23:13 | 10.11.2017
Nexa Resources S.A. Third Quarter 2017 Results
Nexa Resources S.A. (NYSE: NEXA) (TSX: NEXA) (“Nexa Resources”, “Nexa”)
reported a net profit of US$81.0 million in the third quarter of 2017,
67.4% higher relative to the same period in 2016. Net revenues totaled
US$ 625.8 million, an increase of 19.7% from 3Q16.
HighlightsNexa Resources S.A. (TSX: NEXA, NYSE: NEXA) (formerly VM
Holding S.A.) (“Nexa Resources”, “Nexa”, or the “Company”)
announced the completion of its initial public offering. The
common shares started to trade on the New York Stock Exchange (“NYSE”)
and the Toronto Stock Exchange (“TSX”) under the ticker symbol “NEXA.”
on October 27, 2017 and the initial public offering closed effective
on October 31, 2017.
Nexa Resources is alarge-scale, low-cost integrated zinc
producer withover 60 years of experience developing and
operating mining and smelting assets in Latin America. The Company
operates and owns five long-life underground mines, three
located in the Central Andes of Peru and two located in the state of
Minas Gerais in Brazil. Two of the Company’s mines, Cerro Lindo in
Peru and Vazante in Brazil, are among the 12 largest zinc mines in the
world, and combined with the Company’s other mining operations, place
the Company among the top five producers of mined zinc globally
in 2016, according to Wood Mackenzie. Nexa also operates three
smelting assets, two in Brazil located in the state of Minas
Gerais and one in Peru, in Cajamarquilla.
Mining:Higher copper production in the third fiscal quarter of
2017 (or 3Q17) was up 21.7% when compared to 3Q16, partially
offsetting a decrease in zinc production
Smelting:Stable metallic zinc sales in terms of volume in 3Q17 when
compared to 3Q16
Financial:Revenue of US$625.8 million 19.7% higher than 3Q16
EBITDA margin of 25.8% in 3Q17
Net Debt/Adj. EBITDA of 0.77x as of September 30, 2017
Adj. EBITDA Margin(1)
(1) See “Use of Non-IFRS Financial Measures” below for
(2) Consolidated mining production in terms of zinc
equivalent (in kton of contained metal)
(3) Sales of metallic zinc (in kton of product volume)
This release is dated as of November 10, 2017 and should be
read in conjunction with the unaudited consolidated financial
statements of Nexa Resources S.A. (“Nexa Resources”, “Nexa”) and
the notes thereto for the three and nine months ended September
30, 2017, and with the audited consolidated financial statements
of Nexa and the notes thereto for the year ended December 31,
2016. Additional information is available on EDGAR at www.sec.gov.
And SEDAR at www.sedar.com. This document contains forward-looking
statements. Please refer to the cautionary language under the
heading “Cautionary Statement on Forward-Looking Information”.Market OverviewZinc
The average London Metals Exchange (LME) price for zinc in 3Q17 was
US$2,963/ton, 31.4% higher than the average price verified in the same
quarter of 2016. The price at the end of September was US$3,217/ton.
Voluntary and involuntary mine production cuts in 2015 and 2016
constrained concentrate availability globally, causing a drawdown of
concentrate inventories, reaching a critical level equivalent to 30 days
of smelter requirement as of September 2016 against 53 days at the end
of 2014, according to Wood Mackenzie. In 2017, the smelters continue to
reduce metal supply and are shutting down for maintenance due to lower
treatment charges (TCs); in China the spot TC was ~US$50/ton as of
September 2017 and ~US$90/ton as of September 2016.
During 3Q17, these factors continued to impact the zinc market. Chinese
production cuts due to environmental issues also contributed to the
current deficit affecting the global market for zinc.
On the demand side, Europe continues to deliver strong performance, as
rising consumer and business confidence boosted economic activity and
increased demand in the automotive, white goods and construction
sectors. Meanwhile, the deceleration of the Chinese real-estate sector
and a slowdown in construction investment has been partially offset by
an increase in the demand from Vietnam.
Comparing the last day of 2Q17 to September 29th, 2017, the
LME spot price for zinc rose 16.8% from US$2,754/ton to US$3,217/ton.
The average LME copper price in 3Q17 was US$6,349/ton, up 33.0% when
compared to the same quarter of 2016. The copper price at the end of
September 2017 was US$6,485/ton.
The copper price closed 3Q17 at US$6,485/ton, up 9.8% from June 30,
2017. Higher prices have been supported by demand that exceeded
expectation according to Wood Mackenzie. The supply disruptions that
occurred at the beginning of the year (including strikes in Chile and
Indonesia) have already been remedied, but the market remains concerned
about further reductions. A weaker dollar in the period positively
impacted copper prices in 3Q17 due to higher costs of non-US operations.
