Horizonte Minerals PLC Announces Q3 Financial Results
*QUARTERLY FINANCIAL RESULTS FOR THE THREE MONTHS ENDED 30 SEPTEMBER 2022*
*LONDON, UK / ACCESSWIRE / November 11, 2022 / Horizonte Minerals Plc *("Horizonte" or the "Company")* (AIM:HZM)(TSX:HZM),* the nickel company developing two Tier 1 assets in Brazil, announces it has today published its unaudited financial results for the three months to 30 September 2022 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:*
· A number of key construction contracts including industrial civil works and main power line awarded for Araguaia;
· Critical path items advancing in line with the schedule, including furnace shell arrival on site and furnace concrete block foundations set;
· Araguaia Nickel Project approved as a Strategic Minerals Project by the Brazilian Government;
· Feasibility Study Contract Awarded to Wood plc for Vermelho Nickel-Cobalt Project;
· No lost time injuries recorded to date, with over 482,000 hours worked; and
· Maintained a strong cash position of US$131 million at 30 September 2022, prior to any debt draw down and completion of recently announced fund raise.
*Post period highlights*
· Closing of US$80 million fundraise for the construction of the Araguaia nickel project ("Araguaia" or the "Project");
· Contracts totalling in excess of US$400 million awarded to-date at Araguaia, with all key equipment supply and technical support services for the balance of the Araguaia process flow sheet secured;
· Electro-mechanical contract awarded to MIP Engenharia & Milplan Engenharia; and
· Araguaia construction running in line with project execution schedule.
A full progress update on Araguaia along with an investor webinar will be provided in December 2022.
*For further information, visit **www.horizonteminerals.com** or contact:*
*Horizonte Minerals plc*
Jeremy Martin (CEO)
Simon Retter (CFO)
Patrick Chambers (Head of Investor Relations)
info@horizonteminerals.com
+44 (0) 203 356 2901
*Peel Hunt LLP (Nominated Adviser & Joint Broker)*
Ross Allister
David McKeown
+44 (0)20 7418 8900
*BMO (Joint Broker)*
Thomas Rider
Pascal Lussier Duquette
Andrew Cameron
+44 (0) 20 7236 1010
*Tavistock (Financial PR)*
Emily Moss
Cath Drummond
Adam Baynes
+44 (0) 20 7920 3150
*ABOUT HORIZONTE MINERALS*
Horizonte Minerals plc (AIM & TSX: HZM) is developing two 100%-owned, Tier 1 projects in Parà state, Brazil - the Araguaia Nickel Project and the Vermelho Nickel-Cobalt Project. Both projects are large scale, high-grade, low-cost, low-carbon and scalable. Araguaia will produce 29,000 tonnes of nickel per year to supply the stainless steel market. Vermelho is at feasibility study stage and will produce 25,000 tonnes of nickel and 1,250 tonnes of cobalt to supply the EV battery market. Horizonte's combined near-term production profile of over 60,000 tonnes of nickel per year positions the Company as a globally significant nickel producer. Horizonte is developing a new nickel district in Brazil that will benefit from established infrastructure, including hydroelectric power available in the Carajás Mining District.
*CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION*
Except for statements of historical fact relating to the Company, certain information contained in this press release constitutes "forward-looking information" under Canadian securities legislation. Forward-looking information includes, but is not limited to, the ability of the Company to complete the acquisition of equipment as described herein, statements with respect to the potential of the Company's current or future property mineral projects; the ability of the Company to complete a positive feasibility study regarding the second RKEF line at Araguaia on time, or at all, the success of exploration and mining activities; cost and timing of future exploration, production and development; the costs and timing for delivery of the equipment to be purchased as described herein, 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 and achieving production in accordance with the Company's potential production profile or at all. Generally, forward-looking information can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved". Forward-looking information is based on the reasonable assumptions, estimates, analysis and opinions of management made in light of its experience and its perception of trends, current conditions and expected developments, as well as other factors that management believes to be relevant and reasonable in the circumstances at the date that such statements are made, and are inherently subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking information, including but not limited to risks related to: the inability of the Company to complete the acquisition of equipment contemplated herein, on time or at all, the ability of the Company to complete a positive feasibility study regarding the implementation of a second RKEF line at Araguaia on the timeline contemplated or at all, 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, together with the risks identified and disclosed in the Company's disclosure record available on the Company's profile on SEDAR at www.sedar.com, including without limitation, the annual information form of the Company for the year ended December 31, 2021, the Araguaia Report and the Vermelho Report. 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.
