Horizonte Minerals: Interim Financial Results for the Six Months Ended 30 June 2020

- August 14th, 2020

Horizonte Minerals announces it has today published its unaudited financial results for the six month period to 30 June 2020 and the management discussion and analysis for the same period.

Horizonte Minerals Plc, (AIM: HZM; TSX: HZM) (the “Company” or “Horizonte”), the nickel development company focused on developing its ferro-nickel project in Brazil (“Araguaia” or “the Project”), announces it has today published its unaudited financial results for the six month period to 30 June 2020 and the Management Discussion and Analysis for the same period. Both of the aforementioned documents have been posted on the Company’s website www.horizonteminerals.com and are also available on SEDAR at www.sedar.com.

Highlights for the Period

  • Horizonte maintained a strong cash position of £15.6m following completion of the US$25 million royalty transaction with Orion Mine Finance in Q4 2019;
  • Well funded to advance Araguaia towards being construction ready;
  • Project financing process currently running to schedule with no negative effects on the process observed as a result of the Covid-19 pandemic, although a delay to the process may occur should a further period of ‘lock-down’ be implemented;
  • Work on Araguaia continued to advance the level of engineering from feasibility stage level through to being implementation ready;
  • Ms Sepanta Dorri was appointed to the board as the nominee Director for Teck Resources (“Teck”) replacing Alex Christopher who stepped down due to other commitments;
  • All employees and relevant stakeholders continue to follow strict health and safety policies specifically tailored to Covid-19. Remote working, where practicable, remains in place with all major workstreams continuing as planned;
  • The Group donated 300 food parcels during April & May to the municipalities of Conceição do Araguaia, Floresta do Araguaia and Xinguara, in light of the socio-economic impact caused by Covid-19; and
  • Nickel market fundamentals remain robust, with analyst consensus price of $16,133/t at the time Araguaia is forecast to commence production, driven by growth in the EV battery sector and steady growth in the stainless steel market.

Events post the Reporting Date

  • A syndicate of five international financial institutions mandated for a US$325 million senior debt facility to part fund the development of Araguaia;
  • BNP Paribas, ING Capital LLC, Mizuho Bank, Ltd., Natixis, New York Branch, and Société Générale will act as the Mandated Lead Arrangers;
  • Closing of the facility, targeted for end of the calendar year 2020, remains subject to completion of due diligence, final credit approvals and execution of definitive facility documentation; and
  • Peel Hunt LLP appointed as nominated adviser and sole broker to the Company.

Horizonte Minerals plc

Condensed Consolidated Interim Financial Statements for the six months ended 30 June 2020

Condensed consolidated statement of comprehensive income

6 months ended
30 June
3 months ended
30 June
2020 2019 2020 2019
Unaudited Unaudited Unaudited Unaudited
Notes £ £ £ £
Continuing operations          
Revenue
Cost of sales
         
Gross profit
       
Administrative expenses (1,565,142 ) (968,917 ) (890,685 ) (450,930 )
Charge for share options granted (237,171 ) (107,178 )
Change in value of contingent consideration (391,160 ) 192,201 91,850 (118,847 )
Gain/(Loss) on foreign exchange 1,126,822 (4,049 ) 185,376 52,192
       
Loss from operations (829,480 ) (1,017,936 ) (613,459 ) (624,763 )
Finance income 90,730 33,791 45,485 20,840
Finance costs (1,941,704 ) (146,837 ) (1,083,712 ) (73,589 )
     
Loss before taxation (2,680,454 ) (1,130,982 ) (1,651,686 ) (677,512 )
Taxation
     
Loss for the year from continuing operations (2,680,454 ) (1,130,982 ) (1,651,686 ) (677,512 )
   
Other comprehensive income  
Items that may be reclassified subsequently to profit or loss
Change in value of available for sale financial assets
Currency translation differences on translating foreign operations (8,067,677 ) 465,523 (1,457,805 ) 1,560,085
 