The price recovery in copper following five years of declines has led to
a shift in focus by mining companies towards project development, with
several major projects gaining approval. Most of the new projects have
production startup predicted for 2019+, although high price scenarios
may encourage faster mine developments.
Maintenance shutdowns, combined with the factors mentioned above, drove
LME stocks to 297kton as of September 29, 2017 compared to 372kton at
the end of September 2016 (representing a decrease of 20.2%).
The average LME lead price in 3Q17 was US$2,334/ton, 24.6% higher than
the average price verified in 3Q16. The lead price at the end of
September 2017 was US$2,519/ton.
In 3Q17, the LME lead price reached a 6-year high of US$2,519/ton due to
a critical Chinese refined metal supply constraint evidenced since
mid-September 2017. Besides the shortage of lead concentrates observed
in the recent months, which was aggravated by the sanctions imposed on
North Korean exports (the third largest supplier of concentrates into
China so far this year), lead smelters and mines have been facing high
levels of environmental inspections resulting in producers halting
operations or performing maintenance shutdowns.
Additionally, lead demand remained robust in the Chinese automotive
sector, with an increase in vehicle production of 5.1% year-over-year
according to August figures. Battery producers and other lead consumer
sectors continue to seek alternative source of refined lead, and
consequently Shanghai Futures Exchange (SHFE) stocks are close to
exhaustion – from 83kt in May 2017 stocks have fallen by the end of 3Q17
to 13.5kt, a decrease of 83.9%, of which just 4.6kt were live warrants
(available for purchase). This drop in inventories caused a significant
increase in the LME lead price, but not enough to meet SHFE prices,
which opened a positive arbitrage and promoted an increase in Chinese
imports of refined lead observed in late September 2017.
Business PerformanceMining Production Volumes
-11.5%4Calculated by converting copper, lead, silver and gold
contents to a zinc equivalent grade at 3Q17 average benchmark
prices. The prices used for this conversion are: Zinc price:
US$2,963/ton; Copper price: US$2,334/ton; Lead price: US$6,349/ton;
Silver: US$17/oz; Gold price: US$1,278/oz
Avg. % of metal in
treated ore (grade)
The total concentrates of zinc, copper, lead, silver and gold in
produced in mining operations totaled 114.0 kton in 3Q17, a 15.9%
decrease when compared to the same period of the previous year. The main
reasons for lower production volumes were (i) energy supply disruption
in Atacocha mine, (ii) lower grades at the Company’s Cerro Lindo mine in
3Q17 and (iii) the revision of processes in order to assure higher
safety standards. Copper production increased by 21.7% in 3Q17,
partially offsetting the impacts mentioned above. In the first nine
months of 2017, concentrate production totaled 344.4 kton, 11.5% lower
when compared to the first nine months of 2016.
Smelting Sales Volumes
Sales of metallic zinc were stable compared to 3Q16, due to the higher
production at Cajamarquilla smelter (+2.9%) which was mainly due to
higher demand for Special High Grade (SHG) products. In the Company’s
Brazilian operations, sales were lower in 3Q17 when compared to the 3Q16
(-4.5%) even though the production of the Company’s Brazilian operations
was 3.4% higher in 3Q17 against the 3Q16. In the first nine months of
2017, metallic zinc sales were slightly lower when compared to the same
period of 2016 (-3.4%).
General & Adm Expenses
Other Operating Results
Net Financial Result
Foreign exchange, net
Adj. EBITDA Margin
Number of shares (in ‘000)
EPS (in US$)
Note: The information related to each of the nine most recently
completed quarters, go to “Quarterly Results of Operations”.
Net revenues totaled US$625.8 million in 3Q17, an increase of
19.7% due to higher base metals prices in the global market. The LME
zinc price was 31.4% higher than the average of the same quarter of
2016. Copper and lead LME prices also increased by 33.0% and 24.6%,
respectively. However, lower concentrate production limited the impact
of these price increases.
In the nine months period ended September 30, 2017, net revenues were
23.5% higher compared to the same period of 2016.
Cost of goods sold (COGS) increased by 18.2% due primarily to
higher concentrate prices. Process revisions made in order to reinforce
safety conditions in the Company’s Peruvian mines impacted costs through
2017, totaling an 18.3% increase in 9M17.
SG&A expenses totaled US$59.5 million in 3Q17, composed of
US$22.5 million in selling expenses and US$37.0 million in general and
administrative (G&A) expenses. While lower sales volumes resulted in a
decrease in selling expenses, G&A expenses slightly increased by 3.3%
(or US$1.2 million).
Results for the nine month period ended September 30, 2017 were also
impacted by the corporate restructuring within the Nexa Resources
business unit, namely the transfer of some corporate employees to
Votorantim Metais Zinco S.A. on June 30, 2016.
