HZM Horizonte Minerals Plc

Horizonte Minerals Plc, (AIM: HZM, TSX: HZM) (‘Horizonte’ or the ‘Company’) the nickel development company focused in Brazil, announces its unaudited financial results for the six months ended 30 June 2019 and the Management Discussion and Analysis for the same period.

Both of the above have been posted on the Company's website at www.horizonteminerals.com and are also available on SEDAR at www.sedar.com.

Chairman’s Statement

The first six months of 2019 have seen continued progress on both the Araguaia Ferronickel (“Araguaia”) and Vermelho Nickel-Cobalt (“Vermelho”) projects, with both advancing in line with our planned strategy of creating a platform for the development of two world class projects and optionality to deliver ferronickel product to the stainless steel market and nickel sulphate and cobalt to the rapidly growing electric vehicle battery market.

Araguaia FeNi project

Following on from the publication of the Araguaia FS in October 2018 we began 2019 with a further positive milestone, being the award of the construction licence for the development of Araguaia. The award of the Construction Licence, Licença de Instalação ("LI"), was granted by SEMAS, the Brazilian Pará State Environmental Agency. The granting of the LI allows Horizonte to construct the Araguaia rotary kiln electric furnace ("RKEF") processing plant and associated infrastructure and represents a major de-risking step for the Araguaia project.

Subject to funding, Araguaia is now in a position to commence construction with the necessary environmental permits approved, including water abstraction permits issued in April 2018 together with the newly issued LI.

The award of the LI was delivered on time and on budget with the Horizonte team working closely with SEMAS, other State agencies and the local communities. Consistent with our objective to provide long-term sustainable value for our shareholders, employees and communities, we developed integrated solutions focused on environmental protection, water efficiency and socio-economic development. 

The first half of 2019 also saw the award of the Energy Decree which guarantees Horizonte access to the national grid with the required electrical energy demand for the commercial ferronickel operation at Araguaia.  This is another important milestone as we move towards the implementation phase. The availability of energy for mining projects is a risk in many countries, and this Energy Decree guarantees the Company has access to the national grid for the full-scale Stage 1 commercial operation with nameplate capacity of 14,500 tonnes of nickel per year.

Ongoing discussions continue with various parties regarding the project financing of Araguaia and we are pleased with the continued level of interest we have received from a range of commercial banks and industry specialists regarding debt and potential offtake and other non-equity sources of finance. The remainder of 2019 will be spent continuing those discussions and given the recent increase in nickel price we are optimistic that a  full finance package can be secured. We look forward to updating the market with progress on the financing in due course. 

Vermelho Ni Co project

The focus on Vermelho since the start of the year has been to advance the various work streams that feed into the Pre-Feasibility Study (“PFS”).

Positive metallurgical test work undertaken on Vermelho saprolite samples returned an average ferronickel grade of 31.8% nickel, which was of high quality, being low in trace elements and meeting the commercial requirement of stainless-steel manufacturers. This is a critical element  for the success of the project as it demonstrates the suitability of the conventional Rotary Kiln Electric Furnace ("RKEF") for processing Vermelho saprolite ore, thereby enabling the Vermelho resource to provide high grade feed material for the RKEF plant at Araguaia.

Additional metallurgical test work on samples of limonite ore produced high purity Cobalt Sulphate product containing 21.8% cobalt, exceeding the reference grade used for sulphate pricing. Nickel sulphate was also produced as a solution ready for purification to final EV battery grade product. These results confirm the suitability of the Pressure Acid Leach ('PAL') Process and subsequent purification stages for processing Vermelho limonite ore to produce high purity cobalt and nickel sulphate suitable to supply the ever increasingly important EV battery markets.

The production of  high purity nickel and cobalt sulphate from the Vermelho project of suitable quality and grade for use in EV battery production is a key step in moving the project forward. The Vermelho project is an additional significant value driver for the Company.  It is a high-grade scalable resource, with good infrastructure and has the potential to be fast tracked to development. 

The successful completion of this sulphate test work confirms that the PAL process flow sheet is suitable to treat the Vermelho ore and when combined with the earlier successful RKEF test work demonstrates that alternate process routes exist for the project. This gives Horizonte considerable flexibility, which combined with one of the largest undeveloped nickel resources globally, makes the Vermelho-Araguaia nickel district a truly exciting development opportunity.

Solid progress has been made on the PFS for Vermelho and I am pleased to confirm that it is nearing completion with the anticipation that the results of the study will be announced later this quarter.

