Horizonte Minerals Plc
(“Horizonte” or the “Company”)

Q1 Financial Results for the three months ended 31 March 2022

Horizonte Minerals Plc (AIM: HZM, TSX: HZM), the nickel company focused in Brazil announces it has today published its unaudited financial results for the three month period to 31 March 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:

• Closing of US$633 million funding package for construction of Araguaia nickel project;
• Awarded a number of key construction contracts including furnace, EPCM, and earthworks;
• Further additions to the project execution team;
• Approved start of construction in late January 2022 with earthworks contractor mobilised to site in May to maximise productivity during the dry season;
• Project development work is running in line with the project execution schedule with a significant ramp up in activity expected over the coming months as we move into the dry season;
• Company to adopt reporting currency to USD (previously GBP) ahead of first revenue in 2024;
• Strong balance sheet with cash and cash equivalents US$252m at 31 March 2022.

Financial Update

The Company concluded the 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. The equity fundraise (US$197million of the US$633 million) was finalised and funds were received in December 2021. The debt elements of the funding package include Convertible Loan Notes (US$65 million), a Cost Overrun Facility of US$25 million, and a Senior Debt Facility of US$346.2 million were closed during March 22. First draw is expected on from the senior debt facility in late Q3 22.

The Company has changed its presentation currency from Pounds Sterling to US Dollars effective 1 January 2022. The presentation currency has been revised as the financing package concluded by the Group to construct the Araguaia project is denominated in US Dollars and future revenues will also be in US Dollars. The Board, therefore, believes that US Dollar financial reporting provides a more relevant presentation of the group’s financial position, funding and treasury functions, financial performance, and cash flows.

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

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 is fully funded and in construction. The project 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 50,000 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.

Horizonte Minerals Plc

Restated Unaudited Condensed Consolidated Interim Financial Statements for the three months ended 31 March 2022

Restated Condensed Consolidated Statement of Comprehensive Income

Restated Condensed Consolidated Statement of Financial Position

Restated Condensed Statement of Changes in Shareholders’ Equity

Restated Condensed Consolidated Statement of Cash Flows

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 International Financial Reporting Standards and International Accounting Standards as issued by the International Accounting Standards Board (IASB) and Interpretations (collectively IFRSs).

On 31 December 2020, IFRS as adopted by the European Union at that date was brought into UK law and became UK-adopted international accounting standards, with future changes being subject to endorsement by the UK Endorsement Board. The Group transitioned to UK-adopted international accounting standards in its consolidated financial statements on 1 January 2021. There was no impact or changes in accounting policies from the transition and the Group will also continue to comply with IFRS and their interpretations issued by the IASB.

The condensed consolidated interim financial statements for the three month reporting period ended 31 March 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.

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:

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 sufficient funds to undertake its operating activities for a period of at least the next 12 months including any additional expenditure required in relation to its current exploration projects. The Group has cash reserves which are considered sufficient by the Directors to fund the Group’s committed expenditure both operationally and on its exploration project for the foreseeable future.

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 company 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. 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 was received in March 2022. The first drawdown under the Senior Debt Facility is expected to occur in September 2022 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 year-end along with those to be raised post year end 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 company 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 and the Company’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.

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.

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.

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.

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 which is detailed below.

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

All other borrowing costs are recognized as part of interest expense in the year which they are incurred.

Derivative financial instrument

Derivatives are initially measured at fair value, and changes therein are recognised in profit or loss. All directly attributable transaction costs are recognised in profit or loss as incurred.

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 31 March 2022 were £1:US$1.32 (31 December 2021: £1:US$1.35), Brazilian Real (R$):US$0.21 (31 December 2021: R$: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: weakened approximately by 10% from R$5.20 at 31 December 2020 to R$5.70). Currency translation differences for the three month period of £18 million gain (2021:$5.4 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 three month period of $7million 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.

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.

5 Finance income and costs

6 Intangible assets

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

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

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

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 $2,347,450 at 31 March 2022 (31 December 2021: $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 three months to 31 March 2022 is $38,838 (31 March 2021: $66,385).