*Horizonte Minerals Plc*
*Restated Unaudited Condensed Consolidated Interim Financial Statements for the nine months ended 30 September 2022*
*Restated Condensed Consolidated Statement of Comprehensive Income*
*9 months ended*
*30 September*
*3 months ended*
*30 September*
*2022* *2021 Restated (Note 2.1)* *2022* *2021 Restated (Note 2.1)*
*Unaudited* *Unaudited* *Unaudited* *Unaudited* Notes *US$* *US$* *US$* *US$*
Administrative expenses
(9,504,757 ) (5,593,102 ) (2,841,133 ) (1,921,621 )
Share based payments expense
17 (508,529 ) - (508,529 ) -
Change in fair value of special warrant liability
- (1,616,120 ) - -
Change in fair value of derivatives
11 4,360,500 - - -
Gain/(loss) on foreign exchange
8,586,024 483,286 (797,045 ) (1,721,587 )
*Profit/(Loss) before interest and tax*
*2,933,238* *(6,725,936* *)* *(4,146,707* *)* *(3,643,208* *)*
Net finance (costs)/income
5 (5,665,339 ) (214,689 ) (2,433,333 ) (73,566 )
*(Loss)/Profit before taxation*
*(2,732,101* *)* *(6,940,625* *)* *(6,580,040* *)* *(3,716,774* *)*
Taxation
- - *-* *-*
*(Loss)/Profit for the year*
*(2,732,101* *)* *(6,940,625* *)* *(6,580,040* *)* *(3,716,774* *)*
*Other comprehensive income Items that may be reclassified subsequently to profit or loss*
Cash flow hedges - foreign forward contracts
13 (7,845,763 ) - (3,208,230 ) -
Currency translation differences on translating foreign operations
(17,549,770 ) (2,685,045 ) (7,760,495 ) (4,754,646 )
*Other comprehensive income for the period, net of tax*
*(25,395,533* *)* *(2,685,045* *)* *(10,968,725* *)* *(4,754,646* *)*
*Total comprehensive income for the period*
*(28,127,634* *)* *(9,625,670* *)* *(17,548,765* *)* *(8,471,420* *)*
*attributable to equity holders of the Company*
*Earnings per share attributable to the equity holders of the Group*
Basic & Diluted earnings per share (pence per share)
16 *(1.435* *)* *(8.488* *)* *(3.455* *)* *(4.372* *)*
*Restated Condensed Consolidated Statement of Financial Position*
*30 September*
*2022*
*31 December*
*2021 Restated (Note 2.1)*
*Unaudited* *Audited* Notes *US$* *US$*
*Assets*
*Non-current assets*
Intangible assets
6 9,997,895 8,309,485
Property, plant & equipment
7 218,583,242 70,594,090
Right of use assets
689,720 380,482 229,270,857 79,284,057
*Current assets*
Trade and other receivables
30,551,781 13,796,628
Derivative financial asset
10 b 9,540,000 4,950,000
Cash and cash equivalents
131,203,868 210,492,280 171,295,649 229,238,908
*Total assets*
*400,566,506* *308,522,965*
*Equity and liabilities*
*Equity attributable to owners of the parent*
Issued capital
8 52,305,376 52,215,236
Share premium
8 245,672,686 245,388,102
Other reserves
(48,668,257 ) (23,272,724 )
Accumulated losses
(47,109,682 ) (45,077,646 )
*Total equity*
*202,200,123* *229,252,968*
*Liabilities*
*Non-current liabilities*
Contingent consideration
9 6,779,135 6,734,132
Royalty Finance
10 a 88,600,396 44,496,504
Deferred consideration
9 4,727,125 4,526,425
Convertible loan notes liability
11 59,056,362 -
Environmental rehabilitation provision
12 98,036 -
Lease liabilities
587,863 321,717
Derivative financial liabilities
13 644,098 -
Trade payables
694,292 608,976 161,187,307 56,687,754
*Current liabilities*
Trade and other payables
28,905,680 21,574,365
Deferred consideration
9 950,000 949,113
Lease liabilities
121,732 58,765
Derivative financial liabilities
13 7,201,664 - 37,179,076 22,582,243
*Total liabilities*
*198,366,383* *79,269,997*
*Total equity and liabilities*
*400,566,506* *308,522,965*
*Restated Condensed Statement of Changes in Shareholders' Equity*
Attributable to the owners of the parent Share
capital
US$
Share
premium
US$
Accumulated
losses
US$
Other
reserves
US$
Total
US$
*As at 1 January 2021 Restated (Note 2.1)*
*20,666,053* *65,355,677* *(33,304,178* *)* *(23,519,096* *)* *29,198,456*
*Comprehensive income*
Loss for the period
- - (6,940,625 ) - (6,940,625 )
*Other comprehensive income*
Currency translation differences
- - - (2,685,045 ) (2,685,045 )
*Total comprehensive income*
- - *(6,940,625* *)* *(2,685,045* *)* *(9,625,670* *)*
*Transactions with owners*
Issue of ordinary shares
2,281,637 14,830,639 - - 17,112,276
Issue costs
- (1,037,822 ) - - (1,037,822 )
Conversion of special warrants into shares
1,213,556 7,986,413 1,616,120 - 10,816,089
Issue costs
- (819,935 ) - - (819,935 )
*Total transactions with owners*
*3,495,193* *20,959,295* *1,616,120* *-* *26,070,608*
*As at 30 September 2021 Restated (Note 2.1) (unaudited)*
*24,161,246* *86,314,972* *(38,628,683* *)* *(26,204,141* *)* *45,643,394*
Attributable to the owners of the parent Share
capital
US$
Share
premium
US$
