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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 : Financial Statement - 3Q19

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10/31/2019 | 05:32pm EDT

Nexa Resources S.A.

Condensed consolidated interim financial statements

at and for the three and nine-month periods ended September 30, 2019

Nexa Resources S.A.

Condensed consolidated interim income statement

Periods ended September 30

All amounts in thousands of US dollars, unless otherwise stated

_______________________________________________________________________________

Three-month period ended

Nine-month period ended

Note

2019

2018

2019

2018

Net revenues

5

563,422

595,083

1,746,537

1,907,788

Cost of sales

6

(503,458)

(488,055)

(1,469,525)

(1,447,331)

Gross profit

59,964

107,028

277,012

460,457

Operating expenses

Selling, general and administrative

6

(57,206)

(36,613)

(140,353)

(123,773)

Mineral exploration and project

7

(31,990)

(33,145)

(80,374)

(79,938)

development

Impairment loss

22

(142,133)

-

(142,133)

-

Other income and expenses, net

8

(6,507)

15,954

(20,120)

12,397

(237,836)

(53,804)

(382,980)

(191,314)

Operating income (loss)

(177,872)

53,224

(105,968)

269,143

Net financial results

9

Financial income

6,600

7,202

24,394

26,523

Financial expenses

(30,806)

(29,408)

(95,553)

(90,850)

Foreign exchange loss, net

(32,911)

(22,130)

(27,186)

(161,393)

(57,117)

(44,336)

(98,345)

(225,720)

Income (loss) before income tax

(234,989)

8,888

(204,313)

43,423

Income tax

10

Current

(9,862)

(4,555)

(36,492)

(56,678)

Deferred

73,585

2,582

84,538

47,598

Net income (loss) for the period

(171,266)

6,915

(156,267)

34,343

Attributable to NEXA's shareholders

(150,237)

7,359

(143,851)

22,007

Attributable to non-controlling interests

(21,029)

(444)

(12,416)

12,336

Net income (loss) for the period

(171,266)

6,915

(156,267)

34,343

Weighted average number of

132,439

133,320

132,684

133,320

outstanding shares - in thousand

Basic and diluted earnings (loss) per

(1.13)

0.06

(1.08)

0.17

share - USD

The accompanying notes are an integral part of these condensed consolidated interim financial statements

2 of 29

Nexa Resources S.A.

Condensed consolidated interim statement of comprehensive income Periods ended September 30

All amounts in thousands of US dollars, unless otherwise stated

_______________________________________________________________________________

Three-month period ended

Nine-month period ended

2019

2018

2019

2018

Net income (loss) for the period

(171,266)

6,915

(156,267)

34,343

Other comprehensive income (loss), net of taxes,

items that can be reclassified to the income statement

Cash flow hedge accounting

(2,350)

1,428

1,085

1,058

Translation adjustment of foreign subsidiaries

(53,678)

11,752

(51,138)

(21,274)

(56,028)

13,180

(50,053)

(20,216)

Total comprehensive income (loss) for the period

(227,294)

20,095

(206,320)

14,127

Attributable to NEXA's shareholders

(201,773)

20,276

(194,062)

13,063

Attributable to non-controlling interests

(25,521)

(181)

(12,258)

1,064

Total comprehensive income (loss) for the period

(227,294)

20,095

(206,320)

14,127

The accompanying notes are an integral part of these condensed consolidated interim financial statements

3 of 29

Nexa Resources S.A.

Condensed consolidated interim balance sheet

All amounts in thousands of US dollars, unless otherwise stated

_______________________________________________________________________________

Assets

Note

September 30, 2019

December 31, 2018

Current assets

Cash and cash equivalents

11

786,730

1,032,938

Financial investments

70,507

91,878

Derivative financial instruments

12

8,039

7,385

Trade accounts receivable

154,675

173,204

Inventory

13

293,021

269,705

Other assets

14

176,729

122,857

1,489,701

1,697,967

Non-current assets

Financial investments

337

355

Derivative financial instruments

12

1,052

3,820

Deferred income taxes

10

251,246

201,154

Other assets

14

131,761

121,198

Property, plant and equipment

15

1,950,945

1,968,451

Intangible assets

16

1,557,743

1,742,461

Right-of-use assets

17

32,268

-

3,925,352

4,037,439

Total assets

5,415,053

5,735,406

Liabilities and shareholders' equity

Current liabilities

Loans and financing

18

39,428

32,513

Lease liabilities

17

17,119

-

Derivative financial instruments

12

14,517

8,662

Trade payables

346,224

387,225

Confirming payable

78,849

70,411

Dividends payable

3,321

663

Asset retirement and environmental obligations

19

19,114

20,357

Contractual liabilities

25,885

31,992

Other liabilities

125,944

100,027

670,401

651,850

Non-current liabilities

Loans and financing

18

1,380,180

1,392,354

Lease liabilities

17

19,960

-

Derivative financial instruments

12

1,765

5,560

Asset retirement and environmental obligations

19

233,609

249,925

Provisions

20

26,314

30,641

Deferred income taxes

10

286,425

298,598

Contractual liabilities

161,058

167,645

Other liabilities

31,503

37,032

2,140,814

2,181,755

Total liabilities

2,811,215

2,833,605

Shareholders' equity

Attributable to NEXA's shareholders

2,198,388

2,476,593

Attributable to non-controlling interests

405,450

425,208

2,603,838

2,901,801

Total liabilities and shareholders' equity

5,415,053

5,735,406

The accompanying notes are an integral part of these condensed consolidated interim financial statements

4 of 29

Nexa Resources S.A.

