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MarketScreener Homepage  >  Equities  >  Nyse  >  Nexa Resources S.A.    NEXA   LU1701428291

NEXA RESOURCES S.A.

(NEXA)
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Nexa Resources S A : Earnings Call Presentation - 2Q20

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07/31/2020 | 09:57am EDT

2Q20 Financial Results

July 31, 2020

From the world of mining to the world of people

Disclaimer

Important information concerning this presentation

This presentation, prepared by Nexa Resources S.A. (formerly VM Holding S.A., herein referred to as the "Company" or "Nexa"), is solely for informational purposes. Disclosure of this presentation, its contents, extracts or abstracts to third parties is not authorized without express and prior written consent from the Company.

Certain statements disclosed herein are "forward-looking statements" in which statements contained herein that the information is not clearly historical in nature are forward- looking, and the words "anticipate," "believe," "continues," "expect," "estimate," "intend," "strategy," "project" and similar expressions and future or conditional verbs such as "will," "would," "should," "could," "might," "can," "may," or similar expressions are generally intended to identify forward-looking such statements. These forward-looking statements speak only as of the date hereof and are based on the Company's current plans and expectations and are subject to a number of known and unknown uncertainties and risks, many of which are beyond the Company's control. As a consequence, current plans, anticipated actions, and future financial position and results of operations may differ significantly from those expressed in any forward-looking statements in the presentation. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented herein and we do not intend to update any of these forward-looking statements.

This presentation includes the Company's unaudited non-IFRS measures, including: adjusted EBITDA; net debt; working capital. The Company presents non-IFRS measures when we due to the belief that the additional information is useful and meaningful to investors. Non-IFRS measures do not have any standardized meaning and are therefore unlikely to be comparable to similar measures presented by other companies. The presentation of non-IFRS measures is not intended to be a substitute for, and should not be considered in isolation from, the financial measures reported in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board.

The information and opinions contained herein should not be construed as a recommendation to potential investors and no investment decision should be based on the truthfulness, timeliness or completeness of such information or opinions. None of the advisors to the Company or any parties related to them or their representatives shall be liable for any losses that may result from the use or contents of this presentation.

This presentation also contains information concerning the Company's industry that are based on industry publications, surveys and forecasts. The information contained herein involves and assumes a number of assumptions and limitations, and the Company did not independently verified the accuracy or completeness of such information.

All dollar amounts referenced in this presentation, unless otherwise indicated, are expressed in United States dollars. The contents hereof should not be construed as investment, legal, tax or other advice and you should consult your own advisers as to legal, business, tax and other related matters concerning an investment in the Company. The Company is not acting on your behalf and does not regard you as a customer or a client. It will not be responsible to you for providing protections afforded to clients or for advising you on the relevant transaction. There is no obligation to update the information included in this presentation.

Certain information contained in this presentation with respect to the Company's Morro Agudo, Shalipayco, Magistral and Florida Canyon Zinc projects are preliminary economic assessments within the meaning of NI 43-101 (as defined herein). Such preliminary economic assessments are preliminary in nature, including certain information as of inferred mineral resources that are too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainty that such preliminary economic assessments will be realized. The bases for such preliminary economic assessments (including certain qualifications and assumptions) are described in the Company's documents filed with the SEC and in each of the provinces and territories of Canada.

2

Nexa | 2Q20 Highlights

The health and safety of our people and local communities are our highest priority

COVID-19

  • International benchmark protocols implemented in all of our operations and projects.
  • In 2Q10, COVID-19related-measures amounted to US$4 million, including:
    • COVID antibody tests and health check;
    • Increased site cleaning and hygiene services, and acquisition of protective equipment;
    • Social distance related measures;
    • Community support; among others.

Business continuity

  • Mine operations in Peru have restarted.
  • Smelters operating at full capacity.
  • Production and sales guidance for the year remains unchanged.
  • Disciplined capital allocation.
  • Strong liquidity.
    • New bond: US$500 million due 2028;
    • New loan agreement of R$750 million (or US$140 million) with BNDES.

3

Nexa balance sheet strategy

Liquidity - Proactive management to preserve and strengthen our balance sheet

1,213

975

495

(495)

300

300

300

(6)

(60)

19

(28)

(33)

45

913

675

Liquidity Mar

Dividends

Capex

Working

Interest paid

Other

Export

Revolving

New Bond

RCF and

Current

31, 2020

Payment

Capital

Expenses

Credit Notes

Credit

20281

Bank Loan

Liquidity

Facility

repayments

  • Issuance of US$500 million 6.5% 2028 Senior Unsecured Notes in June to refinance certain existing debts
  • RCF of US$300 million remains committed until October 2024.