Accumulated
losses
US$
Other
reserves
US$
Total
US$
*As at 1 January 2022 Restated (Note 2.1)*
*52,215,236* *245,388,102* *(45,077,646* *)* *(23,272,724* *)* *229,252,968*
*Comprehensive income*
Loss for the period
- - (2,732,101 ) - (2,732,101 )
*Other comprehensive income*
Cash flow hedges - foreign forward contracts
- - - (7,845,763 ) (7,845,763 )
Currency translation differences
- - - (17,549,770 ) (17,549,770 )
*Total comprehensive income*
*-* *-* *(2,732,101* *)* *(25,395,533* *)* *(28,127,634* *)*
*Transactions with owners*
Issue of ordinary shares
90,140 284,584 191,536 - 566,260
Share based payments
*-* *-* 508,529 - 508,529
*Total transactions with owners*
*90,140* *284,584* *700,065* *-* *1,074,789*
*As at 30 September 2022 (unaudited)*
*52,305,376* *245,672,686* *(47,109,682* *)* *(48,668,257* *)* *202,200,123*
*Restated Condensed Consolidated Statement of Cash Flows*
*9 months ended*
*30 September*
*3 months ended*
*30 September*
*2022* *2021*
*Restated (Note 2.1)*
*2022* *2021*
*Restated*
*(Note 2.1)*
*Unaudited* *Unaudited* *Unaudited* *Unaudited*
*US$* *US$* *US$* *US$*
*Cash flows from operating activities*
Profit/(Loss) before taxation
(2,732,101 ) (6,940,625 ) (6,580,040 ) (3,716,775 )
Share based payments expense
17 508,529 - 508,529 -
Net finance costs/(income)
5 5,665,339 214,689 2,433,333 73,566
Fair value adjustments of derivative assets
11 (4,360,500 ) - - -
Change in fair value of special warrant liability
- 1,616,120 - -
Exchange differences
(8,586,024 ) (483,286 ) 797,045 1,721,587
*Operating loss before changes in working capital*
*(9,504,757* *)* *(5,593,102* *)* *(2,841,133* *)* *(1,921,622* *)*
Decrease/(increase) in trade and other receivables
(13,560,173 ) (453,748 ) (10,502,914 ) (134,965 )
(Decrease)/increase in trade and other payables
7,416,636 1,160,587 19,257,493 (3,299,040 )
*Net cash (outflow)/inflow from operating activities*
*(15,648,294* *)* *(4,886,263* *)* *5,913,446* *(5,355,627* *)*
*Cash flows from investing activities*
Purchase of intangible assets
6 (1,409,985 ) (248,014 ) (1,192,638 ) (119,694 )
Purchase of property, plant and equipment
7 (131,481,417 ) (9,957,265 ) (64,434,117 ) 843,509
Interest received
5 4,460,729 311,920 2,066,435 159,974
*Net cash outflow from investing activities*
*(128,430,673* *)* *(9,893,359* *)* *(63,560,320* *)* *883,789*
*Cash flows from financing activities*
Net proceeds from issue of ordinary shares
8 566,260 16,074,454 29,534 -
Proceeds from issue of convertible loan notes
11 61,262,500 - - -
Issue costs
11 (2,347,041 ) - - -
Proceeds from royalty finance arrangement
10 a 25,000,000 - - -
Issue costs
10 a (847,939 ) - - -
Net proceeds from issue of share warrants
- 8,448,140 - -
*Net cash inflow from financing activities*
*83,633,780* *24,522,594* *29,534* *-*
*Net (decrease)/increase in cash and cash equivalents*
*(60,445,187* *)* *9,742,972* *(57,617,340* *)* *(4,471,838* *)*
Cash and cash equivalents at beginning of period
210,492,280 14,925,021 198,956,061 30,655,023
Exchange gain/(loss) on cash and cash equivalents
(18,843,225 ) (49,047 ) (10,134,853 ) (1,564,239 )
*Cash and cash equivalents at end of the period*
*131,203,868* *24,618,946* *131,203,868* *24,618,946*
*Restated 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 financial statements for the year ended 31 December 2021 were prepared in accordance with UK adopted International Financial Reporting Standards and International Accounting Standards as issued by the International Accounting Standards Board (IASB) and Interpretations (collectively IFRSs).
The condensed consolidated interim financial statements for the nine-month reporting period ended 30 September 2022 have been prepared in accordance with IAS 34 as issued by the IASB and the UK-adopted International Accounting Standard 34, 'Interim Financial Reporting'.
The interim report does not include all of the notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the annual report for the year ended 31 December 2021, and any public announcements made by the Group during the interim reporting period.
The financial information for the year ended 31 December 2021 contained in these interim financial statements does not constitute the company's statutory accounts for that period. Statutory accounts for the year ended 31 December 2021 have been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006. The auditor's report drew attention to a material uncertainty related to the Group's ability to continue as a going concern (refer to the going concern note below), however the auditor's opinion was not modified in respect of this matter.