Other comprehensive income for the period, net of tax

  (8,067,677 ) 465,523 (1,457,805 ) 1,560,085
Total comprehensive income for the period  
attributable to equity holders of the Company (10,748,131 ) (665,459 ) (3,109,491 ) 882,573
         
Earnings per share from continuing operations attributable to the equity holders of the Company          
       
Basic and diluted (pence per share) 9 (0.185 ) (0.078 ) (0.114 ) (0.047 )

Condensed consolidated statement of financial position

30 June
2020
31 December
2019
Unaudited Audited
Notes £ £
Assets    
Non-current assets    
Intangible assets 6 8,039,824 7,057,445
Property, plant & equipment 26,007,694 32,260,544
34,047,518 39,317,989
Current assets
Trade and other receivables 82,319 134,726
Derivative financial asset 2,409,348 2,246,809
Cash and cash equivalents 15,594,717 17,760,330
18,086,384 20,141,865
Total assets 52,133,902 59,459,854
Equity and liabilities    
Equity attributable to owners of the parent    
Issued capital 7 14,463,773 14,463,773
Share premium 7 41,785,306 41,785,306
Other reserves (12,734,607 ) (4,666,930 )
Accumulated losses (22,515,546 ) (19,835,092 )
Total equity 20,998,926 31,747,057
Liabilities
Non-current liabilities
Contingent consideration 6,859,764 6,246,071
Royalty Finance 23,692,173 20,570,411
Deferred tax liabilities 166,939 212,382
30,718,876 27,028,864
Current liabilities
Trade and other payables 416,100 683,933
Deferred consideration
416,100 683,933
Total liabilities 31,134,976 27,712,864
Total equity and liabilities 52,133,902 59,459,854

Condensed statement of changes in shareholders’ equity

Attributable to the owners of the parent
Share
capital
£
Share
premium
£
Accumulated
losses
£
Other
reserves
£
Total
£
As at 1 January 2019 14,325,218 41,664,018 (16,990,291 ) (2,039,991 ) 36,958,954
Comprehensive income
Loss for the period (1,130,982 ) (1,130,982 )
Other comprehensive income
Currency translation differences 465,523 465,523
Total comprehensive income (1,130,982 ) 465,523 (665,459 )
Transactions with owners
Issue of ordinary shares 138,555 121,288 259,843
Issue costs
Share based payments 237,171 237,171
Total transactions with owners 138,555 121,288 237,171 497,014
As at 30 June 2019 (unaudited) 14,463,773 41,785,306 (17,884,102 ) (1,574,468 ) 36,790,509

Attributable to the owners of the parent
Share
capital
£
Share
premium
£
Accumulated
losses
£
Other
reserves
£
Total
£
As at 1 January 2020 14,463,773 41,785,306 (19,835,092 ) (4,666,930 ) 31,747,057
Comprehensive income
Loss for the period (2,680,454 ) (2,680,454 )
Other comprehensive income
Currency translation differences (8,067,677 ) (8,067,677 )
Total comprehensive income (2,680,454 ) (8,067,677 ) (10,748,131 )
Transactions with owners
Issue of ordinary shares
Issue costs
Share based payments
Total transactions with owners
As at 30 June 2020 (unaudited) 14,463,773 41,785,306 (22,515,546 ) (12,734,607 ) 20,998,926