Nickel Market

As Horizonte has advanced both of its 100% owned projects, nickel has continued to be the best performing metal on LME this year and stands at around US$15,500/t Ni at the date of this report. The long-term consensus pricing for Nickel remains around $16,400/t Ni which shows some further upside to the current price environment. There remains a significant concern amongst many market commentators and end users of nickel regarding the future availability of supply, especially with the anticipated widespread adoption of Electric Vehicles and the impact this is likely to have on already constrained nickel supplies. Wood Mackenzie forecast a long-term incentive price of $21,400/t Ni, which represents the price environment which would incentivise enough production to come online to satisfy expected future demand.  

It is worth reiterating that our FS for Araguaia was undertaken at a conservative base case price assumption of $14,000 /t Ni which demonstrated the robust nature of the project and its ability to work at lower nickel prices. The backdrop of rising prices positions your company very well with Araguaia’s expansion case estimated to have an NPV of $1.1billion and an NPV of 30% using $16,000/t Ni.

I would like to thank all of our stakeholders, including shareholders, advisers, consultants and particularly our team in both the UK and Brazil for their continued hard work at what is set to be an exciting time for Horizonte. We look forward to updating the market on progress on both of our world class projects in the near future.

David Hall Chairman 13 August 2019

For further information, visit www.horizonteminerals.com or contact:

Horizonte Minerals plc
Jeremy Martin (CEO) / Simon Retter (CFO)	+44 (0) 203 365 2901
Numis Securities Ltd (NOMAD & Joint Broker)
John Prior / Paul Gillam	+44 (0) 207 260 1000
Shard Capital (Joint Broker)
Damon Heath / Erik Woolgar	+44 (0) 20 7186 9952

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.

Horizonte Minerals plc

Condensed Consolidated Interim Financial Statements for the six months ended 30 June 2019

Condensed consolidated statement of comprehensive income

		6 months ended30 June				3 months ended30 June
		2019		2018		2019		2018
		Unaudited		Unaudited		Unaudited		Unaudited
	Notes	£		£		£		£
Continuing operations
Revenue		-		-		-		-
Cost of sales		-		-		-		-
Gross profit		-		-		-		-
Administrative expenses		(968,917	)	(785,348	)	(450,930	)	(494,155	)
Charge for share options granted		(237,171	)	(294,706	)	(107,178	)	(181,031	)
Change in value of contingent consideration		192,201		(194,474	)	(118,847	)	(294,549	)
Gain/(Loss) on foreign exchange		(4,049	)	92,798		52,192		137,972
Loss from operations		(1,017,936	)	(1,181,730	)	(624,763	)	(831,763	)
Finance income		33,791		21,875		20,840		16,249
Finance costs		(146,837	)	(140,322	)	(73,589	)	(68,703	)
Loss before taxation		(1,130,982	)	(1,300,177	)	(677,512	)	(884,217	)
Taxation		-		-		-		-
Loss for the year from continuing operations		(1,130,982	)	(1,300,177	)	(677,512	)	(884,217	)
Other comprehensive income
Items that may be reclassified subsequently to profit or lossChange in value of available for sale financial assets
Currency translation differences on translating foreign operations		465,523		(4,055,213	)	1,560,085		(2,948,200	)
Other comprehensive income for the period, net of tax		465,523		(4,055,213	)	1,560,085		(2,948,200	)
Total comprehensive income for the period
attributable to equity holders of the Company		(665,459	)	(5,355,390	)	882,573		(3,832,417	)
Earnings per share from continuing operations attributable to the equity holders of the Company
Basic and diluted (pence per share)	9	(0.078	)	(0.091	)	(0.047	)	(0.062	)

Condensed consolidated statement of financial position

		30 June 2019		31 December2018
		Unaudited		Audited
	Notes	£		£
Assets
Non-current assets
Intangible assets	6	37,484,232		35,737,901
Property, plant & equipment		865		1,186
		37,485,097		35,739,087
Current assets
Trade and other receivables		27,518		24,244
Cash and cash equivalents		4,322,699		6,527,115
		4,350,217		6,551,359
Total assets		41,835,314		42,290,446
Equity and liabilities
Equity attributable to owners of the parent
Issued capital	7	14,463,773		14,325,218
Share premium	7	41,785,306		41,664,018
Other reserves		(1,574,468	)	(2,039,991	)
Accumulated losses		(17,884,102	)	(16,990,290	)
Total equity		36,790,509		36,958,955
Liabilities
Non-current liabilities
Contingent consideration		3,106,152		3,461,833
Deferred tax liabilities		231,786		228,691
		3,337,938		3,690,524
Current liabilities
Trade and other payables		294,764		280,175
Deferred consideration		1,412,100		1,360,792
		1,706,864		1,640,967
Total liabilities		5,044,805		5,331,491
Total equity and liabilities		41,835,314		42,290,446