*2.1 Change in presentation currency*
Horizonte Minerals Plc has decided to change 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 performance 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 Accounting Estimates and Errors requiring the restatement of comparative information. IAS 34 does not require additional retrospective disclosure of the statement of financial position. 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* *30 September 2021*
Closing rate
1.3477 1.3484
Average rate
1.3774 1.3866
*USD/BRL*
Closing rate
5.5710 5.4490
Average rate
5.3810 5.3181
*2.2a Going concern*
The condensed consolidated interim financial statements have been prepared on a going concern basis. Although the Group's assets are not generating revenues, the Directors consider that the Group has access to 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 development and exploration 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 fundraising will be used towards the construction of the Araguaia project as well as for general working capital purposes. In addition, the Group 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 being 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).
Funds from the convertible loan notes and the royalty were received in March 2022. The first drawdown under the Senior Debt Facility is expected to occur in the fourth quarter of 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 monthly during the remainder of the construction period, again following the satisfaction of certain conditions precedent customary to a financing of this nature. As the senior debt is conditional, there is no guarantee that the conditions of this element of the debt package will be satisfied.
The funds held at the end of the period along with those to be raised post period end following the satisfaction of any condition's precedent for the successful draw down of the Senior Debt Facility (Including access to any of the funds secured as part of the Cost Overrun Facility), means the Group has cash reserves which 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. The drawdown of the Senior Debt Facility is conditional upon the expenditure of a certain level of equity amongst other conditions precedent, by which time the Group is expected to have made significant financial commitments. There exists a risk that the Senior Debt Facility is not able to be drawn due to unforeseen circumstances or noncompliance with any conditions precedent which may or may not be within the control of the Group. Should the Senior Debt not be drawn then the Group might require alternative sources of funding to meet its commitments.
These events are outside of the Group's control, and as such, 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.
If additional projects are identified and the Vermelho project advances, additional funding may be required.
These factors indicate the existence of a material uncertainty which may cast significant doubt over the Group's ability to continue as a going concern and therefore they may be unable to realise its assets and discharge their 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.
*2.2b Assessment of the impact of COVID-19*
During the period of these financial statements there has been an ongoing significant global pandemic which has had significant knock-on effects for the majority of the world's population, by way of the measure's governments are taking to tackle the issue. This represents a risk to the Group's operations by restricting travel, the potential to detriment the health and wellbeing of its employees, as well as the effects that this might have on the ability of the Group to finance and advance its operations in the timeframes envisaged. The Group has taken steps to try and ensure the safety of its employees and operate under the current circumstances and feels the outlook for its operations remains positive, however risk remain should the pandemic worsen or changes its impact on the Group. The assessment of the possible impact on the going concern position of the Group is set out in the going concern note above. In addition, because of the long-term nature of the Group's nickel projects and their strong project economics management do not consider that COVID has given rise to any impairment indicators. The Group has not received any government assistance.
The uncertainty as to the future impact of the Covid-19 pandemic has been considered as part of the Group's adoption of the going concern basis. In response to the easing of Covid-19 restrictions, employees are working from the Group's offices in London and Brazil and will continue to adhere to government guidelines. International travel has resumed and site work for the two projects has been resumed.
To date, the Group has not been materially adversely affected by the COVID-19 pandemic. However, the ongoing nature and uncertainty of the pandemic in many countries including the measures and restrictions put in place (travel bans and quarantining in particular) continue to have the ability to impact the Group's business continuity, workforce, supply-chain, business development and, consequently, future revenues.
In addition, any infections occurring on the Group's premises could result in the Group's operations being suspended, which may have an adverse impact on the Group's operations as well as adverse implications on the Group's future cash flows, profitability and financial condition. Supply chain disruptions resulting from the COVID-19 pandemic and measures implemented by governmental authorities around the world to limit the transmission of the virus (such as travel bans and quarantining) may, in addition to the general level of economic uncertainty caused by the COVID-19 pandemic, also adversely impact the Group's operations, financial position and prospects.
As a result of considerations noted above, the Directors consider the impact of COVID-19 could delay the drawdown of the senior debt facility.
*2.3 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 2021 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 . In addition to the key risks, the key financial risks are liquidity risk, foreign exchange risk, credit risk, price risk and interest rate risk.
*2.4 Use of estimates and judgements*
The preparation of condensed consolidated interim financial statements requires management to make estimates and judgements 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 2021 Annual Report and Financial Statements. The nature and amounts of such estimates and judgements have not changed significantly during the interim period. Estimates and judgements relating to the Vermelho Royalty and the convertible loan notes are not covered in the Group's 2021 Annual Report and Financial Statements and are detailed below.
*2.4a Accounting for the Vermelho Royalty Financing 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 Araguaia 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 10b.1) and 10b.2).
*2.4b 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 determined at initial recognition. The conversion option did not satisfy the fixed for fixed equity criterion (fixed number of shares and fixed amount of 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 11.
*3**. **Significant accounting policies*
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 audited Financial Statements for the year ended 31 December 2021 except for the new accounting policy applied for the convertible loan notes, hedge accounting and the environmental rehabilitation provision which is detailed below.