Expenses under Other operating results increased to US$40.9
million in 3Q17 from US$17.2 million in 3Q16. Most of those expenses
corresponded to (i) expenses with early stage and greenfield projects
(mainly Aripuanã and Shalipayco in Brazil and Peru, respectively) and
brownfield mining projects (Vazante and Cerro Lindo in Brazil and Peru,
respectively), in particular, expenses related to geological analysis
and professional engineering services; and (ii) mining obligations.
In 9M17, Other Operating Results totaled US$90.1 million compared to
US$52.4 million in 9M16.
Net financial results amounted to US$25.8 million in 3Q17,
compared to a negative total of US$21.6 million in 3Q16, an increase of
US$47.4 million. Non-cash foreign exchange gains represented a US$61.4
million variation as a result of the impact of exchange variation on
U.S. dollar-denominated debt between our subsidiary Votorantim Metais
Zinco S.A. (VMZ) and Nexa Resources. Higher financial expenses, driven
by an increase in interest on loans and financing, partially offset
In the first nine months of 2017, Net financial results totaled negative
US$40.1 million compared to US$90.3 in the same period of 2016. As
mentioned previously, this variation is mainly due to impact of exchange
rate variation on U.S. dollar-denominated debt between VMZ and Nexa
Net income totaled US$81.0 million in 3Q17, an increase of 67.4%
when compared to the amount of US$48.4 million in 3Q16 as a consequence
of the impacts mentioned above. Net income totaled US$141.3 million in
the nine month period ended 2017, a decrease of 24.7% when compared to
the same period of 2016, mainly due to the variation of Net financial
Adjusted EBITDA(5) totaled US$161.3 million in 3Q17, a
5.0% increase (or US$7.7million) when compared to the same quarter of
the previous year, mostly as a result of the higher net revenues as
In the first nine months of 2017 adjusted EBITDA totaled US$445.1
million, 18.2% higher than the same period of 2016.
Adjusted EBITDA reconciliation to net income:
Gains on sales of investments
(Reversal) Impairment – property, plant, equipment
Results of investees
Depreciation, amortization and depletion
Net financial results
Taxes on income
(5) Non-IFRS financial measure. See “Use of Non-IFRS
Financial Measures” section for further information.
Key Financial ResultsCAPEX
Total capital expenditure (CAPEX6) amounted to US$45.1
million in the third quarter of 2017, mainly impacted by higher
investments in tailings dams of Três Marias smelter in Brazil. Of the
total CAPEX, 23% was directed towards brownfield expansion projects,
aligned with Nexa’s strategy of growing its mining business.
The main expansion project impacting CAPEX in 3Q17 is the ongoing
deepening of the Vazante mine. Other brownfield mining projects,
including the development of the Trend Ambrosia at the Company’s Morro
Agudo mine, are also included in expansion CAPEX. Current investments in
early-stage mining projects are considered expenses in operating results
(see “Operational Results – Other Operating Results”).
Non-expansion projects account for 77% of total CAPEX. Main
non-expansion projects are related to environmental, health and safety
investments, maintenance expenditures and investments in tailings dams.
CAPEX for the first nine months of 2017 totaled US$130.7 million (24.8%
being expansion and 75.2% non-expansion) compared to US$114.6 in the
same period of 2016.
6 Total capital expenditure (CAPEX) is the sum of
acquisitions of property, plant and equipment and acquisition of
intangible assets, as published in the Condensed consolidated
interim statement of cash flows
Liquidity and Indebtedness
As of September 30, 2017:
On May 4, 2017, Nexa issued a ten-year bond of US$700 million with an
interest rate of 5.375% per year. The use of proceeds from the bond
issuance was (i) to repay a portion of the existing bank debt, extending
Nexa’s total debt maturity and (ii) for general corporate purposes.
As of September 30, 2017, the average maturity of the total debt was 7.1
Total debt was US$1,434.2 million (principal only) as of September 30,
2017, mainly divided into (i) eurobonds issued by Nexa and our
subsidiary Compañia Minera Milpo S.A.A. (Milpo), US$700 million due 2027
and US$343 million due 2023, respectively (72.7% of the total debt),
(ii) debt with banks (16.1% of the total debt, or US$231.6 million),
(iii) BNDES loans in Brazil (5.3% of the total debt, or U$$76.4 million)
and (iv) other debt (5.8% of total debt, or US$83.2 million). Only 2.5%
(US$36.3 million) of the total debt matures before year-end 2018.
In terms of currency, US$1,289.2 million (or 89.9% of total
indebtedness) is denominated in U.S. dollars and US$144.9 million (or
10.1% of total indebtedness) is denominated in Brazilian reais.
