ ated by Anglo American and Vale. After a construction period expected to last 24 months and an initial ramp- up period of 12 months, the plant will reach full capacity of approximately 900,000 tonnes of dry ore feed per year. The FeNi product will be transported by road to the port of Vila do Conde for sale to overseas customers. The Value Engineering Study and sub­ sequent Execution Preparation Phase work has optimised the RKEF flow sheet and worked to establish integrated process islands with tier one suppliers linked to the Export Credit Agency (ECA) project financing. A key part of the Stage 1 project design was that the RKEF plant and associated infrastructure was designed to accommodate the addition of a second RKEF process line (Line 2 expansion), which is intended to double Araguaia’s production capacity from 14,500 tonnes nickel per annum up to 29,000 tonnes per annum nickel. The Project Mineral Resource inventory has the grade and scale to support the planned increase in plant throughput from 900 kt/pa (Stage 1) to the Stage 2 rate of 1.8 Mt/pa supporting the twin line RKEF flow sheet. The Stage 2 expansion assumes operating at a Stage 1 production rate of 900 kt/pa for three years, then expand the plant to 1.8 Mt/pa via the addition of a second line. COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 22 23 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT PROJECTS VERMELHO There are very few high-grade scalable nickel cobalt resources of this quality at an advanced stage of development, positioning Vermelho to be able to capitalise on the growing demand for sustainable critical metals Ownership 100% Horizonte Minerals Location Pará, Brazil Stage of development Feasibility Study Process High Pressure Acid Leach (HPAL) Anticipated production Average annual production of 24,000 tonnes nickel, 1,250 tonnes cobalt Average grade for the first 10 years 1.8% Product Nickel & Cobalt mixed hydroxide precipitate (MHP) Life of mine 38 years All assumptions are as per October 2019 NI 43-101 Technical Report About the project Vermelho is a 100% owned project locat­ ed in the Carajás mining district, an area that features well-developed infrastruc­ ture and abundant hydroelectric power. Comprising of a planned 38-year mining operation through an open pit nickel lat­ erite mine, Vermelho has a Probable Min­ eral Reserve of 141.3 million tonne (at a cut-off of 0.7% Ni) and is forecast to pro­ duce 924,000 tonnes of nickel contained in nickel sulphate and 36,000 tonnes of cobalt contained in cobalt sulphate over the life of mine. The Vermelho project pre-feasibility study utilised a hydro-metallurgical process comprised of a beneficiation plant where ore is upgraded prior to being fed to a High-Pressure Acid Leach (HPAL) plant. The plant will be constructed in two phases, with an initial capacity of 1 Mt per annum (Mt/a) autoclave feed (Stage 1). After three years of production, a second process train (Stage 2 Expansion) will be constructed, which will effectively double the autoclave feed rate to 2 Mt/a. The Stage 1 plant and project infrastructure will be constructed over a 31-month period. The MHP product will be transported by road to the port of Vila do Conde (the same facility planned for Araguaia) for sale to overseas customers. At full production capacity, the Project is expected to produce an average of 24,000 tonnes of nickel and 1,250 tonnes of cobalt per year. Key operational developments in the year A Feasibility Study (FS) was initiated in 2022 with results due to be published in 1H 2024. In parallel with the FS, Horizonte submitted the Social Environmental Impact Assessment (“EIA”) with the Pará State Environmental Agency (“SEMAS”), which forms an essential part of the permitting process, and the Company is targeting the approval of the EIA and subsequent grant­ ing of a preliminary licence in during 2024. Over the coming months, Horizonte will continue to work closely with local stake­ holders as Vermelho is expected to contribute signif­ icant employment opportunities for the region and deliver significant socio-economic value. COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 24 25 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT FINANCIAL REVIEW 2022 2021 Cash and cash equivalents US$154M US$210.5M Administrative expenses as a percentage of Total assets 2.41% 2.53% Funds raised to advance Araguaia US$175M US$197M Funds raised to advance Vermelho US$25M — Undrawn senior debt facility available US$341.2M — Mine Development and exploration costs capitalised US$188.6M US$13.6M 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 com­ panies and so should not be used as such. Administrative expenses as a percentage of total assets have decreased, as a result of financing secured during the year to finance the Araguaia project construction and in­ creased activity in advancing the Araguaia project which was capitalised to the Mine Development asset. Exploration costs capitalised predominant­ ly relate to expenditure on the Araguaia project construction. This amount excludes capitalised borrowing costs as a result of the Royalty financing arrangement, con­ vertible loan notes and loan facilities. It also excludes the capitalised environmental re­ habilitation provision. During the current year US$175 million was secured to advance the Araguaia project construction. US$95 million (US$65 million convertible loan notes, US$25 million cost overrun facility and US$5 million first utilisation on senior debt facility) was part of the US$633 million funding package concluded in December 2021 to finance the construction of the Araguaia project. Gross proceeds of US$80million was secured through an equity fundraise as the forecast capital cost for the construction of the Araguaia Project increased due global inflationary pressures, engineering improvements to de-risk the project and to accelerate engineering studies and basic engineering for the development of line 2 at Araguaia, as well as further invest in the decarbonisation strategy for the Project. Simon Retter Chief Financial Officer Loss for the year The loss for the year is US$5.3 million com­ pared to a loss of US$13.4 million in 2021. This was primarily due to increased head­ count and activity in securing the financing for the construction of the Araguaia Project, gain on change in fair value of convertible loan note embedded derivative, overall net foreign exchange gain due to the weakening of the Pound Sterling to the US Dollar and an increase in net finance cost. The Group has continued to keep a tight control on its administrative costs, but they are expected to rise as the Group increases its headcount and progresses with the con­ struction at Araguaia as well as the contin­ ued advancement of Vermelho. As a result of this the administrative expenses increased during the year from US$7.8 million to US$12.5 million. The convertible loan notes issued during the year were classified as a hybrid financial in­ strument, whereby a debt host liability com­ ponent and an embedded derivative liability component was determined at initial rec­ ognition. The movement in the embedded derivative fair value from initial recognition to the year-end date was a gain of US$6.8 million. For further details on the valuation refer to note 22. The value of the Mine Development asset and intangible assets has increased signifi­ cantly during year due to the additions aris­ ing from the Araguaia Project construction and the capitalisation of interest. During the year US$13.2 million of borrowing costs was capitalised to the Mine Development asset for the Araguaia Project compared to US$7.1 million in 2021. The net finance costs of US$6.4 million is primarily the borrowings costs as a result of the Vermelho royalty agreement. These borrowing costs are not capitalised as the project has not yet com­ menced development. Furthermore, total comprehensive loss at­ tributable to equity holders of US$10.9 mil­ lion included loss on currency translation dif­ ferences of US$6.7 million. This was due to the weakening of Pound Sterling against the USD as at 31 December 2022, as compared to 31 December 2021. The BRL strength­ ened against the USD and GBP as at 31 De­ cember 2022 when compared to 31 Decem­ ber 2021. Intangible Assets & PPE Intangible Assets & PPE, which comprise both the Araguaia and Vermelho projects, have increased to US$ 276.8 million as at 31 December 2022 as compared to US$67.4 million at 31 December 2021. The Group in­ curred US$184million in capital expenditure relating to the Araguaia Project construction; as well as borrowing costs capitalisation of US$13million. There was also a foreign exchange revalua­ tion gain of US$7 million due the strength­ ening of the BRL. The exploration assets of the business are recorded in the functional currency of Brazil, the country in which they are located. Trade and other receivables Included in trade and other receivables are prepaid transactions costs of US$42 million (2021: US$12.6million) relating to the senior debt finance facility. The transaction costs will be offset against the debt when it is drawn down. Cash and cash equivalents The group held cash and cash equiva­ lents of US$154 million compared to US$210.5 million in the prior year. The de­ crease was a result of funds spent in the Araguaia Project construction. Royalty Liability The Group has secured two royalty financing arrangements of US$25million each for each of its projects -Araguaia and Vermelho. The Araguaia royalty finance secured in 2019 has been recognised as a liability and valued using the amortised cost basis at US$48.8 million at 31 December 2022 (US$44.5 mil­ lion at 31 December 2021). This funding is not repayable until the project enters into production and following that the royal­ ty payments are made at a royalty rate of 2.95%. The royalty is due on revenue less some associated costs on a quarterly basis and has been revalued based on the expec­ tation of the future royalty payments under the agreement using the effective interest method. Included in the agreement are cer­ tain embedded derivatives which can under certain circumstances result in the Company having the ability to buy back certain levels of the royalty, the buy-back price is driven by the holder obtaining certain milestones on its return on investment. The result of these options is a derivative asset being recognised on the balance sheet at a fair value of US$5 million (2021: US$4.95 million). The Vermelho royalty finance secured in 2022 has been recognised as a liability and valued using the amortised cost basis at US$41 million at 31 December 2022. This funding is not repayable until the project enters into production and following that the royalty payments are made at a royalty rate of 2.1%. The royalty rate will increase to 2.25% if substantial construction of the Ver­ melho Project has not commenced within 5 years of the closing date, 30 March 2022. The royalty is due on revenue on a quarterly basis and has been revalued based on the expectation of the future royalty payments under the agreement using the effective interest method. 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 buy-back price is driven by the holder obtaining certain milestones on its return on investment. The result of these options is a derivative asset being recognised on the balance sheet at a fair value of US$9.5 million. For more details on the royalty financing arrangements, refer to note 21 of the financial statements. Convertible loan note liability The Company issued convertible loan notes to the value of US$65 million at an interest rate of 11.75% with interest accruing quarter­ ly in arrears. The convertible loan notes were issued at a discount of 5.75%. The maturity date of the instruments is 15 October 2032. At any time until the Maturity Date, the Noteholder may, at its option, convert the notes, partially or wholly, into a number of ordinary shares up to the total amount outstanding under the Convertible Note divided by the Conversion Price. The con­ version price is £1.268/US$1.71. The convertible loan is a hybrid financial in­ strument, whereby a debt host liability component and an embedded derivative liability component was determined at initial recognition. For convertible notes with embedded derivative liabilities, the fair value of the embedded derivative li­ ability is determined first and the resid­ ual amount is assigned to the debt host liability. Thereafter the debt host liability is valued using the amortised cost basis. At 31 December 2022 the total carrying value for the convertible loan notes was US$59 million. For more details on the convertible loan notes refer to note 22 of the financial statements. Senior debt facility On 7 December 2022, the Group satis­ fied all conditions precedent for the first utilisation under the senior debt facility of US$346.2 million. The first utilisation was for US$5million. The total senior debt facility is US$346.2mil­ lion (Commercial Facility US$200million and ECA Facility US$146.2million). The final ma­ turity date on the Commercial Facility is 15 July 2030. The final maturity date on the ECA Facility is 15 July 2032. Both the Commercial and ECA facilities are valued using the amortised cost basis. At 31 December 2022 the total carrying value for the senior debt facility is US$4.3 million. For more details on the senior debt facility refer to note 24 of the finan­ cial statements. Cost overrun facility On 30 November 2022, the Group satisfied all conditions precedent in relation to the cost overrun facility (COF) and had received all COF funds from Orion. Access to the COF funds is restricted and will only be available in the case of a cost overrun against the Araguaia Project construction schedule and budget. The COF is US$25million with an interest rate of 13% and a maturity date of 15 Octo­ ber 2032. Interest will be calculated quarterly and be payable in arrears. The COF is valued using the amortised cost basis. At 31 December 2022 the carrying val­ ue of the COF was US$23.8 million. For more details on the COF refer to note 23 of the fi­ nancial statements. Simon Retter Chief Financial Officer 28 March 2023 Year ended 31 December 2022 US$ Year ended 31 December 2021 US$ Loss before taxation (5,317,302) (13,370,515) Trade and other receivables 58,739,737 13,796,627 Cash and cash equivalents 154,027,967 210,492,280 Exploration & Mine Development assets 276,799,663 67,435,919 Fair value of derivative asset (Royalty buy-back options) 14,489,387 4,950,000 Royalty finance liability 89,745,254 44,496,504 Convertible loan notes 59,447,520 — Senior debt facility 4,328,241 — Cost overrun facility 23,809,827 — Total equity 299,429,702 229,284,646 Loss per share (pence) (2.634) (15.698) 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 is able to profitably develop or dispose of its exploration and development projects. Horizonte Minerals Plc changed its presentation currency from Pounds Sterling to US Dollars effective 1 January 2022. The presentation currency has been revised as the financing package concluded by the Group to construct the Ara­ guaia project is denominated in US Dollars and future revenues will also be in US Dollars. The board therefore believes that US Dollar financial reporting provides more relevant presentation of the Group’s financial posi­ tion, funding and treasury functions, financial performance and its cash flows. The principal financial key performance indicators (‘KPIs’) monitored by the Board concern levels and usage of cash. The main financial KPIs for the Group allow it to monitor costs and plan fu­ ture exploration and development activities and are as follows: COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 26 27 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT SUSTAINABILITY GOVERNANCE As an experienced non-executive direc­ tor and sustainability practitioner, the feedback I receive from stakeholders that, ‘companies with good governance are more likely to have enhanced environ­ mental and social practices relative to their peers’, resonates with me. The last year marked a number of im­ portant achievements for Horizonte, not just in the development of our Araguaia project, but also in the further evolution of our governance framework and asso­ ciated systems. I am delighted to be the Chair of Horizon­ te’s inaugural Sustainability Committee, established in April 2022. Our vision to be a globally significant, sustainable nickel produc­ er, means that sustainability plays a critical part in our overall business strategy. The mandate of the Sustainability Committee has wide-reaching objectives that reflect our strategy: ~ maintaining healthy and safe work places, environmentally sound and responsible resource development, good community relations and the protection of human rights; ~ promoting the appropriate culture, behaviours and actions in relation to these matters; and ~ communicating the Board’s commit­ ment to these matters to the Group’s employees, contractors and other stakeholders. The Sustainability Committee will meet three times a year, including a visit to our operations in Brazil, to provide oversight, but also to support and promote leader­ ship in sustainability throughout the Hori­ zonte. In fact, during our October 2022 visit to Brazil I was impressed by the excellent programs designed to increase the number of local people in our workforce. On a visit to our ‘Transforming Horizons’ partnership with SENAI, I met a lady with her infant grand-daughter, who was studying to be­ come a worker at our mine, whilst her own daughter was studying university night classes. I was thrilled to hear that the pro­ gram was recognised in the ESG Category of the Ser Humano Awards in Brazil. Within the workplace we are supported by local, Pará State and Brazilian compa­ nies and I have been delighted to see the increasing participation by these teams in our safety programs. Our programs have a strong behaviour-based safety focus and leading indicators to support this. Con­ tracting partners who initially struggled to participate are now significantly better performing, with the resulting benefits to workplace safety and health. Look at our highlights overleaf to see these results. The discussions we have had on advanc­ ing our enterprise risk management (ERM) and materiality processes also brought me great satisfaction. Risk management is the foundation of how we demonstrate respect and caring for our stakeholders, and most importantly, those who may be impacted – positively and negatively – by our activities. This year we invited, for the first time, a number of external stake­ holders to participate in our materiality assessment process, which is industry leading practice (see the following page). In 2023 we will also formalise our ERM continuous improvements with Manage­ ment reports to the Board on ERM action plan implementation. Dr Gillian Davidson Chair of the Board Sustainability Committee Companies with good governance are more likely to have enhanced environmental and social practices relative to their peers Reflecting our commitment to the success­ ful achievement of the growth principle of our strategy - with production at Araguaia fast approaching and successful funding of a feasibility study for Vermelho underway – we completed a systematic review of our corporate policies. We subsequently en­ dorsed a Horizonte Policy on Security and a Policy on Inclusion and Diversity, as well as supporting Management’s development of a Supplier Code of Conduct, to complement our existing Policies. Additional comple­ mentary corporate policies are expected to be released in 2023. I will share more de­ tails of these objectives in our 2022 Hori­ zonte Sustainability Report. As a result of conversations at the World Economic Forum (WEF) in 1999, the then Secretary-General of the United Nations (UN) and Nobel Peace prize laureate, Kofi Annan issued a call for a ‘Global compact of shared values and principles’ on human rights, labour standards, environmental practices and anti-corruption. This was the genesis of what later became the UN Global Compact (UNGC), a movement of over 21,000 companies and 162 countries! As a former member of the WEF team, I have seen first-hand, around the world, the significant positive impacts that mining companies can bring to host communities when aligned to these values, principles and the Sustainable Development Goals. Horizonte’s efforts in 2022 to commence target setting and reporting aligned with the UNGC, for a company which had not yet even commenced construction, was leading practice. Accompanying the Sustainability Report and our reporting on our progress in im­ plementation of the UNGC targets that we set for ourselves, will be a significantly expanded set of disclosures of our sus­ tainability performance to standards, sup­ porting our transition from developer to producer and a demonstration of our com­ mitment to honesty (integrity) and courage in our actions. Beyond our own work in sustainability gov­ ernance, the Horizonte Board of Directors is supported by the work of an independ­ ent, environmental and social consultancy. This group conduct quarterly assurance reviews of our Araguaia operations to monitor conformance to the international standards that have been adopted by Hori­ zonte. The outcome of these reviews are presented to the Sustainability Committee and inform the processes of governance that we undertake on behalf of sharehold­ ers and stakeholders. Dr. Gillian Davidson Chair of the Board Sustainability Committee Materiality Each year we analyse the most impor­ tant sustainability issues for our busi­ ness and stakeholders to inform our strategy and focus areas for the up­ coming year. In 2022/3 we enhanced this process to reflect the evolution of our business. In this more comprehen­ sive process we: ~ Identified topics from industry and peer bench-marking, enterprise risk management processes, industry standards, ESG rating services and grievance mechanisms; ~ Undertook a detailed analysis of our peer group and their published material topics assessment; ~ Invited a variety of internal and external stakeholder to complete a materiality survey to indicate to us which sustainability topics are of most importance; ~ Conducted an assessment process to identify priorities - using weighting to ‘draw out’ issues that also intersect with our enterprise risk management, peer-based norms and industry trends; and ~ Completed a validation process with executive and sustainability specialised Board members. 1. Topic identification 2. Topic categorization 3. Topic prioritization 4. Assessment and presentation 5. Validation 6. Reporting and feedback Figure – Overview of materiality assessment process COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 28 29 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT 2022 HIGHLIGHTS 2023 OBJECTIVES AND TARGETS Horizonte is a great place to work Safety, health and wellbeing ~ Zero fatal injuries ~ Zero recordable injuries ~ No material impact from COVID and 100% workforce vaccination ~ Leading practice 3D intelligent design review implemented at ANP1 ~ Golden Rules implemented ~ Critical risk controls implemented ~ ANP occupational hygiene monitoring commenced ~ Zero fatal injuries ~ Zero recordable injuries ~ Group Health, Safety and Wellbeing Policy ~ Continue critical risk control implementation through construction ~ Develop Crisis Management Framework to complement Incident and Emergency Management Frameworks People and culture ~ Grievance mechanism embedded ~ Zero human rights complaints ~ 29% of employees are female ~ Group Inclusion and Diversity Policy drafted ~ Inaugural employee satisfaction survey ~ Group I&D Policy and related programming commencement ~ Grievance mechanism continuous improvement ~ Employee pulse survey program to monitor culture evolution through transition to operations ~ Requisite organisation design for evolution to producer Stakeholders are proud to partner with Horizonte Local socio-economic development ~ ANP strategic partnerships with SENAI and FIEPA for local skills development ~ ANP local community employment program started ~ Continue SENAI and FIEPA partnerships implementation ~ Achieve >70% local community employment program graduates into ANP workforce Environmental stewardship ~ ANP Biodiversity Action Plan implementation ~ ANP Critical Habitat Assessment completed ~ Advanced PPP2 to enhance community infrastructure and mitigate ANP access road impacts ~ Update ANP BAP for operations ~ Update ANP Ecosystems Services Assessment ~ Invasive Species Management Plan developed for ANP ~ Zero reportable environmental incidents ~ Implement additional PPP initiatives including ANP access road asphalting Supplier partnerships ~ HZM Supplier Code of Conduct development ~ ANP supplier development program inaugurated ~ HZM Supplier Code of Conduct implementation ~ Continue ANP supplier development program implementation We act with integrity Environment and social governance ~ Review of the governance architecture by the BoD3 ~ Inauguration of the Board Sustainability Committee ~ BoD endorsed HZM Security Policy ~ Upgrade ERM4 systems to reflect producer evolution ~ Group level policies for governance framework endorsed We achieve our goals for growth Doing what we say we will do ~ Continued implementation of ANP Environmental Control Plans ~ ESIA and RIMA for Vermelho submitted to regulator ~ Vermelho public hearing Construction partners performance ~ HZM Supplier Code of Conduct development ~ ANP Contractor Safety Scorecard implemented ~ HZM Supplier Code of Conduct implementation Planning for the future ~ ANP Critical Habitat Assessment to complement BAP ~ Vermelho BFS sustainability technical studies Creating and retaining value ~ Disclosed government payments in line with EITI5 ~ Disclosed local supply chain value as per Mining LPRM6 ~ Continued improvement in disclosures Operational excellence Energy and climate change ~ 10 year energy supply secured providing renewable supply to Araguaia ~ Conduct climate scenario modelling ~ Complete physical risk assessment ~ Update transition risk assessment ~ Prepare for TCFD disclosure Waste and tailings ~ ANP re-designed to avoid on-site landfill ~ Engagement of specialist solid waste management provider ~ Complete GISTM gap analysis for ANP slag facility SUSTAINABILITY HIGHLIGHTS 1. Araguaia Nickel 2. Private public partnership 3. Board of Directors 4. Enterprise risk management 5. Extractive Industry Transparency Initiative 6. Local Procurement Reporting Mechanism 28 29 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 30 31 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT SUSTAINABILITY STRATEGY Supporting the Horizonte strategy are four key strategic principles. As a Company, we recognise that it is through operating in line with our values-founded principles, that we will achieve our vision – to be a globally significant and sustainable nickel producer Horizonte is a great place to work Mission Safe and healthy workplaces Inclusive culture Material issues Appropriate culture, behaviours and actions within the business Diversity and equal opportunity Emergency management and preparedness Occupational health and safety Pre-production targets ~ Zero fatalities and serious potential incidents. ~ Maintain rigorous adherence to our COVID-19 management protocols and procedures. ~ Continue implementation of our construction safety program including hazard and operability studies. ~ Commence development of a Horizonte Health and Safety strategy and policy. ~ Develop an Inclusion and Diversity Policy and programming for the company. ~ Develop programming to maintain and enhance our successful levels of female workforce representation as we transition to operations. ~ Develop and implement a Horizonte Minerals Code of Conduct. Stakeholders are proud to partner with Horizonte Mission Protection of human rights Good community relations built on interdependent relationships Environmental sound and respon­ sible resource development Transparent communications Protection of privacy Material issues Biodiversity Child labour Community economic development Community health Community and stakeholder engagement Human rights Land use and reforestation Local and national employment Resettlement Pre-production targets ~ Develop a Policy on Security aligned with the Voluntary Principles on Security and Human Rights. ~ Zero legitimate human rights complaints against Horizonte. ~ Develop and implement a Supplier Code of Conduct. ~ Continue to advance our programs on local procurement and commence disclosure in line with the Mining Local Procurement Reporting Mechanism. ~ Review supply chain systems and policies to strengthen these ahead of construction and operations. ~ Develop an Environmental Policy as the ‘umbrella’ for extensive and detailed Environmental Control Plans. We act with integrity Mission Responsible and ethical conduct in all interactions Fairness and integrity in all our business dealings Material issues Anti-corruption and bribery Ethics and transparency Governance and risk management Pre-production targets ~ Update the Horizonte Governance Framework to reflect the next phase of company development for endorsement by the Board of Directors. ~ Develop an enhanced stand- alone Anti-corruption Policy to complement the Business Integrity Policy and other governance systems. ~ Enhance our existing disclosures through alignment to the Extractive Industries Transparency Initiative (EITI). ~ Commence development of systems to identify conflict of interest within the business ahead of rapid workforce expansion. ~ Enhancement transparency of our activities by disclosing against international standard of relevance to the mining industry and seeking assurance of our sustainability reporting. We achieve our goals for growth Mission Doing what we say we will do Data driven decision-making Thinking about the future Creating and retaining value Efficient and requisite systems Enabling a culture of accountability and authority Material issues Climate change risk and adaptation Economic performance Permitting and compliance Tailings management Waste management and effluents Water management and stewardship Pre-production targets ~ Zero reportable environmental incidents. ~ Zero significant spills. ~ 100% compliance with air quality, noise and vibration, and water regulatory requirements. ~ Advance development of our net carbon neutral strategy and associated technical studies: • Conduct climate scenario modelling for our Brazilian projects. • Update the transition and physical risk assessments for the company. • Complete PFS on Araguaia RKEF decarbonisation opportunities. Early development targets ~ Conduct baseline energy audit for the Araguaia operation ~ Advance development of our net carbon neutral strategy and associated technical studies: • Complete feasibility study on Araguaia RKEF decarbonisation opportunities. Operational excellence Mission By adhering to our principles, we will achieve our vision and create the platform for operational excellence. 