*3.1 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 utilisation. Borrowing costs capitalised include:
· Interest charge on the Araguaia royalty finance
· Adjustments to the carrying value of the Araguaia royalty finance
· Unwinding of discount on contingent consideration payable for Araguaia
· Unwinding of discount on the convertible loan notes
· Commitment fees payable on the senior debt facility
All other borrowing costs are recognized as part of interest expense in the year which they are incurred.
*3.2 Derivative financial instruments*
Derivatives are initially measured at fair value, and changes therein are recognised in profit or loss, except when hedge accounting is adopted and changes in fair value are recognised in equity. All directly attributable transaction costs are recognised in profit or loss as incurred.
*3.3 Convertible loan notes*
The convertible loan issued by the Group 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 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. Conversion features that are derivative liabilities are accounted for separately from the host instrument. The embedded derivative is accounted for as a financial instrument through profit or loss and is initially measured at fair value, and changes therein are recognised in profit or loss. The debt host liability is accounted for at amortised cost. In the case of a hybrid financial instrument, IFRS 9 requires that the fair value of the embedded derivative is calculated first and the residual value (residual proceeds) is assigned to the host financial liability.
Transaction costs are apportioned to the debt host liability and the embedded derivative in proportion to the allocation proceeds. The portion attributed to the conversion feature is expensed immediately, because transaction costs are expensed immediately for all financial instruments measured at fair value through profit or loss. The portion of transaction costs that are attributed to the loan (measured at amortised cost), are subtracted from the carrying amount of the financial liability and amortised as part of the effective interest rate.
*3.4 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 determined 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 exchange 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 consolidated 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.
*3.5 Foreign currency translation*
(a) Functional and presentation currency
Items included in the Financial Statements of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The functional currency of the UK and Isle of Man entities is Pounds Sterling and the functional currency of the Brazilian entities is Brazilian Real. The functional currency of the project financing subsidiary incorporated in the Netherlands is US Dollars. The Consolidated Financial Statements as at 31 December 2021 were presented in Pounds Sterling, rounded to the nearest pound, which is the Company's functional and Group's presentation currency. As disclosed in note 2 Basis of Preparation, for the financial year commencing 1 January 2022 and future financial years the Group's presentation currency will be US Dollars, rounded to the nearest dollar.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where such items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.
(c) Group companies
The results and financial position of all the Group's entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
1. assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position;
2. each component of profit or loss is translated at average exchange rates during the accounting period (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and
3. all resulting exchange differences are recognised in other comprehensive income.
On consolidation, exchange differences arising from the translation of the net investment in foreign entities, and of monetary items receivable from foreign subsidiaries for which settlement is neither planned nor likely to occur in the foreseeable future are taken to other comprehensive income. When a foreign operation is sold, such exchange differences are recognised in profit or loss as part of the gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and retranslated at the end of each reporting period.
The major exchange rates used for the revaluation of the statement of financial position at 30 September 2022 were £1:US$1.12 (31 December 2021: £1:US$1.35), Brazilian Real (R$):US$0.18 (31 December 2021: R$:US$0.18).
Foreign currency translation reserve includes movements that relate to the retranslation of the subsidiaries whose functional currencies are not US Dollars.
During the first quarter of 2022, the Brazilian Real strengthened by approximately 15% from R$5.57 to R$4.74 against the US Dollar since 31 December 2021 (31 March 2021: depreciated approximately by 10% from R$5.20 at 31 December 2020 to R$5.70). During the second quarter of 2022, the Brazilian Real depreciated further by approximately 11% to R$5.24 against the US Dollar since 31 March 2022 (30 June 2021: strengthened approximately by 12% to R$5.01). During the third quarter of 2022, the Brazilian Real depreciated by approximately 3% to R$5.41 against the US Dollar since 30 June 2022 (30 September 2021: depreciated approximately by 9% to R$5.45). Currency translation differences for the nine-month period of $17.5 million loss (2021: $2.7 million loss) 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 and Pounds Sterling.
The foreign exchange gain for the nine-month period of $9 million included in the statement of comprehensive income relates to the translation differences of foreign currency cash and cash equivalents balances and intercompany balances denominated in currencies other than the functional currency of the entity.
*3.6 Environmental rehabilitation provision*
The Group has recognised provisions for liabilities of uncertain timing or amount including the environmental rehabilitation provision. The provision is measured at the best estimate of the expenditure required to settle the obligation at the period end date, discounted at a pre-tax rate reflecting current market assessments of the time value of money and risks specific to the liability.
*3.7 Share-based payments*
The Group operates equity-settled, share-based compensation plans, under which the entity receives services from employees as consideration for equity instruments (options) of the Group. The fair value of employee services received in exchange for the grant of share options are recognised as an expense. The total expense to be apportioned over the vesting period is determined by reference to the fair value of the options granted:
· including any market performance conditions;
· excluding the impact of any service and non-market performance vesting conditions; and
· including the impact of any non-vesting conditions.
Non-market performance and service conditions are included in assumptions about the number of options that are expected to vest. The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each reporting period the Group revises its estimate of the number of options that are expected to vest.