Condensed consolidated interim statement of cash flows

Periods ended September 30

All amounts in thousands of US dollars

_______________________________________________________________________________

Three-month period ended

Nine-month period ended

Note

2019

2018

2019

2018

Cash flows from operating activities

Income (loss) before income tax

(234,989)

8,888

(204,313)

43,423

Impairment loss

142,133

142,133

Depreciation and amortization

15, 16

93,498

66,596

247,922

205,195

and 17

Interest and foreign exchange effect

35,610

68,823

77,247

167,024

Loss (gain) on sale of property, plant and

8

(1,590)

182

(608)

8,909

equipment and intangible assets

Gain on sale of investment

-

-

-

(348)

Changes in provisions

(1,203)

987

11,377

(9,347)

Changes in operating assets and liabilities

11 (b)

87,644

2,921

(86,271)

(53,303)

Interest paid on loans and financing

18

(10,465)

(9,536)

(47,029)

(47,123)

Interest paid on lease liabilities

17

(328)

-

(687)

-

Income taxes paid

(5,238)

(18,217)

(39,563)

(91,326)

Net cash provided by operating activities

105,072

120,644

100,208

223,104

Cash flows from investing activities

Acquisitions of property, plant and equipment

15

(104,349)

(71,240)

(263,958)

(162,702)

Net (purchases) sales of financial investments

42,015

17,173

35,975

109,950

Proceeds from the sale of property, plant and

4,326

231

5,135

1,268

equipment

Net cash (used in) investing activities

(58,008)

(53,836)

(222,848)

(51,484)

Cash flows from financing activities

New loans and financing

18 (c)

-

9,145

13,369

275,452

Payments of loans and financing

18 (c)

(7,703)

(16,669)

(15,019)

(287,843)

Payments of lease liabilities

17 (b)

(3,516)

-

(11,849)

-

Dividends paid

(2,460)

-

(104,876)

-

Reimbursement of share premium

-

-

-

(80,000)

Repurchase of the Company's own shares

-

-

(8,103)

-

Net cash (used in) financing activities

(13,679)

(7,524)

(126,478)

(92,391)

Foreign exchange effect on cash and

2,332

5,672

2,910

(175)

cash equivalents

Increase (decrease) in cash and cash

35,717

64,956

(246,208)

79,054

equivalents

Cash and cash equivalents at the beginning of

751,013

1,033,135

1,032,938

1,019,037

the period

Cash and cash equivalents at the end of the

786,730

1,098,091

786,730

1,098,091

period

The accompanying notes are an integral part of these condensed consolidated interim financial statements

5 of 29

Nexa Resources S.A.

Condensed consolidated interim statement of changes in shareholders' equity

At and for nine-month period ended September 30, 2019

All amounts in thousands of US dollars, unless otherwise stated

__________________________________________________________________________________________________________________________

Retained

Accumulated

Additional

earnings

other

Non-

Total

Treasury

Share

paid in

(cumulative

comprehensive

controlling

shareholders'

Note

Capital

shares

premium

capital

deficit)

loss

Total

interests

equity

At January 1, 2018

133,320

-

1,123,755

1,318,728

(13,430)

(77,356)

2,485,017

422,068

2,907,085

Net income for the period

-

-

-

-

22,007

-

22,007

12,336

34,343

Other comprehensive loss for the period

-

-

-

-

-

(8,944)

(8,944)

(11,272)

(20,216)

Total comprehensive income (loss) for the

period

-

-

-

-

22,007

(8,944)

13,063

1,064

14,127

Decrease in non-controlling interests

-

-

-

-

-

-

-

(2,757)

(2,757)

Reimbursement of share premium

- USD 0.60 per share

-

-

(80,000)

-

-

-

(80,000)

-

(80,000)

Total contributions by and distributions

to shareholders

-

-

(80,000)

-

-

-

(80,000)

(2,757)

(82,757)

At September 30, 2018

133,320

-

1,043,755

1,318,728

8,577

(86,300)

2,418,080

420,375

2,838,455

At January 1, 2019

133,320

(1,352)

1,043,755

1,318,728

61,430

(79,288)

2,476,593

425,208

2,901,801

Impact of the adoption of IFRS 16

4 (a)

-

-

-

-

71

-

71

-

71

Impact of the adoption of IFRIC 23

4 (b)

-

-

-

-

(4,023)

-

(4,023)

-

(4,023)

At January 1, 2019 after impacts of the

adoption of new standards

133,320

(1,352)

1,043,755

1,318,728

57,478

(79,288)

2,472,641

425,208

2,897,849

Net loss for the period

-

-

-

-

(143,851)

-

(143,851)

(12,416)

(156,267)

Other comprehensive loss for the period

-

-

-

-

-

(50,211)

(50,211)

158

(50,053)

Total comprehensive loss for the period

-

-

-

-

(143,851)

(50,211)

(194,062)

(12,258)

(206,320)

Capital increase from non-controlling interest

1 (a)

-

-

-

-

-

-

-

27,946

27,946

Repurchase of the Company's own shares

1 (c)

-

(8,103)

-

-

-

-

(8,103)

-

(8,103)

Dividends distribution to NEXA's

1 (d)

shareholders - USD 0.53 per share

-

-

-

-

(69,832)

-

(69,832)

-

(69,832)

Dividends distribution to non-controlling

1 (d)

interests and to NEXA PERU's investment shares

-

-

-

(2,256)

-

-

(2,256)

(35,446)

(37,702)

Total contributions by and distributions to

shareholders

-

(8,103)

-

(2,256)

(69,832)

-

(80,191)

(7,500)

(87,691)

At September 30, 2019

133,320

(9,455)

1,043,755

1,316,472

(156,205)

(129,499)

2,198,388

405,450

2,603,838

The accompanying notes are an integral part of these condensed consolidated interim financial statements

6 of 29

Nexa Resources S.A.

Condensed consolidated interim statement of changes in shareholders' equity

At and for three-month period ended September 30, 2019

All amounts in thousands of US dollars, unless otherwise stated

__________________________________________________________________________________________________________________________

Retained

Accumulated

Additional

earnings

other

Non-

Total

Treasury

Share

paid in

(cumulative

comprehensive

controlling

shareholders'

Capital

shares

premium

capital

deficit)

loss

Total

interests

equity

At June 30, 2018

133,320

-

1,043,755

1,318,728

1,217

(99,216)

2,397,804

420,556

2,818,360

Net income (loss) for the period

-

-

-

-

7,359

-

7,359

(444)

6,915

Other comprehensive income for

-

-

-

-

-

12,917

12,917

263

13,180

the period

Total comprehensive income

-

-

-

-

7,359

12,917

20,276

(181)

20,095

(loss) for the period

At September 30, 2018

133,320

-

1,043,755

1,318,728

8,576

(86,299)

2,418,080

420,375

2,838,455

At June 30, 2019

133,320

(9,455)

1,043,755

1,316,472

(5,968)

(77,963)

2,400,161

425,189

2,825,350

Net loss for the period

-

-

-

-

(150,237)

-

(150,237)

(21,029)

(171,266)

Other comprehensive loss

-

-

-

-

-

(51,536)

(51,536)

(4,492)

(56,028)

for the period

Total comprehensive loss for the

-

-

-

-

(150,237)

(51,536)

(201,773)

(25,521)

(227,294)

period

Capital increase from non-

-

-

-

-

-

-

-

5,782

5,782

controlling interest

Total contributions by and

-

-

-

-

-

-

-

5,782

5,782

distributions to shareholders

At September 30, 2019

133,320

(9,455)

1,043,755

1,316,472

(156,205)

(129,499)

2,198,388

405,450

2,603,838

The accompanying notes are an integral part of these condensed consolidated interim financial statements

7 of 29

Nexa Resources S.A.

Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated

______________________________________________________________________

  • General information
    Nexa Resources S.A. ("NEXA") was incorporated on February 26, 2014 under the laws of Luxembourg as a public limited liability company (société anonyme). Its shares are publicly traded on the New York Stock Exchange ("NYSE") and the Toronto Stock Exchange ("TSX"). The Company's registered office is located at 37A, Avenue J. F. Kennedy in the city of Luxembourg in the Grand Duchy of Luxembourg.
    NEXA and its subsidiaries (the "Company") own and operate three polymetallic mines in Peru, two polymetallic mines in Brazil and is also constructing a polymetallic mine in Brazil. The Company operations are large-scale, mechanized underground and open pit mines. The Company also owns a zinc smelter in Peru and two zinc smelters in Brazil.
    The Company's majority shareholder is Votorantim S.A. ("VSA"), which holds 64.25% of its equity. VSA is a Brazilian privately-owned industrial conglomerate that holds ownership interests in metal, steel, cement and energy companies, among others.

Principal transactions for the three and nine-month periods ended September 30, 2019

  1. Karmin acquisition agreement
    On August 26, 2019 the Company entered into a definitive arrangement with, among others, Karmin Exploration Inc. ("Karmin"), in which the Company agreed to acquire Karmin for an aggregate acquisition price of USD 70,000. Karmin indirectly held the remaining 30.0% interest of Mineração Dardanelos Ltda.("Dardanelos"), owner of the Aripuanã project.
    The acquisition price contemplates (i) the acquisition of 89,945,479 common shares, representing 100% of the issued and outstanding common shares of Karmin, for an aggregate consideration of USD 69,300 paid at closing date to the shareholders of Karmin and (ii) a USD 700 loan from the Company to Karmin for general corporate purposes.
    Pursuant to the arrangement, certain assets and liabilities of Karmin unrelated to Aripuanã project, were spun-off to a new private entity, which shares were distributed to Karmin's original shareholders. The Company will not be involved in the management or operations of the new entity. After the conclusion of the spin-off, the Aripuanã project is the only significant asset of Karmin.
    On October 16, 2019, the transaction was approved by Karmin's shareholders and it was closed on October 30, 2019, when the articles of arrangement were filed and the aggregate consideration was paid. The transaction will be accounted for as a transaction with non-controlling interests, as the Company controls Dardanelos. Any difference between the transaction's aggregated acquisition price and the non-controlling interest will be recognized in equity attributable to the NEXA's shareholders.
  2. Aripuanã project developments
    During the nine-month period ended September 30, 2019, Dardanelos' equity was increased by USD 93,885. The Company fully subscribed for its portion of the equity increase in the amount of USD
    64,455. As of September 30, 2019, the Company had registered a receivable of USD 27,946 related to a commitment made by Mineração Rio Aripuanã Ltda. to subscribe for its portion of the equity increase of Dardanelos. As part of the Karmin acquisition agreement this receivable will be derecognized against the non-controlling interest at the transaction effective date.
    8 of 29

Nexa Resources S.A.

Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated

______________________________________________________________________

Construction works continue to advance and 66% of the total project capital expenditures has been committed and 18% of physical progress was achieved at September 30, 2019.

  1. Share buyback program
    At September 30, 2019, the Company has repurchased its own shares in the total amount of USD 8,103, corresponding to 881,922 shares. These shares are being held in treasury and have not been cancelled. The repurchases are part of the Company's USD 30,000 shares buyback program initiated in 2018.
  2. Dividend distribution
    On February 15, 2019, the Board of Directors approved a dividend distribution to the Company's shareholders of record on March 14, 2019 in the amount of USD 0.53 cents per common share, for a total amount of USD 69,832. Dividends were paid in cash on March 28, 2019.
    The Company's subsidiary, NEXA PERU, also declared dividends in the three-month period ended March 31, 2019 in the amount of USD 200,001, including USD 32,880 to non-controlling interests and USD 2,256 to holders of investments shares (acciones de inversión). These shares give the holders the right to receive dividends but are not entitled to voting rights or the residual value of NEXA PERU's equity.
  3. Interest rate swap
    On January 2019, the Company entered into a ten-year interest rate swap in the notional amount of USD 58,233 (equivalent to BRL 226,880) to change the Brazilian inflation component ("IPC-A") of financing arrangements with BNDES to 53.04% of the Brazilian interbank rate ("CDI"). In accordance with the Company's accounting policy, the fair value adjustment of this derivative financial instrument is accounted for in "Net financial results".

9 of 29

Nexa Resources S.A.

Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated

______________________________________________________________________

  • Segment results
    The presentation of segment results and reconciliation to income before income tax in the condensed consolidated interim income statement is as follows:

Three-month period ended

September 30,2019

Mining

Smelting

Intersegment

Adjustments

Consolidated

sales

Net revenues

248,223

442,161

(124,477)

(2,485)

563,422

Cost of sales

(220,373)

(414,712)

124,477

7,150

(503,458)

Gross profit

27,850

27,449

-

4,665

59,964

Selling, general and administrative

(29,919)

(23,571)

-

(3,716)

(57,206)

Mineral exploration and project

(29,437)

(2,553)

-

-

(31,990)

development

Impairment loss

(142,133)

-

-

-

(142,133)

Other income and expenses, net

(3,604)

(431)

-

(2,472)

(6,507)

Operating income

(177,243)

894

-

(1,523)

(177,872)

Depreciation and amortization

68,183

23,661

-

1,653

93,497

Exceptional items (i)

142,133

-

-

-

142,133

Adjusted EBITDA

33,073

24,555

-

130

57,758

Exceptional items (i)

(142,133)

Depreciation and amortization

(93,497)

Net financial results

(57,117)

Income before income tax

(234,989)

Three-month period ended

September 30,2018

Mining

Smelting

Intersegment

Adjustments

Consolidated

sales

Net revenues

249,638

483,006

(139,736)

2,176

595,083

Cost of sales

(179,871)

(444,156)

139,736

(3,765)

(488,055)

Gross profit

69,767

38,850

-

(1,589)

107,028

Selling, general and administrative

(11,541)

(20,363)

-

(4,709)

(36,613)

Mineral exploration and project

(30,420)

(2,725)

-

-

(33,145)

development

Other income and expenses, net

(6,258)

17,795

-

4,417

15,954

Operating income

21,548

33,557

(1,881)

53,224

Depreciation and amortization

43,540

23,395

-

(339)

66,596

Exceptional items (i)

-

-

-

-

(44)

Adjusted EBITDA

65,088

56,952

-

(2,176)

119,776

Exceptional items (i)

44

Depreciation and amortization

(66,596)

Net financial results

(44,336)

Income before income tax

8,888

10 of 29

Nexa Resources S.A.

Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated

______________________________________________________________________

Nine-month period ended

September 30,2019

Mining

Smelting

Intersegment

Adjustments

Consolidated

sales

Net revenues

766,567

1,405,974

(424,396)

(1,608)

1,746,537

Cost of sales

(605,961)

(1,268,547)

424,396

(19,413)

(1,469,525)

Gross profit

160,606

137,427

-

(21,021)

277,012

-

Selling, general and administrative

(80,458)

(57,208)

-

(2,687)

(140,353)

Mineral exploration and project

(74,295)

(6,079)

-

-

(80,374)

development

Impairment loss

(142,133)

-

-

-

(142,133)

Other income and expenses, net

(18,153)

(24,805)

-

22,838

(20,120)

Operating income

(154,433)

49,335

-

(870)

(105,968)

Depreciation and amortization

171,886

74,376

-

1,660

247,922

Exceptional items (i)

142,133

-

-

-

142,133

Adjusted EBITDA

159,586

123,711

-

790

284,087

Exceptional items (i)

(142,133)

Depreciation and amortization

(247,922)

Net financial results

(98,345)

Income before income tax

(204,313)

Nine-month period ended

September 30,2018

Mining

Smelting

Intersegment

Adjustments

Consolidated

sales

Net revenues

878,203

1,560,527

(532,361)

1,419

1,907,788

Cost of sales

(528,451)

(1,442,565)

532,361

(8,676)

(1,447,331)

Gross profit

349,752

117,962

-

(7,257)

460,457

Selling, general and administrative

(37,668)

(64,774)

-

(21,331)

(123,773)

Mineral exploration and project

(74,316)

(5,622)

-

-

(79,938)

development

Other income and expenses, net

(28,944)

14,203

-

27,138

12,397

Operating income

208,824

61,769

-

(1,450)

269,143

Depreciation and amortization

133,179

71,776

-

240

205,195

Exceptional items (i)

(392)

(392)

Adjusted EBITDA

342,003

133,545

(1,602)

473,946

Exceptional items (i)

392

Depreciation and amortization

(205,195)

Net financial results

(225,720)

Income before income tax

43,423

  1. Exceptional items are composed of impairment loss and miscellaneous adjustments and reconcile the segments' Adjusted EBITDA to the consolidated Adjusted EBITDA.
  • Basis of preparation of the consolidated financial statements
    These condensed consolidated interim financial statements for the three and nine-month periods ended September 30, 2019 have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting ("IAS 34") using the accounting principles consistent with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB").
    The Company made a voluntary election to present the condensed consolidated interim statement of
    11 of 29

Nexa Resources S.A.

Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated

______________________________________________________________________

cash flows for the three-month period ended September 30, 2019 and 2018.

The Company is also presenting a condensed consolidated interim statement of changes in shareholders' equity for the three-month period ended September 30, 2019 and 2018 in accordance with SEC Act Release No. 33-10532, Disclosure update and simplification.

These condensed consolidated interim financial statements do not include all disclosures required by IFRS for annual audited consolidated financial statements and accordingly should be read in conjunction with the Company's annual audited consolidated financial statements for the year ended December 31, 2018 prepared in accordance with IFRS as issued by the IASB.

These condensed consolidated interim financial statements have been prepared on the basis of, and using the accounting policies, methods of computation and presentation consistent with those applied and disclosed in the Company's annual audited consolidated financial statements for the year ended December 31, 2018, except for the adoption of new IFRS and interpretation disclosed in Note 4.

The preparation of the condensed consolidated interim financial statements in accordance with IAS 34 requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses for the period end. These critical accounting estimates represent estimates that are uncertain and changes in those estimates could materially impact the Company's condensed consolidated interim financial statements. Actual future outcomes may differ from present estimates and the Company reviews its estimates and assumptions on an ongoing basis using the most current information available. Management also exercises judgment in the process of applying the Company's accounting policies.

The critical judgments and estimates in the application of accounting principles during the nine- month period ended September 30, 2019 are the same as those disclosed in the Company's annual audited consolidated financial statements for the year ended December 31, 2018.

These condensed consolidated interim financial statements of the Company were approved by the Board of Directors on October 31, 2019.

  • Changes in accounting policies and disclosures

New and amended IFRS standards that are effective beginning on January 1, 2019

  1. IFRS 16 - "Leases"
    Main aspects introduced by the standard
    IFRS 16 was issued in January 2016 and should be applied for periods beginning after January 1, 2019. It results in certain leases being recognized on the balance sheet by lessees, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognized.
    Transition method
    The Company has applied IFRS 16 from its mandatory adoption date of January 1, 2019, using the simplified transition approach and did not restate comparative amounts for the periods prior to the adoption. Right-of-use assets were measured on transition at the amount of the lease liability, adjusted by any prepaid or accrued lease expense.
    12 of 29

Nexa Resources S.A.

Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated

______________________________________________________________________

Practical expedients applied at the adoption

In applying IFRS 16 for the first time, the Company has used the following practical expedients permitted by the standard:

  • The accounting for low value leases and leases with a remaining term of less than 12 months as at January 1, 2019;
  • The exclusion of initial direct costs from the measurement of theright-of-use asset at the date of initial application; and
  • The use of a single discount rate to a portfolio of leases with reasonably similar characteristics.

Accounting policy

The Company may lease assets in its normal course of business. Lease terms are negotiated on an individual asset basis and contractual provisions contain a wide range of different terms and conditions. The lease agreements do not impose any covenants, but leased assets may not be used as security for borrowing purposes.