30 31 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 32 33 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT STAKEHOLDER ENGAGEMENT Clear and timely engagement with stakeholders ~ Approval of the construction of the Araguaia project ~ The approval of the Company’s Business Plan and Budget ~ The award of key equipment packages to certain suppliers ~ The appointment of two Non- Executive directors to the Board ~ Approval of ~US$80 million equity fundraise package for the construction finance of the Araguaia Project The Board and its Committees are mindful of the potential impact of decisions on relevant stakeholders whilst also having regard to a number of broader factors, including the need to foster the Compa­ ny’s business relationships with suppliers, customers and others. Particular con­ sideration is given to the impact of the Company’s projects on the community and environment, responsible business practices and the likely consequences of principal Board decisions in the long term. The Company, its Board of Directors and Company management are fully commit­ ted to effectively engaging with all key stakeholders. All members of the Board of Directors understand the duties as directors un­ der Section 172 of the Companies Act 2006. We are committed to fostering strong relationships with our stake­ holders through purposeful engage­ ment, and value creation, with fair and thoughtful consideration of stakehold­ er perspectives within our strategic decisions. We recognise that we can only achieve long-term success by con­ sidering how our projects affect stake­ holders such as communities and the environment, supported by a strong ethics culture. Responsibility for stakeholder engage­ ment is embedded across the business, from the Board to the Executive Com­ mittee and site leadership teams, to our community liaison teams and our contractors. Everyone who interacts with Horizonte’s employees, inves­ tors, lending banks, national or local government, suppliers and host com­ munities is responsible for ensuring that we not only understand the con­ text and impacts of our operations, but also the benefits that can arise from our activities. Our stakeholders We identify our relevant stakeholders on the right by considering their influ­ ence on the success of our business model and strategy. Here we explain the importance of engagement, how we do it, significant topics raised, Horizonte’s responses and the actions the Compa­ ny has undertaken. In our ‘Managing Our Risks and Opportunities’ section on pages 34-41, we evaluate the risks associated with these relationships and the strategies we use to mitigate them. EMPLOYEES COMMUNITIES SHAREHOLDERS SUPPLIERS AND CONTRACTORS GOVERNMENT AND CIVIL SOCIETY Importance of engaging At Horizonte, we believe that our employees are the cornerstone of our business and that a partnership approach is vital to achieving busi­ ness objectives. We provide compet­ itive remuneration and invest in pro­ fessional and personal development while providing an engaging, safe and healthy working environment. Trust, understanding and cooperation with the communities that surround our projects are critical to maintaining our social licence to operate. Com­ munity engagement informs better decision making and aligns interests to ensure the long-term success of our projects. Our shareholders are Horizonte’s owners and their continued support is critical to the business. As we seek to develop a sustainable mining company for the long- term, they provide the capital to develop and build our operations responsibly and sustainably and consequently, we need to ensure we continue to deliver a com­ pelling investor proposition. Building stable, long-term relationships based on mutually beneficial terms with our suppliers and contractors ensures we are not only able to deliver our projects on time and on budget, but is also critical in maintaining our reputation. It is integral to business success that we work in col­ laboration with the whole value chain, as we strive for compliance with our ethical, environmental and safety standards. Horizonte complies with laws and regulations applicable to it and we are focused on ensuring Brazil shares in the benefits of our Projects through the creation of long-term value creation. The ongoing support from all government bodies and civil society is critical to this development and we value the importance of working collaboratively and productively with all relevant entities. How Horizonte engages ~ Maintain open lines of communication for employees, senior management and the Board ~ Hold weekly team meetings and host quarterly virtual town hall meetings ~ Undertake quarterly staff engagement surveys ~ Provide regular health and safety training ~ Operate an independent whistleblowing service ~ Host formal and informal ad hoc community meetings to understand and discuss our host communities’ concerns and priorities ~ Operate grievance mechanisms to address community concerns and maintain a grievance register ~ Conduct quarterly sustainability audits to identify potential positive and negative impacts of our project’s activities ~ Organise one-on-one meetings and roadshows ~ Attend investor conferences ~ Host webinars and group presentations ~ Direct dialogue at the Annual General Meeting ~ Produce corporate materials including announcements, company website, Annual Report and social media updates ~ Provide on-going dialogue with retail investors via our info@horizonteminerals.com email address ~ Regular direct communication ~ All suppliers are required to adhere to our Business Integrity Policy ~ Operate an independent whistleblowing service ~ Committed to improving the socio-economics of our host area, promoting local procurement ~ Direct engagement with local, provincial and national government authorities regarding mining rights, environmental issues and permitting ~ Provide regular progress updates to relevant government departments ~ Built strong relationships with the relevant government officials to ensure the Company receives the required permits Significant topics raised ~ Team resources ~ Training and development opportunities ~ Working conditions ~ Labour and human rights ~ Health and safety ~ Employment and procurement opportunities ~ Socio-economic development ~ Environmental stewardship ~ Health and safety ~ Operational progress ~ Project financing ~ Board and team capability ~ Environmental, social and governance performance ~ Contract awards ~ Operational progress ~ Project financing ~ Working conditions ~ Labour and human rights ~ Health and safety ~ Employment opportunities ~ Social initiatives ~ Health and safety ~ Compliance with applicable laws and regulations Responses and actions taken ~ Undertake continuous safety training ~ Local SENAI training initiative to aid recruitment ~ Investigate any reports under the whistle-blower protocol ~ Launched a host community development programme with Brazil’s leading national industrial training provider, SENAI. ~ Created an information centre in our local town ~ Ran multiple community focused media campaigns ~ Undertook employment drives in our host state, and across Brazil ~ Investor engaged as part of the ~US$80m equity fundraise ~ In depth due diligence ahead of first tranche of Senior debt following conditions precedents ~ Key senior appointments ~ New Chair of the Board and two new directors appointed ~ Third Sustainability Report published ~ Competitive tendering processes undertaken ~ Strict monitoring of sub- contractors Health and Safety (H&S) performance ~ Detailed technical evaluation & Know Your Client (KYC) undertaken prior to any contract award ~ Launched a host community development programme with Brazil’s leading national industrial training provider, SENAI ~ Undertook employment drives in our host state, and across Brazil Our principal decisions We consider ‘principal decisions’ to be those decisions linked with our strategy, or resulting from major regulatory changes, that entail significant implications for our stakeholders and the Company’s future. During 2022, the Board’s principal de­ cisions with relevant implications for our stakeholders and the Company’s future were: COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 34 35 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT MANAGING OUR RISKS AND OPPORTUNITIES A key accountability and authority of the Horizonte Board of Directors is de­ fining the boundaries of risk tolerance and appetite within the business, to drive alignment to the company values, ethics and business conduct standards. The Horizonte risk management system operationalises the processes of Board input and oversight into the manage­ ment of risk, as well as the mechanisms by which the Executive Management determine materiality. The risk management system, aligned to ISO  31000, is designed to achieve the following: ~ Board visibility on material risks. ~ Personnel understand their accountabilities and authorities in relation to risk, including: • Any Horizonte team member may stop an activity that they consider presents a threat of loss of life, loss of human rights and/or loss of protected environmental, cultural or social values. • Only the CEO has the authority to approve activity with a residual (after controls) ‘catastrophic’ level of risk. ~ Executive Management are accountable to identify, assess and manage strategic risks, including cumulative, emerging and evolving risks, as well as those of a tactical nature. To deliver these objectives, the risk management system comprises: ~ Enterprise Risk Management – the process by which the Board and Management identify and manage Horizonte’s strategic risk universe. ~ Materiality assessment - the process through which the Board, Management, specialists and key external stakeholders identify and manage material sustainability risks and associated governance related disclosures. ~ A risk matrix to ensure consistency in risk assessment across the company. ~ Project pipeline risk identification, assessment and management processes including due diligence, impact assessments and related analysis. ~ Business unit (Araguaia, Vermelho) level risk identification, assessment and management processes including the documentation of risk registers. In undertaking the Horizonte enterprise risk management process to identify and assess the prevailing risk universe, the company reviews industry trends, peer group benchmarks, market analysis and business unit risk registers. RISK FACTORS In accordance with disclosure and trans­ parency laws, the company is required to provide a description of the material ad­ verse risks and uncertainties that it faces. These risks are similar to those faced by many companies in the mining industry and specifically companies in the opera­ tional development phase. A description of such risks and uncertain­ ties, as well as mitigating factors and con­ trols applied by Horizonte, are documented in the following table. This table is not prioritised list, nor is it ex­ haustive. It is rather the Board’s view of principal risks at this point in time. There are additional risks which are not yet considered material or which are not yet known to the Board or fully understood but which may assume greater importance in the future. Nature of risk Management and Mitigation The value of the Company's assets, potential earnings or viability of projects may be affected by fluctuations in commodity prices, such as the US$ denominated nickel and cobalt prices. Commodity prices can significantly fluctuate and are exposed to numerous factors beyond the control of the Company such as world demand for base metals, forward selling by producers, and production cost levels in major metal producing regions. Other factors that can affect commodity prices include expectations regarding inflation, the financial impact of movements in interest rates, global, regional and local economic trends, and domestic and international fiscal, monetary and regulatory policy settings. ~ Monitor price movements and market dynamics using primarily third-party analysis and forecasts ~ Hedging policies for exchange rate risk Risk trend Risk Class Strategy Element Slightly improved External ~ Deliver low cost, low carbon nickel and cobalt ~ Capital efficiency Nature of risk Management and Mitigation It is not uncommon for new mining developments to experience unexpected problems, increased costs and delays during construction, commissioning and production start-up, or indeed for such projects to fail. Any adverse event affecting Horizonte’s projects, either during their development or following the commencement of production, would have a material adverse effect on the Company’s business, results of operations, financial condition and the price of its Ordinary Shares. ~ Project execution planning and monitoring by Management with the support of specialist Technical Committees and independent third parties ~ US$400m of key contracts awarded as of 31 December 2022 and significantly advanced detailed engineering at Araguaia ~ Pursuing acceleration options to reduce the time required to reach first production ~ Highly experienced projects and commissioning teams Risk trend Risk Class Strategy Element Slightly increased Operational ~ Deliver low cost, low carbon nickel and cobalt ~ Capital efficiency Impact of metals prices and global macroeconomic developments Capital project delivery and operational transition 34 HORIZONTE MINERALS 2022 ANNUAL REPORT COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 36 37 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT Stakeholder relations and social licence Key contractors and supplier reliance MANAGING OUR RISKS AND OPPORTUNITIES CONTINUED Nature of risk Management and Mitigation Horizonte is committed to building and operating our projects in a safe and responsible manner. At both a local and a global level, the mining industry’s stakeholders have high expectations relating to social and environmental performance. These expectations go be­ yond the responsible management of negative impacts, to include continuous engagement and meaningful contribution to stake­ holder economic development. Failure to adequately address these expectations increases the risk of opposition to mining projects and operations. Negative sentiment towards mining or specifically towards Horizonte Minerals plc could have an impact on our repu­ tation and acceptability in the regions where we have a presence. Legal or administrative proceedings, civil unrest, protests, direct action or campaigns against us could materially and adversely af­ fect our business, financial condition or project development. ~ Application of international standards for social risk management ~ Local development agenda agreed at Araguaia ~ Social development plans approved by regulator ~ Up-to date compliance register of commitments and obligations ~ Independently operated grievance mechanism ~ Dedicated community relations and social specialists ~ Independent monitoring and review of social performance ~ Transparent performance reporting Risk trend Risk Class Strategy Element Slightly increased Operational ~ Operate responsibly ~ Deliver low cost, low carbon nickel and cobalt Nature of risk Management and Mitigation The mining industry frequently engages specialist EPCM contrac­ tors to deliver major project construction. Horizonte is working with EPC teams for the construction of its Araguaia project. The outsourced nature of these activities means that the perfor­ mance of such contractors and suppliers can impact project deliverables. Performance issues by contractors or misalignment in goals may manifest as delays to the construction programme schedule, unanticipated costs being incurred, and/or in plant and equipment performance in commissioning or operations. ~ Establishment of project execution plans and controls ~ Technical Committee and independent third- party review ~ Active performance and change management processes ~ Major project authorisation and intervention thresholds ~ Business key performance indicators for project delivery, health and safety and sustainability as components of the rewards framework Risk trend Risk Class Strategy Element Unchanged Operational ~ Operate responsibly ~ Deliver low cost, low carbon nickel and cobalt ~ Capital efficiency Critical permits delayed or declined Nature of risk Management and Mitigation Horizonte’s current and future operations require approvals and permits from various federal, state and local governmental au­ thorities, and such operations are and will continue to be gov­ erned by laws and regulations governing prospecting, develop­ ment, mining, production, taxes, labour standards, health, waste disposal, toxic substances, land use, environmental protection, mine safety and other matters. There can be no assurance that the group will obtain required permits on reasonable terms or on a timely basis, nor that delays will not occur in connection with obtaining, maintaining or renewing any approvals or permits nec­ essary for the business. ~ Develop a culture aligned with our commitment to sustainable operations ~ Maintain cooperative and proactive relations with relevant government departments ~ Established compliance obligations systems for permits, regulations, and title requirements ~ Collaborate with other members of the mining community through the Brazilian Mining Association (IBRAM) and as a member of the Nickel Institute Risk trend Risk Class Strategy Element Unchanged External ~ Operate responsibly ~ Deliver low cost, low carbon nickel and cobalt Liquidity, access to capital and debt covenants Nature of risk Management and Mitigation Pre-revenue mining companies are typically reliant on external funding to provide the required liquidity to operate and to un­ dertake project development activities. The inability to obtain external funding of a sufficient quantum that allows project development to be completed and production to generate positive operating cash flows, presents the risk that the developer would not be able to continue to operate. External funding when se­ cured is contingent upon conformance to highly detailed, prescrip­ tive and sometimes onerous conditions. The ability to conform to these conditions may be affected by inputs outside of the bor­ rower’s control, which could lead to breach of debt covenants and related impacts. ~ Horizonte secured a US$713m funding package for the development of Araguaia which included a US$45m of cost over-run, growth and contingency allowance ~ Horizonte secured a $25m royalty agreement for the Vermelho Feasibility Study ~ Supportive shareholder and lender group ~ Active investor relations to address existing and new investor expectations ~ Financial delegation of authority framework to control deployment of capital Risk trend Risk Class Strategy Element Improved Financial ~ Deliver low cost, low carbon nickel and cobalt ~ Capital efficiency COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 38 39 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT MANAGING OUR RISKS AND OPPORTUNITIES CONTINUED Human capital Safety, Health and Wellbeing Nature of risk Management and Mitigation The development and success of a mine developer depends on the ability to recruit and retain high quality and experienced staff, reflecting the various skills and competencies needed for the phases of evolution of the business. The loss of service of key personnel or the inability to attract additional qualified person­ nel at key points in the business growth, could have an adverse effect on financial conditions and business delivery. Horizonte has traditionally operated with a small number of key individuals, in particular its senior Management, reflecting the pre-revenue nature of the business. Talent management processes, such as succession planning, attractive incentive plans comprising both short and long term elements, and contractual agreements aim to secure and retain the services of these and other key personnel, however, the retention of their services cannot be guaranteed. ~ Significant recruitment programme undertaken in Brazil ~ Araguaia Owner’s Lead Team recruited including specialist operational readiness resources ~ London corporate office strengthened to support business growth ~ Formal Board nomination committee inaugurated in 2022 ~ Rewards benchmarking Risk trend Risk Class Strategy Element Slightly improved Strategic ~ Operate responsibly ~ Deliver low cost, low carbon nickel and cobalt Nature of risk Management and Mitigation It is an inherent risk in the mining industry, that incidents due to unsafe acts or conditions, or the failure of equipment or infra­ structure could lead to injuries or fatalities. Safety and health incidents could result in harm to employees, contractors and local communities. Within Horizonte’s workplaces people will work with materials that are potentially explosive, or hazardous, they may work with electricity, heavy equipment and machinery and at heights, as well as being exposed to other occupational exposures. Ensuring the safety and wellbeing of people in the workplace is both an ethical obligation and regulatory requirement, and failure to do so can impact lives, maintain licence to operate, ability to attract and retain talent and can affect the company reputation and share price. ~ Safety, health and wellbeing are inherent to the Horizonte vision, values and strategic principles ~ Establishment of systems of leadership accountability ~ Safety Management Systems incorporating targets, competency, monitoring and auditing processes ~ Dedicated safety specialists and external specialist support ~ Routine reviews by Management and the Board Sustainability Committee Risk trend Risk Class Strategy Element Unchanged Operational ~ Operate responsibly ~ Deliver low cost, low carbon, nickel and cobalt Accuracy of resource estimates Nature of risk Management and Mitigation There are numerous uncertainties inherent in estimating mineral reserves and resources, including many factors beyond Horizon­ te’s control. The accuracy of these estimates is a function of the quantity and quality of available data, orebody characteristics and assumptions and judgments used in engineering and geological interpretation, which could prove to be unreliable, thereby af­ fecting estimate accuracy, and ability to mine or process profit­ ably or at all. Fluctuations in metal prices, results of drilling, metallurgical test­ ing, changes in operating costs, production, and the evaluation of mine plans subsequent to the date of any estimate could require a revision of the estimates. The volume and grade of material mined and processed, and recovery rates, might not be the same as currently anticipated. Any material reductions in estimates of the Company’s reserves and resources, or of its ability to extract these, could have a material adverse effect on its results of oper­ ations and financial conditions. ~ Detailed production grade control drilling underway to give high level of confidence around short term mine planning. ~ External specialist resource consulting group contracted to work as part of the owners team to review and validate updated short term mine plans ~ Review by external audit group to form part of ongoing quarterly project audit Risk trend Risk Class Strategy Element Unchanged Operational ~ Deliver low cost, low carbon, nickel and cobalt Climate and Decarbonisation Nature of risk Management and Mitigation Nickel has a critical role to play in the transition to a low car­ bon economy, as a primary component of materials used in the construction of solar, wind and hydro power generation, as well as being a key component of electric batteries and stainless steel. Mining operations themselves are reliant on energy and other natural resources and typically result in the production of green­ house gases. Physical risks, such as extreme weather events and transition risks, such as changes in legislation resulting from global community expectation, may also impact the industry and markets. ~ Strategic purpose to be a low-carbon, nickel and cobalt producer ~ Conduct of decarbonisation conceptual studies for Araguaia ~ Conduct detailed climate scenario modelling in 2023 to inform updates of the Company transition and physical risk assessments ~ Commence disclosure in line with the recommendations of the Task-force on Climate Related Financial Disclosures in 2023 disclosures Risk trend Risk Class Strategy Element Evolving risk Strategic ~ Operate responsibly ~ Deliver low cost, low carbon, nickel and cobalt COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 40 41 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT MANAGING OUR RISKS AND OPPORTUNITIES CONTINUED The Strategic Report on pages 6 to 41 was approved by the Board of Directors and signed on its behalf by: Simon Retter Company Secretary and CFO 28 March 2023 Cybersecurity Nature of risk Management and Mitigation As a modern mining company, Horizonte has and will deploy tech­ nologically advanced, automated systems and processes. This is possible as a result of the use of advanced information systems, data platforms, technologies and global systems, each of which may be exposed to risk of failure or sabotage or which may be used as an avenue for illicitly obtaining intellectual property or oth­ er commercially sensitive information. Such failures or sabotage could lead to disruption to critical business systems, loss or theft of confidential information, competitive advantage, or intellectual property, financial and/or reputational harm. ~ Support of internal and external, certified IT specialists to ensure reliability and protection of information systems ~ Third-party specialists provide network assurance ~ On-going strategic and tactical efforts to address the evolving nature of cyber threats ~ Increased user training and IT security awareness Risk trend Risk Class Strategy Element Unchanged Operational ~ Deliver low cost, low carbon, nickel and cobalt Nature of risk Management and Mitigation Horizonte has operated in Brazil for over a decade where there has been a stable operating regime for mining; however, it remains subject to risks similar to those prevailing in many developing nations, including economic and social instability, changing regulatory or tax regime or disputes with the authorities in relation to the same. These risks may cause disruption to the Company or cause an increase in costs in order to mitigate their impact; for example a potential increases in taxes could have an adverse effect on the Group’s financial results. ~ Maintain a positive working relationship with all levels of Government through dialogue ~ Continue to collaborate with other members of the mining community through IBRAM, the Brazilian mining chamber, to lobby against any potential legislative changes that may have a negative effect to the business ~ Continue to comply with all applicable environmental and fiscal regulations ~ Internal and external compliance reviews of Horizonte’s tax administration Risk trend Risk Class Strategy Element Unchanged External ~ Deliver low cost, low carbon nickel and cobalt Country risk 40 41 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 42 43 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT NOTE FROM THE CHAIR Our governance structure supports our business model to ensure we create long-term value for all our stakeholders The Board believes in the value of good corporate governance in improving performance and mitigating risk and acknowledges its duty to take into account all stakeholders during its decision- making process. The Board is committed to ensuring the sustainability of its development strategy and to delivering on its commitments to shareholders, clients, employees, partners and other stakeholders with sustainability in mind. We believe that transparency and fair dealing, particularly in relation to environmental and community issues, are essential in achieving the medium to long- term success of the Company. As part of securing the senior debt funding package, Horizonte undertakes quarterly reviews across a wide variety of topics using an independent third party. These include, but not limited to, Project execution, expenditure and ESG related topics. Horizonte’s primary listing is on the AIM Market of the London Stock Exchange (AIM). The Company abides by the AIM Rule 26 regulation in respect to reporting and has therefore chosen to adhere to the Quoted Company Alliance’s (QCA) Corporate Governance Code for Small and Mid-Size Quoted Companies. In Brazil the Company has been a member of the Brazilian Association of Mineral Exploration Companies (ABPM) since 2013 and in 2020 it became a member of the Brazilian Mining Institute (IBRAM). Creating a culture of good governance is led from the top, by Horizonte’s Board, and is cultivated in every part of the organisation. Evolving the Company’s corporate governance is a key part of the Company’s transition. We have therefore committed to a corporate governance review and will be reporting on subsequent changes in 2023 and beyond. William Fisher 28 March 2023 COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 43 HORIZONTE MINERALS 2022 ANNUAL REPORT COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 44 45 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT APPROACH CORPORATE GOVERNANCE STRUCTURE In line with the Company’s development and long-term strategic objectives, Horizonte complies with the QCA Corporate Governance Code for small and Mid-sized companies. Our QCA Code disclosures within this Annual Report are summarised in the table below. Full details of how we have applied each of the ten principles of the QCA Code can be found on our website. Principle Disclosure within this report 1. Establish a strategy and business model which promotes long-term value for shareholders See pages 10-11 and 14-15 2. Seek to understand and meet shareholder needs and expectations See pages 32-33 3. Take into account wider stakeholder and social responsibilities and their implica­ tions for long-term success See pages 26-31 4. Embed effective risk management, considering both opportunities and threats, throughout the organisation See pages 34-41 5. Maintain the board as a well-functioning, balanced team led by the chair See pages 45-47 6. Ensure that, between them, the directors have the necessary up-to-date experi­ ence, skills and capabilities See pages 48-49 7. Evaluate board performance based on clear and relevant objectives, seeking con­ tinuous improvement See pages 48-49 8. Promote a corporate culture that is based on ethical values and behaviours See pages 8-9 and 30-31 9. Maintain governance structures and processes that are fit for purpose and sup­ port good decision making by the board See pages 42-43 10. Communicate how the company is governed and is performing by maintaining dialogue with shareholders and other relevant stakeholders See page 49 The Board meets regularly to determine the policy and business strategy of the Company and has adopted a schedule of matters that are reserved as the responsibility of the Board.  The Board considers that there is an appropriate balance between the Executives and Non-executives (both independent and non-independent) and that no individual or small group dominates the Board’s decision making.   