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 $4,499,972 at 31 March 2022 (31 December 2021: $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 31 March 2022, there was a finance expense of $74,450 (31 March 2021: $69,580) 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 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 $5,519,461 at 31 March 2022 (31 December 2021: $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:

1. US$600,000 payable on execution of the Agreement, this was paid on 9 December 2021;
2. US$950,000 upon the removal of 80% of the Processing Equipment from CBA’s Niquelândia operations;
3. US$950,000 upon reaching 50% completion of Araguaia plant construction;
4. 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
5. 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 its 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 at 31 March 2022, there was a finance expense of $75,600 (31 March 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.

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 $25,000,000 before fees in exchange for a royalty, the rate being in a range from 2.25% to 3.00% and determined by the date of funding and commencement of major construction. At the current period end the rate has been estimated to be 2.95%. The royalty is paid over the first 426k tonnes of nickel produced from the Araguaia Ferronickel project. The royalty is linked to production and therefore does not become payable until the project is constructed and commences commercial production, more detail is contained within the audited financial statements for the year ended 31 December 2021.

The Royalty liability has initially been recognised using the amortised cost basis with an effective interest rate of 14.5%. When circumstances arise that lead to payments due under the agreement being revised, the group adjusts the carrying amount of the financial liability to reflect the revised estimated cash flows. This is achieved by recalculating the present value of estimated cash flows using the original effective interest rate of 14.5%. Any adjustment to the carrying value is recognised in the income statement.

The carrying value of the royalty reflects assumptions on expected long term nickel price, update headline royalty rate as well as the timing of payments related to expected date of commencement of production and hence payment to be made under the royalty agreement. The assumption influencing the increase in the carrying value of the royalty since year end is the long term nickel price which has increased from $16,945 t/Ni to $17,756 t/Ni. The royalty rate has remained at 2.95%.

Management have sensitised the carrying value of the royalty liability by a change in the royalty rate to 3% (maximum royalty rate in the agreement) and it would be $819,864 higher/lower and for a $1,000/t Ni increase/decrease in future nickel price the carrying value would change by $2,808,916.

10 a.2) Vermelho royalty financing liability

On 23 November 2021 the Group entered into a royalty funding arrangement with Orion Mine Finance (“OMF") securing a gross upfront payment of $25,000,000 before fees in exchange for a royalty, at a rate of 2.1%. The royalty rate will increase to 2.25% if substantial construction of the Vermelho Project has not commenced within 5 years of the closing date, 30 March 2022. The royalty will be paid over the life of mine of Vermelho. The Royalty agreement has certain provisions to revise the headline royalty rate should there be change in the mine schedule and production profile prior to construction or if the resource covered in the Vermelho Feasibility Study is depleted. The royalty is linked to production and therefore does not become payable until the project is constructed and commences commercial production. The agreement contains certain embedded derivatives which as per IFRS9 have been separately valued and included in the fair value of the financial instrument in note 10 b). The royalty funds were received on 30 March 2022.

The Royalty liability has initially been recognised using the amortised cost basis with an effective interest rate of 19.34%. When circumstances arise that lead to payments due under the agreement being revised, the group adjusts the carrying amount of the financial liability to reflect the revised estimated cash flows. This is achieved by recalculating the present value of estimated cash flows using the original effective interest rate of 19.34%. Any adjustment to the carrying value is recognised in the income statement.

The carrying value of the royalty reflects assumptions on expected long term nickel and cobalt prices, headline royalty rate as well as the timing of payments related to expected date of commencement of production and hence payment to be made under the royalty agreement. The assumption influencing the initial valuation of the carrying value of the Vermelho royalty is the long term nickel price of $17,756 t/Ni, the long term cobalt price of $53,355t/Co and the royalty rate of 2.1%.

Management have sensitised the carrying value of the royalty liability by a change in the royalty rate to 2.25% and it would be $2,053,999 higher/lower and for a $1,000/t Ni increase/decrease in future nickel price and future cobalt price the carrying value would change by $1,459,331.