Lease contracts are recognized as a liability with a corresponding right-of-use asset at the date at which the leased asset is available for use by the Company. The right-of-use asset is amortized over the shorter of the asset's useful life and the lease term on a straight-line basis.

Liabilities arising from a lease contract are initially measured on a present value basis, using the incremental borrowing rate approach. The incremental borrowing rate is determined by the Company based on equivalent financial costs that would be charged by a counterparty for a transaction with the same currency and a similar amount, term and risk of the lease contract. The finance cost charged to the income statement produces a constant periodic rate of interest over the lease term. At September 30, 2019, interest rates were between 7.47% to 11.39% for Brazil and 3.98% to 5.49% for Peru.

Impacts of adoption

The Company recognized lease liabilities and right-of-use assets in the amount of USD 41,450 and USD 41,521, respectively. Prepayments made in 2018 in the amount of USD 71 were recognized in retained earnings at January 1, 2019. Net current assets were lowered in USD 18,612 due to the presentation of a portion of the liability as a current liability. The Company also reclassified the amount of USD 2,278 from Property, plant and equipment to Right-of-use assets and USD 3,088 from Loans and financing to Lease liabilities corresponding to contracts previously classified as financial leases under IAS 17.

As a result of the adoption, income before tax decreased by USD 789 and USD 2,571 for the three- month and nine-month period ended September 30, 2019, respectively. Adjusted EBITDA, which is used to measure segment results, increased by USD 3,807 and USD 12,519 for the three-month and nine-month period ended September 30, 2019, respectively, as the operating lease payments were previously included in Adjusted EBITDA as operating costs, but the amortization of the right-of-use assets and interest on the lease liabilities are now excluded from this measure.

  1. IFRIC 23 - Uncertainty over income tax treatmentsNature of change
    The interpretation explains how to recognize, and measure current and deferred income tax assets and liabilities where there is uncertainty over a tax treatment.
    13 of 29

Nexa Resources S.A.

Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated

______________________________________________________________________

Transaction method

The Company has applied the standard from its mandatory adoption date of January 1, 2019.

Accounting policy

Income tax provisions for uncertainties over income tax treatments are recognized when (i) there is a probable assessment that an income tax treatment will not be accepted by a taxation authority; and (ii) the Company has a present legal or constructive obligation over income tax as a result of past events. The likelihood of losses and the estimated amount of uncertainties are periodically reviewed by the Company's legal counsel.

Income tax provisions for uncertainties over income tax treatments are measured at the present value by reflecting the effect of the uncertainty in determining the related taxable profit (tax loss), tax bases, unused tax losses, unused tax credits or tax rates, through the most likely amount method.

Impacts of adoption

The interpretation affected primarily the accounting for the Company's uncertain income taxes treatments with a probable likelihood that a taxation authority will not accept such treatments. The impact of the adoption of IFRIC 23 at January 1, 2019 is USD 4,023. The Company also reclassified the amount of USD 6,047 from Provisions to Deferred income taxes.

5

Net revenue

Three-month period ended

Nine-month period ended

2019

2018

2019

2018

Gross revenues

615,374

649,918

1,913,485

2,097,536

Revenues from products

595,514

631,281

1,857,465

2,044,268

Revenues from services

19,860

18,637

56,020

53,268

Taxes on sales

(51,155)

(54,405)

(163,804)

(186,948)

Return of products sales

(797)

(430)

(3,144)

(2,800)

Net revenues

563,422

595,083

1,746,537

1,907,788

  • Expenses by nature

Three-month period ended

2019

2018

Selling, general

Mineral exploration

Cost of sales

and

and project

Total

Total

administrative

development

Raw materials and

271,449

1,531

-

272,980

297,860

consumables used

Third-party services

100,665

29,726

20,555

150,946

126,960

Depreciation and

91,251

2,241

5

93,498

66,596

amortization

Employee benefit

38,477

20,712

5,610

64,799

55,660

expenses

Other expenses

1,616

2,996

5,820

10,432

10,738

503,458

57,206

31,990

592,654

557,814

14 of 29

Nexa Resources S.A.

Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated

______________________________________________________________________

Nine-month period ended

2019

2018

Selling, general

Mineral exploration

Cost of sales

and

and project

Total

Total

administrative

development

Raw materials and

799,612

5,385

-

804,997

859,333

consumables used

Third-party services

296,999

57,900

54,789

409,688

344,397

Depreciation and

241,936

5,967

19

247,922

205,195

amortization

Employee benefit

116,122

52,916

13,191

182,229

186,975

expenses

Other expenses

14,856

18,185

12,375

45,416

55,143

1,469,525

140,353

80,374

1,690,252

1,651,043

  • Mineral exploration and project development

Three-month period ended

Nine-month period ended

2019

2018

2019

2018

Mineral exploration

(21,851)

(22,578)

(54,584)

(59,142)

Project development (FEL 1 and FEL 2)

(10,139)

(10,567)

(25,790)

(20,796)

(31,990)

(33,145)

(80,374)

(79,938)

8

Other income and expense, net

Three-month period ended

Nine-month period ended

2019

2018

2019

2018

Remeasurement of environmental obligations (i)

(517)

4,532

3,395

17,541

Commodities derivative financial instruments

(1,566)

15,957

75

23,474

Gain (loss) on sale of property, plant and equipment (i)

1,590

(182)

608

(8,909)

Gain on sale of investments

-

-

-

348

Projects and contribution to communities

(2,560)

(3,912)

(3,869)

(8,906)

Provision for tax, labor, civil and environmental claims

(4,498)

(978)

(8,753)

(4,861)

Mining obligations

(4,704)

(3,372)

(10,660)

(9,802)

Other operating income (expenses), net

5,748

3,909

(916)

3,512

(6,507)

15,954

(20,120)

12,397

  1. On May 21, 2018, the Company entered into an agreement to sell assets and transfer certain liabilities of the Fortaleza de Minas facility. The transaction resulted in the recognition of a loss of USD 9,615 on the sale of property, plant and equipment and intangible assets and a gain of USD 13,009 related to the reversal of the related asset retirement obligation.

15 of 29

Nexa Resources S.A.

Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated

______________________________________________________________________

  • Net financial results

Three-month period ended

Nine-month period ended

September 30, September 30,

September 30, September 30,

2019

2018

2019

2018

Financial income

Gains on financial investments

5,745

6,730

16,913

18,869

Derivative financial instruments - Note 12 (b)

26

-

5,485

-

Other financial income

829

472

1,996

7,654

6,600

7,202

24,394

26,523

Financial expense

Interest on loans and financing

(12,546)

(22,088)

(49,096)

(59,203)

Interest on contractual liabilities

(1,578)

(1,791)

(4,966)

(5,543)

Interest on other liabilities

(1,944)

(1,253)

(7,731)

(3,701)

Derivative financial instruments - Note 12 (b)

(4,708)

-

(5,580)

(939)

Interest on lease liabilities

(1,269)

-

(3,143)

-

Other financial expenses

(8,761)

(4,276)

(25,037)

(21,464)

(30,806)

(29,408)

(95,553)

(90,850)

Foreign exchange effects

(32,911)

(22,130)

(27,186)

(161,393)

Net financial results

(57,117)

(44,336)

(98,345)

(225,720)

10 Current and deferred income taxes

  1. Reconciliation of income tax benefit (expense)

Three-month period ended

Nine-month period ended

2019

2018

2019

2018

Income before income tax

(234,989)

8,888

(204,313)

43,423

Standard rate (i)

24.94%

26.01%

24.94%

26.01%

Income tax at standard rate

58,607

(2,312)

50,956

(11,294)

Difference in tax rate of subsidiaries outside Luxembourg

6,463

(1,930)

9,007

13,909

Special mining levy and special mining tax

(49)

(668)

(5,074)

(11,121)

Withholding tax on dividends paid by subsidiaries

-

-

(9,764)

-

Other permanent tax differences

(1,298)

2,937

2,921

(574)

Income tax

63,723

(1,973)

48,046

(9,080)

Current

(9,862)

(4,555)

(36,492)

(56,678)

Deferred

73,585

2,582

84,538

47,598

Income tax

63,723

(1,973)

48,046

(9,080)

  1. On April 25, 2019 the Luxembourg Parliament approved the 2019 Budget Law, including a reduction of the corporate income tax rate from 26.01% to 24.94%, effective for year 2019. As NEXA's tax credits on net operating losses resulting from its standalone activities do not meet the recognition criteria, no deferred tax assets are recognized. As a result, the change has no impact to the condensed consolidated interim income statement.

16 of 29

Nexa Resources S.A.

Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated

______________________________________________________________________

  1. Analysis of deferred income tax assets and liabilities

September 30,

December 31,

2019

2018

Tax credits on net operating losses

135,085

106,817

Uncertain income tax treatments

(10,974)

-

Tax credits on temporary differences

Foreign exchange losses

26,628

50,766

Environmental liabilities

24,564

28,808

Asset retirement obligation

22,914

19,879

Tax, civil and labor provisions

7,936

9,389

Other provisions

1,734

6,443

Provision for obsolete and slow-moving inventory

5,183

5,308

Provision for employee benefits

5,604

5,409

Other

19,588

12,094

Tax debits on temporary differences

Capitalized interest

(20,230)

(11,725)

Depreciation, amortization and asset impairment

(251,237)

(328,834)

Other

(1,974)

(1,798)

(35,179)

(97,444)

Deferred income tax assets

251,246

201,154

Deferred income tax liabilities

(286,425)

(298,598)

(35,179)

(97,444)

11 Cash and cash equivalents

  1. Composition

September 30, 2019

December 31, 2018

Bank accounts

380,200

320,069

Term deposits

406,530

712,869

786,730

1,032,938

The decrease in cash and cash equivalents balance is mainly related to dividends payments in the amount of USD 104,876, dividends paid to non-controlling interests of NEXA PERU and Pollarix, and increase in acquisitions of property, plant and equipment.

  1. Changes in operating assets and liabilities

Three-month period ended

Nine-month period ended

2019

2018

2019

2018

Decrease (increase) in assets

Trade accounts receivable

12,285

56,672

16,835

28,143

Inventory

11,305

28,760

(41,450)

35,869

Other assets

36,153

(36,522)

(50,105)

(45,146)

Increase (decrease) in liabilities

Trade payables

7,782

(13,843)

(34,484)

(16,046)

Confirming payables

12,899

(26,568)

8,357

(21,967)

Contractual liabilities

(5,002)

(6,975)

(17,660)

(22,041)

Other liabilities

12,222

1,397

32,236

(12,115)

.

87,644

2,921

(86,271)

(53,303)

17 of 29

Nexa Resources S.A.

Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated

______________________________________________________________________

12 Derivative financial instruments

(a) Fair value by strategy

September 30, 2019

December 31, 2018

Strategy

Per Unit

Notional

Fair value

Notional

Fair value

Mismatches of quotational periods

Zinc forward

ton

246,462

(4,826)

261,020

(557)

(4,826)

(557)

Sales of zinc at a fixed price

Zinc forward

ton

15,763

(451)

10,566

(858)

(451)

(858)

Inflation risk

Brazilian inflation vs. Brazilian interbank

BRL

226,880

811

-

-

interest rate swap

811

-

Foreign exchange risk

Foreign exchange collars (USD)

BRL

763,268

(2,725)

1,056,922

(1,602)

(2,725)

(1,602)

(7,191)

(3,017)

Current assets

8,039

7,385

Non-current assets

1,052

3,820

Current liabilities

(14,517)

(8,662)

Non-current liabilities

(1,765)

(5,560)

  1. Changes in fair value in thenine-month period ended September 30, 2019

Cost of

Net

Other income

Net

Other

Realized

Strategy

Inventory

sales

revenues

and expenses,

financial comprehensive

gain

net

results

income

(loss)

Mismatches of

(1,681)

(10,825)

5,018

(551)

-

1,644

(2,127)

quotational periods

Sales of zinc at a fixed

-

-

-

626

-

-

219

price

Inflation risk

-

-

-

-

1,028

-

217

Foreign exchange risk

-

-

-

-

(1,123)

-

-

(1,681)

(10,825)

5,018

75

(95)

1,644

(1,691)

13

Inventory

(a)

Composition

September 30,

December 31,

2019

2018

Finished products (i)

110,811

106,245

Semi-finished products

73,928

52,534

Raw materials

67,037

64,582

Auxiliary materials and consumables

73,774

69,781

Inventory provisions (ii)

(32,529)

(23,437)

293,021

269,705

  1. In thethree-month period ended September 30, 2019, Cajamarquilla inventory levels were normalized, due to the expected delays in the implementation of Jarosite conversion process.
  2. Comprises obsolete,slow-moving inventory and lower of cost or market value provisions.