The Board has reserved the following matters for sole approval by the Board: ~ Review and approval of the Company’s strategic plan ~ Review and approval of the annual operating plan and financial budget, including any changes during the year ~ Review and approval of the Annual Report, financial statements, MD&A and quarterly financial statements. These documents are also reviewed and approved by the Audit & Risk Committee ~ Establishment of expenditure limits and approval of exceptions ~ Hiring, review and compensation of CEO and CFO (following recommendation from the Remuneration Committee) ~ Director recruitment ~ Appointment of Chair ~ Appointment of Committee Chair and Committee members The Company has a policy on share dealing and confidentiality of inside information for persons discharging managerial responsibilities and persons closely associated with them, which contains provisions appropriate for a company whose shares are admitted to trading on AIM (particularly relating to dealing during close periods in accordance with Rule 21 of the AIM Rules and MAR) and the Company takes all reasonable steps to ensure compliance by the persons governed by such policy.  The Board continues to monitor its governance framework on an ongoing basis.  Board The Board of Horizonte is responsible for setting the vision and strategy for the Company to deliver value to all stakeholders by effectively putting in place its business model. Chair The primary responsibility of the Chair 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 Officer. 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 NEDs participate in all board level decisions and play a particular role in the determination and articulation of strategy. The Company’s NEDs provide oversight and scrutiny of the performance of the executive directors, whilst both constructively challenging and inspiring them, thereby ensuring the business develops, communicates and executes the agreed strategy and operates within the risk management framework. Remuneration Committee The remuneration committee comprises William Fisher (Chair), Owen Bavinton and Vincent Benoit and is responsible for reviewing the 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. Audit Committee The audit committee, comprising Vincent Benoit (Chair), William Fisher and Gillian Davidson, 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. Nomination Committee In December 2021, the company estab­ lished a formal nomination committee comprising Jeremy Martin (Chair), Owen Bavinton and William Fisher. The com­ mittee is responsible for finding and as­ sessing appropriate candidates for the Board in line with the company’s evolving required skillset of mine building and pro­ duction. The committee will also develop a formal succession plan. Sustainability & ESG In April 2022, the Company established a formal Sustainability and ESG Committee initially comprising Dr Gillian Davidson (Chair) and Dr Owen Bavinton. The committee is responsible for assisting the Board in maintaining healthy and safe workplaces, environmentally sound and responsible resource development, good community relations and the protection of human rights; promoting the appropriate culture, behaviours and actions in relation to these matters; and communicating the Board’s commitment to these matters to the Group’s employees, contractors and other stakeholders COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 46 47 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT Audit and Risk Committee Remuneration Committee Nomination Committee Sustainability & ESG Committee Chair BOARD OF DIRECTORS JEREMY MARTIN MSc, ASCM Director and Chief Executive Officer WILLIAM FISHER Interim Non-Executive Chair Qualifications Appointed Skills and Experience Jeremy has over 20 years of experience in the industry. He has worked in South America, Central America and Europe, where he has been responsible for grassroots exploration programmes, resource definition and mine development and operation. In 2011 Jeremy founded Rathdowney Resources which identified, acquired and advanced a portfolio of zinc assets in Ireland and was listed on the TSX-V. He was the Founding Director of MedGold Resources, listed on the TSX, developing gold targets Spain, Portugal and Serbia before founding Fast Net Oil & Gas, an AIM listed alternative energy company. Jeremy was a Founding Director of Horizonte Minerals in 2006 before becoming CEO in 2010, he has led the company through the discovery and consolidation of Araguaia through to the construction stage. Mr Fisher has extensive industry experience which has included a number of residential posts in Africa, Australia, Europe and 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 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 Chair 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 and was CEO of Goldquest Mining Corp which discovered the Remero gold deposit in the Dominican Republic. Mr. Martin holds a degree in Mining Geology from the Camborne School of Mines, and a Master's Degree in mineral exploration from the University of Leicester. He is a member of the Society of Economic Geologists and the Institute of Mining Analysts. Mr Fisher graduated as a geologist in 1979 and is registered as a Professional Geoscientist of Ontario (PGO). 2011 2006 2012 2022 2022 OWEN BAVINTON BSc (hons), MSc, DIC, PhD Non-Executive Director GILLIAN DAVIDSON MA (hons), PhD Non-Executive Director VINCENT BENOIT MSc, CA Non-Executive Director Dr Bavinton has over 40 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 Former Soviet Union, 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. Dr Davidson, an industry leader in sustainability, has over 25 years of experience in the extractives and natural resources sectors. She is an independent sustainability advisor and currently serves as a non-executive director on the boards of AIM quoted Central Asia Metals plc and TSX listed Lundin Gold and New Gold Inc. Dr Davidson is a founding member and Chair of the Global Battery Alliance, an initiative created to drive a sustainable battery value chain. Gillian Davidson is also Chair of International Women in Mining. Dr Davidson was, until 2017, Head of Mining & Metals at the World Economic Forum, leading global and regional initiatives for responsible and sustainable development. Prior to this, she was Director of Social Responsibility at Teck Resources Limited. She holds a MA (Hons) in Geography from the University of Glasgow, a PhD in Development Economics and Economic Geography from the University of Liverpool and is an alumnus of the Governor General of Canada's Leadership Conference. Mr Benoit joined La Mancha as Head of Strategy & Business Development in 2012. Between 2013 and 2015, he led La Mancha’s portfolio restructuring and contributed to the enhancement of its mines performance in Australia and Africa. Mr Benoit identified and executed the combinations with Evolution and Endeavour, which positioned La Mancha as a leading private investor in the gold mining sector. From 2016 to 2019, Mr Benoit was CFO and EVP Corporate Development at Endeavour where he reshaped the strategy, improved the mine portfolio quality, and enhanced the balance sheet to fund the organic growth. Endeavour’s market capitalization was quadrupled by the time he left at the end of 2019. In early 2020, he re-joined La Mancha to oversee investments and fund raising. Previously, Mr Benoit was at Orange (2006-2012) where he served as EVP M&A. He led the development of the group’s footprint in Africa and Europe and formed strategic partnerships with key European telecoms players. Prior to this, he held various finance positions including with Orano (ex-Areva), Bull Information Systems and PwC. 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 is a fellow of the Society of Economic Geologists, the Association of Applied Geochemists and the Institute of Materials, Mining and Metallurgy. Dr Davidson has an Honours Master of Arts in Geography from the University of Glasgow, a PhD in Development Economics and Geography from the University of Liverpool and is an alumna of the Governor General of Canada’s Leadership Conference. Mr Benoit holds a MSc from Kedge Business School and is a Chartered Accountant with 30 years of corporate finance, business development and M&A experience in the mining, telecom and energy sectors. COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 48 49 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT BOARD REPORTS Board Composition The Board comprises a group of experienced Directors with a diverse skillset relevant to the development of a mining company. Each Director has a wealth of experience and depth of knowledge in the mining industry and complementary fields including law, business development and capital markets. This diversity of skills and experience across multiple jurisdictions and professional disciplines provides the Company with effective leadership and direction. Each Director keeps their skillset up to date through a combination of continual professional development and attendance at seminars and conferences relevant for the industry Horizonte operates in. All Directors retire on rotation at regular intervals in accordance with the Company’s Articles of Association. We understand the importance of an in­ dependent board and this independence is constantly reviewed. Dr Owen Bavinton, Dr Gillian Davidson and Mr William Fisher are each considered an independent di­ rector since they are each independent of management and free from any ma­ terial relationship with the Company. The basis for this determination is that, de­ spite their tenures on the board, since 17 January 2012 and 7 June 2011 respec­ tively, Dr Owen Bavinton and Mr William Fisher have not worked for the Company, received remuneration from the Company or had material contracts with or materi­ al interests in the Company which could interfere with their ability to act with a view to the best interests of the Company. Dr Gillian Davidson was appointed to the Board on 24 March 2022 and has no direct or indirect material relationship with the Company. The Board continually assesses the independence of its directors, the com­ position and effectiveness of the Board as a whole and is actively considering supple­ menting the Board with additional inde­ pendent non-executive directors in 2023 as the Company transitions to become a producing nickel company. Each of Messrs Vincent Benoit and Jeremy Martin are considered to be non- independent directors as a result of their respective relationship with the Company. The Board maintains the exercise of inde­ pendent supervision over management by encouraging open and candid discussion from its independent directors. In addition, although Mr Vincent Benoit is not consid­ ered to be independent, the Board does not view this relationship as impairing the ability of the Board to act independently of management. Key Strengths The following table highlights each Directors core competencies relevant to the successful development of the Company: Project Development Natural Resources Business Development Governance Capital Markets Sustainability Brazil William Fisher X X X X X Jeremy Martin X X X X X X X Dr Owen Bavinton X X X X X X Dr Gillian Davidson X X X Vincent Benoit X X X X X Board changes As part of the ongoing succession planning for the Board, and as mentioned in the Chair’s letter, David Hall stepped down as Chair of the Board during 2022. Sepanta Dorri and Allan Walker both stepped down from the Board at the 2022 AGM. Dr Gillian Davidson and Vincent Benoit both joined the Board in March 2022. Board diversity We continue to recognise and embrace the benefits of having a diverse Board; particu­ larly the value that different perspectives and experience bring to the quality of Board debate and decision-making. We hold fast to the importance of making Board ap­ pointments on the basis of merit; but we also take seriously considerations such as background and experience, age, gender, and shareholder perspectives in our re­ views of the composition of the Board. We believe that setting targets for the number of people from a particular background or gender is not an effective approach and therefore we have no specific quotas or targets. Nevertheless, currently the Board believes that continuity of Board members and familiarity with the Araguaia Project are critical to the Company at its stage in its development. The Board intends to consider whether it should adopt specific policies and practices regarding the rep­ resentation of women on the Board and in executive positions, including the setting of targets for such representation at such a time as the Corporation moves beyond its development stage into production. Board Changes and Nominations The Company’s Nomination Committee has assumed responsibility for the recommen­ dation for appointment and assessment of directors. While there are no specific crite­ ria for Board membership, the Company attempts to attract and maintain directors with business knowledge and a particular knowledge of mining, mineral exploration and development or other areas (such as accounting or finance) which provide knowledge which would assist in providing guidance to the officers of the Company. As such, nominations tend to be the re­ sult of recruitment efforts and discussions amongst the Nomination Committee and the Chief Executive Officer prior to the con­ sideration of the Board as a whole. Chairs Board Meetings David Hall 1 5/5 William Fisher 1 11/11 Board Members Jeremy Martin 11/11 Dr Owen Bavinton 11/11 Dr Gillian Davidson2 8/9 Vincent Benoit2 9/9 Alan Walker3 5/5 Sepanta Dorri3 5/5 1. David Hall stepped down from the Board at the AGM, William Fisher was appointed Interim Non- Executive Chair at the AGM. 2. Dr Gillian Davidson and Mr Vincent Benoit both joined the Board in March 2023. 3. Alan Walker and Sepanta Dorri both stepped down from the Board at the AGM. The audit committee meets quarterly dur­ ing the year to consider the Audit planning report and Audit completion report pre­ sented by the auditors regarding the year end audit process. The year end audit find­ ings were focused on the key areas identi­ fied during the planning process, the main items being: ~ Internal controls and man­ agement override ~ Carrying value and impairment of intangible exploration and evaluation assets ~ Carrying value of investment in sub­ sidiaries and intercompany loans ~ Convertible loan note accounting and valuation ~ Accounting treatment of FEC hedges ~ Senior debt facility accounting treat­ ment and valuation ~ Accounting for the royalty finance agreement ~ Assessment recognition of contin­ gent 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 remuner­ ation 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. Evaluating Board Performance In accordance with best practice and the Code, the Board undertakes an annual formal evaluation of its performance and effectiveness, and that of each Director and Committee. This evaluation is con­ ducted by way of a questionnaire from the Chair, co-ordinated by the Company Secretary and concluded by Chair inter­ views where necessary. In addition, the Non-Executive Directors met, informally, without the Chair present and evaluat­ ed his performance. The Board currently considers that the use of external con­ sultants to facilitate the Board evalua­ tion process is unlikely to be of signifi­ cant benefit to the process, although the option of doing so is kept under review.  The Chair has stated that he values this annual evaluation opportunity and con­ siders it to be key to his role in creating an effective Board. He has reported that the Board was satis­ fied that the Board was effective and well run, there were therefore no recommen­ dations and none in the prior year.  The remuneration is determined in ac­ cordance with the Articles of Association. When determining executive director remuneration policy and practices, the Company’s remuneration committee ad­ dresses the following: ~ Clarity – remuneration arrange­ ments are transparent and promote effective engagement with share­ holders and the workforce ~ 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 per­ formance of the Group should be clear. Outcomes do not reward poor performance ~ Alignment to culture – incentive schemes drive behaviours con­ sistent with company purpose, values and strategy. Support to Directors The Board has the full support of the Com­ pany secretary. The Board receives regular and timely infor­ mation of the Company’s operational and financial performance in order to perform this function. Relevant, detailed informa­ tion is circulated to all Directors ahead of Board and Committee meetings. The Com­ pany Secretary is responsible for keeping the Board up to date on its responsibilities in compliance with relevant regulations. The Board and Culture The Board believes that the promotion of a corporate culture based on sound ethical values and behaviours is essen­ tial to maximising shareholder value. Horizonte’s company culture is consistent with its objectives, strategy and business model. The Board regularly meets and monitors the business and its stakehold­ ers to ensure the values and strategy are aligned with the company’s internal culture. The Directors act with integrity, lead by ex­ ample, and promote the desired culture. We believe that transparency and ethical behaviour are central to any successful company and undertake all development with respect to the environment and neighbouring communities. Shareholder Engagement The Board attaches great importance to providing shareholders with clear and transparent information on the Company’s activities, strategy and financial position. Communication with all shareholders is predominately led by the CEO, CFO and Head of Investor Relations, but the Chair and non-executive directors provide additional points of contact for shareholders, particularly at the Company’s AGM. We value the views and feedback of our shareholders and these are often discussed as a collective during board meetings, no significant actions or feedback were reported during the year. Further information on our shareholder engagement can be found in the stakeholder engagement section on pages 32-33. Material information in relation to the Company is made publicly available via the London Stock Exchange’s Regulatory News Service (RNS) and via the System for Electronic Document Analysis and retrieval (SEDAR) in Canada. Details of our shareholder engagement during the year can be found in the follow­ ing table. 2022 shareholder engagement Q1 Q2 Q3 Q4 ~ CEO & CFO attended the BMO Metals and Mining Conference ~ 2021 financial results ~ Publication of Annual Report ~ Multiple operational updates ~ Investor video interview with CEO ~ Annual General Meeting ~ Publication of Sustainability Report ~ 1Q22 financial results ~ Operational updates ~ 1H22 interim financial results ~ 3Q22 financial results ~ Shareholder interview and Q&A session hosted by CEO & CFO ~ Multiple operational updates COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 50 51 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT AUDIT AND RISK COMMITTEE REPORT REMUNERATION COMMITTEE REPORT The Audit and Risk Committee currently comprises Vincent Benoit (Chair), Gillian Davidson and William Fisher. The Audit and Risk Committee met five times during the year. The Auditors have unrestricted access to the Chair of the Audit and Risk Committee. Audit and Risk Committee meetings are usually attended by the Auditor and, by invitation, senior management. The main responsibilities of the Audit and Risk Committee include: ~ Monitoring the integrity of the Group’s financial statements, including review of the financial statements of the Company including its annual and half-yearly reports and any formal announcements relating to its financial performance; ~ Reviewing the effectiveness of the Group’s financial reporting, internal control policies and procedures for the identification, assessment and reporting of risk; ~ Monitoring the effectiveness of the internal control environment; ~ Making recommendations to the Board on the appointment of the Auditors; ~ Making a recommendation to the Board on Auditors’ fees; ~ Agreeing the scope of the Auditors’ annual audit programme and reviewing the output; ~ Ensuring the independence of the Auditors is maintained; ~ Assessing the effectiveness of the audit process; and ~ Developing and implementing policy on the engagement of the Auditors to supply non-audit services. The Audit and Risk Committee has consid­ ered the Group’s internal control and risk management policies and systems, their effectiveness and the requirements for an internal audit function in the context of the Group’s overall risk management system. The Committee is satisfied that the Group does not currently require an internal au­ dit function; however, it will continue to periodically review the situation. An es­ sential part of the integrity of the financial statements lies around the key assump­ tions and estimates or judgments to be made. The Committee reviewed and was satisfied that the judgements exercised by management contained within the Report and Financial Statements are rea­ sonable. Details of fees payable to the Auditors are set out in Note 7. Vincent Benoit Chair of the Audit & Risk Committee 28 March 2023 The remuneration committee comprises William Fisher, Owen Bavinton and Vincent Benoit. The main purpose of the Remuneration committee is to: ~ Review the performance of the Executive Director and senior management ~ Setting the framework and broad policy for the scale and structure of their remuneration, taking into account all factors which it shall deem necessary ~ Recommend the allocation of share options for the Board to approve: and ~ Set any performance criteria in relation to the exercise of options granted under any share options schemes adopted by the Group ~ Demonstrate to shareholders that the remuneration of the Executive Director and senior management of the Group is set by a committee whose members have no personal interest in the outcome of their decision and who will have due regard to the interests of the shareholders. Procedures for developing policy and fixing remuneration The Remuneration Committee fixes executive remuneration and ensures that no Director is involved in deciding their own remuneration. The Committee is authorised to obtain outside professional advice and expertise. The Remuneration Committee is authorised by the Board to investigate any matter within its terms of reference and it is authorised to seek any information that it requires from any employee. Details of the remuneration policy The fees to be paid to the Directors and senior management are set by the Remu­ neration Committee. Directors’ service agreements Service agreements for Directors and senior management are terminable by either party on 12 months notice period. 51 HORIZONTE MINERALS 2022 ANNUAL REPORT Vincent Benoit Chair of the Audit & Risk Committee COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 52 53 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT Directors’ remuneration The following remuneration comprises Directors’ fees and benefits in kind that were paid to Directors during the year: Short term benefits Post employment benefits Cost to Company Non-Cash Aggregate emoluments Other Emoluments (1) Long-term incentive plan Pension costs Total Social Security Costs Share Based Payment Charge (4) Grand Total Group 2022 £ £ £ £ £ £ £ £ Non-Executive Directors William Fisher 65,503 — — — 65,503 — — 65,503 Owen Bavinton 80,634 — — 17,070 97,704 24,115 — 121,819 Gillian Davidson 50,250 — — — 50,250 5,979 — 56,229 Vincent Benoit 50,250 — — — 50,250 5,979 — 56,229 David Hall (2) 15,833 — 100,000 — 115,833 15,111 — 130,944 Allan Walker (3) 13,958 — 100,000 — 113,958 14,956 — 128,914 Sepanta Dorri (3) — — — — — — — — Executive Directors Jeremy Martin 363,025 240,000 447,745 — 1,050,770 213,156 478,735 1,742,661 Key Management Simon Retter 250,000 187,500 447,745 — 885,245 198,827 361,013 1,445,085 889,453 427,500 1,095,490 17,070 2,429,513 478,123 839,748 3,747,384 Short term benefits Post employment benefits Cost to Company Non-Cash Aggregate emoluments Other Emoluments (1) Long term incentive plan Pension costs Total Social Security costs Share Based Payment Charge Grand Total Group 2021 £ £ £ £ £ £ £ £ Non-Executive Directors William Fisher 33,500 — 100,000 — 133,500 — — 133,500 Owen Bavinton 36,000 — 100,000 31,295 167,295 17,548 — 184,843 David Hall 38,000 — 100,000 — 138,000 17,824 — 155,824 Allan Walker 40,000 — 100,000 — 140,000 18,100 — 158,100 Sepanta Dorri — — — — — — — — Executive Directors Jeremy Martin 291,461 143,240 700,150 — 1,134,851 155,565 — 1,290,416 Key Management Simon Retter 204,750 122,150 700,150 — 1,027,050 140,032 — 1,167,082 643,711 265,390 1,800,300 31,295 2,740,696 349,069 — 3,089,765 1. Denotes amounts payable for performance related bonuses 2. David Hall stepped down as Chair at the 2022 AGM. Table reflects remuneration received until resignation date 3. Sepanta Dorri and Allan Walker retired from the board at the 2022 AGM. Table reflects remuneration received until resignation date 4. Share options awarded during the year represent options awarded for the periods 2018 to 2021 as the company was unable to undertake its normal annual awards due to restrictions around being in a closed period as a result of the ongoing discussions around the Araguaia Project financing. Following the successful closure of the project financing in December 2021 an award was made to compensate for the prior 4 years. 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. Directors’ interests in shares Director Shares 31 December 2022 Shares 31 December 2021 (After share consolidation) Shares 31 December 2021 (before share consolidation) Jeremy Martin 117,819 90,195 1,803,900 Owen Bavinton 110,000 100,000 2,000,000 William Fisher 98,750 98,750 1,975,000 Gillian Davidson — — — Vincent Benoit — — — David Hall (1) — 51,997 1,039,955 Allan Walker (1) — 35,273 705,479 Sepanta Dorri (1) — — — 1. Stepped down as directors in 2022. 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 2022 and 28 March 2023. Share options The Group operates two Share Option Schemes pursuant to which Directors and senior executives may be granted options to ac­ quire Ordinary shares in the Company at a fixed option exercise price. Director Options 31 December 2022 Options 31 December 2021 (After share consolidation) Options 31 December 2021 (before share consolidation) Jeremy Martin 5,026,250 1,137,500 22,750,000 Owen Bavinton 575,000 575,000 11,500,000 William Fisher 575,000 575,000 11,500,000 Gillian Davidson — — — Vincent Benoit — — — David Hall (1) — 650,000 13,000,000 Allan Walker (1) — 575,000 11,500,000 Sepanta Dorri (1) — — — 1. Stepped down as directors in 2022. Further details of the Share Option Schemes can be found in note 17. Long Term Incentive Plan (“LTIP”) In 2019 the Company put in place a Long-Term Incentive Plan (‘LTIP’) for the purpose of incentivising, motivating and rewarding cer­ tain employees in respect of their contributions to the Company’s mid and long-term commercial objectives designed to create value for shareholders. The performance conditions are based upon major project milestones delivered across the Company’s two projects; Araguaia and Vermelho. The agreements for members include four performance conditions. The amount of any bonus payment shall be determined by the performance conditions set out in the applicable bonus agreement for each individual participant. The performance conditions are: 1. Completion of a comprehensive bankable feasibility study for each Project (‘Feasibility Study’); 2. Securing full project finance to construct either Project (‘Securing Project Finance’); 3. The first commercial production of each Project (‘First Commercial Production’); and 4. The sale of any interest in either Project or a specified percentage of the share capital of the Company (‘Sale’). Both the CEO and the CFO are eligible for certain bonuses upon reaching certain operational milestones which are deemed to be aligned with shareholder value enhancing points in the development pathway of both the Araguaia and Vermelho projects. They are eligible for a fee of 0.475% of gross funds raised with certain Non-Executive Directors receiving Bonuses of £200,000 upon securing Project Financing. In 2021 the company secured a project finance package to fully fund the Araguaia project through construction therefore triggering one of the key performance conditions of the LTIP. The bonuses paid in 2021 to the CEO & CFO represent those due upon the settle­ ment of the equity portion of the project finance which was closed in 2021. The LTIP bonuses paid in cash during the year to the CEO and CFO represent those due upon the settlement of the convertible loan notes, cost overrun facility and the Vermelho Royalty which was closed in 2022. The non-executive directors that stepped down as directors during the year received the balance of their LTIP bonus. All awards due for the senior debt portion of the project finance package including 50% of any awards due to certain Non-Ex­ ecutive Directors have been deferred until the second draw down of the senior debt facility at which time the award will be paid in full to those eligible. The award has been deferred in order to align with value creation for the shareholders. The CEO and CFO will be eligible for a fee of 0.475% of the senior debt facility of US$346.2million. By Order of the Board William Fisher Chair of the Remuneration Committee 28 March 2023 COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 54 55 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL 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 2022. 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 and Vermelho nickel projects, located in Pará State in north-eastern Brazil. Financial results and dividends The Group results for the year are set out on page 64. The Group is currently involved in exploration, evaluation and development activities and not actively mining. As a result, the Group is not revenue generative. During the year the Group made good progress on the construction of the Araguaia Nickel Project which remains on-budget and on-schedule to commence production in Q1-2024. The Group has also advanced the permitting process for the Vermelho Nickel Cobalt Project in parallel with ongoing work on the Feasibility Study which is expected to be published in H1-2024. In October 2022 the Group conducted a further fundraising (the Fundraise) and raised gross proceeds of ~ US$80 million. Although the development of Araguaia was running to schedule and a number of key milestones achieved, in light of global inflationary pressures and engineering improvements to de-risk the project the total capital cost for Araguaia is forecast to be US$537 million versus US$477million. The Fundraise is anticipated to allow the Group to complete the construction of the Project. In addition, the Fundraise will allow the Group to accelerate engineering studies and basic engineering for the development of line 2 at Araguaia, as well as further invest in its decarbonisation strategy for the Project. On 7 December 2022, the Group satisfied all conditions precedent for the first utilisation under the senior debt facility of US$346.2 million. The first utilisation was for US$5million. In addition the Group also satisfied all conditions precedent in relation to the cost overrun facility (COF) and received all COF funds from Orion. The Directors do not recommend payment of a dividend (2020: £Nil). Sustainability Details of the Company’s approach and activities in relation to sustainability can be found on pages 26-31 of the Strategic Report included within this Annual Report and in a standalone Sustainability Report available on the Company’s website www.horizonteminerals.com. While there is no requirement to publish information under SECR in 2022, this will be reviewed and it is the intention of the Company to comply with the reporting disclosures next year in line with best practice. Share Capital Changes in the share capital of the Com­ pany are set out in note 15 of the Finan­ cial Statements. 