10 b) Derivative financial assets

10 b.1) Araguaia derivative financial assets

The aforementioned Araguaia royalty agreement includes several options embedded within the agreement as follows:

• If there is a change of control of the Group and the start of major construction works (as defined by the expenditure of in excess of $30m above the expenditure envisaged by the royalty funding) is delayed beyond a certain pre agreed timeframe the following options exist:
• Call Option – which grants Horizonte the option to buy back between 50 – 100% of the royalty at a valuation that meets certain minimum economic returns for OMF;
• Make Whole Option – which grants Horizonte the option to make payment as if the project had started commercial production and the royalty payment were due; and
• Put Option – should Horizonte not elect for either of the above options, this put option grants OMF the right to sell between 50 – 100% of the Royalty back to Horizonte at a valuation that meets certain minimum economic returns for OMF.
• Buy Back Option - At any time from the date of commercial production, provided that neither the Call Option, Make Whole Option or the Put Option have been actioned, Horizonte has the right to buy back up to 50% of the Royalty at a valuation that meets certain minimum economic returns for OMF.

The directors have undertaken a review of the fair value of all of the embedded derivatives and are of the opinion that the Call Option, Make Whole Option and Put Option currently have immaterial values as the probability of both a change of control and project delay are currently considered to be remote. There is considered to be a higher probability that the Group could in the future exercise the Buy Back Option and therefore has undertaken a fair value exercise on this option.

The initial recognition of the Buy Back Option has been recognised as an asset on the balance sheet with any changes to the fair value of the derivative recognised in the income statement. It been fair valued using a Monte Carlo simulation which runs a high number of scenarios in order to derive an estimated valuation. The Monte Carlo simulation was performed at the 31 December 2021 year end.

The assumptions for the valuation of the Buy Back Option (per the Monte Carlo simulation) are the future nickel price ($16,941/t Ni), the start date of commercial production (May 2023), the prevailing royalty rate (2.95%), the inflation rate (1.76%) and volatility of nickel prices (22.1%).

Sensitivity analysis

The valuation of the Buyback option is most sensitive to estimates for nickel price and nickel price volatility.

An increase in the estimated future nickel price by $1,000 would give rise to a $1,338,000 increase in the value of the option.

The nickel price volatilities based on both 5- and 10-year historic prices are in close proximity and this is the period in which management consider that the option would be exercised. Therefore, management have concluded that currently no reasonably possible alternative assumption for this estimate would give rise to a material impact on the valuation.

10 b.2) Vermelho derivative financial assets

Horizonte has the right to buy back 50% of the royalty on the first four anniversaries of closing (or on any direct or indirect change of control in respect of Vermelho up until the fourth anniversary of closing).

After the 4th anniversary, Horizonte has the right to buy back 50% of the royalty on any direct or indirect change of control in respect of Vermelho at a valuation that meets certain minimum economic returns for OMF.

The initial recognition of the Buy Back Option has been recognised as an asset on the balance sheet with any changes to the fair value of the derivative recognised in the income statement. It been fair valued using a Monte Carlo simulation which runs a high number of scenarios in order to derive an estimated valuation. The Monte Carlo simulation was performed at the agreement date of 23 November 2021.

The assumptions for the valuation of the Buy Back Option (per the Monte Carlo simulation) are the future nickel price ($16,602/t Ni), the future cobalt price ($45,387/t Co), the production profile from 2027 to 2065 , the expected royalty rate (2.1%), the inflation rate (1.76%), volatility of nickel prices (22.3%) and volatility of cobalt prices (28.0%).

11 Convertible loan notes liability

On 29 March 2022 the Company issued convertible loan notes to the value of $65 million at an interest rate of 11.75% with interest accruing quarterly in arrears. The convertible loan notes were issued at a discount of 5.75%. The maturity date of the instruments is 15 October 2032.

The convertible loan notes are unsecured and the noteholders will be repaid as follows:

• Interest shall be capitalised until the Araguaia Project Completion date, estimated to be 31 December 2025 (subject to various technical operating tests being passed)
• After Project Completion Date, interest shall be paid quarterly only if there is available cash (after the company meets its senior debt and other senior obligations)
• After Project Completion Date, principal repayments (including accrued capitalized interest) shall be paid quarterly subject to available cash for distribution. In addition a cash sweep of 85% of excess cash will apply on each interest payment date
• Any amount outstanding on the CLN on the maturity date 15 October 2032, Horizonte is obliged to settle in full on the maturity date.