Net Debt²

Revolving Credit Facility

(US$ million)

9411,026

Mar 31, 2020

June 30, 2020

Net Debt/LTM

3.30x

4.97x

Adj. EBITDA

  • Nexa successfully obtained waivers in respect of certain financial covenants

(1) Net of commissions, fees, and expenses of bond issuance. (2) Gross debt (US$1,916 million) minus cash and cash equivalents (US$796

4

million), minus financial investments (US$118 million), plus negative derivatives (US$869 thousand), plus Lease Liabilities (US$25 million).

Cash Flow | 2Q20

US$ million

(32)343

405

40

(2)

19

(19)

(28)

10

(41)

Adjusted

Working

Taxes

Sustaining Interest paid

FCF before

Other Capex³ Loans/

Other

FCF4

EBITDA

Capital¹

CAPEX²

expansion

Investments

non-

and others

(Includes decrease

operational

in financial

investments of

US$65 million)

FCF before expansion positively impacted

Positive FCF reflecting mainly new

by changes in working capital primarily due

debt assumption in 2Q20

to increase in average supplier terms

(1) Breakdown available at Financial Statement explanatory note "Changes in operating assets and liabilities". / (2) "Sustaining CAPEX" includes Sustaining, HS&E, Tailing Dams, (3) "Other CAPEX" includes Expansion/Greenfield,

5

Modernization, IT & Others (detailed breakdown available in the Earnings Release). / (4) Adjustments to reconcile Adjusted EBITDA to cash income (loss) before income tax.

Investments | 1H20 and 2020e guidance

2020 real and trend

Capital expenditures

  • Guidance for the year remains unchanged but capital allocation has been revised.
  • In 2Q20, CAPEX was US$69 million with a total of US$149 million in 1H20. Expansion projects amounted to US$94 million and responded for 63% of total investments:
    • Aripuanã: US$75 million;
    • Vazante mine deepening: US$8 million.

300

172

Aripuanã

149

Others (1)

75

25

Sustaining

HSE (2)

75

40

19

Others (3)

16

12

12

3

1H20

2020e Guidance

Mineral exploration and Proj. Development

  • 2020 guidance also remains unchanged.
  • In 2Q20, investments were US$9 million with a total of US$24 million in 1H20.
  • Exploration expenses, including sustaining and mineral rights, totaled US$14 million and responded for 58% of total investments.

68

26

Mineral Exploration

14

Sustaining and mineral rights

24

Project Development

Technology

9

17

Communities

5

5

7

1

5

1

1H20

2020e Guidance

(1) Including US$13 million related to Vazante mine deepening brownfield project; (2) Investments in tailings dams are included in HSE expenses. (3) Modernization, IT and others.

6

2Q20 review

7

2Q20 Consolidated results

Mine production

Smelter sales

Net Revenue

000 ton

Zinc

000 ton

Metallic zinc

(US$ million)

Copper

-32%

91

77

62

8

7

5

2Q19

1Q20

2Q20

  • Zinc and copper in concentrate production decreased 32% and 44% Y-o-Y, impacted primarily by our
    Peruvian mines stoppage.
  • Treated ore volume was down 43% with the suspension of Peruvian operations until mid-May, offsetting the strong performance of our Brazilian mines

Zinc oxide

-23%

156

145

120

147

137

114

9

8

6

2Q19

1Q20

2Q20

  • Smelting sales were 23% lower, given the reduced operating capacity in both Cajamarquilla and Juiz de Fora smelters.

-45%

613

442

337

2Q19 1Q20 2Q20

  • Net revenue decreased 45%, due to lower average LME prices and lower sales volume, as demand was negatively affected by COVID-19.

8

Adj. EBITDA | 2Q20 vs. 2Q19

US$ million

-66%

118

(36)

17

40

14

27

16

(69)

(47)

(1)

2Q19

Volume

Price effect

FX

By-products Other variable

Min. Exp./

Other

2Q20

and fixed

Proj. Dev.

costs + G&A

  • EBITDA decrease mainly driven by:
    • a negative variation of US$36 million from lower sales volumes and US$69 million price effect related to lower LME prices and changes in market prices in respect of quotation period adjustments;
    • the decrease in by-products revenue due to lower volume and LME prices.
  • Positive impacts: lower operating costs and expenses, lower mineral exploration & project development spending, and U.S. dollar appreciation against Brazilian real. The decrease in corporate expenses also positively affected our results.

(1) Includes: Other income and expenses.