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 The group undertakes certain policies and procedures to mitigate these risks as much as is practicable, including hedging foreign exchange movements, only using credit worthy financial institutions and using short term deposits to manage interest rate and liquidity risks. As the Group moves towards being a producing entity it will continually review these risk mitigation policies to cover off any potential exposure to commodity prices and increase exposure to foreign exchange risks. In common with all other businesses, the Group is exposed to financial risks that arise from its operations, these along with managements’ policies surrounding financial risk management are explained in note 3 to the financial statements. Events after the reporting date The events after the reporting date are set out in note 38 to the Financial Statements. Future developments In 2023 the Group will be working towards constructing and bringing 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 2022 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 28 March 2023 55 HORIZONTE MINERALS 2022 ANNUAL REPORT COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 56 57 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT STATEMENT OF DIRECTORS’ RESPONSIBILITIES The directors are responsible for prepar­ ing the annual report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each fi­ nancial year. Under that law the directors have elected to prepare the group and company financial statements in accord­ ance with UK adopted international ac­ counting standards. Under company law the directors must not approve the finan­ cial 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. 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 UK adopted international accounting standards 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 group and the company will continue in business. The directors are responsible for keep­ ing adequate accounting records that are sufficient to show and explain the compa­ ny’s transactions and disclose with rea­ sonable accuracy at any time the finan­ cial position of the company and enable them to ensure that the financial state­ ments comply with the requirements of the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking rea­ sonable steps for the prevention and de­ tection of fraud and other irregularities. Website publication The directors are responsible for ensuring the annual report and the financial state­ ments are made available on a website. Financial statements are published on the company’s website in accordance with legislation in the United Kingdom gov­ erning the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the compa­ ny’s website is the responsibility of the di­ rectors. The directors’ responsibility also extends to the ongoing integrity of the fi­ nancial statements contained therein. Opinion on the financial statements 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 2022 and of the Group’s loss for the year then ended; ~ the Group financial statements have been properly prepared in accordance with UK adopted international accounting standards; ~ the Parent Company financial statements have been properly prepared in accordance with UK adopted international accounting standards 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. We have audited the financial statements of Horizonte Minerals PLC (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the year ended 31 December 2022 which comprise of the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Company Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Company Statement of Changes in Equity, the Consolidated Statement of Cash Flows, the Company Statement of Cash Flowsand notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and UK adopted International Accounting Standards and, as regards to the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006. 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 re­ port. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We remain 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. INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF HORIZONTE MINERALS PLC FINANCIAL STATEMENTS 56 HORIZONTE MINERALS 2022 ANNUAL REPORT COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 58 59 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT Material uncertainty related to going concern We draw attention to note 2.2 to the financial statements which indicates that the Group is reliant upon further drawdowns under the Senior Debt Facility to construct the Ararguaia Project. These drawdowns are conditional on the satisfaction of certain conditions precedent and there is no guarantee that these conditions will be met. As stated in note 2.2 these events or conditions, along with the other matters set out in note 2.2 indicate that a material uncertainty exists that may cast significant doubt on the Group and Parent Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. We have determined going concern to be a key audit matter as a result of the judgements and estimates made by the Directors and significance of this area. Our evaluation of the Directors’ assessment of the Group and the Parent Company’s ability to continue to adopt the going concern basis of accounting and our response to this key audit matter is set out below: ~ We obtained the Directors’ Group cash flow forecast to 31 December 2024. We assessed the reasonableness of underlying assumptions, including forecast levels of expenditure used in preparing these forecasts. To assess the reasonableness and timings of the cash inflows and outflows, we used our knowledge of the business and compared the Directors’ forecasts to budgets used to raise equity in the 2022 financial year. ~ We agreed the total remaining cost associated with bringing the Araguaia Project to the point of generating cashflows and the resources available to the company to the most recent cost to complete certificate dated 8 February 2023 that was prepared to facilitate the most recent draw down from the senior debt facility. ~ We reviewed the conditions that are required to be complied with to draw down the Senior Debt Facility, discussed these with the Directors, and considered factors that could cause non compliance. This included considering the risks associated with forecast costs increasing above the available funds, which would prevent further draw downs on the Senior Debt Facility. ~ We considered the impact on the Group and Parent Company’s cash flow forecast should the Senior Debt Facility not be available due to conditions not being complied with. ~ We assessed the appropriateness of the going concern disclosures included in the financial statements against the requirements of the relevant accounting standards. In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report. Overview Coverage1 90% (2021: 90%) of Group profit before tax 90% (2021: 90%) of Group total assets Key audit matters 2022 2021 Valuation of convertible loan notes  Going concern   Carrying value of exploration and evaluation assets and mine development property  Valuation of royalty funding arrangement  Carrying value of exploration and evaluation assets and mine development property is no longer considered to be a key audit matter given there has been no impairment triggers in the period for either, the Araguaia mine which is currently under construction, or the Vermelho project, for which a feasibility study has been initiated. Valuation of royalty funding arrangement is no longer considered to be a key audit matter given the increase in the Group’s materiality reduces the risk of there being a material misstatement. Materiality Group financial statements as a whole $7.8million (2021:$4.6 million) based on 1.5% of total assets. 1 These are areas which have been subject to a full scope audit by the group engagement team 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. We also addressed the risk of management override of internal controls, including assessing whether there was evidence of bias by the Directors that may have represented a risk of material misstatement. Our Group audit scope focused on the Group’s significant components, being Araguaia Níquel Metais Ltda, which was subject to a full scope audit together with the Parent Company. The Parent Company was audited and the Group audit team and Araguaia Níquel Metais Ltda was audited by a BDO network member firm in Brazil. In addition, Trias Brasil Mineracao Ltda, Horizonte Nickel (IOM) Ltd, Champol (IOM) Ltd, Nickel Production Services BV and Battery Material Services BV were the insignificant components, which were subject to specified audit procedures on the significant risk areas and analytical procedures performed by the Group audit team. The remaining components of the Group were considered insignificant and these components were principally subject to analytical review procedures which were performed by the Group audit team. Our involvement with component auditors For the work performed by component auditors, we determined the level of involvement needed in order to be able to conclude whether sufficient appropriate audit evidence has been obtained as a basis for our opinion on the Group financial statements as a whole. Our involvement with component auditors included the following: ~ Detailed Group reporting instructions were sent to the component auditors, which included the significant areas to be covered by the audits (including areas that were considered to be key audit matters), and set out the component materiality and other information to be reported to the Group audit team. ~ The Group audit team was actively involved in the direction of the audits performed by the component auditor for Group reporting purposes, along with the consideration of findings and determination of conclusions drawn. ~ The Group audit team reviewed the component auditor’s work papers and engaged with the component auditors during their fieldwork and completion phases. ~ For the principal operating component in Brazil, the Group audit team also performed audit procedures in respect of the significant risk areas. ~ The Group audit team has held a number of virtual meetings with the component auditors throughout the engagement. Virtual meetings spanned pre-planning, planning, execution and finalisation of the audit engagement. Key audit matters Key audit matters are those matters that, in our professional judgement, 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) that 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. In addition to the matter described in the material uncertainty related to going concern of our report, we have determined the matter below to be the key audit matter to be communicated in our report. COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 60 61 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT Key audit matter How the scope of our audit addressed the key audit matter Valuation of convertible loan notes See notes 4.6 and 22 to the financial statements. In the 2022 financial year, the Group issued a convertible loan note. The convertible loan is a hybrid financial instrument with a debt host liability component and an embedded derivative liability component related to the conversion option. The embedded derivatives was valued by independent valuation experts using a Monte Carlo simulation method at both inception and at the year end. This method of determining fair value is reliant upon significant estimations over the Company’s future share price volatility and GBP:USD exchange rate volatility at the conversion date. The host loan is accounted for using the amortised cost basis. Due to conditions attached to when the note holders will be repaid, estimation is required in determining repayments dates and amounts that impact the effective interest rate that the host loan is unwound over. Accordingly, the valuation of the convertible loan note is considered to be a key audit matter. Our procedures in relation to the valuation of the convertible loan notes debt host and embedded derivatives are set our below. We assessed the accounting treatment of the convertible loan note as a hybrid financial instrument was in accordance with accounting standards. We ensured that at inception the fair value of the embedded derivative liability was determined first and the residual amount was assigned to the debt host liability and that associated transaction costs which were deducted, were proportionately allocated. In respect of the fair value of the embedded derivative at incep­ tion and year end: ~ We reviewed the embedded derivative valuation methodology adopted to check that the features of the embedded derivative had been appropriately modelled. ~ We confirmed with BDO valuation experts that the modelling was appropriate and in line with our understanding of the embedded derivative features. ~ We assessed the reasonableness of the key assumptions used in the valuation, including share price and foreign exchange rate volatility by reference to independent sources of data. ~ We assessed the competence and independence of the valuation expert used by management. In respect of the host loan which is accounted for using the amortised cost basis: ~ We tested managements calculation of the effective interest rate used to unwind the host loan. This included agreeing repayment dates used in the effective interest rate calculation were modelled in accordance with the terms of the agreement and the timing and quantity of the repayments were in agreement with managements most recent budgets. ~ We also checked the arithmetical accuracy of the amortised loan model. Key observations: Based on our work, we concur with managements valuation methodology and the key estimates used in valuing the host loan and embedded derivative. Our application of materiality We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements. In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole and performance materiality as follows: Group financial statements Parent company financial statements 2022 2021* 2022* 2021* Materiality $7.8 million $4.6 million $5.9 million $4.1 million Basis for determining materiality 1.5% of total assets 1.5% of total assets 1.5% of total assets 90% of Group Materiality Rationale for the benchmark applied We consider total assets to be the most significant determinant of the Group’s financial performance for users of the financial statements, given the Group’s mine development focus as a result of the commencement of the Araguaia mine construction. There was a significant increase in total assets following the commencement of the mine construction in May 2022 and additional cash received from the 2021 prospectus debt package. 90% of Group Materiality Performance materiality $5.9million $ 3.5 million $4.4 million $ 3.1 million Basis for determining performance materiality 75% of materiality based on consideration of factors including the level of historical errors and nature of activities. *The presentational currency of the Group and Parent financial statements changed from GBP in 2021 to USD in 2022. Component materiality We set materiality for each component of the Group based on a percentage of between 37% and 68% (2021: 4% to 14%) of Group materiality dependent on the size and our assessment of the risk of material misstatement of that component. Component materiality ranged from $2,900,000 to $5,300,000 (2021: $196,000 to $623,000). In the audit of each component, we further applied performance materiality levels of 75% of the component materiality to our testing to ensure that the risk of errors exceeding component materiality was appropriately mitigated. Reporting threshold We agreed with the Audit Committee that we would report to them all individual audit differences in excess of $0.2million (2021:$0.1m). We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds. Other information The directors are responsible for the other information. The other information comprises the information included in the 2022 Report and Accounts 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. 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 course of 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 this gives rise to a material misstatement in the financial statements themselves. 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. COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 62 63 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT Other Companies Act 2006 reporting Based on the responsibilities described below and our work performed during the course of the audit, we are required by the Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as described below. Strategic report and Directors’ report 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. In the light of the knowledge and understanding of the Group and 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. Matters on which we are required to report by exception 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. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Extent to which the audit was capable of detecting irregularities, including fraud Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below: ~ We obtained an understanding of the Company and Group’s activities and considered the laws and regulations of the UK and Brazil to be of significance in the context of the Group and component audit. In doing so, we made inquiries of management and the Audit Committee, considered the Company and Group’s control environment as it pertains to compliance with laws and regulations and considered the activities of the Group. We determined the most significant laws and regulations to be Companies Act 2006, elements of the reporting framework, tax legislation and the Brazilian environmental regulations. ~ We communicated relevant identified laws and regulations and potential fraud risks to all engagement team members and component auditors, and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit. ~ We made inquiries of management and the Board and reviewed Board and Committee minutes to identify any instances of irregularities or non-compliance. ~ We assessed the suspectibility of the financial statements to material misstatement, including fraud. Our risk assessment included: • Understanding the journals passed throughout the period to ensure that sufficient and appropriate audit procedures are designed to gain assurance over journal testing. • Gain an understanding of the tender and procurement process to assess the controls in place. • Review the terms of the financial instruments in place, including the valuation of the convertible loan notes and royalty funding arrangements, the contingent consideration, and the carrying value of exploration and evaluation assets and mine development property to gain an understanding of the accounts that are subject to greater management estimate. Based on our risk assessment, we consider the areas most susceptible to fraud to be the journal testing which derives from the valuations of the financial instruments that are subject to managements estimate and the tender and procurement process. ~ We agreed the financial statement disclosures to underlying supporting documentation and performed detailed testing on accounts balances which were considered to be at a greater risk of susceptibility to fraud. ~ In addressing risk of management override of control we performed: • testing of general ledger journal entries to the financial statements, including verification of journals which we consider exhibit higher fraud risk characteristics based on our understanding of the Group. This included testing journals direct to cash and expenses, which are outside of the normal purchase to pay cycle. • procedures over the controls in the tender and procurement process which due to the significant level of additions were considered to be at a greater risk of susceptibility to fraud. • procedures on accounts subject to greater management estimate including the valuation of the convertible loan notes and royalty funding arrangements, the contingent consideration, and the carrying value of exploration and evaluation assets and mine development property. We communicated relevant identified laws and regulations and potential fraud risks to all engagement team members and component auditors, and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit who were all deemed to have appropriate competence and capabilities and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit. For component engagement teams, we also reviewed the result of their work performed in this regard. Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery, misrepresentations or through collusion. There are inherent limitations in the audit procedures performed and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we are to become aware of it. A further description of our responsibilities is available 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. Peter Acloque (Senior Statutory Auditor) For and on behalf of BDO LLP, Statutory Auditor London 28 March 2023 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 64 65 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 December 2022 Year ended Year ended 31 December 31 December 2022 2021 Restated (Note 2.8(a)) Notes US$ US$ Administrative expenses 6 (12,544,856) (7,811,477) Charge for share options granted 17 (1,415,581) — Change in fair value of derivative 21,22 6,512,413 2,550,000 Change in fair value of special warrant liability — (1,616,120) Gain/(loss) on foreign exchange 8,482,457 (862,739) Operating profit/(loss) 1,034,433 (7,740,336) Net finance (cost)/income 8 (6,351,735) (5,630,179) Loss before taxation (5,317,302) (13,370,515) Income tax 9 — — Loss for the year from continuing operations attributable to owners of the parent (5,317,302) (13,370,515) Other comprehensive income Items that may be reclassified subsequently to profit or loss Cash flow hedges – foreign forward contracts 1,087,561 — Currency translation differences on translating foreign operations 18 (6,678,108) 258,977 Other comprehensive (loss)/income for the year, net of tax (5,590,547) 258,977 Total comprehensive (loss)/income for the year attributable to owners of the parent (10,907,849) (13,111,538) Loss per share from continuing operations attributable to own­ ers of the parent Basic and diluted loss per share (p) 29 (2.634) (15.698) The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes. CONSOLIDATED STATEMENT OF FINANCIAL POSITION Company number: 05676866 As at 31 December 2022 Notes 31 December 2022 US$ 31 December 2021 Restated (Note 2.8(a)) US$ 31 December 2020 Restated (Note 2.8(a)) US$ Assets Non-current assets Intangible assets 10 13,208,837 8,309,484 8,490,339 Property, plant and equipment 11 277,902,428 70,594,091 42,090,825 Right of use assets 26 957,878 380,482 — Trade and other receivables 12 9,965,590 — — Derivative financial assets 14 61,777 — — 302,096,510 79,284,057 50,581,164 Current assets Trade and other receivables 12 48,774,147 13,796,628 369,237 Derivative financial asset 14, 21 15,342,314 4,950,000 2,400,000 Cash and cash equivalents 13 154,027,967 210,492,280 14,925,021 218,144,428 229,238,908 17,694,258 Total assets 520,240,938 308,522,965 68,275,422 Equity and liabilities Equity attributable to owners of the parent Share capital 15 70,332,641 52,215,236 20,666,053 Share premium 16 306,719,689 245,388,102 65,355,677 Other reserves 18 (29,938,166) (23,260,058) (23,519,035) Cash flow hedge reserve 1,087,561 — — Share options reserve 17 1,415,581 — — Retained losses (50,187,603) (45,058,633) (33,304,238) Total equity 299,429,703 229,284,647 29,198,457 Liabilities Non-current liabilities Contingent consideration 20 6,895,737 6,734,134 8,082,092 Deferred consideration 20 4,808,431 4,493,861 — Royalty Finance 21 89,745,255 44,496,504 30,131,755 Convertible loan notes 22 59,447,520 — — Cost overrun facility 23 23,809,827 — — Senior debt facility 24 4,328,241 — — Environmental rehabilitation provision 25 634,883 — — Lease liabilities 26 715,290 321,717 — Trade payables 19 723,333 608,975 — 191,108,517 56,655,191 38,213,847 Current liabilities Trade and other payables 19 28,481,038 21,574,362 863,118 Deferred consideration 20 950,000 950,000 — Lease liabilities 26 271,680 58,765 — 29,702,718 22,583,127 863,118 Total liabilities 220,811,235 79,238,318 39,076,965 Total equity and liabilities 520,240,938 308,522,965 68,275,422 The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. The Financial Statements were authorised for issue by the Board of Directors on 28 March 2023 and were signed on its behalf. William Fisher Jeremy J Martin Interim Chair of the Board Chief Executive Officer COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 66 67 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT COMPANY STATEMENT OF FINANCIAL POSITION Company number: 05676866 As at 31 December 2022 31 December 2022 US$ 31 December 2021 Restated (Note2.8(a)) US$ 31 December 2020 Restated (Note2.8(a)) US$ Notes Non-Current Assets Investment in subsidiaries 33 2,827,030 3,164,591 3,204,979 Loans to subsidiaries 34 368,980,168 94,085,538 88,298,324 371,807,198 97,250,129 91,503,303 Current assets Trade and other receivables 12 1,502,311 13,158,399 131,298 Cash and cash equivalents 13 24,607,673 198,595,764 7,246,192 26,109,984 211,754,163 7,377,490 Total assets 397,917,182 309,004,292 98,880,793 Equity and liabilities Equity attributable to equity share­ holders Share capital 15 70,332,641 52,215,236 20,666,053 Share premium 16 306,719,689 245,388,102 65,355,677 Other reserves 18 (19,432,807) 10,353,031 7,637,872 Share options reserve 17 1,415,581 — — Retained losses (31,048,767) (25,780,330) (19,894,744) Total equity 327,986,337 282,176,039 73,764,858 Liabilities Non-current liabilities Convertible loan notes 22 59,447,520 — — Contingent consideration 20 6,895,737 6,734,134 8,089,798 66,343,257 6,734,134 8,089,798 Current liabilities Trade and other payables 19 3,089,258 16,282,547 382,417 Loans from subsidiary 34 498,330 3,811,572 16,643,720 3,587,588 20,094,119 17,026,137 Total liabilities 69,930,845 26,828,253 25,115,935 Total equity and liabilities 397,917,182 309,004,292 98,880,793 The above Company Statement of Financial Position should be read in conjunction with the accompanying notes, loss for the period was US$5,456,769 (Restated 2021: £7,501,706 loss). The Financial Statements were authorised for issue by the Board of Directors on 28 March 2023 and were signed on its behalf. William Fisher Jeremy J Martin Interim Chair of the Board Chief Executive Officer CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2022 Attributable to the owners of the parent Share capital US$ Share premium US$ Other reserves US$ Cash flow hedge reserve US$ Share options reserve US$ Retained losses US$ Total US$ As at 1 January 2021 Restated (Note 2.8(a)) 20,666,053 65,355,677 (23,519,035) — — (33,304,238) 29,198,457 Loss for the year — — — — (13,370,515) (13,370,515) Other comprehensive income: Currency translation differences on translating foreign operations — — 258,977 — — — 258,977 Total comprehensive income for the year — — 258,977 — — (13,370,515) (13,111,538) Issue of ordinary shares 30,335,627 183,255,417 — — — — 213,591,044 Issue costs — (10,389,470) — — — — (10,389,470) Conversion of special warrants into shares 1,213,556 7,986,413 — — — 1,616,120 10,816,089 Special warrants issue costs — (819,935) — — — — (819,935) Total transactions with owners, recognised directly in equity 31,549,183 180,032,425 — — — 1,616,120 213,197,728 As at 31 December 2021 Restated (Note 2.8(a)) 52,215,236 245,388,102 (23,260,058) — — (45,058,633) 229,284,647 Loss for the year — — — — — (5,317,302) (5,317,302) Other comprehensive income: Cash flow hedges – for­ eign forward contracts — — — 1,087,561 — — 1,087,561 Currency translation differences on translating foreign operations — — (6,678,108) — — — (6,678,108) Total comprehensive income for the year — — (6,678,108) 1,087,561 — (5,317,302) (10,907,849) Issue of ordinary shares 18,117,405 63,830,692 — — — 188,332 82,136,429 Issue costs — (2,499,105) — — — — (2,499,105) Share options granted — — — — 1,415,581 — 1,415,581 Total transactions with owners, recognised directly in equity 18,117,405 61,331,587 — — 1,415,581 188,332 81,052,905 As at 31 December 2022 70,332,641 306,719,689 (29,938,166) 1,087,561 1,415,581 (50,187,603) 299,429,703 A breakdown of other reserves is provided in note 18. COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 68 69 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT COMPANY STATEMENT OF CHANGES IN EQUITY Attributable to equity shareholders Share Share Other reserves Share options reserve Retained capital premium losses Total Company US$ US$ US$ US$ US$ US$ As at 1 January 2021 Restated (Note 2.8(a)) 20,666,053 65,355,677 7,637,872 — (19,894,744) 73,764,858 Comprehensive income Loss for the year — — — — (7,501,706) (7,501,706) Other comprehensive income Presentation currency translation differences — — 2,715,159 — — 2,715,159 Total comprehensive income for the year — — 2,715,159 — (7,501,706) (4,786,547) Issue of ordinary shares 30,335,627 183,255,417 — — — 213,591,044 Issue costs — (10,389,470) — — — (10,389,470) Conversion of special warrants into shares 1,213,556 7,986,413 — — 1,616,120 10,816,089 Special warrants issue costs — (819,935) — — — (819,935) Total transactions with owners, recognised directly in equity 31,549,183 180,032,425 — — 1,616,120 213,197,728 As at 31 December 2021 Restated (Note 2.8(a)) 52,215,236 245,388,102 10,353,031 — (25,780,330) 282,176,039 Comprehensive income Loss for the year — — — — (5,456,769) (5,456,769) Other comprehensive income Presentation currency translation differences — — (29,785,838) — — (29,785,838) Total comprehensive income for the year — — (29,785,838) — (5,456,769) (35,242,607) Issue of ordinary shares 18,117,405 63,830,692 — — 188,332 82,136,429 Issue costs — (2,499,105) — — — (2,499,105) Share options granted — — — 1,415,581 — 1,415,581 Total transactions with owners, recognised directly in equity 18,117,405 61,331,587 — 1,415,581 188,332 81,052,905 As at 31 December 2022 70,332,641 306,719,689 (19,432,807) 1,415,581 (31,048,767) 327,986,337 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 2022 31 December 2022 US$ 31 December 2021 Restated (Note 2.8(a)) US$ Notes Cash flows from