Condensed Consolidated Statement of Cash Flows

6 months ended
30 June
3 months ended
30 June
2020 2019 2020 2019
Unaudited Unaudited Unaudited Unaudited
  £ £ £ £
Cash flows from operating activities        
Loss before taxation (2,680,454 ) (1,130,982 ) (1,651,686 ) (677,512 )
Interest income (90,730 ) (33,791 ) (45,485 ) (20,840 )
Finance costs 1,941,704 146,837 1,083,712 72,589
Exchange differences (1,126,822 ) 4,049 (185,376 ) (52,192 )
Employee share options charge 237,171 107,178
Change in fair value of contingent consideration 391,160 (192,201 ) (91,850 ) 118,847
Depreciation
Operating loss before changes in working capital (1,565,142 ) (968,918 ) (890,685 ) (450,931 )
Decrease/(increase) in trade and other receivables 53,126 (3,275 ) 56,001 10,840
(Decrease)/increase in trade and other payables (137,320 ) 26,406 (15,113 ) 23,616
Net cash outflow from operating activities (1,649,336 ) (945,787 ) (849,797 ) (416,475 )
Cash flows from investing activities        
Purchase of intangible assets (1,326,585 ) (1,289,208 ) (599,918 ) (621,873 )
Purchase of property, plant and equipment (407,243 ) (180,092 )
Interest received 90,730 33,791 45,485 20,840
Net cash used in investing activities (1,643,098 ) (1,255,417 ) (734,525 ) (601,033 )
Cash flows from financing activities        
Proceeds form issue of ordinary shares
Issue costs
Net cash used in financing activities
Net decrease in cash and cash equivalents (3,292,434 ) (2,201,204 ) (1,584,322 )   (1,017,508 )
Cash and cash equivalents at beginning of period 17,760,330 6,527,115 16,993,664 5,288,014
Exchange gain/(loss) on cash and cash equivalents 1,126,822 (3,212 ) 185,376 52,192
Cash and cash equivalents at end of the period 15,594,718 4,322,699 15,594,718   4,322,699
       

Notes to the Financial Statements

1.  General information

The principal activity of the Company and its subsidiaries (together ‘the Group’) is the exploration and development of precious and base metals. There is no seasonality or cyclicality of the Group’s operations.

The Company’s shares are listed on the Alternative Investment Market of the London Stock Exchange (AIM) and on the Toronto Stock Exchange (TSX). The Company is incorporated and domiciled in the United Kingdom. The address of its registered office is Rex House, 4-12 Regent Street, London SW1Y 4RG.

2.  Basis of preparation

The condensed consolidated interim financial statements have been prepared using accounting policies consistent with International Financial Reporting Standards and in accordance with International Accounting Standard 34 Interim Financial Reporting. The condensed interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2019, which have been prepared in accordance with International Financial Reporting Standards (IFRS).

The condensed consolidated interim financial statements set out above do not constitute statutory accounts within the meaning of the Companies Act 2006. They have been prepared on a going concern basis in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS). Statutory financial statements for the year ended 31 December 2019 were approved by the Board of Directors on 7 April 2020 and delivered to the Registrar of Companies. The report of the auditors on those financial statements was unqualified.

The condensed  consolidated interim financial statements of the Company have not been audited or reviewed by the Company’s auditor, BDO LLP.

Going concern

The Directors, having made appropriate enquiries, consider that adequate resources exist for the Group to continue in operational existence for the foreseeable future and that, therefore, it is appropriate to adopt the going concern basis in preparing the condensed consolidated interim financial statements for the period ended 30 June 2020. Please refer to note 2.2 in the annual report for 2019 for the assessment of the current Covid-19 pandemic on the operations of the Group.

Risks and uncertainties

The Board continuously assesses and monitors the key risks of the business. The key risks that could affect the Group’s medium term performance and the factors that mitigate those risks have not substantially changed from those set out in the Group’s 2018 Annual Report and Financial Statements, a copy of which is available on the Group’s website: www.horizonteminerals.com and on Sedar: www.sedar.com The key financial risks are liquidity risk, foreign exchange risk, credit risk, price risk and interest rate risk.

Critical accounting estimates

The preparation of condensed consolidated interim financial statements 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. Significant items subject to such estimates are set out in note 4 of the Group’s 2018 Annual Report and Financial Statements. The nature and amounts of such estimates have not changed significantly during the interim period.

3Significant accounting policies

The condensed consolidated interim financial statements have been prepared under the historical cost convention as modified by the revaluation of certain of the subsidiaries’ assets and liabilities to fair value for consolidation purposes.