Condensed statement of changes in shareholders’ equity

	Attributable to the owners of the parent
	Sharecapital£		Sharepremium£		Accumulatedlosses£		Otherreserves£		Total£
As at 1 January 2018	13,719,343		40,422,258		(15,887,801	)	988,015		39,241,815
Comprehensive income
Loss for the period	-		-		(1,300,177	)	-		(1,300,177	)
Other comprehensive income
Currency translation differences	-		-		-		(4,055,213	)	(4,055,213	)
Total comprehensive income	-		-		(1,300,177	)	(4,055,213	)	(5,355,390	)
Transactions with owners
Issue of ordinary shares	605,875		1,451,724		-		-		2,057,599
Issue costs	-		(209,964	)	-		-		(209,964	)
Share based payments	-		-		294,706		-		294,706
Total transactions with owners	605,875		1,241,760		294,706		-		2,142,341
As at 30 June 2018 (unaudited)	14,325,218		41,664,018		(16,893,272	)	(3,067,198	)	36,028,766
	Attributable to the owners of the parent
	Sharecapital£		Sharepremium£		Accumulatedlosses£		Otherreserves£		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

Condensed Consolidated Statement of Cash Flows

		6 months ended30 June				3 months ended30 June
		2019		2018		2019		2018
		Unaudited		Unaudited		Unaudited		Unaudited
		£		£		£		£
Cash flows from operating activities
Loss before taxation		(1,130,982	)	(1,300,177	)	(677,512	)	(884,217	)
Interest income		(33,791	)	(21,875	)	(20,840	)	(16,249	)
Finance costs		146,837		140,322		72,589		68,703
Exchange differences		4,049		(92,798	)	(52,192	)	(137,972	)
Employee share options charge		237,171		294,706		107,178		181,031
Change in fair value of contingent consideration		(192,201	)	194,474		118,847		294,549
Depreciation		-		-		-		-
Operating loss before changes in working capital		(968,918	)	(785,348	)	(450,931	)	(494,155	)
Decrease/(increase) in trade and other receivables		(3,275	)	(42,799	)	10,840		8,706
(Decrease)/increase in trade and other payables		26,406		(297,071	)	23,616		(19,078	)
Net cash outflow from operating activities		(945,787	)	(1,125,218	)	(416,475	)	(504,527	)
Cash flows from investing activities
Purchase of intangible assets		(1,289,208	)	(1,285,340	)	(621,873	)	(661,440	)
Proceeds from sale of property, plant and equipment		-		-		-		-
Interest received		33,791		21,875		20,840		16,249
Net cash used in investing activities		(1,255,417	)	(1,263,465	)	(601,033	)	(645,191	)
Cash flows from financing activities
Proceeds form issue of ordinary shares		-		2,057,599		-		-
Issue costs		-		(209,965	)	-		-
Net cash used in financing activities		-		1,847,634		-		-
Net decrease in cash and cash equivalents		(2,201,204	)	(541,049	)	(1,017,508	)	(1,149,719	)
Cash and cash equivalents at beginning of period		6,527,115		9,403,825		5,288,014		9,971,253
Exchange gain/(loss) on cash and cash equivalents		(3,212	)	106,896		52,192		148,138
Cash and cash equivalents at end of the period		4,322,699		8,969,672		4,322,699		8,969,672

                                                                                                                                         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 2018, 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 2018 were approved by the Board of Directors on 28 March 2019 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 audited financial statements prepared as at 31 December 2018 include certain disclosures in note 2.4 regarding a material uncertainty of the Group’s ability to continue as a going concern. These disclosures remain pertinent and due to the current operations on the Group not generating any revenues access to additional funding sources maybe required within the next 12 months in order to continue operations.

The Directors have a reasonable expectation that the Group has the ability to raise additional funds required in order to continue in operational existence for the foreseeable future and they therefore continue to adopt the going concern basis of accounting in preparing these Financial Statements. However, given the uncertainty surrounding the ability and likely timing of securing such investment finance, the Directors are of the opinion that there exists a material uncertainty that may cast significant doubt on the Group and Parent Company’s ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Group and Parent Company were unable to continue as a going concern.

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.

3.  Significant 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 2018.

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.