operating activities Loss before taxation (5,317,302) (13,370,515) Charge for share options granted 17 1,415,581 — Net finance costs 8 6,351,735 5,630,179 Exchange differences (8,482,457) 862,739 Change in fair value of derivative asset 21,22 (6,512,413) (2,550,000) Fair value of special warrant liability — 1,616,120 Operating loss before changes in working capital (12,544,856) (7,811,477) Increase in trade and other receivables (2,693,021) (13,427,391) Increase in trade and other payables 5,336,114 16,675,664 Cash used in operating activities (9,901,763) (4,563,204) Income taxes paid — — Net cash used in operating activities (9,901,763) (4,563,204) Cash flows from investing activities Purchase of exploration and evaluation assets (4,349,092) (405,221) Purchase of property, plant and equipment (191,740,544) (14,271,709) Interest received 7,117,103 500,634 Net cash used in investing activities (188,972,533) (14,176,296) Cash flows from financing activities Proceeds from issue of ordinary shares 82,136,429 213,591,044 Issue costs (2,499,105) (10,389,470) Proceeds from issue of convertible loan notes 61,262,500 — Issue costs (950,287) — Proceeds from royalty finance arrangement 25,000,000 — Issue costs (847,939) — Proceeds from cost overrun facility 25,000,000 — Issue costs (1,198,634) — Proceeds from senior debt facility 5,000,000 — Issue costs (678,536) — Lease liability repayments (207,552) — Loan facilities interest payments (304,892) — Senior debt facility prepaid transaction costs (42,250,088) — Proceeds from issue of share warrants — 10,816,089 Share warrants issue costs — (819,935) Net cash generated from financing activities 149,461,896 213,197,728 Net (decrease)/increase in cash and cash equivalents (49,412,400) 194,458,228 Cash and cash equivalents at beginning of year 210,492,280 14,925,021 Exchange (loss)/gain on cash and cash equivalents (7,051,913) 1,109,031 Cash and cash equivalents at end of the year 13 154,027,967 210,492,280 The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 70 71 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT COMPANY STATEMENT OF CASH FLOWS For year ended 31 December 2022 31 December 2022 US$ 31 December 2021 Restated (Note 2.8(a)) US$ Notes Cash flows from operating activities Loss before taxation (5,456,769) (7,501,706) Charge for share option granted 17 1,415,581 — IFRS9 Expected credit loss (credit)/charge 384,409 38,485 Finance income (396,992) (1,286,295) Finance costs 6,602,998 — Exchange differences (5,502,679) 623,889 Change in fair value of derivative 22 (6,821,201) — Fair value of special warrant liability — 1,616,120 Operating loss before changes in working capital (9,774,653) (6,509,507) Decrease/(increase) in trade and other receivables 11,656,088 (13,027,101) (Decrease)/increase in trade and other payables (13,193,290) 15,900,131 Cash flows used in operating activities (11,311,855) (3,636,477) Taxes paid — — Net cash flows used in operating activities (11,311,855) (3,636,477) Cash flows from investing activities Loans to subsidiary undertakings (296,901,621) (18,619,364) Interest received 396,992 6,565 Net cash used in investing activities (296,504,629) (18,612,799) Cash flows from financing activities Proceeds from issue of ordinary shares 82,136,429 213,591,044 Issue costs (2,499,105) (10,389,470) Proceeds from issue of convertible loan notes 61,262,500 — Issue costs (950,287) — Proceeds from issue of share warrants — 10,816,089 Share warrants issue costs — (819,935) Net cash generated from financing activities 139,949,537 213,197,728 Net increase/(decrease) in cash and cash equivalents (167,866,947) 190,948,452 Cash and cash equivalents at beginning of year 198,595,764 7,246,192 Exchange gain/(loss) on cash and cash equivalents (6,121,144) 401,120 Cash and cash equivalents at end of the year 13 24,607,673 198,595,764 The above Company Statement of Cash Flows should be read in conjunction with the accompanying notes. NOTES TO THE FINANCIAL STATEMENTS 1 General information The principal activity of Horizonte Minerals Plc (‘the Company’) and its subsidiaries (together ‘the Group’) is the exploration and devel­ opment 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 Regent 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 UK adopted international accounting standards. Financial State­ ments have been prepared under the historical cost convention except for the following items (refer to individual accounting policies for details): ~ Contingent consideration ~ Financial instruments – fair value through profit and loss ~ Cash settled share-based payment liabilities ~ Cash flow hedges at fair value through other comprehensive income (OCI) 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. As permitted by section 408 of the Companies Act 2006, the statement of comprehensive income of the Parent Company is not present­ ed as part of these Financial Statements. 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 6 and 7; 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 and de­ velopment projects. The Group has cash reserves and access to liquidity which are considered sufficient by the Directors to fund the Group’s committed expenditure both operationally and on its exploration project for the foreseeable future. The Group concluded a comprehensive funding package of US$633 million in December 2021. The net proceeds of the fundraisings will be used towards the construction of the Araguaia project as well as for general working capital purposes. In addition, the compa­ ny has also concluded a US$25million royalty on the Vermelho Project, the net proceeds from the sale of this royalty will be used to advance a feasibility study and permitting work streams on the Vermelho project. The equity fundraise (US$197million of the US$633 million) was finalized and funds received in December 2021 with a further equity fund raise completed in November 2022 for a gross US$80 million. The debt elements of the funding package include Convertible Loan Notes (US$65 million), a cost overrun facility (US$25 million) and a senior debt facility (US$346.2 million). COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 72 73 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT Funds from the convertible loan notes and the royalty were received in March 2022. The cost overrun facility funds were received in November 2022 and the first drawdown under the senior debt facility was completed in December 2022 following the satisfaction of certain conditions precedent customary to a financing of this nature. Subsequent drawdowns under the senior debt facility are expected to follow during the remainder of the construction period, again following the satisfaction of certain conditions precedent customary to a financing of this nature including but not limited to satisfaction of a cost to complete exercise prior to each draw down on the facility, satisfaction of minimum order values from certain suppliers, maintaining the good standing of operational licences and permitting, and financial models detailing the Group’s budget forecasting compliance with covenants and ratios. The funds held at the year-end along with those to be raised post year end following the satisfaction of any condition’s precedent for further drawdowns of the senior debt facility (including access to any of the funds secured as part of the cost overrun facility), are considered sufficient by the Directors to execute the construction of the Araguaia Project and fund its general working capital requirements for the foreseeable future. However, there exists a risk that the senior debt facility is not able to be drawn due to un­ foreseen circumstances or noncompliance with any conditions precedent which may or may not be within the control of the Group. At the time of the second drawdown of the senior debt facility (completed after the year end) the total remaining cost associated with bringing the Araguaia Project to the point of generating cashflows were estimated to be US$356 million which includes a contingency of US$19 million. This will be funded through the undrawn senior debt facility of US$341.2 million. In addition, the Group has a cost overrun facility available of US$25million. If expected or actual costs were to increase as a result of delays or increases in capital or pre-production operating costs by more than US$48 million (14% increase) of the total budget the project would fail the cost to com­ plete test, a condition precedent of the senior debt facility. Additionally, despite being approximately 45% complete a number of risks still exist around escalation costs linked to several of the major construction packages (these include labour and materials) potentially exceeding the contingency. This could result in future drawdowns on the senior debt facility not being permitted and require the Group to pursue alternative sources of funding to meet its commitments. As the project moves into operational ramp-up phase there are a number of risk areas around commissioning the furnace and rotary kiln. If any of these ramp-up risks exceed the pre-production funding allocated to the unit areas there will be a requirement for addi­ tional funding. As some of these events are outside of the Group’s control, a material uncertainty exists which may cast significant doubt about the Group’s continued ability to operate as a going concern and its ability to realise its assets and discharge its liabilities in the normal course of business. The financial statements do not include any adjustments that would result if the Group were unable to continue as a going concern. 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 2022, are: Standard Detail Effective date IAS 16 Amendments prohibiting a company from deducting from the cost of property, plant and equipment amounts received from selling items produced while the company is preparing the asset for its intended use 1 January 2022 IAS 37 Amendments regarding the costs to include when assessing whether a contract is onerous 1 January 2022 IFRS 3 Amendment - replacing a reference to an old version of the Board’s Conceptual Framework for Financial Reporting with a reference to the latest version, which was issued in March 2018. 1 January 2022 Annual Improve­ ments to IFRSs (2018-2020 Cycle) - IFRS 9 • IFRS 9 - Clarifies the fees a company includes in assessing the terms of a new or modified financial liability to determine whether to derecognise a financial liability. 1 January 2022 The adopted amendments have not resulted in any changes to the Group Consolidated Financial Statements. b) New and amended standards, and interpretations issued but not yet effective for the financial year beginning 1 January 2022 and not early adopted At the date of authorisation of these Consolidated Financial Statements, the following new standards, amendments and interpretations to existing standards have been published but are not yet effective and have not been adopted early by the Group. Standard Detail Effective date IAS 1 Amendment – regarding the classification of liabilities 1 January 2024 IAS 8 Amendment – definition of accounting estimates 1 January 2023 IAS 1 and IFRS Practice Statement 2 Amendment – disclosure of accounting policies 1 January 2023 IAS 12 Amendment - Deferred Tax related to Assets and Liabilities arising from a Single Transaction 1 January 2023 Management anticipates that all the pronouncements will be adopted in the Group’s accounting policies for the first period beginning after the effective date of the pronouncement. The adoption of the new and amended standards are not expected to have a material impact on the Group's consolidated financial statements, except for the IAS1 amendment regarding the classification of liabilities. The amendment will impact the classification of the convertible loan notes from non-current to current as the conversion option can be exercised at any time. 2.4 Basis of consolidation and business acquisitions Horizonte Minerals Plc was incorporated on 16 January 2006. On 23 March 2006 Horizonte Minerals Plc acquired the entire issued share capital of Horizonte Exploration Limited (HEL) by way of a share for share exchange. The transaction was treated as a group reconstruction and was accounted for using the merger accounting method as the entities were under common control before and after the acquisition. Subsidiaries are entities controlled by the Group. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: ~ The contractual arrangement with the other vote holders of the investee. ~ Rights arising from other contractual arrangements. ~ The Group’s voting rights and potential voting rights. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidat­ ed 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 in­ curred 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 sub­ sequent 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 poli­ cies 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. COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 74 75 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT The following 100% owned subsidiaries have been included within the consolidated Financial Statements: Subsidiary undertaking Held Registered Address Country of incorporation Nature of business Horizonte Exploration Ltd Directly Rex House, 4-12 Regent Street, London SW1Y 4RG England Mineral Exploration Horizonte Minerals (IOM) Ltd Indirectly 1st Floor, Viking House, St Pauls Square, Ramsey, IM8 1GB, Ilse of Man Isle of Man Holding company HM Brazil (IOM) Ltd Indirectly 1st Floor, Viking House, St Pauls Square, Ramsey, IM8 1GB, Ilse of Man Isle of Man Holding company Cluny (IOM) Ltd Indirectly 1st Floor, Viking House, St Pauls Square, Ramsey, IM8 1GB, Ilse of Man Isle of Man Holding company Champol (IOM) ltd Indirectly First Names House, Victoria Road, Douglas, IM2 4DF, Isle of Man Isle of Man Holding company Horizonte Nickel (IOM) Ltd Indirectly 1st Floor, Viking House, St Pauls Square, Ramsey, IM8 1GB, Ilse of Man Isle of Man Holding company Nickel Production Services B.V Directly Atrium Building, 8th floor, Strawinskylaan 3127, 1077 ZX, Amsterdam The Netherlands Provision of financial services Battery Material Services B.V Directly Naritaweg 165, 1043BW Amsterdam, The Netherlands The Netherlands Provision of financial services HM do Brasil Ltda Indirectly CNPJ 07.819.038/0001-30 com sede na Avenida Raja Gabaglia, n° 1.143, sala 1404, bairro Luxemburgo, Belo Horizonte/MG, CEP 30.380-403, Brazil Brazil Mineral Exploration Araguaia Niquel Metais Ltda Indirectly CNPJ 97.515.035/0001-03 com sede na Avenida Raja Gabaglia, n° 1.143, sala 1401 e 1402, bairro Luxemburgo, Belo Horizonte/ MG, CEP 30.380-403, Brazil Brazil Mineral Exploration Trias Brasil Mineração Ltda Indirectly CNPJ 23.282.280/0001-73 com sede na Avenida Raja Gabaglia, n° 1.143, sala 1403, bairro Luxemburgo, Belo Horizonte/MG, CEP 30.380-403, Brazil 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. 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, lia­ bilities 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, iden­ tified 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, topograph­ ical, 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 on a project by project basis as each project is considered as a cash generating unit. Impairment reviews for deferred exploration and evaluation expenditure are carried out on a project by project basis, with each project representing a potential single cash generating unit. In accordance with the requirements of IFRS 6, an impairment review is undertaken when indicators of impairment arise such as: i. unexpected geological occurrences that render the resource uneconomic; ii. title to the asset is compromised; iii. variations in mineral prices that render the project uneconomic; iv. substantive expenditure on further exploration and evaluation of mineral resources is neither budgeted nor planned; and v. the period for which the Group has the right to explore has expired and is not expected to be renewed. See note 2.7 for impairment review process if impairment indicators are identified. Whenever the exploration for and evaluation of mineral resources does not lead to the discovery of commercially viable quantities of mineral resources or the Group has decided to discontinue such activities of that unit, the associated expenditures are written off to profit or loss. Whenever a commercial discovery is the direct result of the exploration and evaluation assets, upon the decision to pro­ ceed 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 busi­ ness, and therefore do not meet the definition of a business combination, are accounted for as the acquisition of an asset and recog­ nised at the fair value of the consideration. Related future consideration if contingent is recognised when the probability that it will be paid changes. 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 trans­ ferred 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 produc­ tion 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. Major repairs and maintenance are capitalised, all other repairs and maintenance costs are charged to profit or loss during the financial period in which they are incurred. COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 76 77 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT Depreciation and amortisation Mine development property is not depreciated prior to commercial production but is reviewed for impairment annually (see “Impairment of non-financial assets” section below). Upon commencement of commercial production, mine development property is transferred to a mining property and is depreciated on a units-of-production basis. Only proven and probable reserves are used in the tonnes mined units of production depreciation calculation. Depreciation is charged on a straight-line basis for all other property, plant and equipment, so as to write off the cost of assets, over their estimated useful lives, using the straight-line method, on the following bases: Office equipment 25% Vehicles and other field equipment 25% – 33% Land is not depreciated. The asset’s residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each report­ ing 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. Capitalisation of borrowing costs Borrowing costs are expensed except where they relate to the financing of construction or development of qualifying assets. Borrowing costs directly related to financing of qualifying assets in the course of construction are capitalised to the carrying value of the Araguaia mine development property. Where funds have been borrowed specifically to the finance the Project, the amount capitalised represents the actual borrowing costs incurred net of all interest income earned on the temporary re-investment of these borrowings prior to utili­ sation. Borrowing costs capitalised include: ~ Interest charge on the royalty finance ~ Adjustments to the carrying value of the royalty finance ~ Unwinding of discount and adjustment to carrying value on contingent consideration payable for Araguaia ~ Interest charge on the convertible loan note liability ~ Interest charge on the senior debt facility ~ Interest charge on the cost overrun facility The capitalisation of adjustments to the carrying values as a result of changes in estimates is an accounting policy choice under IFRS and management have selected to capitalise. To the extent that the Group borrows funds generally and uses them for the purpose of obtaining a qualifying asset, the Group determines the amount of borrowing costs eligible for capitalisation by applying a capitalisation rate to the expenditures on that asset. The capitalisation rate is the weighted average of the borrowing costs applicable to all borrowings of the entity that are outstanding during the period. All other borrowing costs are recognized as part of interest expense in the year which they are incurred. 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. At each balance sheet date, the Group reviews the carrying amounts of its property, plant and equipment and intangible assets to determine whether there is any indication that those assets have suffered impairment. Prior to carrying out impairment reviews, the significant cash generating units are assessed to determine whether they should be reviewed under the requirements of IFRS 6 – Ex­ ploration for and Evaluation of Mineral Resources or IAS 36 – Impairment of Assets. Such determination is by reference to the stage of development of the project and the level of reliability and surety of information used in calculating value in use or fair value less costs to sell. Impairment reviews performed under IFRS 6 are carried out on a project by project basis, with each project representing a potential single cash generating unit. An impairment review is undertaken when indicators of impairment arise; typically when one of the follow­ ing circumstances applies: i. sufficient data exists that render the resource uneconomic and unlikely to be developed ii. title to the asset is compromised iii. budgeted or planned expenditure is not expected in the foreseeable future iv. insufficient discovery of commercially viable resources leading to the discontinuation of activities Impairment reviews performed under IAS 36 are carried out when there is an indication that the carrying value may be impaired. Such key indicators (though not exhaustive) to the industry include: i. a significant deterioration in the spot price of nickel ii. a significant increase in production costs iii. a significant revision to, and reduction in, the life of mine plan If any indication of impairment exists, the recoverable amount of the asset is estimated, being the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash generating unit) is reduced to its recoverable amount. Such impairment losses are recognised in profit or loss for the year. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash generating unit) in prior years. A reversal of an impair­ ment loss is recognised in profit or loss for the year. 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 subsidiaries incorporat­ ed in the Netherlands is USD, however debt costs capitalised to the mine development asset are recorded in Brazilian Real. Horizonte Minerals Plc changed its presentation currency from Pounds Sterling to US Dollars effective 1 January 2022. The presentation currency has been revised as the financing package concluded by the Group to construct the Araguaia project is denominated in US Dollars and future revenues will also be in US Dollars. The board therefore believes that US Dollar financial reporting provides more relevant presentation of the group’s financial position, funding and treasury functions, financial perfor­ mance and its cash flows. A change in presentation currency represents a change in an accounting policy in terms of IAS 8 Accounting Policies, Changes in Ac­ counting Estimates and Errors requiring the restatement of comparative information. In accordance with IAS 21 The Effects of Changes in Foreign Exchange Rates, the following methodology was followed in restating historical financial information from Pounds Sterling to US Dollar: ~ Assets and liabilities were translated at the relevant closing exchange rate at the end of the reporting period. Items of income and expenditure and cash flows were translated at average rates of exchange for the period; ~ The foreign currency translation reserve was reset to nil as at 1 January 2006, the date on which the group adopted IFRS. Share capital and premium and other reserves, as appropriate, were translated at the historic rates prevailing at the dates of underlying transactions; and ~ The effects of translating the group’s financial results and financial position into US Dollar were recognised in the foreign currency translation reserve. The exchange rates used were as follows: GBP/USD 31 December 2021 31 December 2020 Closing rate 1.3477 1.3649 Average rate 1.3757 1.2837 USD/BRL Closing rate 5.5710 5.1967 Average rate 5.3810 5.0869 (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the trans­ actions or valuation where such items are re-measured. Foreign exchange gains and losses resulting from the settlement of such trans­ actions 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 state­ ment of financial position; 2. each component of profit or loss is translated at average exchange rates during the accounting period (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and 3. all resulting exchange differences are recognised in other comprehensive income. On consolidation, exchange differences arising from the translation of the net investment in foreign entities, and of monetary items receivable from foreign subsidiaries for which settlement is neither planned nor likely to occur in the foreseeable future are taken to other comprehensive income. When a foreign operation is sold, such exchange differences are recognised in profit or loss as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and retranslated at the end of each reporting period. COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 78 79 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT The major exchange rates used for the revaluation of the statement of financial position at 31 December 2022 were Pounds Sterling £1:US$1.2039 (31 December 2022: £1:US$1.3477), Brazilian Real (R$):US$0.192 (31 December 2021: R$:US$0.180). Foreign currency translation reserve includes movements that relate to the retranslation of the subsidiaries whose functional currencies are not United States Dollar. During the year ended 31 December 2022, the Brazilian Real strengthened by 7% since 31 December 2021. Currency translation dif­ ferences for the year of US$6.7 million loss (2021:US$258,976 gain) included in the consolidated statement of comprehensive income arose on the translation of property plant and equipment, intangible assets and cash and cash equivalents denominated in Brazilian Real. The foreign exchange gain for the year of US$8.5 million included in the statement of comprehensive income relates to the translation differences of foreign currency cash and cash equivalents balances, liability financing arrangements and intercompany balances denom­ inated in currencies other than the functional currency of the entity. 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. Trans­ action costs directly attributable to the instrument’s acquisition or issue are included in the initial measurement of financial assets and financial liabilities, except for financial instruments classified as at fair value through profit or loss (FVTPL). The subsequent measurement of financial instruments is dealt with below. Financial assets The Group classifies its financial assets into one of the categories discussed below, depending on the purpose for which the asset was acquired. Other than financial assets in a qualifying hedging relationship, the Group’s accounting policy for each category is as follows: 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 statement of comprehensive income in the operating profit or loss line. All directly attributable transaction costs are recognised in profit or loss as incurred. The buy-back options in the Group’s royalty financing arrangements are embedded derivative financial assets measured at fair value through profit or loss. 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 inter­ est 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 for­ eign 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 and subsidiaries 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. Fair value through other comprehensive income The Group does not have any assets held at fair value through other comprehensive income. 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 This category comprises out-of-the-money derivatives where the time value does not offset the negative intrinsic value. They are car­ ried in the consolidated statement of financial position at fair value with changes in fair value recognised in the consolidated statement of comprehensive income. All directly attributable transaction costs are recognised in profit or loss as incurred. The Group’s embedded derivative in its convertible loan notes is measured at fair value through profit or loss. Other financial liabilities Financial liabilities are subsequently measured at amortised cost using the effective interest method, except for financial liabilities des­ ignated 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, Group’s Royalty liability, Convertible loan notes liability, Senior debt facility as well as the cost overrun facility. Hedge accounting The Group has elected to adopt the hedge accounting requirements of IFRS 9 Financial Instruments, in respect of its foreign exchange hedging strategy. The Group enters into hedge relationships where the critical terms of the hedging instrument and the hedged item match, therefore, for the prospective assessment of effectiveness a qualitative assessment is performed. Hedge effectiveness is deter­ mined at the origination of the hedging relationship. Quantitative effectiveness tests are performed at each period end to determine the continuing effectiveness of the relationship. In instances where changes occur to the hedged item which result in the critical terms no longer matching, the hypothetical derivative method is used to assess effectiveness. Foreign exchange risk arises when the Group enters into transactions denominated in a currency other than their functional currency. Where the risk to the Group is considered to be significant, the Group will enter into a matching non-deliverable forward foreign ex­ change contracts with a reputable bank. The hedged forecast transactions denominated in foreign currency are expected to occur between 14 May 2022 and 31 March 2025. Gains and losses recognised in the hedging reserve in equity on non-deliverable forward foreign exchange contracts are recognised in the consolidated statement of comprehensive income in the period during which the hedged forecast transaction affects the consolidat­ ed statement of comprehensive income, unless the gain or loss is included in the initial carrying value of non-current assets through a basis adjustment (immediate transfer from cash flow hedging reserve to cost of asset) in which case recognition is over the lifetime of the asset as it is depreciated. The ineffective portion of the cash flow hedge is recognised immediately in the profit or loss. 2.10 Taxation The tax credit or expense for the period comprises current and deferred tax. Tax is recognised in the Income Statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. The charge for current tax is calculated on the basis of the tax laws enacted or substantively enacted by the end of the reporting period in the countries where the company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred tax is accounted for using the liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill; deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax assets are recognised on tax losses carried forward to the extent that the realisation of the related tax benefit through future taxable profits is probable. COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 80 81 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and inter­ ests 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 lia­ bilities 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 suppli­ ers. 