The same accounting policies, presentation and methods of computation have been followed in these condensed consolidated interim financial statements as were applied in the preparation of the Group’s Financial Statements for the year ended 31 December 2019.

4.  Segmental reporting

The Group operates principally in the UK and Brazil, with operations managed on a project by project basis within each geographical area. Activities in the UK are mainly administrative in nature whilst the activities in Brazil relate to exploration and evaluation work. The reports used by the chief operating decision maker are based on these geographical segments.

2020

UK Brazil  

Other

Total
6 months ended
30 June 2020
£
6 months ended
30 June 2020
£
6 months ended
30 June 2020
£
6 months ended
30 June 2020
£
Revenue
Administrative expenses (1,026,821 ) (328,537 ) (209,784 ) (1,565,142 )
Profit  on foreign exchange 1,065,995 35,342 25,485 1,126,822
(Loss) from operations per reportable segment 39,174 (293,195 ) (184,299 ) (438,320 )
Inter segment revenues
Depreciation charges
Additions and foreign exchange movements to non-current assets (6,252,503 ) (6,252,503 )
Reportable segment assets 9,557,383 39,893,444 2,683,075 52,133,902
Reportable segment liabilities 7,018,073 424,730 23,692,173 31,134,976

2019

UK Brazil  

Other

Total
6 months ended
30 June 2019
£
6 months ended
30 June 2019
£
6 months ended
30 June 2019
£
6 months ended
30 June 2019
£
Revenue
Administrative expenses (639,106 ) (329,811 ) (968,917 )
Profit  on foreign exchange (12,344 ) 8,295 (4,049 )
(Loss) from operations per reportable segment (651,450 ) (321,516 ) (972,966 )
Inter segment revenues
Depreciation charges
Additions and foreign exchange movements to non-current assets 1,734,262 1,734,262
Reportable segment assets 3,435,042 38,400,272 41,835,314
Reportable segment liabilities 4,595,902 448,902 5,044,804

 
 

2020

UK Brazil  

Other

Total
3 months ended
30 June 2020
3 months ended
30 June 2020
3 months ended
30 June 2020
3 months ended
30 June 2020
£ £ £ £
Revenue
Administrative expenses (588,360 ) (164,143 ) (138,182 ) (890,685 )
Profit on foreign exchange 65,848 94,043 25,485 185,376
(Loss) from operations per (522,512 ) (70,100 ) (112,697 ) (705,309 )
reportable segment
Inter segment revenues
Depreciation charges
Additions and foreign exchange movements to non-current assets 1,589,722 1,589,722
 

2019 UK   Brazil  

Other

Total
3 months ended
30 June 2019
3 months ended
30 June 2019
3 months ended
30 June 2019
3 months ended
30 June 2019
£ £ £ £
Revenue
Administrative expenses (310,048 ) (140,882 ) (450,930 )
Profit/(Loss) on foreign exchange 8,249 43,943 52,192
(Loss) from operations per (301,799 ) (96,939 ) (398,738 )
reportable segment
Inter segment revenues
Depreciation charges
Additions and foreign exchange movements to non-current assets 2,195,257 2,195,257
 

A reconciliation of adjusted loss from operations per reportable segment to loss before tax is provided as follows:

6 months ended
30 June 2020
6 months ended
30 June 2019
3 months ended
30 June 2020
3 months ended
30 June 2019
£ £ £ £
Loss from operations per reportable segment

(438,320

)

(972,966 ) (705,309 ) (398,738 )
– Change in fair value of contingent consideration (391,160 ) 192,201 91,850 (118,847 )
– Charge for share options granted (237,171 ) (107,178 )
– Finance income 90,730 33,791 45,485 20,840
– Finance costs (1,941,704 ) (146,837 ) (1,083,712 ) (73,589 )
Loss for the period from continuing operations (2,680,454 ) (1,130,982 ) (1,651,686 ) (677,512 )

5.  Change in Fair Value of Contingent Consideration

Contingent Consideration payable to Xstrata Brasil Mineração Ltda.