It recognises the impact of the revision of original estimates, if any, in profit or loss, with a corresponding adjustment to equity.
When options are exercised, the Company issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium.
The fair value of goods or services received in exchange for shares is recognised as an expense.
*3.6 Impact of accounting standards to be applied in future periods*
There are a number of standards and interpretations which have been issued by the International Accounting Standards Board that are effective for periods beginning subsequent to 31 December 2022 that the Group has decided not to adopt early. The Group does not believe these standards and interpretations will have a material impact on the financial statements once adopted.
*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 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* *Brazil* *Netherlands* *Total* *9 months*
*ended*
*30 September 2022*
*US$*
*9 months*
*ended*
*30 September 2022*
*US$*
*9 months*
*ended*
*30 September 2022*
*US$*
*9 months*
*ended*
*30 September 2022*
*US$*
Administrative expenses
(7,465,840 ) (1,902,253 ) (136,664 ) (9,504,757 )
Share based payments expense
(508,529 ) - - (508,529 )
Change in fair value of derivative
4,360,500 - - 4,360,500
Profit/(Loss) on foreign exchange
8,627,415 - (41,391 ) 8,586,024
*Profit/(Loss) before interest and tax per reportable segment*
*5,013,546* *(1,902,253* *)* *(178,055* *)* *2,933,238*
Net finance costs
74,831 (201,197 ) (5,538,973 ) (5,665,339 )
Profit/(Loss) before taxation
5,088,377 (2,103,450 ) (5,717,028 ) (2,732,101 )
Depreciation charges
- 35,186 - 35,186
Additions to non-current assets
- 132,891,403 - 132,891,403
Capitalisation of borrowing costs
- 13,260,561 - 13,260,561
Foreign exchange movements to non-current assets
- 3,484,915 - 3,484,915
Reportable segment assets
105,005,050 285,664,136 9,897,320 400,566,506
Reportable segment liabilities
72,910,728 36,846,304 88,609,350 198,366,382
*2021*
*UK* *Brazil* *Netherlands* *Total*
*9 months*
*ended*
*30 September 2021*
*US$*
*9 months*
*ended*
*30 September 2021*
*US$*
*9 months*
*ended*
*30 September 2021*
*US$*
Administrative expenses
(4,946,681 ) (553,789 ) (92,632 ) (5,593,102 )
Change in fair value of special warrant liability
(1,616,120 ) - - (1,616,120 )
Profit/(Loss) on foreign exchange
(58,992 ) - 542,278 483,286
*Loss before interest and tax per reportable segment*
(6,621,793 ) (553,789 ) 449,646 (6,725,936 )
Net finance costs
(214,689 ) - - (214,689 )
Loss before taxation
(6,836,482 ) (553,789 ) 449,646 (6,940,625 )
Depreciation charges
- 13,646 - 13,646
Additions to non-current assets
- 14,442,749 - 14,442,749
Capitalisation of borrowing costs
- 7,486,579 - 7,486,579
Foreign exchange movements to non-current assets
- (1,606,193 ) - (1,606,193 )
Reportable segment assets
13,327,460 82,190,208 2,603,805 98,121,473
Reportable segment liabilities
9,935,239 4,806,571 37,736,269 52,478,079
*2022*
*UK* *Brazil* *Netherlands* *Total*
*3 months*
*ended*
*30 September 2022*
*US$*
*3 months*
*ended*
*30 September 2022*
*US$*
*3 months*
*ended*
*30 September 2022*
*US$*
Administrative expenses
(2,185,371 ) (613,198 ) (42,564 ) (2,841,133 )
Share based payments expense
(508,529 ) - - (508,529 )
Change in fair value of derivative
- - - -
Profit/(Loss) on foreign exchange
554,012 (335,535 ) (1,015,522 ) (797,045 )
*Profit/(Loss) before interest and tax per reportable segment*
*(2,139,888* *)* *(948,733* *)* *(1,058,086* *)* *(4,146,707* *)*
Net finance costs
(73,566 ) 66,130 (2,425,897 ) (2,433,333 )
Profit/(Loss) before taxation
(2,213,454 ) (882,603 ) (3,483,983 ) (6,580,040 )
Depreciation charges
- 13,009 - 13,009
Additions to non-current assets
- 60,720,658 - 60,720,658
Capitalisation of borrowing costs
- 4,840,344 - 4,840,344
Foreign exchange movements to non-current assets
- (1,898,279 ) - (1,898,279 )
*2021*
*UK* *Brazil* *Netherlands* *Total*
*3 months*
*ended*
*30 September 2021*
*US$*
*3 months*
*ended*
*30 September 2021*
*US$*
*3 months*
*ended*
*30 September 2021*
*US$*
Administrative expenses
(1,635,123 ) (243,862 ) (42,636 ) (1,921,621 )
Change in fair value of special warrant liability
- - - -
Profit/(Loss) on foreign exchange