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 has such short duration leases and lease payments are charged to the income statement with the exception of Araguaia’s (Group’s wholly owned subsidiary) leases for the Belo Horizonte office and vehicles lease. Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the rate inherent in the lease unless (as is typically the case) this is not readily determinable, in which case the group’s incremental borrowing rate on commencement of the lease is used. Variable lease payments are only included in the measurement of the lease liability if they depend on an index or rate. In such cases, the initial measurement of the lease liability assumes the variable element will remain unchanged throughout the lease term. Other variable lease payments are expensed in the period to which they relate. On initial recognition, the carrying value of the lease liability also includes: ~ amounts expected to be payable under any residual value guarantee; ~ the exercise price of any purchase option granted in favour of the group if it is reasonable certain to assess that option; ~ any penalties payable for terminating the lease, if the term of the lease has been estimated on the basis of termination option being exercised. Right of use assets are initially measured at the amount of the lease liability, reduced for any lease incentives received, and increased for: ~ lease payments made at or before commencement of the lease; ~ initial direct costs incurred; and ~ the amount of any provision recognised where the group is contractually required to dismantle, remove or restore the leased asset Subsequent to initial measurement lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made. Right-of-use assets are amortised on a straight-line basis over the remaining term of the lease or over the remaining economic life of the asset if, rarely, this is judged to be shorter than the lease term. 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 con­ sideration 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 Compa­ ny’s chief operating decision-maker (“CODM”). 2.16 Finance income Interest income is recognised using the effective interest method, taking into account the principal amounts outstanding and the interest rates applicable. 2.17 Provisions and Contingent Liabilities Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount can be reliably estimated. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as finance cost. Contingent liabilities are potential obligations that arise from past events and whose existence will only be confirmed by the occurrence of one or more uncertain future events that, however, are beyond the control of the Group. Furthermore, present obligations may consti­ tute 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 discounted at a pre-tax rate reflecting current market assessments of the time value of money and risks specific to the liability 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. COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 82 83 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT 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 substantive changes in the Group’s exposure to financial instrument risks compared to previous periods, however, its objectives, policies and processes for manag­ ing those risks or the methods used to measure them are consistent with 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: ~ Contingent and deferred consideration ~ Lease liability ~ Trade and other receivables ~ Cash and cash equivalents ~ Trade and other payables ~ Royalty finance ~ Convertible loan note liability ~ Senior debt facility ~ Cost overrun facility ~ Derivative financial assets and liabilities ~ Non-deliverable forward foreign exchange contracts (ii) Financial instruments by category Financial Assets Fair Value Amortised cost Total Fair Value Amortised cost Total 2022 2022 2022 2021 2021 2021 Group US$ US$ US$ US$ US$ US$ Cash and cash equivalents — 154,027,967 154,027,967 — 210,492,280 210,492,280 Derivative financial asset 15,404,091 — 15,404,091 4,950,000 — 4,950,000 Total 15,404,091 154,027,967 169,432,058 4,950,000 210,492,280 215,442,280 Amortised cost 2022 2021 Company US$ US$ Cash and cash equivalents 24,607,673 198,595,764 Loans to subsidiaries 368,980,168 94,085,540 Total 393,587,841 292,681,304 Financial Liabilities Fair Value Amortised Cost Total Amortised Cost Total Group 2022 2022 2022 2021 2021 US$ US$ US$ US$ US$ Trade and other payables — 29,204,371 29,204,371 22,183,337 22,183,337 Contingent consideration — 6,895,737 6,895,737 6,734,134 6,734,134 Deferred consideration — 5,758,431 5,758,431 5,443,861 5,443,861 Royalty Finance — 89,745,255 89,745,255 44,496,504 44,496,504 Convertible loan notes 29,636,887 29,810,633 59,447,520 — — Cost overrun facility — 23,809,827 23,809,827 — — Senior debt facility — 4,328,241 4,328,241 — — Lease liability — 986,970 986,970 — — Total 29,636,887 190,539,465 220,176,352 78,857,836 78,857,836 Fair Value Amortised Cost Total Amortised Cost Total Company 2022 2022 2022 2021 2021 US$ US$ US$ US$ US$ Trade and other payables — 3,089,258 3,089,258 16,282,547 16,282,547 Contingent consideration — 6,895,737 6,895,737 6,734,134 6,734,134 Convertible loan notes 29,636,887 29,810,633 59,447,520 — — Loans from subsidiaries — 498,330 498,330 3,811,572 3,811,572 Total 29,636,887 40,293,958 69,930,845 26,828,253 26,828,253 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 suffi­ cient working capital through the issue of equity share capital or various forms of debt funding. Liquidity risk arises from the Group’s management of working capital and the finance charges and principal repayments on its debt instruments. At present the settlement of some of the Group’s liabilities are contingent upon reaching production. There is however a risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. The Group’s policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due. To achieve this aim, it seeks to maintain cash balances (or agreed facilities) to meet expected requirements for a period of at least 6 months. All cash, with the exception of that required for immediate working capital requirements, is held on short-term deposit. The Board receives rolling 12-month cash flow projections on a monthly basis as well as information regarding cash balances and (as noted above) the value of the Group’s deposits. At the end of the financial year, these projections indicated that the Group expect­ ed to have sufficient liquid resources to meet its obligations under all reasonably expected circumstances. The liquidity risk of each group entity is managed centrally by the group treasury function. Each operation has a facility with group treasury, the amount of the facility being based on budgets. The budgets are set locally and agreed by the board in advance, enabling the Group’s cash require­ ments to be anticipated. COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 84 85 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT The following table sets out the contractual maturities of undiscounted financial liabilities: Up to 3 Months Between 3 & 12 Months Between 1 & 2 Years Between 2 & 5 Years Over 5 Years Group US$ US$ US$ US$ US$ At 31 December 2022 Trade & other payables 28,481,038 — 723,334 — — Royalty financing arrangement — — 4,963,148 32,505,373 817,690,046 Contingent consideration — — — 6,000,000 5,000,000 Deferred consideration 950,000 950,000 2,266,667 2,233,333 — Cost overrun facility 821,528 2,482,639 3,304,167 17,816,211 20,346,517 Senior debt facility 100,125 299,285 398,334 5,097,936 — Convertible loan notes — — — 60,479,094 69,169,333 Lease liabilities 49,497 154,564 206,085 437,193 — Total 30,402,188 3,886,488 11,861,735 124,569,140 912,205,896 The cash flows related to the royalty finance represent the estimated future payments in future years as these payments will depend on production levels and spot commodity prices. Up to 3 Months Between 3 & 12 Months Between 1 & 2 Years Between 2 & 5 Years Over 5 Years US$ US$ US$ US$ US$ At 31 December 2021 Trade & other payables 21,574,362 — 608,976 — — Royalty financing arrangement — — 3,201,150 24,576,969 227,256,744 Contingent consideration — — — 6,000,000 5,000,000 Deferred consideration — 950,000 950,000 4,500,000 — Lease liabilities 21,540 64,620 93,743 279,483 — Total 21,595,902 1,014,620 4,853,869 35,356,452 232,256,744 The cash flows related to the royalty finance represent the estimated future payments in future years. Up to 3 Months Between 3 & 12 Months Between 1 & 2 Years Between 2 & 5 Years Over 5 Years Company US$ US$ US$ US$ US$ At 31 December 2022 Trade & other payables 3,089,258 — — — — Intercompany loans 498,330 — — — — Contingent consideration — — — 6,000,000 5,000,000 Convertible loan notes — — — 60,479,094 69,169,333 Total 3,587,588 — — 66,479,094 74,169,333 Up to 3 Months Between 3 & 12 Months Between 1 & 2 Years Between 2 & 5 Years Over 5 Years £ £ £ £ £ At 31 December 2021 Trade & other payables 16,282,547 — — — — Intercompany loans 3,811,572 — — — — Contingent consideration — — — 6,000,000 5,000,000 Total 20,094,119 — — 6,000,000 5,000,000 (b) Foreign currency risks The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with re­ spect 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 Group is predominantly exposed to currency risk on its BRL denominated capital expenditure for the development of the Araguaia Ferronickel Project. With the funding base being primarily US Dollars, the Group and its senior lenders agreed to implement a foreign exchange hedging strategy that ensures that at least 70% of its BRL denominated capital expenditure is hedged by entering into a series of non-deliverable forward transactions. At 31 December 2022, if the Brazilian Real had weakened/strengthened by 5% against US Dollar with all other variables held constant, post tax loss for the year would have been approximately US$16 million (2021: US$3million) lower/higher mainly as a result of foreign exchange losses/gains on translation of Brazilian Real assets, liabilities and expenditure. If the USD:GBP rate had increased by 5% the effect would be US$16 million (2021: US$13 million). As of 31 December 2022 the Group’s net exposure to foreign exchange risk was as follows: Functional Currency Group USD 2022 USD 2021 GBP 2022 GBP 2021 BRL 2022 BRL 2021 Total 2022 Total 2021 Currency of net assets/ liabilities US$ US$ US$ US$ US$ US$ US$ US$ Financial assets/(liabilities) GBP (64,581) (1,258,582) — — — — (64,581) (1,258,582) USD — — (61,392,389) 121,571,410 46,578,165 (5,475,538) (14,814,224) 116,095,872 BRL 31,846,773 19,777,981 — — — — 31,846,773 19,777,981 CAD — — 340,887 9,416,317 — — 340,887 9,416,317 EUR 94,392 17,291 — — — — 94,392 17,291 Total net exposure 31,876,584 18,536,690 (61,051,502) 130,987,727 46,578,165 (5,475,538) 17,403,247 144,048,879 Company GBP 2022 GBP 2021 Currency of net US$ US$ Financial assets/(liabilities) USD (60,998,423) 108,396,536 CAD 305,219 8,377,760 Total net exposure (60,693,204) 116,774,296 (c) Interest rate risk The Group is exposed to interest rate risk on the variable rate on the senior debt facility. As at 31 December 2022 more than 80% of the Group’s external borrowings are fixed rate borrowings. The Group’s borrowings at variable rate were denominated in US Dollar. The Group’s interest rate risk also arises from its cash held on short-term deposit for which the Directors use a mixture of fixed and variable rate deposits. The Group currently does not hedge it exposure interest rate fluctuations. The cost of managing the interest rate fluctua­ tions exceeds any potential benefits. The Directors monitor this risk on an ongoing basis and will review this as the Group moves towards production. Fluctuations in interest rates are not expected to have a significant impact on profit or loss or equity. COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 86 87 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT (d) Commodity price risk The Group is exposed to the price fluctuation of its products from the Araguaia and Vermelho projects, being FerroNickel and Nickel Cobalt respectively. The Group has royalties over both its 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 Group’s exposure to commodity prices amounted to the carrying value of the Araguaia royalty liability of US$48,783,266 (2021: US$44,496,504) and the Vermelho royalty liability of US$40,961,987 (2021: US$0). A 15% adjustment to the long-term commodity prices would result in a royalty liability valuation variance of between US$6.1million and US$7.5million. In addition the commodity price exposure also impacts the royalty buy-back options valuation, re­ sulting in an adjustment to fair value of US$5,007,496 (2021: US$4,950,000) and US$9,481,891 on the Araguaia and Vermelho derivative assets respectively. A 15% adjustment to the long-term commodity prices would results in valuation variance of between US$2.7million and US$3.7million. (e) Credit risk Credit risk arises from cash and cash equivalents and outstanding receivables including intercompany loan receivable balances. 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 Group’s exposure to credit risk amounted to US$154,027,967 (2022: US$210,492,280) and represents the Group cash positions. The Company’s exposure to credit risk amounted to US$393,587,841 (2021: US$292,681,304). Of this amount US$368,980,168 (2021: US$94,085,540) is due from subsidiary companies and US$24,607,673 represents cash holdings (2021: US$198,595,764). See note 34 for adjustments for provisions for expected credit losses for the intercompany receivables from subsidiary companies. 3.2 Capital risk management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, in order to provide returns for shareholders and to enable the Group to continue its exploration and evaluation activities. The Group monitors its level of cash resources available against future planned exploration and evaluation activities and may issue new shares in order to raise further funds from time to time. As indicated above, the Group holds cash reserves on deposit at several banks and in different currencies until they are required and in order to match where possible with the corresponding liabilities in that currency. 3.3 Fair value estimation Financial instruments not measured at fair value Financial instruments not measured at fair value includes cash and cash equivalents, trade and other receivables, trade and other paya­ bles, contingent and deferred consideration, royalty financing arrangements, convertible loan notes and loans and borrowings. Due to their short-term nature, the carrying value of cash and cash equivalents, trade and other receivables, and trade and other paya­ bles approximates their fair value. Financial instruments measured at fair value The fair value hierarchy of financial instruments measured at fair value is provided below. Level 1 Level 2 Level 3 Group 2022 2021 2022 2021 2022 2021 US$ US$ US$ US$ US$ US$ Financial assets and liabilities Derivative financial assets (fair value through profit or loss) — — — — 14,489,387 4,950,000 Derivative financial liabilities (fair value through profit or loss) — — — — (29,636,887) — Derivative financial assets (designated hedge instruments) — — 914,704 — — — Total — — 914,704 — (15,147,500) 4,950,000 In 2019 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. In 2022 the Group entered into a second 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 tonnes of nickel cobalt produced over the life of mine from the Vermelho Nickel Cobalt project. The agreement also 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 the agreements are included in note 21. The future expected nickel and cobalt prices and volatility of the nickel and cobalt prices are key estimates that are critical in the fair value of the Buy Back Options associated with the Royalty financing. In 2022 the Group issued $65m convertible loan notes which was secured to finance the construction of the Araguaia project. The con­ vertible loan is a hybrid financial instrument, whereby a debt host liability component and an embedded derivative liability component was determined at initial recognition. The conversion option did not satisfy the fixed for fixed equity criterion (fixed number of shares and fixed amount of functional currency cash) as the currency of the convertible loan notes is US Dollar and the functional currency of Hori­ zonte Minerals Plc and its share price is GBP. For convertible notes with embedded derivative liabilities, the fair value of the embedded derivative liability is determined first and the residual amount is assigned to the debt host liability. Details of the convertible loan notes are included in note 22. The future expected market share price of the Company and the volatility of the share price are the key estimates that are critical in the determination of the fair value of the embedded derivative and subsequently the debt host liability of the Convertible Loan Notes. 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 options and the convertible loan note embed­ ded derivative and consideration of sensitivity to changes in estimates is disclosed in note 21b) and note 22 respectively. Information relating to the level 2 designated hedge instrument is disclosed in note 14. 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 UK adopted international accounting standards 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 estimates and judgements 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 receiv­ ables, 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 demon­ strated 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 34 for a discussion on the adjustment passed concerning the impairment loss. Valuation of derivative financial instruments 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 deriva­ tives 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 and Vermelho projects, future nickel prices as well as discount factors. The most important estimates in determining the valuation of the Buyback option are the future nickel and cobalt prices and their price volatility. The sensitivity of the valuation to these estimates are considered in note 21b). The conversion option on convertible loan notes issued by the Group is an embedded derivatives which was valued using a Monte Carlo simulation method. This methodology of determining fair value is reliant upon estimations including the Company’s future share price volatility and GBP:USD exchange rate volatility on the conversion price. The sensitivity of the valuation to these estimates are considered in note 22). COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 88 89 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT Judgements 4.1 Impairment of exploration and evaluation costs and mine development property Exploration and evaluation costs which relate solely to Vermelho have a carrying value at 31 December 2022 of US$12,834,249 (2021: US$8,018,343). 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 ad­ ditional 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. Mine development property which relates solely to Araguaia has a carrying value at 31 December 2022 of US$263,965,415 (2021: US$59,417,577) and is subject to an annual review by the management together with a consultant or a senior company geologist for impairment. The review takes into consideration long-term metal prices, anticipated resource volumes and grades, permitting, infra­ structure and project financing available to continue with the project construction. In the event that the project prospects are unfavour­ able or additional funding needs to be secured to complete the project construction a decision may be made to impair the project. The judgement exercised by management relates to whether there is perceived to be an indicator of impairment and that management have concluded that there is not, due to the recovery in the Nickel prices, favourable economics of the Feasibility Study, the fundamentals of the nickel market and expected supply gap in the mid-term and the financing secured for the project construction. 4.2 Contingent and deferred consideration Contingent consideration has a carrying value of US$6,895,737 (2021: US$6,734,134) and deferred consideration has a carrying value of US$5,758,431 (2021: US$5,443,861) at 31 December 2022. There are two contingent consideration arrangements in place as at 31 December 2022: ~ Payable to Glencore in respect of the Araguaia acquisition - $5m ~ Payable to Vale in respect of the Vale acquisition - $6m The deferred contingent consideration arrangement in place as at 31 December 2022 is payable to Companhia Brasileira de Alumino (CBA) in respect of plant equipment. In prior years Management judged that the projects had advanced to a stage that it was probable that the consideration would be paid and so should be recognised in full. This remains the position. In addition, a key estimate in determining the estimated value of the contingent and deferred consideration for Glencore Vale and CBA is the timing of the assumed date of first commercial production. Please refer to Note 20 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 are recognised in respect of fair value adjustments to the carrying value of intangible assets as a result of the acquisition of such assets. 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. In determining whether a deferred tax asset should be recognised man­ agement 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, this will only be once the operations have achieved nameplate capacity consistently over an extended period of time. 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 Araguaia royalty finance arrangement The Group has a $25m royalty funding arrangement which was secured in order to advance the Araguaia project towards construc­ tion. The royalty pays a fixed percentage of revenue to the holder for production from the first 426k tonnes of nickel produced from the Araguaia project. The treatment of this financing arrangement as a financial liability, calculated using the effective interest rate methodology is a key judgement that was made by the Company in the prior year and which was taken following obtaining independ­ ent expert advice. The carrying value of the financing liability is driven by the expected future cashflows payable to the holder on the basis of the production profile of the mine property. It is also sensitive to assumptions regarding the royalty rate, which can vary based upon the start date for construction of the project and future nickel prices. The contract includes certain embedded derivatives, including the Buy Back Option which has been separated and carried at fair value through profit and loss. The future price of nickel and date of commencement of commercial production are key estimates that are critical in the determina­ tion 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 determination of the fair value of the Buy Back Option associated with the Royalty financing. Further information relating to the accounting for this liability, the embedded derivative and the sensitivity of the carrying value to these estimates is provided in note 21a) and 21b). 4.5 Accounting for the Vermelho royalty finance arrangement The Group has a $25m royalty funding arrangement which was secured in order to advance a feasibility study and permitting work streams on the Vermelho project. The royalty pays a fixed percentage of revenue to the holder for production on the nickel and cobalt tonnes produced from the Vermelho project over the life of mine. The treatment of this financing arrangement as a financial liability, calculated using the effective interest rate methodology is a key judgement that was made by the Company in prior years on the Ara­ guaia Royalty and which was taken following obtaining independent expert advice. The carrying value of the financing liability is driven by the expected future cashflows payable to the holder on the basis of the production profile of the mine property. It is also sensitive to assumptions regarding the royalty rate, which can vary based upon the start date for construction of the project and future nickel and cobalt prices. The contract includes certain embedded derivatives, including the Buy Back Option which has been separated and carried at fair value through profit and loss. The future prices of nickel and cobalt and the date of commencement of commercial production are key estimates that are critical in the determination of the carrying value of the royalty liability. The future expected nickel and cobalt prices and volatility of such prices are key estimates that are critical in the determination of the fair value of the Buy Back Option associated with the Royalty financing. Further information relating to the accounting for this liability, the embedded derivative and the sensitivity of the carrying value to these estimates is provided in note 21a) and 21b). 4.6 Accounting for the Convertible Loan Notes The Group issued $65m convertible loan notes which was secured to finance the construction of the Araguaia project. The convertible loan is a hybrid financial instrument, whereby a debt host liability component and an embedded derivative liability component was de­ termined at initial recognition. The conversion option did not satisfy the fixed for fixed equity criterion (fixed number of shares and fixed amount of functional currency cash) as the currency of the convertible loan notes is US Dollar and the functional currency of Horizonte Minerals Plc and its share price is GBP. For convertible notes with embedded derivative liabilities, the fair value of the embedded derivative liability is determined first and the residual amount is assigned to the debt host liability. The future expected market share price of the Company and the volatility of the share price are the key estimates that are critical in the determination of the fair value of the embedded derivative and subsequently the debt host liability of the Convertible Loan Notes. Further information relating to the accounting for this liability, the embedded derivative and the sensitivity of the carrying value to these estimates is provided in note 22 . 4.7 Determination of commencement of capitalisation of borrowing costs The date at which the Group commenced capitalisation of borrowing costs was determined to be the point at which the Araguaia Project moved forwards with undertaking an exercise of value engineering to get the project construction ready. This was deemed by manage­ ment to be at the start of 2020. 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 separate subsidiary responsible for the project finance for the Araguaia Project is domiciled in the Netherlands. The operations of this entity are reported separately and so it is recognised as a new segment. The reports used by the chief operating decision-maker are based on these geographical segments. 2022 UK 2022 US$ Brazil 2022 US$ Netherlands 2022 US$ Total 2022 US$ Administrative expenses (9,779,571) (2,492,228) (273,057) (12,544,856) Charge for share options granted (1,415,581) — — (1,415,581) Change in fair value of derivative 6,821,201 — (308,788) 6,512,413 Profit/(loss) on foreign exchange 7,023,829 380,732 1,077,896 8,482,457 Loss from operations per reportable segment 2,649,878 (2,111,496) 496,051 1,034,433 Net finance costs 544,853 65,163 (6,961,751) (6,351,735) Loss before taxation 3,194,731 (2,046,333) (6,465,700) (5,317,302) Depreciation charges — 80,819 — 80,819 Additions to non-current assets — 191,479,825 — 191,479,825 Capitalisation of borrowing costs — 13,175,730 — 13,175,730 Foreign exchange movements to non-current assets — 7,000,625 — 7,000,625 Reportable segment assets 84,919,521 420,543,962 14,777,455 520,240,938 Reportable segment liabilities 69,432,505 61,582,375 89,796,355 220,811,235 COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 90 91 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT 2021 UK 2021 US$ Brazil 2021 US$ Netherlands 2021 US$ Total 2021 US$ Administrative expenses (6,510,997) (1,119,863) (180,617) (7,811,477) Change in fair value of special warrant liability (1,616,120) — — (1,616,120) Change in fair value of derivative — — 2,550,000 2,550,000 Profit/(loss) on foreign exchange (558,161) 36,003 (340,581) (862,739) Loss from operations per reportable segment (8,685,278) (1,083,860) 2,028,802 (7,740,336) Net finance costs 1,392,614 (187,800) (6,834,993) (5,630,179) Loss before taxation (7,292,664) (1,271,660) (4,806,191) (13,370,515) Depreciation charges — 22,874 — 22,874 Additions to non-current assets — 24,762,913 — 24,762,913 Capitalisation of borrowing costs — 7,073,241 — 7,073,241 Reportable segment assets 212,037,274 91,384,740 5,100,951 308,522,965 Reportable segment liabilities 23,016,684 11,716,740 44,504,894 79,238,318 6 Expenses by nature 2022 2021 Group US$ US$ Employment related costs 7,487,140 5,252,983 Professional fees 2,195,830 1,539,581 Other 2,861,886 1,018,913 Total administrative expenses 12,544,856 7,811,477 Charge for share options granted 1,415,581 — The foreign currency exchange gain for the year of US$8,482,457 (US$862,739 loss) arose from the translation of bank accounts and financing arrangements denominated in currencies other than the functional currency of the Groups' subsidiaries or parent company. This arose due to the Brazilian Real strengthening against the US Dollar and the Pound Sterling weakening against the US Dollar during the year. 7 Auditor remuneration During the year the Group (including its overseas subsidiaries) obtained the following services from the Company’s auditor and its associates: Group 2022 US$ 2021 US$ Fees payable to the Company’s auditor and its associates for the audit of the parent company and consolidated financial statements 201,913 98,958 Fees payable to the Company’s auditor and its associates for other services: – Audit of subsidiaries 16,973 14,085 – Audit related assurance services 80,463 144,444 –Tax compliance services 116,999 34,298 As of 31 December 2022, the Group met the OEPI (Other Entities of Public Interest) market capitalisation and as a result BDO have ceased their tax compliance services as of that date. 8 Finance income and costs Group 2022 US$ 2021 US$ Finance income: – Interest income on cash and short-term bank deposits 7,117,103 500,634 Finance costs: – Interest on land acquisitions (127,029) (168,145) – Interest on lease liability (65,097) — – Commitment fees on senior debt and cost overrun facilities (5,314,542) — – Other (68,607) — – Gain / (loss) on non-deliverable forward contracts settlements (556,914) — – Contingent and deferred consideration : unwinding of discount (775,572) (584,865) – Contingent and deferred consideration : change in estimate 299,399 1,913,705 – Convertible loan note: unwinding of discount (5,956,508) — – Amortisation of Royalty Finance (9,799,261) (4,637,057) – Royalty finance carrying value adjustment (1,449,254) (9,727,692) – Senior debt facility: unwinding of discount (31,808) — – Cost overrun facility: unwinding of discount (288,321) — – Federal taxes on financing transactions (1,541,707) — Total finance costs (18,558,118) (12,703,420) Less transaction costs capitalised to borrowings (969,347) — Less finance costs capitalised to Araguaia mine development project 13,175,730 7,073,241 Net finance costs (6,351,735) (5,630,179) 9 Income Tax Group 2022 US$ 2021 US$ 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 2022 US$ 2021 US$ Loss before income tax (5,317,302) (13,370,515) Current tax at 19% (2021: 19%) (1,010,287) (2,540,398) Effects of: Expenses not deducted for tax purposes 1,703,042 1,178,639 Income not taxable for tax purposes (1,881,136) — Expenses deductible for tax purposes (2,045,884) — Tax losses carried forward for which no deferred income tax asset was recognised 4,297,139 1,649,762 Effect of higher overseas tax rates (1,062,874) (288,003) Total tax — — No tax charge or credit arises on the loss for the year. The corporation tax rate in Brazil is 34%, the Netherlands 25.8% and the United Kingdom 19%. The group incurred expenses in all of these jurisdictions during the year. The effective tax rate for the year was 0% (2021: 0%). COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 92 93 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT Deferred income tax An analysis of deferred tax assets and liabilities is set out below. Group 2022 US$ 2021 US$ Deferred tax assets — — Deferred tax liabilities – Deferred tax liability to be settled after more than 12 months — — Deferred tax liabilities (net) — — 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 US$27,030,879 (2021: US$23,356,093) in Brazil and excess management charges of ap­ proximately US$20,528,734 (2021: US$5,959,980) in the UK and taxable losses of approximately US$2,920,302 (2021: US$2,647,245) in the Netherlands available to carry forward against future taxable profits. Potential deferred tax assets of US$9,591,184 (2021: US$6,103,317) have not been recognised. Tax losses are available indefinitely. 