The contingent consideration payable to Xstrata Brasil Mineração Ltda has a carrying value of £3,268,329 at 30 June 2020 (30 June 2019: £3,106,152). It comprises US$5,000,000 consideration in cash as at the date of first commercial production from any of the resource areas within the Enlarged Project area. The key assumptions underlying the treatment of the contingent consideration the US$5,000,000 are based on the current rates of tax on profits in Brazil of 34% and a discount factor of 7.0% along with the estimated date of first commercial production.

As at 30 June 2020, there was a finance expense of £106,025 (2019: £100,946 ) recognised in finance costs within the Statement of Comprehensive Income in respect of this contingent consideration arrangement, as the discount applied to the contingent consideration at the date of acquisition was unwound.

The change in the fair value of contingent consideration payable to Xstrata Brasil Mineração Ltda generated a loss of £186,367 for the six months ended 30 June 2020 (30 June 2019: £197,617 credit) due to changes in the exchange rate of the functional currency in which the liability is payable.

Contingent Consideration payable to Vale Metais Basicos S.A.

The contingent consideration payable to Vale Metais Basicos S.A. has a carrying value of £3,591,433 at 30 June 2020 (2019: £nil ). 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 the US$6,000,000 are the same as those for the Xstrata contingent consideration and are based on the current rates of tax on profits in Brazil of 34% and a discount factor of 7.0% along with the estimated date of first commercial production.

As at 30 June 2020, there was a finance expense of £116,507 (2019: £nil ) recognised in finance costs within the Statement of Comprehensive Income in respect of this contingent consideration arrangement, as the discount applied to the contingent consideration at the date of acquisition was unwound.

The change in the fair value of contingent consideration payable to Vale Metais Basicos S.A. generated a loss of £204,792 for the six months ended 30 June 2020 (2019: £nil) due to changes in the value of the functional currency in which the liability is payable (USD).

6. Finance income and costs

6 months ended
30 June 2020
6 months ended
30 June 2019
£ £
Finance income
– Interest income on cash and short-term deposits 90,730 33,791
Finance costs
– Contingent and deferred consideration: unwinding of discount (222,532 ) (146,837 )
– Amortisation of Royalty Finance (1,619,744 )
– Royalty Fair Value Adjustment (99,428 )
– Movement in fair value of derivative asset
Total finance costs (1,941,704 ) (146,837 )
Net finance costs (1,850,974 ) (113,046 )

7.  Intangible assets

Intangible assets comprise exploration and evaluation costs and goodwill. Exploration and evaluation costs comprise internally generated and acquired assets.

Exploration and
Goodwill Exploration licences evaluation costs Total
£ £ £ £
Cost
At 1 January 2020 210,585 4,534,392 2,312,467 7,057,444
Additions 1,264,906 1,264,906
Exchange rate movements (45,057 ) 302,836 (540,305 ) (282,526 )
Net book amount at 30 June 2020 165,528 4,837,228 3,037,068 8,039,824

8.  Share Capital and Share Premium

Issued and fully paid Number of
shares
Ordinary shares
£
Share premium
£
Total
£
At 1 January 2020 1,446,377,287 14,463,773 41,785,306 56,249,079
At 30 June 2020 1,446,377,287 14,463,773 41,785,306 56,249,079

9.  Dividends

No dividend has been declared or paid by the Company during the six months ended 30 June 2020 (2019: nil).

10.  Earnings per share

The calculation of the basic loss per share of 0.185 pence for the 6 months ended 30 June 2020 (30 June 2019 loss per share: 0.078 pence) is based on the loss attributable to the equity holders of the Company of £ (2,680,454) for the six month period ended 30 June 2020 (30 June 2019: (£1,130,982)) divided by the weighted average number of shares in issue during the period of 1,446,337,287 (weighted average number of shares for the 6 months ended 30 June 2019: 1,444,616,645 ).