(467,189 ) - (1,254,398 ) (1,721,587 )
*Loss before interest and tax per reportable segment*
(2,102,312 ) (243,862 ) (1,297,034 ) (3,643,208 )
Net finance costs
(73,566 ) - - (73,566 )
Loss before taxation
(2,175,878 ) (243,862 ) (1,297,034 ) (3,716,774 )
Depreciation charges
- 5,355 - 5,355
Additions to non-current assets
- 3,657,467 - 3,657,467
Capitalisation of borrowing costs
- 3,114,898 - 3,114,898
Foreign exchange movements to non-current assets
- (3,750,293 ) - (3,750,293 )
*5 Finance income and costs*
*9 months*
*ended*
*30 September 2022*
*9 months*
*ended*
*30 September 2021*
*3 months*
*ended*
*30 September 2022*
*3 months*
*ended*
*30 September 2021*
*US$*
*US$*
*US$*
*US$*
Finance income
- Interest income on cash and short-term deposits 4,460,729
311,920
2,066,435
159,974
Finance costs
- Interest on land purchases (169,382)
-
78,156
-
- Interest on lease liability (38,410)
-
(13,945)
-
- Commitment fees on senior debt (3,794,151)
-
(1,527,649)
-
- Other (8,960)
-
(5,114)
-
- Contingent and deferred consideration: unwinding of discount (577,665)
(419,519)
(120,110)
(143,755)
- Contingent and deferred consideration: Fair value adjustment 31,677
-
(74,449)
-
- Contingent and deferred consideration: change in estimate 299,399
-
-
-
- Convertible loan note: unwinding of discount (3,767,306)
-
(1,914,701)
-
- Amortisation of Royalty Finance (6,608,422)
(3,405,152)
(2,740,264)
(1,188,256)
- Royalty finance carrying value adjustment (8,753,409)
(4,188,517)
(3,022,036)
(2,016,427)
Total finance costs pre-capitalisation (18,925,900)
(7,701,268)
(7,273,677)
(3,188,464)
Finance costs capitalised to the Araguaia mine development project 13,260,561
7,486,579
4,840,344
3,114,898
Net finance costs (5,665,339)
(214,689)
(2,433,333)
(73,566)
*6 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
Software
Total
US$
US$
US$
US$
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)
(480,024)
(88,701)
-
(583,569)
Net book amount at 31 December 2021 *201,135*
*6,455,129*
*1,563,215*
*90,006*
*8,309,485*
Additions -
223,768
1,095,394
90,823
1,409,985
Amortisation for the year -
-
-
(20,431)
(20,431)
Exchange rate movements 7,234
270,232
18,154
3,237
298,856
Net book amount at 30 September 2022 *208,369*
*6,949,129*
*2,676,762*
*163,635*
*9,997,895*
Impairment assessments for exploration and evaluation assets are carried out either on a project-by-project basis or by geographical area.
*7 Property, plant and equipment*
Mine Development Property
Vehicles and other field equipment
Office equipment
Land acquisition
Building improvements
Total
US$
US$
US$
US$
US$
US$
Cost
At 1 January 2021 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)
-
-
-
Disposals -
-
(1,385)
-
-
(1,385)
Capitalised interest 7,073,241
-
-
-
-
7,073,241
Exchange rate movements (2,893,576)
(7,206)
(5,368)
(8,185)
-
(2,914,335)
At 31 December 2021 *59,417,577*
*857,991*
*140,866*
*10,310,330*
*-*
*70,726,764*
Additions 128,783,919
-
162,086
2,499,087
36,325
131,481,417
Environmental rehabilitation additions 98,036
-
-
-
-
98,036
Transfers 756,217
(787,730)
31,306
-
207
-
Capitalised interest 13,260,561
-
-
-
-
13,260,561
Disposals -
-
(1,885)
-
-
(1,885)
Exchange rate movements 2,784,084
30,858
5,066
370,819
-
3,190,828
At 30 September 2022 *205,100,394*
*101,121*
*337,439*
*13,180,235*
*36,532*
*218,755,721*
Accumulated depreciation
At 1 January 2021 -
78,036
42,719
-
-
120,755
Charge for the year -
7,526
12,840
-
-
20,366
Transfer -
222
(222)
-
-
-
Disposals -
-
(168)
-
-
(168)
Exchange rate movements -
(5,350)
(2,929)
-
-
(8,279)
At 31 December 2021 *-*
*80,434*
*52,240*
*-*
*-*
*132,674*
Charge for the period -
5,720
29,072
-
393
35,185
Transfer -
(720)
703
-
17
-
Disposals -
-
(151)
-
-
(151)
Exchange rate movements -
2,893
1,879
-
-
4,771
At 30 September 2022 *-*
*88,327*
*83,742*
*-*
*410*
*172,479*
Net book amount as at 30 September 2022 *205,100,394*
*12,794*
*253,697*
*13,180,235*
*36,122*
*218,583,242*
Net book amount as at 31 December 2021 *59,417,577*
*777,557*
*88,626*
*10,310,330*
*-*
*70,594,090*
In December 2018, a Canadian NI 43-101 compliant Feasibility Study ("FS') was published by the Company regarding the enlarged Araguaia Project which included the Vale dos Sonhos deposit acquired from Glencore.