10 Intangible assets Intangible assets comprise exploration licenses, exploration and evaluation costs and goodwill. Exploration and evaluation costs com­ prise acquired and internally generated assets. Group Goodwill US$ Exploration Licenses US$ Exploration and evaluation costs US$ Software US$ Total US$ Cost At 1 January 2021 215,979 6,831,692 1,442,670 — 8,490,341 Additions — 103,461 209,246 92,515 405,222 Amortisation for the year — — — (2,509) (2,509) Exchange rate movements (14,844) (480,025) (88,701) — (583,570) Net book amount at 31 December 2021 201,135 6,455,128 1,563,215 90,006 8,309,484 Additions — — 4,255,285 93,808 4,349,093 Amortisation for the year — — — (30,743) (30,743) Exchange rate movements 14,081 648,566 (87,945) 6,301 581,003 Net book amount at 31 December 2022 215,216 7,103,694 5,730,555 159,372 13,208,837 (a) Exploration and evaluation assets The exploration licences and exploration and evaluation costs relate to the Vermelho project. 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 the amount was capitalised to the exploration licences held within intangible assets shown above. On 17 October 2020 the Group published the results of a Pre-Feasibility Study on the Vermelho Nickel Cobalt Project, which confirms Vermelho as a large, high-grade resource, with a long mine life and low-cost source of nickel sulphate for the battery industry. The economic and technical results from the study support further development of the project towards a full Feasibility Study and included the following: ~ A 38-year mine life estimated to generate total cash flows after taxation of US$7.3billion; ~ An estimated Base Case post-tax Net Present Value1 (‘NPV’) of US$1.7 billion and Internal Rate of Return (‘IRR’) of 26%; ~ At full production capacity the Project is expected to produce an average of 25,000 tonnes of nickel and 1,250 tonnes of cobalt per annum utilising the High-Pressure Acid Leach process; ~ The base case PFS economics assume a flat nickel price of US$16,400 per tonne (‘/t’) for the 38-year mine life; ~ C1 (Brook Hunt) cash cost of US$8,020/t Ni (US$3.64/lb Ni), defines Vermelho as a low-cost producer; and ~ Initial Capital Cost estimate is US$652 million (AACE class 4). Nothing has materially deteriorated with the economics of the PFS between the publication date and the date of this report and the Directors undertook an assessment of impairment through evaluating the results of the PFS along with recent market information relat­ ing to capital markets and nickel prices and judged that there are no impairment indicators with regards to the Vermelho Project. Nickel prices remain higher than they were at the time of the publication of the PFS and overall sentiment towards battery metals and supply materials have grown more positive over the current year. (b) Goodwill Goodwill arose on the acquisition of Lontra Empreendimentos e Participações Ltda in 2010. The Directors have determined the recov­ erable amount of goodwill based on the same assumptions used for the assessment of the Lontra exploration project detailed above. As a result of this assessment, the Directors have concluded that no impairment charge is necessary against the carrying value of goodwill. 11 Property, plant and equipment Group Mine Development Property US$ Vehicles and other field equipment US$ Office equipment US$ Land acquisition US$ Building improvements US$ Total US$ Cost At 31 December 2020 41,909,101 105,074 78,287 119,090 — 42,211,552 Additions 13,328,811 759,475 69,980 10,199,425 — 24,357,691 Transfers — 648 (648) — — — Interest capitalized 7,073,241 — — — — 7,073,241 Disposals — — (1,385) — — (1,385) Foreign exchange movements (2,893,576) (7,204) (5,368) (8,186) — (2,914,334) At 31 December 2021 59,417,577 857,993 140,866 10,310,329 — 70,726,765 Additions 184,319,008 — 167,364 2,606,842 37,519 187,130,733 Interest capitalized 13,175,730 — — — — 13,175,730 Transfers 781,069 (813,617) 32,334 — 214 — Environmental rehabilitation additions 634,883 — — — — 634,883 Disposals — — (2,828) — — (2,828) Foreign exchange movements 5,637,148 60,068 9,862 721,831 — 6,428,909 At 31 December 2022 263,965,415 104,444 347,598 13,639,002 37,733 278,094,192 Accumulated depreciation At 31 December 2020 — 78,036 42,719 — — 120,755 Charge for the year — 7,526 12,840 — — 20,366 Transfers — 222 (222) — — — Disposals — — (168) — — (168) Foreign exchange movements — (5,350) (2,929) — — (8,279) At 31 December 2021 — 80,434 52,240 — — 132,674 Charge for the year — 6,933 42,165 — 978 50,076 Transfers — (744) 726 — 18 — Disposals — — (274) — — (274) Foreign exchange movements — 5,631 3,657 — — 9,288 At 31 December 2022 — 92,254 98,514 — 996 191,764 Net book amount as at 31 December 2022 263,965,415 12,190 249,084 13,639,002 36,737 277,902,428 Net book amount as at 31 December 2021 59,417,577 777,559 88,626 10,310,329 — 70,594,091 COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 94 95 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT In December 2018, a Canadian NI 43-101 compliant Feasibility Study (FS) was published by the Company regarding the enlarged Ara­ guaia 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 assess­ ment 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 signifi­ cant single nickel project. For this reason, at the current stage of development, these two projects are viewed and assessed for impair­ ment 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 Can­ ada Corporation, in November 2015. The NPV has been determined by reference to the FS undertaken 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. During the year further progress was made in the land acquisition process for the Araguaia project. US$1.7million of the land and ‘right of way’ purchases is included in trade and other payables as at 31 December 2022. US$105million of the additions for the mine development property are prepayments to suppliers which have been paid in advance of delivery of mining equipment that is pre-fabricated offsite. 12 Trade and other receivables Group Company 2022 US$ 2021 US$ 2022 US$ 2021 US$ Non-current VAT and other taxes receivable 6,609,779 — — — Prepayments 3,355,811 — — — 9,965,590 — — — Current VAT and other taxes receivable 3,886,402 1,196,648 1,465,745 558,419 Deposits 17,266 10,782 17,266 10,782 Prepayments 2,620,391 — 19,300 — Other receivables 42,250,088 12,589,198 — 12,589,198 48,774,147 13,796,628 1,502,311 13,158,399 58,739,737 13,796,628 1,502,311 13,158,399 Other receivables relates to transaction costs for the US$633million financing package concluded in for the construction of the Araguaia Ferronickel Project. These transaction costs relate to the senior debt finance agreements and the transaction costs will be offset against the debt when it is drawn down. 13 Cash and cash equivalents Group Company 2022 US$ 2021 US$ 2022 US$ 2021 US$ Cash at bank and on hand 122,376,147 206,271,198 7,091,717 194,374,682 Short-term deposits 31,651,820 4,221,082 17,515,956 4,221,082 154,027,967 210,492,280 24,607,673 198,595,764 The Group’s cash at bank and short-term deposits are held with institutions with the following credit ratings: Group Company 2022 US$ 2021 US$ 2022 US$ 2021 US$ A+ 59,589,545 198,537,081 7,236,784 198,527,111 A 16,642,684 115,953 — — BB 60,131,801 — — — BB- — 11,462,045 — — BBB+ 17,364,568 68,653 17,364,568 68,653 B+ 288,068 150,951 — — NA 11,301 157,597 6,321 — 154,027,967 210,492,280 24,607,673 198,595,764 The cash deposited with the institution with no credit rating is only held short term and the expected credit loss is not assessed as material. Access is restricted to cash and cash equivalents of US$29,247,627. These funds have been secured in the case of a cost overrun against the construction schedule and budget of the Araguaia Project. Refer to note 23 for more details. COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 96 97 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT 14 Derivative financial assets Cash flow forward foreign exchange contracts Total US$ Derivatives designated as hedging instruments Non-deliverable forward contracts 914,704 Value as at 31 December 2022 914,704 Current and non-current Current 852,927 Non-current 61,777 914,704 In January 2022 the Group’s Board approved the budget for the development of the Araguaia Ferronickel Project (Project). With the funding base being primarily US Dollars, the Project budget includes a significant portion of spend in local currency, the Brazilian Real (BRL). The Group and its senior lenders agreed to implement a foreign exchange hedging strategy that ensures that at least 70% of its BRL denominated capital expenditure to be incurred between 14 May 2022 and 31 March 2024 is hedged to reduce the exposure of future BRL foreign exchange risk. The Group has therefore entered into a series of monthly non-deliverable forward transactions (“NDFs”) which will lock in a series of future USD: BRL rates based on the Group’s projected spend profile at the time of entering into those transactions. NDFs by definition are non-deliverable and so the Group would either pay or receive an amount of BRL to ensure that it ultimately achieves the hedged rate. The effects of the cash flow non-deliverable forward contract hedging relationship are as follows: US$ Carrying amount of the derivatives 914,704 Change in fair value of designated hedging instruments (914,704) Change in fair value of designated hedged item 914,704 Notional amount 213,683,441 Maturity date 31/01/2023 – 28/03/2024 Hedge ratio 1:1 15 Share capital Group and Company 2022 Number 2022 US$ 2021 Number (after share consolidation) 2021 US$ Issued and fully paid Ordinary shares of 1p each At 1 January 190,118,279 52,215,236 72,468,864 20,666,053 Issue of ordinary shares 78,295,627 18,117,405 113,246,410 30,335,627 Conversion of special warrants into shares — — 4,403,005 1,213,556 At 31 December 268,413,906 70,332,641 190,118,279 52,215,236 Share capital comprises amount subscribed for shares at the nominal value. 2022 On 11 April 2022 the Group issued 6,000,000 new ordinary shares (after share consolidation 300,000 shares) at a price of 4.33 pence per share in relation to the exercise of options by an employee of the Company. On 31 May 2022 the Group completed a share consolidation on the basis of 1 new share for every 20 existing shares. As a result of the share consolidation, the Company’s issued share capital consists of 268,413,906 ordinary shares (as at 31 December 2022) of £0.20 each. The 2021 number of shares has been restated to reflect the share consolidation. On 6 July 2022 the Group issued 50,000 new ordinary shares at a price of 60 pence per share in relation to the exercise of options by an employee of the Company. On 8 November, 77,945,627 were placed with new and existing investors at a price of 90.50 pence per share. The gross proceeds raised in the placement was US$80,000,000, and issue costs amounted to US$2,499,105. 2021 On 19 February 2021, 162,718,353 new ordinary shares (8,135,917 shares after share consolidation) were placed with new and existing investors at a price of 7.5 pence per share. The gross proceeds raised in the placement was US$17,112,276 and issue costs amounted to US$1,037,822. On 14 April 2021, the 88,060,100 Special Warrants were converted to 88,060,100 ordinary shares of the Company (4,403,005 shares after share consolidation). On 23 December 2021, 2,102,209,850 new ordinary shares (105,110,492 shares after share consolidation) were placed with new and existing investors at a price of 7.0 pence per share. The gross proceeds raised in the placement was US$196,478,769 and issue costs amounted to US$9,351,649. 16 Share premium Group and Company 2022 US$ 2021 US$ At 1 January 245,388,102 65,355,677 Premium arising on issue of ordinary shares 63,830,692 183,255,417 Issue costs (2,499,105) (10,389,470) Premium arising on conversion of special warrants into shares — 7,986,413 Special warrants issue costs — (819,935) At 31 December 306,719,689 245,388,102 Share premium comprises the amount subscribed for share capital in excess of nominal value. 17 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, other than the options issued on 12 July 2022. Options issued on 12 July 2022 will vest in three tranches on the 12-month, 18-month and 28-month anniversaries after the date of grant (refer below for further information). All share options lapse on the tenth anniversary of the date of grant or the holder ceasing to be an employee of the Group. Should holders cease employment then the options remain valid for a period of 3 months after cessation of employment, following which they will lapse. Neither the Company not the Group has any legal or constructive obligation to settle or repurchase the options in cash. Two employees exercised their share options on 11 April 2022 and 6 July 2022 respectively. On 31 May 2022 the Group completed a share consolidation on the basis of 1 new share for every 20 existing shares. The number of share options and the exercise prices have been revised following the share consolidation. The Group awarded new share options on 12 July 2022 (the “Award Date”) over 9,736,250 ordinary shares of £0.20 each in the capital of the Company to executives (PDMRs) and key personnel in the UK and Brazil. Each share option is exercisable in return for one ordinary share in the Company and will vest in three tranches on the 12-month, 18-month and 28-month anniversaries of the Award Date at a ratio of 25%, 25% and 50%, with exercise prices of £1.68, £1.72 and £1.76 for each one third of the Awards. Movements on number of share options and their related exercise price are as follows: 2022 2021 Number of options (after share consol­ idation) Weighted average exercise price (after share consolida­ tion) Number of options (after share consolida­ tion) Weighted average exercise price (after share consolidation) Number of options (before share consolidation) Weighted average exercise price (before share consolidation)   US$   US$   US$ Outstanding at 1 January 5,715,000 1.02 6,267,500 1.37 125,350,000 0.07 Forfeited 385,000 1.54 -552,500 3.75 -11,050,000 0.19 Exercised 350,000 1.00 0 0.00 0 0 Granted 9,736,250 2.07 0 0.00 0 0 Outstanding at 31 December 14,716,250 1.70 5,715,000 1.145 114,300,000 0.057 Exercisable at 31 December 5,070,000 1.003 5,715,000 1.145 114,300,000 0.057 The options outstanding at 31 December 2022 had a weighted average remaining contractual life of 7.48 years (2021: 4.47 years). The fair value of the share options issued during the current financial year was determined using the Black-Scholes valuation model. The expected volatility is based on historical volatility for one year 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. COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 98 99 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT The parameters used are detailed below: 2022 options Date of grant 12/07/2022 Weighted average share price £ 98.5 pence Weighted average exercise price £ 172 pence Weighted average fair value at the measurement date £ 41.69 pence Expiry date 11/07/2032 Options granted 9,736,250 Volatility 45.1% Dividend yield Nil Option life 10 years Annual risk-free interest rate 2.14% The range of option exercise prices is as follows: Range of exercise prices 2022 Weighted average exercise price (US$) 2022 Number of shares 2022 Weighted average remaining life expected (years) 2022 Weighted average remaining life contracted (years) 2021 Weighted average exercise price (adjusted for share consolidation) (US$) 2021 Number of shares (adjusted for share consolidation) 2021 Weighted average remaining life expected (years) 2021 Weighted average remaining life contracted (years) 0 – 100 pence (£) 0.924 4,582,500 1.1682 1.1682 1.046 5,152,500 4.3855 4.3855 100 – 200 pence (£) 2.055 10,133,750 6.3074 6,3074 2.052 562,500 0.223 0.223 The expense recognised for share options granted during the year was US$1,415,581. The expense will be recognised over the vesting period until the share options have fully vested. Group and Company Share options reserve US$ Charge for share options granted 1,415,581 At 31 December 2022 1,415,581 18 Other reserves Merger Translation Other reserve reserve reserve Total Group US$ US$ US$ US$ At 1 January 2021 17,046,353 (38,886,420) (1,678,968) (23,519,035) Currency translation differences — 258,977 — 258,977 At 31 December 2021 17,046,353 (38,627,443) (1,678,968) (23,260,058) Currency translation differences — (6,678,108) — (6,678,108) At 31 December 2022 17,046,353 (45,305,551) (1,678,968) (29,938,166) Company Translation reserve US$ Merger reserve US$ Total US$ At 1 January 2021 (9,408,481) 17,046,353 7,637,872 Currency translation differences 2,715,159 — 2,715,159 At 31 December 2021 (6,693,322) 17,046,353 10,353,031 Currency translation differences (29,785,838) — (29,785,838) At 31 December 2022 (36,479,160) 17,046,353 (19,432,807) Other reserve The other reserve arose on consolidation as a result of merger accounting for the acquisition of the entire issued share capital of Hori­ zonte 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. Merger Reserve During the year ended 31 December 2010 the Company acquired 100% of Teck Cominco Brasil S.A and Lontra Empreendimentos e Par­ ticipações Ltda. These acquisitions were effected by the issue of shares in Horizonte Minerals plc. These shares qualified for merger relief under section 612 of the Companies Act 2006. In accordance with section 612 of the Companies Act 2006 the premium on the shares issued was recognised in a separate reserve within equity called merger reserve. Currency translation differences relate to the translation of Group entities that have a functional currency different from the presenta­ tion currency (refer note 2.8). Movements in the translation reserve are linked to the changes in the value of the Brazilian Real against the US Dollar: the intangible assets of the Group are located in Brazil, and their functional currency is the Brazilian Real, which decreased in value against US Dollar during the year. 19 Trade and other payables Group Company 2022 2021 2022 2021 US$ US$ US$ US$ Non-current Trade and other payables 723,333 608,975 — — Current Trade and other payables 25,949,374 4,557,525 1,739,397 — Social security and other taxes 1,304,201 771,465 178,318 45,565 Accrued expenses 1,211,296 16,245,372 1,171,543 16,236,982 Commitment fees payable 16,167 — — — 28,481,038 21,574,362 3,089,258 16,282,547 Total trade and other payables 29,204,371 22,183,337 3,089,258 16,282,547 20. Contingent and deferred consideration 20.1 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 subsidiar­ ies in Brazil the advanced high-grade Glencore Araguaia nickel project (GAP) in north central Brazil. GAP is located in the vicinity of the Company’s Araguaia Project. Pursuant to a conditional asset purchase agreement (Asset Purchase Agreement) between, amongst others, the Company and Xstrata Brasil Exploraçâo Mineral Ltda (Xstrata), a wholly-owned subsidiary of Glencore Canada Corporation (Glencore), the Company has agreed to pay a total consideration of US$8 million to Xstrata, which holds the title to GAP. The consideration is to be paid according the follow­ ing 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, during 2018 a Feasibility Study including Vale dos Sonhos was published and the consid­ eration settled by way of issuing 13,855,487 new Shares in the Company occurred during 2019. 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. COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 100 101 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT The contingent consideration payable to Xstrata Brasil Mineração Ltda for the acquisition of the Araguaia project has a carrying value of US$2,470,215 at 31 December 2022 (31 December 2021: US$2,308,612). It comprises US$5,000,000 consideration in cash as at the date of first commercial production of ferronickel product (excluding the commissioning period) from any of the resource areas covered in the purchase agreement, i.e. Vale dos Sonhos (VDS) and Serra do Tapa (SDT). The key assumptions underlying the treatment of the contingent consideration of US$5,000,000 is a discount factor of 7.0% along with the estimated date of first commercial production from the VDS and SDT permits. During 2020 the Araguaia project entered the development phase and as a result borrowing costs including unwinding of discount on contingent consideration for qualifying assets are capitalised to the mine development asset. 20.2 Contingent consideration payable to Vale Metais Basicos S.A. ~ On 19 December 2017 the Company announced that it had reached an 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 Decem­ ber 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 Ver­ melho. 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 recognised the contingent consideration within liabilities for the first time in 2019. The contingent consideration payable to Vale Metais Basicos S.A. for the acquisition of the Vermelho project has a carrying value of US$4,425,522 at 31 December 2022 (31 December 2021: US$4,425,522). It comprises US$6,000,000 consideration in cash as at the date of first commercial production from the Vermelho project and was recognised for the first time in December 2019, following the publication of a PFS on the project. The key assumptions underlying the treatment of the contingent consideration of US$6,000,000 is a discount factor of 7.0% along with the estimated date of first commercial production. The estimated first date of commercial produc­ tion was revised during the year from June 2026 to June 2027. This revision was considered necessary given the expected timelines for the feasibility study completion and thereafter commence with the Vermelho Project development which includes finance raising. The finance costs in respect of this contingent consideration are expensed as the Vermelho project has not entered the construction phase. 20.3 Deferred consideration payable to Companhia Brasileiro de Aluminio On 8 December 2021 the Group’s subsidiary Araguaia Niquel Metais Ltda (ANM) entered into an asset purchase agreement to purchase certain new and unused ferronickel processing equipment (the “Processing Equipment”) from Companhia Brasileira de Alumínio (“CBA”). The Processing Equipment comprises the key components of a conventional rotary kiln electric furnace plant (“RKEF”), excluding the furnace, and is expected to provide meaningful synergies in relation to the development of the Araguaia ferronickel project. An upfront cost of US$600,000 is payable in cash on signing with a total consideration of up to US$7,000,000, with the balance payable upon the achievement of future milestones related to the development and operation of Araguaia. As part of the transaction CBA will continue to perform care and maintenance activities going forward until it is removed from the existing site. The total consideration of up to US$7 million payable by ANM will be paid according to the following schedule: ~ US$600,000 was paid on execution of the Agreement; ~ US$950,000 is payable upon the removal of 80% of the Processing Equipment from CBA’s Niquelândia operations; ~ US$950,000 is payable upon reaching 50% completion of Araguaia plant construction; ~ US$1,150,000 is payable upon production at Araguaia reaching 90% of nameplate capacity for a period of 60 days, on average, and with up to 50% of such amount payable in Horizonte shares, at Horizonte’s election; and ~ US$3,350,000 is payable by Horizonte in three equal annual instalments with the first instalment due within 45 days of the first sale of ferronickel to a third party. Horizonte may choose to pay the outstanding balance of this amount at any time of its choosing with up to 50% of the total able to be paid in Horizonte’s shares, at Horizonte’s election. In addition, the contract provides that each component of the Purchase Price shall be deemed immediately due and payable to the Seller at the long stop date of December 31, 2027. The deferred consideration payable to CBA has a carrying value of US$5,758,431 at 31 December 2022 (31 December 2021: US$5,443,861). The key assumptions underlying the treatment of the deferred consideration of US$7,000,000 is a discount factor of 7.0% along with the estimated date of completion of the project milestones as outlined above. The critical assumptions underlying the treatment of the contingent and deferred considerations are set out in note 4.2. Companhia Brasileira de Aluminio (in respect of Araguaia project) Xstrata Brasil Mineração Ltda (in respect of Araguaia project) Vale Metais Basicos S.A. (in respect of Vermelho project) Total US$ US$ US$ US$ At 1 January 2021 — 3,946,090 4,136,002 8,082,092 Initial recognition 5,424,742 — — 5,424,742 Unwinding of discount 19,119 276,227 289,520 584,866 Change in estimate — (1,913,705) — (1,913,705) At 31 December 2021 5,443,861 2,308,612 4,425,522 12,177,995 Unwinding of discount 314,570 161,603 299,399 775,572 Change in estimate — — (299,399) (299,399) At 31 December 2022 5,758,431 2,470,215 4,425,522 12,654,168 Reclassification to current liabilities (950,000) — — (950,000) At 31 December 2022 4,808,431 2,470,215 4,425,522 11,704,168 The change in estimate during 2021 relates revisions to the estimated payment date of the Xstrata Brasil Mineração Ltda contingent consideration as a result of the start date of commercial production at the VDS and SDT areas being delayed. 21 a) Royalty financing liability 21 a.1) Araguaia royalty financing liability On 29 August 2019 the Group entered into a royalty funding arrangement with Orion Mine Finance (“OMF”) securing a gross upfront payment of US$25,000,000 before fees in exchange for a royalty, the rate being in a range from 2.25% to 3.00% and determined by the date of funding and commencement of major construction. The rate has been confirmed to be 2.95%. The royalty is paid over the first 426k tonnes of nickel produced from the Araguaia Ferronickel project. The royalty is linked to production and therefore does not become payable until the project is constructed and commences commercial production. 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 21 b). The Royalty liability has initially been recognised using the amortised cost basis with an effective interest rate of 14.5%. When circum­ stances arise that lead to payments due under the agreement being revised, the group adjusts the carrying amount of the financial liability to reflect the revised estimated cash flows. This is achieved by recalculating the present value of estimated cash flows using the original effective interest rate of 14.5%. Any adjustment to the carrying value is recognised in the income statement. The carrying value of the royalty reflects assumptions on expected long term nickel price, update headline royalty rate as well as the tim­ ing of payments related to expected date of commencement of production and hence payment to be made under the royalty agreement. The long-term nickel price used in the royalty valuation as at 31 December 2022 is US$18,721/t Ni (2021:US$ 16,945/t Ni). Management have sensitised the carrying value of the royalty liability for a US$1,000/t Ni increase/decrease in future nickel price the carrying value would change by US$2,682,547 (2021:US$2,711,505). COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 102 103 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT 21 a.2) Vermelho royalty financing liability On 23 November 2021 the Group entered into a royalty funding arrangement with Orion Mine Finance (“OMF”) securing a gross upfront payment of US$25,000,000 before fees in exchange for a royalty, at a rate of 2.1%. The royalty rate will increase to 2.25% if substantial construction of the Vermelho Project has not commenced within 5 years of the closing date, 30 March 2022. The royalty will be paid over the life of mine of Vermelho. The Royalty agreement has certain provisions to revise the headline royalty rate should there be change in the mine schedule and production profile prior to construction or if the resource covered in the Vermelho Feasibility Study is depleted. The royalty is linked to production and therefore does not become payable until the project is constructed and commences commercial production. The agreement contains certain embedded derivatives which as per IFRS9 have been separately valued and included in the fair value of the financial instrument in note 21 b). The royalty funds were received on 30 March 2022. The Royalty liability has initially been recognised using the amortised cost basis with an effective interest rate of 17.66%. When cir­ cumstances 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 17.66%. Any adjustment to the carrying value is recognised in the income statement. The carrying value of the royalty reflects assumptions on expected long term nickel and cobalt prices, headline royalty rate as well as the timing of payments related to expected date of commencement of production and hence payment to be made under the royalty agreement. The assumption influencing the initial valuation of the carrying value of the Vermelho royalty is the long-term nickel price of US$17,756 t/Ni (as at the initial recognition date 30 March 2022), the long-term cobalt price of US$53,355t/Co (as at the initial recognition date 30 March 2022), and the royalty rate of 2.1%. The assumptions influencing the valuation at the period end date is the long-term nickel price of US$18,721 t/Ni, the long-term cobalt price of US$56,950 t/Co. The royalty rate has remained at 2.1%. Management have sensitised the carrying value of the royalty liability by a change in the royalty rate to 2.25% and it would be US$2,925,856 higher and for a US$1,000/t increase/decrease in future nickel price and future cobalt price the carrying value would change by US$1,981,761. Vermelho Royalty US$ Araguaia Royalty US$ Total US$ Net book amount at 1 January 2021 — 30,131,755 30,131,755 Unwinding of discount — 4,637,057 4,637,057 Change in carrying value — 9,727,692 9,727,692 Net book amount at 31 December 2021 — 44,496,504 44,496,504 Initial recognition 25,000,000 — 25,000,000 Embedded derivative – initial valuation 9,848,175 — 9,848,175 Transaction costs (847,939) — (847,939) Unwinding of discount 4,448,595 5,350,666 9,799,261 Change in carrying value 2,513,156 (1,063,902) 1,449,254 Net book amount at 31 December 2022 40,961,987 48,783,268 89,745,255 21 b) Derivative financial asset 21 b.1) Araguaia 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 follow­ ing 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 produc­ tion 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 of US$18,721/t Ni (2021:US$16,941/t Ni), the start date of commercial production in March 2024 (2021: May 2023), the prevailing royalty rate of 2.95% (2021: 2.95%), the inflation rate of 2.22% (2021: 1.76%), and volatility of nickel prices of 39.7% (2021: 22.1%). Sensitivity analysis The valuation of the Buyback option is most sensitive to future nickel price estimates and nickel price volatility. A 15% adjustment to the estimated future nickel price would result in a variance between US$2.7million and US$3million in the valuation. 