9

Mining segment

2Q20 Operational performance

Zinc equivalent

Zinc

Guidance

000 ton

000 ton

000 ton

PRODUCTION

-39%

139

85

2Q19

2Q20

-32%

91

62

2Q19

2Q20

Metal Contained

2020e

1H20

(in concentrate)

Guidance

Zinc Equivalent

kt

446

-

498

199

Zinc

kt

300

-

335

139

C opper

kt

30

-

33

12

Lead

kt

33

-

38

14

Silver

koz

6,072

-

6,761

2,599

Comments

  • Guidance disclosure updates:
    • 2020 zinc production is estimated to be between 300-335kton, subject to the performance of the Peruvian mines in 2H20 as planned
    • Atacocha underground mine remains suspended
    • Resumption of mine development activities in Cerro Lindo and El
      Porvenir

Cash cost

US$/t

2020 cash cost guidance (US$/lb)

2020e

1H20

Guidance

Mining cash cost(1)(2)

0.59

0.45

Cerro Lindo

0.33

0.17

El Porvenir

0.83

0.41

Atacocha

0.59

0.50

Vazante

0.60

0.53

Morro Agudo

1.00

0.86

(1) C1 weighted mining cash cost net of by-products credits is measured with respect to zinc sold per mine. (2) Cash cost per ton sold does not include the impact of the cost of idleness in the Peruvian mines.

10

US$ million

Mining segment

2Q20 results mainly impacted by market related factors

-93%

44

14

6

3

41

7

(77)

(6)

(7)

(19)

2Q19 Adj.

Volume

Price effect

TC

FX

By-products Other variable

Min. Exp./

Other (1)

2Q20 Adj.

EBITDA

and fixed

Proj. Dev.

EBITDA

Market-related

costs + G&A

Comments

(2) Consolidated Mining C1 Normal Cash Cost Curve (US$/t)

  • The decrease in EBITDA year-over-year was mainly driven by lower volumes, partially offset by the decrease in operating costs
  • Market related factors had a negative variation impact of US$13 million
  • Mineral exploration and project development had a positive contribution of US$14 million
    1. Other income and expenses. (2) Wood Mackenzie 2019 Zinc - Dataset 2020 Q2.

4.000

2.000

55%

0

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

-2.000

-4.000

-6.000

-8.000

Cumulative Production (%)

11

Smelting segment

2Q20 Operational performance

Smelter Sales

000 ton

-23%

PRODUCTION

156

120

147

114

Zinc oxide

Zinc metal

2Q19

2Q20

Comments

  • Guidance disclosure updates:
    • Smelters are estimated to operate at normal capacity during 2H20
    • Cajamarquilla smelter gradually improved its operating rate in 2Q20 and is now running at normal levels
    • After operating at 60% of its nominal production capacity during May and June, Juiz de Fora smelter is operating close to full production in July
    • Três Marias continue to run at normal levels

Guidance Metal sales (Mid-range)

000 ton

560

265

533

Zinc oxide

251

Zinc metal

1H20

Guidance 2020e

Cash cost

US$/t

2020 cash cost guidance (US$/lb)

2020e

1H20

Guidance

Smelting cash cost(1)(2)

0.74

0.76

Cajamarquilla

0.77

0.82

Três Marias

0.65

0.63

Juiz de Fora

0.87

0.84

(1) C1 weighted smelting cash cost net of by-products credits is measured with respect to zinc sold per smelter. (2) Cash cost per ton sold does not include the impact of the cost of idleness in the smelter operations.

12

US$ million

Smelting segment

2Q20 results mainly impacted by market related factors

-47%

73

(19)

16

39

7

15

11

(59)

(5)

2Q19 Adj.

Volume

Price effect

TC

FX

By-products Other variable

Other (1)

2Q20 Adj.

EBITDA

and fixed

EBITDA

costs + G&A

Market-related

Comments

(2) Consolidated Smelter Normal Cash Cost Curve (US$/t)

  • EBITDA was US$39 million compared with US$73 million in 2Q19 mainly due to lower volumes and prices
  • These factors were partially offset by cost reduction and lower
    G&A expenses

2.500

28%

2.000

1.500

1.000

500

0

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Cumulative Production (%)

(1) Includes: Other income and expenses and Proj. Dev. (2) Wood Mackenzie 2019 Zinc - Dataset 2020 Q2.