The financial results and conclusions of the FS clearly indicate the economic viability of the Araguaia Project with an NPV of $401M using a nickel price of $14,000/t Ni. Nothing material had changed with the economics of the FS between the publication date and the date of this report and the Directors undertook an assessment of impairment for the 2021 audited financial statements through evaluating the results of the FS along with recent market information relating to capital markets and nickel prices and judged that there are no impairment indicators with regards to the Araguaia Project. Since then, no impairment indicators have been identified.
*8 Share Capital and Share Premium*
On 11 April 2022 the Group issued 6,000,000 new ordinary shares (after share consolidation 300,000 shares) at a price of 4.33 pence per share in relation to the exercise of options by an employee of the Company.
On 31 May 2022 the Group completed a share consolidation on the basis of 1 new share for every 20 existing shares. As a result of the share consolidation, the Company's issued share capital consists of 190,418,279 ordinary shares of £0.20 each.
*Issued and fully paid*
Number of shares (before share consolidation)
Number of shares (after share consolidation)
Ordinary shares
US$
Share premium
US$
Total
US$
At 1 January 2022 Restated
*3,802,365,590*
*190,118,279*
*52,215,236*
*245,388,102*
*297,603,338*
Issue of equity
7,000,000
350,000
90,140
284,584
374,724
*At 30 September 2022*
*3,809,365,590*
*190,468,279*
*52,305,376*
*245,672,686*
*297,978,062*
The share premium as at 1 January 2022 was restated by US$2,549,459 due to issue costs relating to the December equity raise that was invoiced after the year end date.
*9 Contingent and Deferred Consideration*
*Contingent Consideration payable to Xstrata Brasil Mineração Ltda.*
The contingent consideration payable to Xstrata Brasil Mineração Ltda for the acquisition of the Araguaia project has a carrying value of US$2,428,446 at 30 September 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 from the 'Vale dos Sonhos' resource areas within the Enlarged Project area. The key assumptions underlying the treatment of the contingent consideration the US$5,000,000 and a discount factor of 7.0% along with the estimated date of first commercial production.
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 have been capitalised to the mine development asset. The borrowing costs capitalised for the nine months to 30 September 2022 is US$119,834 (30 September 2021: US$204,831).
*Contingent Consideration payable to Vale Metais Basicos S.A.*
The contingent consideration payable to Vale Metais Basicos S.A. for the acquisition of the Vermelho project has a carrying value of US$4,350,690 at 30 September 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.
As at 30 September 2022, there was a net finance income of US$74,831 (30 September 2021: US$214,689) 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 net finance income includes a change in estimate due to the change in the estimated date of first commercial production from 30 June 2026 to 30 June 2027. The finance costs in respect of this contingent consideration are expensed as the Vermelho project has not entered the construction phase.
*Deferred Consideration payable to Companhia Brasileira de Alumínio*
The deferred consideration payable to Companhia Brasileira de Aluminio has a carrying value of US$5,677,125 at 30 September 2022 (31 December 2021: US$5,475,538). It comprises US$7,000,000 consideration in cash for ferronickel processing equipment which payable on the completion of certain milestones in the Araguaia project and was recognised for the first time in December 2021. The milestones are as follows:
a) US$600,000 payable on execution of the Agreement, this was paid on 9 December 2021;
b) US$950,000 upon the removal of 80% of the Processing Equipment from CBA's Niquelândia operations;
c) US$950,000 upon reaching 50% completion of Araguaia plant construction;
d) d) US$1,150,000 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
e) e) US$3,350,000 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 it's choosing with up to 50% of the total able to be paid in Horizonte's shares, at Horizonte's election.
The key assumptions underlying the treatment of the deferred consideration is a discount factor of 7.0% and the estimated timing of the milestones as outlined previously.
As of 30 September 2022, there was a finance expense of US$201,587 (30 September 2021: $nil) recognised in finance costs within the Statement of Comprehensive Income in respect of this deferred consideration arrangement, as the discount applied to the deferred consideration at the date of acquisition was unwound.
Companhia Brasileira de Aluminio
(in respect of Araguaia project)
Xstrata Brasil Mineração Ltda (in respect of Araguaia project) Vale Metais Basicos S.A. (in respect of Vermelho project) Total
US$ US$ US$ US$
At 1 January 2021
Initial recognition
5,450,087 3,946,090 4,136,002 13,532,179
Unwinding of discount
19,256 276,226 289,520 585,002
Change in estimate
- (1,913,705 ) - (1,913,705 )
Change in carrying value and foreign exchange
6,195 - (1 ) 6,194
At 31 December 2021
5,475,538 2,308,611 4,425,521 12,209,670
Unwinding of discount
233,264 119,834 224,567 577,665
Change in estimate
- - (299,399 ) (299,399 )
Change in carrying value and foreign exchange
(31,677 ) - 1 (31,676 )
At 30 September 2022
5,677,125 2,428,445 4,350,690 12,456,260
*10 a) Royalty Financing liability*
*10 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 exch