At September 30, 2017, Nexa reported Net Debt of US$363.3 million7,
resulting in a 0.77x Net Debt/Adj. EBITDA ratio when considering the
last twelve months adjusted EBITDA of US$472.4 million as of September
The pro-forma Net Debt/Adj. EBITDA ratio as of September 30, 2017, is
0.74x, taking into account (i) the primary resources coming from the IPO
(US$311.6 million after deducting the underwriting discounts and
commissions but before expenses) and the following obligations: (i) the
dividends paid on October 16, 2017 by our subsidiary Milpo to its
shareholders, of which Milpo’s non-controlling shareholders received
US$58.3 million; (ii) the share premium reimbursement to our
shareholders in the total amount of US$150.0 million made on October 20,
2017; (iii) assumed obligations related to energy assets of USD109.0
million and (iv) USD8.3 million of other effects.
7 Including interest accrual and costs, according to the
Company’s covenants criteria
On October 27, 2017, the Company announced the pricing of its initial
public offering and began trading on the New York Stock Exchange (NYSE)
and the Toronto Stock Exchange (TSX), under the ticker symbol “NEXA”.
On October 31, 2017, the Company announced the closing of its initial
public offering of 35,650,000 of its common shares at a public offering
price of US$16.00 per share, which included an aggregate of 15,150,000
shares sold by VSA pursuant to the exercise in full by the underwriters
of their over-allotment option for 4,650,000 shares. The Company’s
portion of the proceeds of the initial public offering totaled US$328
million or US$311.6 million, after deducting the underwriting discounts
and commissions but before expenses.
On October 6, 2017, the conversion of US$428.6 million of share capital
into share premium was approved in an Extraordinary General Meeting. On
October 20, 2017 the Company paid a total amount of US$150 million in
share premium to its shareholders.
Quarterly Results of Operations
General & Adm Expenses
Other Operating Results
Net Financial Result
Foreign exchange, net
Adj. EBITDA Margin
Number of shares
EPS (in US$)
-54.27Use of Non-IFRS Financial Measures
Our management uses non-IFRS measures such as Adjusted EBITDA, among
other measures, for internal planning and performance measurement
purposes. We believe these measures provide useful information about the
financial performance of our operations that facilitates
period-to-period comparisons on a consistent basis. Management uses
Adjusted EBITDA internally to evaluate our underlying operating
performance for the reporting periods presented and to assist with the
planning and forecasting of future operating results. Management
believes that Adjusted EBITDA is a useful measure of our performance
because it reflects our cash generation potential from our operational
activities excluding exceptional items of the period. These measures
should not be considered in isolation or as a substitute for profit
(loss) or operating profit, as indicators of operating performance, or
as alternatives to cash flow as measures of liquidity. Additionally our
calculation of Adjusted EBITDA may be different from the calculation
used by other companies, including our competitors in the mining
industry, so our measures may not be comparable to those of other
In this Management’s Discussion and Analysis and Earnings Release, we
present Adjusted EBITDA, which we define as (i) profit (loss) for the
year, plus (ii) profit (loss) from results of associates, plus (iii)
depreciation and amortization, plus/less (iv) net financial results,
plus/less (v) income tax, less (vi) gain on sale of investment (loss),
plus; (vii) impairment of other assets, plus/less (viii) (reversion)
impairment—property, plant, equipment. In addition, management may
exclude non-cash items considered exceptional from the measurement of
We also present herein our net debt, which we define as (i) loans and
financing less (ii) cash and cash equivalents, less (iii) financial
investments, plus or less (iv) the fair value of derivative financial
instruments. Our management believes that net debt is an important
figure because it indicates our ability to repay outstanding debts that
become due simultaneously using available cash and highly liquid assets.
Cautionary Statement on Forward-Looking Statements
This news release contains certain forward-looking information and
forward-looking statements as defined in applicable securities laws
(collectively referred to in this news release as “forward-looking
statements”). All statements other than statements of historical fact
are forward-looking statements. Forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of Teck to be materially
different from any future results, performance or achievements expressed
or implied by the forward-looking statements. These forward-looking
statements include estimates, forecasts, and statements as to
management’s expectations with respect to the business and operations of
Forward-looking statements are necessarily based upon a number of
factors and assumptions that, while considered reasonable by management,
are inherently subject to significant business, economic and competitive
uncertainties and contingencies. Statements concerning future production
costs or volumes are based on numerous assumptions of management
regarding operating matters and on assumptions that demand for products
develops as anticipated, that customers and other counterparties perform
their contractual obligations, that operating and capital plans will not
be disrupted by issues such as mechanical failure, unavailability of
parts and supplies, labour disturbances, interruption in transportation
or utilities, adverse weather conditions, and that there are no material
unanticipated variations in the cost of energy or supplies.
We assume no obligation to update forward-looking statements except as
required under securities laws. Further information concerning risks and
uncertainties associated with these forward-looking statements and our
business can be found in our public disclosures filed under our profile
on SEDAR (www.sedar.com)
and on EDGAR (www.sec.gov).
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