13

Aripuanã and project pipeline

14

Aripuanã | Project

Competitive cash cost position with attractive returns

Project overview

  • 13 years LOM¹ with excellent potential to extend mine life beyond 20 years2 based on current inferred resources and exploration drilling campaigns
  • Zinc equivalent³ average production¹ 120kt/yr
  • Sustainable project:
    • Tailings disposal: 50% dry stacks and 50% cement paste backfill
    • 100% process water recirculation, with minimal discharge to the environment

Highlights

  • New rebaseline in progress and should be available during 2H20. The impact of COVID-19on the rebaseline and CAPEX continue to be assessed.
  • Mobilization at the site at reduced pace due to COVID-19.
  • Overall project physical progress reached 42.8% in July, 2020.
  • 2Q20 CAPEX totaled US$46 million.
  • For 2020, we revised our CAPEX to US$172 million.
  • Mine Development reaching 3,618 meters in 2Q20 vs 2,444 meters in 1Q20.
  • COVID-19protocols remains in place, i.e. antibody tests before mobilize people to Aripuanã.

Aripuanã

Morro Agudo

VazanteTrês Marias

Juiz de Fora

1Based only on current mineral reserves; ²Based on significant currently inferred mineral resources and Nexa's good track record of conversion to indicated resources; 3Consolidated mining production in kton of zinc equivalent

15

calculated by converting copper, lead, silver and gold contents to a zinc equivalent grade based on consensus LT forecasts

Main projects portfolio

Development timeline

Peru

ESTIMATED TIMELINE

Magistral

PROJECTS

Hilarión

Lima

Pukaqaqa

2017

2018

2019

2020

2021

2022

2023

2024

2025

Aripuanã

+120kt¹

Polymetallic

Magistral

Stage: FEL3 | On going

Copper | Molybdenum

Pukaqaqa

Stage: Pre Feasibility | On Hold²

Copper | Molybdenum

Hilarión

Stage: Pre Feasibility | On Hold²

Polymetallic (Zn-Pb)

EXPLORATION AND

FEASIBILITY

CONSTRUCTION

PRE FEASIBILITY

Brazil

Aripuanã

Sao Paulo

Nexa Greenfield Projects

Project timeline is expected to extend following COVID-19 response and potential restrictions, and our capital allocation strategy

Note: Estimated timeline as of July 2020. Hilarión is still in Exploration Stage - feasibility studies pipeline to be confirmed; ¹Annual zinc equivalent production; ²Due to COVID-19, this project is under evaluation as

16

to the new date for further studies

Market Fundamentals

2Q20 Lower LME prices across base metals due to COVID-19 but already showing signs of recovery

Zinc

LME average price¹

LME price evolution¹

LME stocks²

SHFE stocks²

US$/ton

US$/ton

kt

kt

-29%

-8%

2,763

2,128 1,961

2Q19 1Q20 2Q20

Copper

Lead

LME average price¹

LME price evolution¹

LME average price¹

LME price evolution¹

US$/ton

US$/ton

US$/ton

US$/ton

-12%

-5%

-11%

-9%

6,113

1,885

1,847

5,637

5,356

1,673

2Q19

1Q20

2Q20

2Q19

1Q20

2Q20

(¹) Based on daily prices, as traded in the London Metal Exchange. (²) Based on daily stocks until June 30th, as reported by the London Metal Exchange and Shanghai Futures Exchange.

17

Nexa | final remarks

Support our host communities and local governments

Nexa Way program: solid foundations to improve efficiency and productivity, as well as strengthen our culture Continue to deliver on guidance with expected recovery in 2H20

Business continuity measures

Advance on the construction of Aripuanã's mine and plant at the adequate pace given market conditions Financial discipline with focus on balance sheet strength and leverage ratios improvement with market recovery

We maintain our strategy, remaining committed to building the mining of the future

supported by operational and financial discipline with a highly qualified team

18

thankyou

IR Contact:

ir@nexaresources.com

https://ir.nexaresources.com

Disclaimer

Nexa Resources SA published this content on 31 July 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 31 July 2020 13:56:04 UTC

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Financials (USD)
Sales 2020 1 697 M - -
Net income 2020 -716 M - -
Net Debt 2020 1 108 M - -
P/E ratio 2020 -1,08x
Yield 2020 5,17%
Capitalization 833 M 833 M -
EV / Sales 2020 1,14x
EV / Sales 2021 1,01x
Nbr of Employees 6 159
Free-Float 34,2%
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Technical analysis trends NEXA RESOURCES S.A.
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TrendsNeutralNeutralNeutral
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus HOLD
Number of Analysts 11
Average target price 5,68 $
Last Close Price 6,29 $
Spread / Highest target 90,8%
Spread / Average Target -9,67%
Spread / Lowest Target -52,3%
EPS Revisions
Managers
NameTitle
Tito Botelho Martins President & Chief Executive Officer
Luis Ermírio de Moraes Chairman
Rodrigo Nazareth Menck Chief Financial Officer & Senior VP-Finance
Jones Aparecido Belther Senior VP-Mineral Exploration & Technology
João Henrique Batista de Souza Schmidt Non-Independent Director