The calculation of the basic loss per share of 0.114 pence for the 3 months ended 30 June 2020 (30 June 2019 loss per share: 0.047 pence) is based on the loss attributable to the equity holders of the Company of £ (1,651,686) for the three month period ended 30 June 2020 (3 months ended 30 June 2019: (£677,512) divided by the weighted average number of shares in issue during the period of 1,446,337,287 (weighted average number of shares for the 3 months ended 30 June 2019: 1,432,521,800 ).

The basic and diluted loss per share is the same, as the effect of the exercise of share options would be to decrease the loss per share.

Details of share options that could potentially dilute earnings per share in future periods are disclosed in the notes to the Group’s Annual Report and Financial Statements for the year ended 31 December 2019 and in note 10 below.

11.  Issue of Share Options

On 12 February 2019, the Company awarded 2,000,000 share options to leading members of the Brazilian operations team. All of these share options have an exercise price of 4.80 pence. One third of the options are exercisable from August 2019, one third from February 2019 and one third from August 2020.

12.  Ultimate controlling party

The Directors believe there to be no ultimate controlling party.

13.  Related party transactions

The nature of related party transactions of the Group has not changed from those described in the Group’s Annual Report and Financial Statements for the year ended 31 December 2019.

14.  Events after the reporting period

There are no events which have occurred after the reporting period which would be material to the financial statements.

Approval of interim financial statements

These Condensed Consolidated Interim Financial Statements were approved by the Board of Directors on 12 August 2020.

* * ENDS * *

For further information contact:

Horizonte Minerals plc
Jeremy Martin (CEO)
Anna Legge (Corporate Communications)
+44 (0)203 356 2901
a.legge@horizonteminerals.com
Peel Hunt (NOMAD & Joint Broker)
Ross Allister
David McKeown
+44 (0)207 418 8900
Tavistock (Financial PR)
Gareth Tredway
Annabel de Morgan
+44 (0) 207 920 3150
horizonte@tavistock.co.uk

About Horizonte Minerals:

Horizonte Minerals plc is an AIM and TSX-listed nickel development company focused in Brazil. The Company is developing the Araguaia project, as the next major ferronickel mine in Brazil, and the Vermelho nickel-cobalt project, with the aim of being able to supply nickel and cobalt to the EV battery market. Both projects are 100% owned.

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION

Except for statements of historical fact relating to the Company, certain information contained in this press release constitutes “forward-looking information” under Canadian securities legislation. Forward-looking information includes, but is not limited to, statements with respect to the potential of the Company’s current or future property mineral projects; the success of exploration and mining activities; cost and timing of future exploration, production and development; the estimation of mineral resources and reserves and the ability of the Company to achieve its goals in respect of growing its mineral resources; the realization of mineral resource and reserve estimates. Generally, forward-looking information can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. Forward-looking information is based on the reasonable assumptions, estimates, analysis and opinions of management made in light of its experience and its perception of trends, current conditions and expected developments, as well as other factors that management believes to be relevant and reasonable in the circumstances at the date that such statements are made, and are inherently subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking information, including but not limited to risks related to: exploration and mining risks, competition from competitors with greater capital; the Company’s lack of experience with respect to development-stage mining operations; fluctuations in metal prices; uninsured risks; environmental and other regulatory requirements; exploration, mining and other licences; the Company’s future payment obligations; potential disputes with respect to the Company’s title to, and the area of, its mining concessions; the Company’s dependence on its ability to obtain sufficient financing in the future; the Company’s dependence on its relationships with third parties; the Company’s joint ventures; the potential of currency fluctuations and political or economic instability  in countries in which the Company operates; currency exchange fluctuations; the Company’s ability to manage its growth effectively; the trading market for the ordinary shares of the Company; uncertainty with respect to the Company’s plans to continue to develop its operations and new projects; the Company’s dependence on key personnel; possible conflicts of interest of directors and officers of the Company, and various risks associated with the legal and regulatory framework within which the Company operates. Although management of the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements.

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