21 b.2) Vermelho derivative financial assets Horizonte has the right to buy back 50% of the royalty on the first four anniversaries of closing (or on any direct or indirect change of control in respect of Vermelho up until the fourth anniversary of closing). After the 4th anniversary, Horizonte has the right to buy back 50% of the royalty on any direct or indirect change of control in respect of Vermelho at a valuation that meets certain minimum economic returns for OMF. The initial recognition of the Buy Back Option has been recognised as an asset on the balance sheet with any changes to the fair value of the derivative recognised in the income statement. It has been fair valued using a Monte Carlo simulation which runs a high number of scenarios in order to derive an estimated valuation. The assumptions for the valuation of the Buy Back Option are the future nickel price (US$18,721/t Ni), the future cobalt price (US$56,950/t Co), the production profile from 2027 to 2065, the expected royalty rate (2.1%), the inflation rate (2.22%), volatility of nickel prices (22.1%) and volatility of cobalt prices (28.0%). Sensitivity analysis The valuation of the Buyback option is sensitive to estimates for nickel and cobalt prices and their respective volatilities. A 15% adjustment to the estimated future nickel and cobalt prices would result in a variance of US$3.7 million in the valuation. Refer to the table below for the summary of the derivative financial assets valuation: Vermelho Royalty US$ Araguaia Royalty US$ Total US$ Value as at 1 January 2021 — 2,400,000 2,400,000 Change in fair value — 2,550,000 2,550,000 Value as at 31 December 2021 — 4,950,000 4,950,000 Initial recognition 9,848,175 — 9,848,175 Change in fair value (366,284) 57,496 (308,788) Value as at 31 December 2022 9,481,891 5,007,496 14,489,387 22 Convertible loan notes On 29 March 2022 the Company issued convertible loan notes to the value of US$65 million at an interest rate of 11.75% with interest accruing quarterly in arrears. The convertible loan notes were issued at a discount of 5.75%. The maturity date of the instruments is 15 October 2032. The convertible loan notes are unsecured and the noteholders will be repaid as follows: ~ Interest shall be capitalised until the Araguaia Project Completion date, estimated to be 31 December 2025 (subject to various technical operating tests being passed) ~ After Project Completion Date, interest shall be paid quarterly only if there is available cash (after the company meets its senior debt and other senior obligations) ~ After Project Completion Date, principal repayments (including accrued capitalized interest) shall be paid quarterly subject to available cash for distribution. In addition, a cash sweep of 85% of excess cash will apply on each interest payment date ~ Any amount outstanding on the CLN on the maturity date 15 October 2032, Horizonte is obliged to settle in full on the maturity date. At any time until the Maturity Date, the Noteholder may, at its option, convert the notes, partially or wholly, into a number of ordinary shares up to the total amount outstanding under the Convertible Note divided by the Conversion Price. The Conversion Price is 125% of the Subscription Price of 0.07 pence (after share consolidation 1.40 pence converted to US$ at a rate of 1.3493). The Conversion Price is therefore US$1.89. After the equity fundraise that was completed on 8 November 2022 (refer to note 14) the conversion price was revised to £1.268 /US$1.71. COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 104 105 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT The convertible loan is a hybrid financial instrument, whereby a debt host liability component and an embedded derivative liability component was determined at initial recognition. The conversion option did not satisfy the fixed for fixed equity criterion (fixed number of shares and fixed amount of functional currency cash) as the currency of the convertible loan notes is US Dollar and the functional currency of Horizonte Minerals Plc and its share price is GBP. For convertible notes with embedded derivative liabilities, the fair value of the embedded derivative liability is determined first and the residual amount is assigned to the debt host liability. The initial recognition of the embedded derivative conversion feature has been recognised as a liability on the balance sheet with any changes to the fair value of the derivative recognised in the income statement. It has been fair valued using a Monte Carlo simulation which runs a high number of scenarios in order to derive an estimated valuation. The Monte Carlo simulation was performed at the transaction date 29 March 2022 and at the year-end date 31 December 2022. The assumptions for the valuation of the conversion feature (per the Monte Carlo simulation) at initial recognition are the Horizonte Minerals Plc future share price volatility (60.3%), GBP: USD exchange rate volatility (11.1%) on the conversion price. At the year end date the share price volatility assumption was 42.9% and the GBP: USD exchange rate volatility assumption 10%. At 29 March 2022 the fair value of the conversion feature was calculated (per the Monte Carlo simulation) as US$36,458,088. The pro­ ceeds received was US$ 61,262,500 and thus the residual allocated to the debt host liability was US$24,804,412. The debt host liability will be accounted for using the amortised cost basis with an effective interest rate of 34%. The effective interest rate is recalculated after adjusting for the transaction costs and the discount of 5.75%. The Group will recognise the unwinding of the discount at the effective interest rate, until the maturity date, the carrying amount at the maturity date will equal the cash payment required to be made. The directly attributable transaction costs amounted to US$2,347,041 which was allocated proportionately to the embedded derivative (US$1,396,754) and the convertible loan notes liability (US$ 950,287). The embedded derivative transaction costs were recognised in profit and loss, whereas the convertible loan liability transaction costs were deducted from the financial liability carrying amount. After the fifth anniversary of the closing date, Horizonte shall have a one-time right to redeem the Convertible Notes, in whole, at 105% of the par value plus accrued and unpaid interest in cash if: 1. The thirty-business day VWAP of Horizonte shares exceeds 200% of the Conversion Price and the average daily liquidity of the Com­ pany’s shares (across all relevant exchanges) exceeds US$2.5 million per trading day over the prior 30 trading days; or 2. There is a change of control. Management have assessed the likelihood of the above events occurring is highly improbable and thus the value of the redemption right is immaterial and was thus not considered in the valuation of the instrument. Sensitivity analysis – Conversion feature derivative The valuation of the conversion feature derivative is sensitive to the Company’s equity price and share price volatility. A 15% adjustment on the Company’s equity price results in a variance of between US$7.6million and US$8.3million in the valuation. A 30% adjustment on the equity volatility results in a variance of US4.9million. Embedded derivative Convertible loan notes liability Total US$ US$ US$ Initial recognition (after discount on issue) 36,458,088 24,804,412 61,262,500 Transaction costs — (950,287) (950,287) Unwinding of discount — 5,956,508 5,956,508 Change in fair value (6,821,201) — (6,821,201) Value as at 31 December 2022 29,636,887 29,810,633 59,447,520 23 Cost overrun facility On 30 November 2022, the Group satisfied all conditions precedent in relation to the cost overrun facility (COF) and had received all COF funds from Orion. The COF benefits from the same security package as the senior debt facility but will be subordinated to the senior debt facility. Access to the COF funds is restricted and will only be available in the case of a cost overrun against the Araguaia Project construction schedule and budget, subject to certain conditions including: 1. 90% of the funding from the Equity Fundraise and Convertible loan notes have been invested in the construction of the Araguaia Project 2. A gearing ratio of 70:30 being met The COF is US$25million with an interest rate of 13% and a maturity date of 15 October 2032. Interest will be calculated quarterly and be payable in arrears at the end of each interest period – March 31, June 30, September 30 and December 31. The first interest period was 30 November to 31 December 2022. The initial principal repayment date is 31 March 2025. 3.23% of the outstanding principal amount will be paid at each quarter end date starting from 31 March 2025. The COF will be accounted for using the amortised cost basis with an effective interest rate of 15%. The effective interest rate is recalcu­ lated after adjusting for the transaction costs. The Group will recognise the unwinding of the discount at the effective interest rate, until the maturity date, the carrying amount at the maturity date will equal the cash payment required to be made. Total US$ Initial recognition 25,000,000 Transaction costs (1,198,634) Unwinding of discount 288,321 Interest repayments (279,860) Value as at 31 December 2022 23,809,827 24 Senior debt facility On 15 March 2022 the Group entered into legally binding documentation including a comprehensive intercreditor agreement and loan agreements with two export credit agencies in relation to its senior secured project finance debt facility of  US$346.2 mil­ lion. The senior debt facility was executed between Araguaia Niquel Metais LTDA, and a syndicate of international financial institu­ tions, being BNP Paribas, BNP Paribas Fortis, ING Capital LLC, ING Bank N.V., Natixis, New York Branch, Société Générale and SEK (Swedish Export Credit Corporation). The senior debt facility includes the following: ~ Commercial senior facility of US$200,000,000 provided by the Senior Lenders; ~ ECA facility of US$74,562,000 guaranteed by EKF (Denmark’s Export Credit Agency); ~ ECA facility of US$71,638,000 guaranteed by Finnvera plc (Finland’s Export Credit Agency); On 7 December 2022, the Group satisfied all conditions precedent for the first utilisation under the senior debt facility of US$346.2 mil­ lion. The first utilisation was for US$5million. The interest rate on the ECA facility is calculated according to this formula : Margin + Term SOFR (Secured Overnight Financing Rate) + Baseline Credit Adjustment Spread (CAS). The ECA Facility margin is 1.8%. The Term SOFR was the first interest period was 4.21714% and the Baseline CAS 0.11448%. The ECA facility interest rate was therefore 6.13162% at 31 December 2022. The interest rate on the Commercial facility is calculated according to this formula : Margin + Term SOFR (Secured Overnight Financing Rate) + Baseline Credit Adjustment Spread (CAS). The Commercial Facility margin is 4.75%. The Term SOFR was the first interest period was 4.21714% and the Baseline CAS 0.11448%. The ECA facility interest rate was therefore 9.08162% at 31 December 2022. Interest will be calculated quarterly and be payable in arrears at the end of each interest period – March 31, June 30, September 30 and December 31. The first interest period was 7 to 31 December 2022. The initial principal repayment date is 31 March 2025. The outstand­ ing principal amount will be paid according to the repayment schedule at each quarter end date starting from 31 March 2025. The final maturity date on the Commercial Facility is 15 July 2030. The final maturity date on the ECA Facility is 15 July 2032. COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 106 107 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT The ECA and Commercial Facilities will be accounted for using the amortised cost basis with effective interest rates of 12.25% and 11.57% respectively. The effective interest rate is recalculated after adjusting for the transaction costs. The Group will recognise the unwinding of the discount at the effective interest rate, until the maturity date, the carrying amount at the maturity date will equal the cash pay­ ment required to be made. The Senior Debt Facility is secured via a comprehensive security package which includes: ~ Pledge of shares in the Araguaia Níquel Metais Ltda. (the “Borrower”); ~ Pledge of shares of the guarantors (other than Horizonte Minerals plc); ~ First ranking security over all of the Araguaia Project’s assets (including its mineral rights); ~ Assignment of insurance policies; ~ Assignment of material project contracts (including rights under hedge agreements); ~ Charge over certain bank accounts of the Borrower (including the debt service bank account, the cost overrun account and the insurance proceeds account); and ~ Assignment of credit related to intercompany loans (by the Group borrowing entity) and subordination of the debt related to inter-company loans (by the Group lending entity). ECA Facility Commercial Facility Total US$ US$ US$ Initial recognition 2,111,496 2,888,504 5,000,000 Transaction costs (446,399) (232,137) (678,536) Unwinding of discount 12,660 19,148 31,808 Interest repayments (8,271) (16,760) (25,031) Value as at 31 December 2022 1,669,486 2,658,755 4,328,241 As at 31 December 2022 the drawn vs undrawn balance on the senior debt facility was as follows: Drawn Undrawn Total Commercial Facility 2,888,504 343,311,496 346,200,000 EKF ECA Facility 1,076,863 73,485,137 74,562,000 Finnvera ECA Facility 1,034,633 70,603,367 71,638,000 25 Environmental rehabilitation provision Environmental rehabilitation provision relates to the estimated cost of returning the Araguaia Project mining property to its original state at the end of the life of mine in accordance with the Brazilian legislation. The cost is recognised as part of the Mine Development Asset and will be depreciated over the life of the mine. The main uncertainty relates to estimating the cost that will be incurred at the end of the life of mine. The costs have been estimated based on a mine closure report prepared by a third party expert taking into con­ sideration the environmental disturbance to date. The cost was inflation adjusted over the life of mine using inflation projections from reputable Brazilian financial institution and then discounted to its present value at 8%. Total US$ Additions 634,883 Value as at 31 December 2022 634,883 26 Right of use assets and lease liability In December 2021, Araguaia Niquel Metais Ltda entered into a commercial lease agreement for an office property in Belo Horizonte. The duration of the lease will be for 5 years. The instalments in the first year will be BRL 40,000 (US$7,666) per month and in years 2 to 5 the monthly instalment will be BRL 43,520 (US$8,340). In June 2022, Araguaia Niquel Metais Ltda entered into a lease agreement to lease 17 L200 vehicles. The duration of the lease will be for 26 months with a monthly cost of BRL 107,735 (US$20,648). As at 31 December 2022, only 10 vehicles are being leased to date. The right of use asset and lease liability was recognised in December 2021 at inception of the lease. Office building Vehicles Total US$ US$ US$ Right of use asset Initial recognition 380,482 — 380,482 Value as at 31 December 2021 380,482 — 380,482 Initial recognition — 291,290 291,290 Additions 431,773 — 431,773 Amortisation (138,694) (33,610) (172,304) Foreign exchange movements 26,637 — 26,637 Value as at 31 December 2022 700,198 257,680 957,878 Office building Vehicles Total US$ US$ US$ Lease liability Initial recognition 380,482 — 380,482 Value as at 31 December 2021 380,482 — 380,482 Initial recognition — 291,290 291,290 Additions 431,773 — 431,773 Unwinding of discount 50,240 14,857 65,097 Lease payments (165,407) (42,145) (207,552) Foreign exchange movements 25,880 — 25,880 Value as at 31 December 2022 772,968 264,002 986,970 Reclassified to current liabilities 143,330 128,350 271,680 Non-current lease liability 579,638 135,652 715,290 27 Note to statement of cash flows Below is a reconciliation of borrowings from financial transactions: Senior Debt Facility Cost Overrun Facility Convertible Loan Notes Liability Royalty Financing Derivative asset Total US$ US$ US$ US$ US$ US$ As at 1 January 2021 — — — 30,131,755 (2,400,000) 27,731,755 Non cash flow adjustments: Unwinding of discount — — — 4,637,057 — 4,637,057 Change in carrying value /fair value — — — 9,727,692 (2,550,000) 7,177,692 Total non-current borrowings 31 December 2021 — — — 44,496,504 (4,950,000) 39,546,504 Cash flow adjustments: Initial recognition 5,000,000 25,000,000 61,262,500 25,000,000 — 116,262,500 Transaction costs (678,536) (1,198,634) (950,287) (847,939) — (3,675,396) Interest payments (25,031) (279,860) — — — (304,891) Non cash flow adjustments: Embedded derivative – initial valuation — — — 9,848,175 (9,848,175) — Unwinding of discount 31,808 288,321 5,956,508 9,799,261 — 16,075,898 Change in carrying value /fair value — — (6,821,201) 1,449,254 308,788 (5,063,159) Total non-current borrowings 31 December 2022 4,328,241 23,809,827 59,447,520 89,745,255 (14,489,387) 162,841,456 28 Dividends No dividend has been declared or paid by the Company during the year ended 31 December 2022 (2021: nil). COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 108 109 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT 29 Earnings per share (a) Basic The basic loss per share of 2.634p loss per share (2021 loss per share: 15.698p) is calculated by dividing the loss attributable to own­ ers of the parent by the weighted average number of ordinary shares in issue during the year. 2022 2021 Group US$ US$ Loss attributable to owners of the parent (5,317,302) (13,370,515) Weighted average number of ordinary shares in issue 201,892,290 85,175,681 (b) Diluted The basic and diluted loss per share for the years ended 31 December 2022 and 31 December 2021 are the same as the current year result for the year was a loss, the options and warrants outstanding would be anti-dilutive. Therefore, the dilutive loss per share is con­ sidered as the same as the basic loss per shares. Details of share transactions are set out in note 15 and share options that could potentially dilute earnings per share in future periods are set out in note17. 30 Related party transactions Vincent Benoit is the elected board representative for La Mancha Resource Capital who have a shareholding of 23.21% in the Group as at 31 December 2022. For the year ended 31 December 2022, Vincent received director's remuneration of £59,229 which was paid in full in the year. The following transactions took place with subsidiaries in the year: Amounts totalling US$ 284,405,473 (2021: US$6,937,622) were lent to Horizonte Nickel IOM Ltd and Champol IOM Ltd to finance exploration work during 2022, by Horizonte Minerals Plc. Amounts totalling US$912,521 were lent to Nickel Production Services B.V. and Battery Material Services B.V. to finance operating expenses. No interest is charged on balances outstanding during the year. The amounts are repayable on demand. See note 34 for balances with subsidiaries at the year end. All Group transactions were eliminated on consolidation. 31 Ultimate controlling party The Directors believe there to be no ultimate controlling party. 32 Employee benefit expense (including Directors and Key Management) Group Company 2022 2021 2022 2021 Group US$ US$ US$ US$ Wages and salaries 12,170,854 7,461,987 3,745,332 5,504,925 Social security costs 3,749,120 866,676 1,944,212 532,926 Indemnity for loss of office 68,934 11,626 — — Share options granted to Directors and employees 1,415,581 — 1,415,581 — 17,404,489 8,340,289 7,105,125 6,037,851 Management 27 12 9 8 Field staff 119 38 6 3 146 50 15 11 Average number of employees including Directors and Key Management 129 50 14 11 Employee benefit expenses includes US$ 6,941,222 (2021: US$3,183,923) of costs capitalised and included within intangible assets and mine development property. Directors and key management remuneration for the year is outlined in the table below. 2022 2021 US$ US$ Directors’ emoluments 1,099,573 886,656 Amounts receivable under the long-term incentive plan 1,354,284 2,479,756 Other emoluments (performance related bonuses) 528,491 365,551 Company contributions to defined contribution pension schemes 21,103 43,106 Total emoluments 3,003,451 3,775,069 Social security costs 591,073 480,812 Share-based payment charge (non-cash) 1,038,126 — Total cost to company 4,632,650 4,255,881 As at 31 December 2022 there were 5 directors. For details of changes in the board of directors during the year refer to the Board Report on pages 48 to 49. Emoluments of the highest paid director was US$1.3million (2021: US$1.6million), this includes an amount of US$553,518 (2021:US$964,395) received under the long-term incentive plan. 33 Investments in subsidiaries 2022 2021 Company US$ US$ Shares in Group undertakings At 1 January 3,164,591 3,204,979 Effects of foreign exchange (337,561) (40,388) At 31 December 2,827,030 3,164,591 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. 34 Loans to and from subsidiaries Balances with subsidiaries at the year-end were: 2022 2021 Assets/(Liabilities) Assets/(Liabilities) Company US$ US$ Loans to subsidiaries HM Brazil (IOM) Ltd 7,582,115 8,487,762 Horizonte Nickel (IOM) Ltd 353,108,653 78,829,052 Champol (IOM) Ltd 7,199,478 6,427,750 Horizonte Minerals (IOM) Ltd 304,592 340,974 Nickel Production Services B.V. 64,581 — Battery Material Services B.V. 720,749 — Total 368,980,168 94,085,538 Loans from subsidiaries HM Exploration Ltd (498,330) (557,853) Nickel Production Services B.V. — (3,253,720) Total (498,330) (3,811,572) COMPA N Y OV ERV IE W S T R AT EGIC REP OR T CORP OR AT E GOV ERN A NCE FIN A NCIA L S TAT EMEN T S 110 111 HORIZONTE MINERALS 2022 ANNUAL REPORT HORIZONTE MINERALS 2022 ANNUAL REPORT The loans to Group undertakings are repayable on demand and currently carry no interest, however there is currently no expectation of repayment within the next twelve months and therefore loans are treated as non-current. 1 January 2021 Amounts advanced during year Expect­ ed credit loss Foreign Currency translation reserve 2021 Amounts advanced during year Expected credit loss Foreign Currency translation reserve 2022 Company US$ US$ US$ US$ US$ US$ US$ US$ US$ HM Brazil (IOM) Ltd 8,596,087 — — (108,325) 8,487,762 — — (905,647) 7,582,115 Horizonte Nickel (IOM) Ltd 73,063,506 6,686,267 — (920,721) 78,829,052 290,866,381 — (16,586,780) 353,108,653 Horizonte Min­ erals (IOM) Ltd 345,325 — — (4,351) 340,974 — — (36,381) 304,593 Champol (IOM) Ltd 6,293,405 251,355 (37,703) (79,307) 6,427,750 1,869,764 (257,218) (840,818) 7,199,478 Nickel Produc­ tion Services B.V. (16,027,177) 12,571,488 — 201,969 (3,253,720) 3,317,537 — 764 64,581 Battery Material Services B.V. — — — — — 847,939 (127,191) — 720,748 Total 72,271,146 19,509,110 (37,703) (910,735) 90,831,818 296,901,621 (384,409) (18,368,862) 368,980,168 The Gross and net intercompany loan position following the expected credit loss as each year end is set out below: 2022 2021 Gross loan Expected credit loss Net loan Gross loan Expected credit loss Net loan Company US$ US$ US$ US$ US$ US$ HM Brazil (IOM) Ltd 10,831,593 (3,249,478) 7,582,115 12,125,374 (3,637,612) 8,487,762 Horizonte Nickel (IOM) Ltd 353,108,653 — 353,108,653 78,829,052 — 78,829,052 Horizonte Minerals (IOM) Ltd 304,593 — 304,593 340,974 — 340,974 Champol (IOM) Ltd 8,469,974 (1,270,496) 7,199,478 7,562,059 (1,134,309) 6,427,750 Nickel Production Services B.V. 64,581 — 64,581 — — — Battery Material Services B.V. 847,939 (127,191) 720,748 — — — Total 373,627,333 (4,647,165) 368,980,168 98,857,459 (4,771,921) 94,085,538 Impairment provisions for receivables and loans to related parties are recognised based on using the general approach to determine if there has been a significant increase in credit risk since initial recognition and whether the receivables and loans are credit impaired in accordance with IFRS9. 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 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 and development 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. After taking into consideration all of the above factors the rate of expected credit loss varies from 30% (2021:30%) for the receivables from HM Brazil and 15% (2021:15%) for the Vermelho Project. The loss on default on receivables related to the Araguaia Project is min­ imal, which is consistent with the view taken in the prior year. The expected credit loss assessment for HM Brazil considers Araguaia’s construction progress and improving prospects for Vermelho. The credit loss allowance was assessed at the date of 31 December 2022. The expected credit loss for Champol (IOM) Ltd was adjusted to US$1,270,496 (2021: US$1,134,309) and an expected credit loss allowance was recognised for Battery Material Services B.V. of US$127,191. The expected credit loss allowance for HM Brazil (IOM) Ltd remained unchanged. The change in the allowance is due to the USD currency translation. 35 Commitments Capital expenditure contracted for at the end of the reporting period but not yet incurred is as follows: 2022 2021 Group US$ US$ Mine development property 399,900,000 — Capital commitments relate to contractual commitments for the Araguaia Project construction. Once incurred these costs will be capi­ talised as mine development property additions. 36 Contingent Liabilities Other Contingencies The Group believes that there are no substantive financial claims and legal proceedings against it as at 31 December 2022. As a result, no provision and no disclosure has been made in these financial statements for the year ended 31 December 2022. 37 Parent Company Guarantee Horizonte Minerals plc has, together with other group companies, provided a parent guarantee on the following funding arrangements: 1. To Orion Mine Finance related to the $25 Million Royalty Financing arrangements granted by Nickel Production Services B.V. in respect of the project owned by Araguaia Níquel Metais Ltda. 2. To Orion Mine Finance related to the $25 Million Royalty Financing arrangements granted by Battery Materials Services B.V. in respect of the project owned by Trias Brasil Mineração Ltda 3. To Orion Mine Finance related to the $25 Million cost overrun facility (COF) granted to Araguaia Níquel Metais Ltda (Borrower) 4. To the Senior Lenders (BNP Paribas, BNP Paribas Fortis, ING Capital LLC, ING Bank N.V., Natixis, New York Branch, Société Générale and SEK(Swedish Export Credit Corporation)) related to the $346.2 Million senior debt facility granted to Araguaia Níquel Metais Ltda (Borrower) The royalty payments are conditional upon entering into commercial production and therefore cannot become due until this is achieved. Interest on the loan facilities (COF and Senior Debt) will be calculated quarterly and be payable in arrears at the end of each interest period – March 31, June 30, September 30 and December 31. The end of the first interest period for both facilities was due 31 December 2022. The initial principal repayment date is 31 March 2025. The outstanding principal amounts will be paid according to the repayment sched­ ules at each quarter end date starting from 31 March 2025. Horizonte Mineral Plc's obligation to pay under the guarantee only arises if the grantors of the royalties, the borrower in the loan facil­ ities or any of the other provider of a parent guarantee fails to make any payment under the agreements. The Company also entered into a comprehensive intercreditor agreement, which establishes how the Senior Lenders and Orion (as the COF Lender and Royalty Holder) will consult with each other before exercising rights and remedies available to them under their respective security and finance documents. 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. 38 Events after the reporting date Non-adjusting events after the reporting date On 27 February 2023, the Group announced that it had drawn down US$50million from it senior secured project finance debt facility of US$346.2million. 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 STATUTORY INFORMATION Directors William Fisher (Interim Non-Executive Chair) Jeremy Martin (Chief Executive Officer) Owen Bavinton (Non-Executive Director) Gillian Davidson (Non-Executive Director) Vincent Benoit (Non-Executive Director) Company Number 05676866 Registered Office Horizonte Minerals Plc Rex House 4-12 Regents Street London SW1Y 4RG United Kingdom Nominated Adviser and Broker Peel Hunt LLP 100 Liverpool Street London EC2M 2AT United Kingdom Joint Broker BMO Capital Markets Limited 95 Queen Victoria St London EC4V 4HG United Kingdom Independent Auditor BDO LLP 55 Baker Street Marylebone London W1U 7EU United Kingdom Solicitors to the Company As to English law: Norton Rose Fulbright LLP 3 More London Riverside London SE1 2AQ Gowling WLG (UK) LLP 4 More London Riverside London, SE1 2AU As to Canadian law: Cassels Brock and Blackwell LLP 2100 Scotia Plaza Toronto ON M5H 3C2 Canada As to Brazilian law: Freitas Ferraz Advogados Rua Santa Rita Durao, 1143, 7 Andar Savassi, CEP 30.140-118 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 112 HORIZONTE MINERALS 2022 ANNUAL REPORT NOTES Horizonte Minerals Plc, Rex House, 4-12 Regents Street, London, SW1Y 4RG, United Kingdom +44 (0)203 356 2901 • info@horizonteminerals.com • www.horizonteminerals.com

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