2019	UK		Brazil		Total
	6 months ended30 June 2019£		6 months ended30 June 2019£		6 months ended30 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
2018	UK		Brazil		Total
	6 months ended30 June 2018£(Restated)		6 months ended30 June 2018£(Restated)		6 months ended30 June 2018£(Restated)
Revenue	-		-		-
Administrative expenses	(595,100	)	(190,248	)	(785,348	)
Profit/(Loss) on foreign exchange	134,070		(41,272	)	92,798
(Loss) from operations per reportable segment	(461,030	)	(231,520	)	(692,550	)
Inter segment revenues	-		-		-
Depreciation charges	-		-		-
Additions and foreign exchange movements to non-current assets	-		(1,319,706	)	(1,319,706	)
Reportable segment assets	8,933,086		32,867,781		41,800,867
Reportable segment liabilities	5,209,572		562,529		5,772,101

2019	UK		Brazil		Total
	3 months ended30 June 2019		3 months ended30 June 2019		3 months ended30 June 2019
	£		£		£
Revenue	-		-		-
Administrative expenses	(310,048	)	(140,882	)	(450,930	)
Profit 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

2018	UK		Brazil		Total
	3 months ended30 June 2018		3 months ended30 June 2018		3 months ended30 June 2018
	£(Restated)		£(Restated)		£(Restated)
Revenue	-		-		-
Administrative expenses	(419,003	)	(75,152	)	(494,155	)
Profit/(Loss) on foreign exchange	170,232		(32,260	)	137,972
(Loss) from operations per	(248,771	)	(107,412	)	(356,183	)
reportable segment
Inter segment revenues	-		-		-
Depreciation charges	-		-		-
Additions and foreign exchange movements to non-current assets	-		(1,721,480	)	(1,721,480	)

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

	6 months ended 30 June 2019		6 months ended 30 June 2018		3 months ended30 June 2019		3 months ended30 June 2018
	£		£		£		£
Loss from operations per reportable segment	(972,966	)	(692,550	)	(398,738	)	(356,183	)
– Change in fair value of contingent consideration	192,201		(194,474	)	(118,847	)	(294,549	)
– Charge for share options granted	(237,171	)	(294,706	)	(107,178	)	(181,031	)
– Finance income	33,791		21,875		20,840		16,249
– Finance costs	(146,837	)	(140,322	)	(73,589	)	(68,703	)
Loss for the period from continuing operations	(1,130,982	)	(1,300,177	)	(677,512	)	(884,217	)

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 £3,106,152 at 30 June 2019 (30 June 2018: £3,461,833). 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 2019, there was a finance expense of £100,946 (2018: £97,826) 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 credit to profit or loss of £197,617 for the six months ended 30 June 2019 (30 June 2018: £112,928 ) due to changes in the exchange rate of the functional currency in which the liability is payable.

6.  Intangible assets

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

			Exploration		Exploration and
	Goodwill		licences		evaluation costs		Total
	£		£		£		£
Cost
At 1 January 2019	226,757		6,130,295		29,380,849		35,737,901
Additions	-		-		1,277,722		1,277,722
Exchange rate movements	3,069		58,201		407,339		468,609
Net book amount at 30 June 2019	229,826		6,188,496		31,065,910		37,484,232

7.  Share Capital and Share Premium

       

Issued and fully paid	Number ofshares		Ordinaryshares£		Sharepremium £		Total £
At 1 January 2019	1,432,521,800		14,325,218		41,664,018		55,989,236
At 30 June 2019	1,446,377,287		14,463,773		41,785,306		56,249,079

8.  Dividends

No dividend has been declared or paid by the Company during the six months ended 30 June 2019 (2018: nil).

9.  Earnings per share

The calculation of the basic loss per share of 0.078 pence for the 6 months ended 30 June 2019 (30 June 2018 loss per share: 0.091 pence) is based on the loss attributable to the equity holders of the Company of £ (1,130,982) for the six month period ended 30 June 2019 (30 June 2018: (£1,300,177)) divided by the weighted average number of shares in issue during the period of 1,444,616,645 (weighted average number of shares for the 6 months ended 30 June 2018: 1,429,509,162).

The calculation of the basic loss per share of 0.047 pence for the 3 months ended 30 June 2019 (30 June 2018 loss per share: 0.062 pence) is based on the loss attributable to the equity holders of the Company of £ (677,512) for the three month period ended 30 June 2019 (3 months ended 30 June 2018: (£884,217) divided by the weighted average number of shares in issue during the period of 1,432,521,800 (weighted average number of shares for the 3 months ended 30 June 2018: 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 2018 and in note 10 below.

10.  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.

On 30 May 2018, the Company awarded 38,150,000 share options to Directors and senior management. All of these share options have an exercise price of 4.80 pence. One third of the options are exercisable from 30 November 2018, one third from 31 May 2018 and one third from 30 November 2019.

On 30 May 2018, the Company awarded 1,500,000 share options to a consultant to the Company under the terms of the prior year’s scheme. These options are exercisable immediately.

11.  Ultimate controlling party

The Directors believe there to be no ultimate controlling party.

12.  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 2018.

13.  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 13 August 2019.