18 of 29

Nexa Resources S.A.

Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated

______________________________________________________________________

  1. Changes to the provision in thenine-month period ended September 30

2019

2018

Total

Total

At December 31

(23,437)

(20,736)

Additions

(15,043)

(14,608)

Reversals

5,659

11,291

Foreign exchange effect

293

872

At September 30

(32,529)

(23,181)

14 Other assets

September 30, 2019

December 31, 2018

Recoverable taxes (i)

205,601

183,628

Advances to third parties (ii)

20,721

2,472

Dardanelos' equity increase commitment (iii)

27,946

-

Prepaid expenses

11,702

8,556

Judicial deposits

7,306

9,230

Other assets

35,213

39,429

308,489

243,315

Current assets

176,729

122,857

Non-current assets

131,761

121,198

  1. The increase in recoverable taxes is due to an increase in value added tax credits in the amount of USD 12,670, compensation of recoverable tax of USD 15,205 from NEXA CJM and prepayment of income taxes in the amount of USD 19,755.
  2. The increase in advances to third parties is related to advances in the amount of USD 9,085 to service providers in Peru and advances in the amount of USD 7,302 to athird-party ore supplier in Brazil.
  3. The increase is due to the unsubscribed portion of Dardanelos' equity increase (Note 1(b)).

19 of 29

Nexa Resources S.A.

Notes to the condensed consolidated interim financial statements At and for nine-month period ended September 30, 2019

All amounts in thousands of US dollars, unless otherwise stated

_____________________________________________________________________________________________________________

15 Property, plant and equipment

  1. Changes in thenine-month period ended September 30

2019

Dam and

Machinery,

Assets and

Asset

Mining

equipment, and

projects under

retirement

Other

Total

buildings

projects

facilities

construction

obligation

At December 31

Cost

1,002,885

2,357,254

349,069

175,506

243,629

51,142

4,179,485

Accumulated depreciation

(452,560)

(1,554,728)

-

(91,874)

(86,904)

(24,968)

(2,211,034)

Net balance at the beginning of the

550,325

802,526

349,069

83,632

156,725

26,174

1,968,451

period

Additions (i)

-

348

263,599

-

-

11

263,958

Disposals

(569)

(1,269)

(222)

-

-

(2,697)

(4,757)

Depreciation

(40,940)

(100,818)

-

(4,568)

(1,749)

(1,102)

(149,177)

Impairment loss - Note 22

(15,225)

(27,458)

-

-

-

-

(42,683)

Foreign exchange effect

(19,931)

(24,854)

(21,236)

(4,123)

-

(1,201)

(71,345)

Transfers

30,767

85,772

(134,386)

-

11,700

2,138

(4,009)

Reclassification - Note 4(a)

-

(2,278)

-

-

-

-

(2,278)

Remeasurement of asset retirement

-

-

-

(7,215)

-

-

(7,215)

obligation

At September 30

504,427

731,969

456,824

67,726

166,676

23,323

1,950,945

Cost

1,000,377

2,388,635

456,824

163,014

255,329

46,000

4,310,179

Accumulated depreciation and impairment

(495,950)

(1,656,666)

-

(95,288)

(88,653)

(22,677)

(2,359,234)

At September 30

504,427

731,969

456,824

67,726

166,676

23,323

1,950,945

Average annual depreciation rates %

4

7

-

5

8

-

2018

Total

4,170,586

(2,174,072)

1,996,514

162,702

(10,145)

(140,507)

-

(166,877)

(3,488)

-

5,345

1,843,544

3,996,620

(2,153,076)

1,843,544

  1. Additions include capitalized borrowing costs in the amount of USD 6,306 for thenine-month period ended September 30, 2019 (September 30, 2018 - USD 6,896 ).

20 of 29

Nexa Resources S.A.

Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated

______________________________________________________________________

16 Intangible assets

  1. Changes in thenine-month period ended September 30

2019

2018

Rights to use

Goodwill

natural

Other

Total

Total

resources

At December 31

Cost

674,800

1,669,645

56,853

2,401,298

2,408,302

Accumulated amortization

-

(620,600)

(38,237)

(658,837)

(585,583)

Net balance at the beginning of the

674,800

1,049,045

18,616

1,742,461

1,822,719

period

Disposals

-

-

(378)

(378)

-

Amortization

-

(84,740)

(1,760)

(86,500)

(64,688)

Impairment loss - Note 22

-

(99,450)

-

(99,450)

-

Transfers

-

-

4,009

4,009

3,456

Foreign exchange effect

(280)

(959)

(1,160)

(2,399)

(5,549)

At September 30

674,520

863,896

19,327

1,557,743

1,755,938

Cost

674,520

1,668,407

56,898

2,399,825

2,398,558

Accumulated amortization and

-

(804,511)

(37,571)

(842,082)

(642,620)

impairment

At September 30

674,520

863,896

19,327

1,557,743

1,755,938

Average annual amortization rates %

-

6

-

17 Right-of-use assets and lease liabilities

  1. Right-of-useassets - Changes in the nine-month period ended September 30

2019

Machinery,

Buildings

equipment, and

IT equipment

Vehicles

Total

facilities

At January 1

4,312

8,536

5,846

22,827

41,521

New contracts

2,525

181

-

811

3,517

Amortization

(1,166)

(2,053)

(3,048)

(5,978)

(12,245)

Reclassification - Note 4 (a)

-

2,278

-

-

2,278

Foreign exchange effect

(344)

(872)

-

(1,587)

(2,803)

At September 30

5,327

8,070

2,798

16,073

32,268

Average annual amortization rates %

24

35

63

39

  1. Lease liabilities - Changes in thenine-month period ended September 30

2019

At January 1

41,450

New contracts

3,517

Payments of lease liabilities

(11,849)

Interest paid

(687)

Interest accrued

3,143

Reclassification - Note 4 (a)

3,088

Foreign exchange effect

(1,583)

September 30

37,079

Current liabilities

17,119

Non-current liabilities

19,960

21 of 29

Nexa Resources S.A.

Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated

______________________________________________________________________

  1. Maturity profile

September 30, 2019

2019

2020

2021

2022

2023

As from

Total

2024

U.S. Dollar

4,444

5,030

2,165

1,383

424

34

13,480

Real

2,857

8,628

6,422

5,033

608

51

23,599

7,301

13,658

8,587

6,416

1,032

85

37,079

18 Loans and financings

  1. Composition

September

30, 2019

Type

Average interest rate

Current

Non-current

Total

Eurobonds - USD

Fixed 5.13%

14,133

1,034,757

1,048,890

Debt with banks

LIBOR + 1.27%

1,872

197,949

199,821

TJLP + 2.82%

SELIC + 3.10%

7,168

85,919

93,087

BNDES

TLP - IPCA + 5.22%

Debentures

107.50% CDI

6,469

12,884

19,353

Other

9,786

48,671

58,457

39,428

1,380,180

1,419,608

Current portion of long-term loans and financing

(principal)

20,653

Interest on loans and financing

18,775

39,428

December 31, 2018

Total

1,042,571

197,292

89,925

28,188

66,891

1,424,867

  1. Maturity profile

September 30, 2019

2019

2020

2021

2022

2023

As from 2024

Total

Eurobonds - USD

14,961

-

-

-

341,828

692,101

1,048,890

Debt with banks

2,488

-

79,195

79,254

38,884

-

199,821

BNDES

1,955

6,951

8,654

13,762

13,761

48,004

93,087

Debentures

-

6,474

6,442

6,437

-

-

19,353

Other

4,763

9,293

9,246

8,024

7,792

19,339

58,457

24,167

22,718

103,537

107,477

402,265

759,444

1,419,608

  1. Changes in thenine-month period

2019

At December 31

1,424,867

New loans and financing

13,369

Payments of loans and financing

(15,019)

Foreign exchange effect

(8,894)

Gain on debt modification

-

Reclassification - Note 4(a)

(3,088)

Interest accrual

55,402

Interest paid

(47,029)

September 30

1,419,608

2018

1,447,299

275,452

(287,843)

(18,227)

(3,428)

-

53,674

(47,123)

1,419,804

22 of 29

Nexa Resources S.A.

Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated

______________________________________________________________________

  1. Analysis by currency

September 30,

December 31,

2019

2018

Current

Non-current

Total

Total

U.S. Dollar

24,214

1,279,138

1,303,352

1,301,395

Real

15,214

101,042

116,256

123,472

39,428

1,380,180

1,419,608

1,424,867

  1. Analysis by index

September 30,

December 31,

2019

2018

Current

Non-current

Total

Total

Fixed rate

14,442

1,035,315

1,049,757

1,047,245

LIBOR

10,081

244,381

254,462

255,333

TLP

5,834

47,003

52,837

58,487

BNDES SELIC

828

24,198

25,026

19,447

CDI

6,469

12,884

19,353

28,188

TJLP

1,774

16,399

18,173

16,167

39,428

1,380,180

1,419,608

1,424,867

  1. Guarantees and covenants

No changes to the contractual guarantees or to the financial covenants occurred in the nine-month period ended September 30, 2019. At September 30, 2019, the Company was in compliance with all applicable covenants.

19 Asset retirement and environmental obligations

  1. Changes in thenine-month period ended

2019

2018

Asset retirement

Environmental

Total

Total

obligation

Obligations

At December 31

185,553

84,730

270,283

283,280

Payments

(1,398)

(7,660)

(9,058)

(4,001)

Foreign exchange effect

(4,494)

(5,374)

(9,868)

(32,115)

Interest accrual

7,160

3,947

11,107

11,451

Remeasurement

(6,346)

(3,395)

(9,741)

698

Reversals

-

-

-

(13,009)

At September 30

180,475

72,248

252,723

246,304

Current liabilities

-

19,114

19,114

18,094

Non-current liabilities

180,475

53,134

233,609

228,210

23 of 29

Nexa Resources S.A.

Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated

______________________________________________________________________

20 Provisions

  1. Changes in thenine-month period ended

2019

2018

Tax

Labor

Civil

Environmental

Total

Total

At December 31

12,068

12,188

1,371

5,014

30,641

57,882

Additions

4,172

3,563

277

1,221

9,233

17,483

Reversals

(2,583)

(2,596)

(269)

(1,782)

(7,230)

(14,737)

Interest accrual

1,113

1,154

73

82

2,422

1,804

Payments

(500)

(1,899)

(240)

(270)

(2,909)

(23,637)

Foreign exchange effect

(178)

(699)

(86)

(124)

(1,087)

(4,881)

Adoption of IFRIC 23 -

(6,047)

-

-

-

(6,047)

-

Note 4 (b)

Other

115

1,265

(89)

-

1,291

-

At September 30

8,160

12,976

1,037

4,141

26,314

33,914

  1. Breakdown of tax, civil, labor and environmental provisionsThe provisions and the corresponding judicial deposits are as follow:

September 30, 2019

December 31, 2018

Judicial

Carrying

Outstanding

Carrying

Outstanding

depositsProvisions

amount

judicial

amount

judicial

deposits

Tax

(1,795)

9,956

8,160

2,040

Labor

(2,747)

15,723

12,976

4,735

Civil

(778)

1,815

1,037

27

Environmental

-

4,141

4,141

504

(5,320)

31,635

26,314

7,306

deposits

12,068 2,245

12,188 6,555

1,371 17

5,014 413

30,641 9,230

  1. Summary of contingent liabilities
    The Company is part of other litigation involving a risk of possible loss, for which no provision is recognized, as detailed below:

September 30,

December 31, 2018

Tax

131,178

137,110

Labor

38,814

39,079

Civil

20,587

20,130

Environmental

112,632

119,747

303,211

316,066

21 Financial instrument

  1. Breakdown by category
    The Company classifies its financial assets and liabilities under the following categories: amortized cost, fair value through other comprehensive income and fair value through profit or loss. The classification by category and the corresponding accounting policies of each financial instruments in these condensed consolidated interim financial statements are consistent with those applied and disclosed in the Company's annual audited consolidated financial statements for the year ended December 31, 2018.

24 of 29

Nexa Resources S.A.

Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated

______________________________________________________________________

September 30,2019

Fair value

Fair value through

Amortized

other

Assets per balance sheet

through profit or

Total

cost

comprehensive

loss

income

Cash and cash equivalents

-

786,730

-

786,730

Financial investments

-

70,844

-

70,844

Derivative financial instruments

-

4,925

4,166

9,091

Trade accounts receivable

97,107

57,568

154,675

Related parties (i)

744

-

-

744

97,851

920,067

4,166

1,022,084

September 30,2019

Fair value

Fair value through

Amortized

other

Liabilities per balance sheet

through profit or

Total

cost

comprehensive

loss

income

Loans and financing

1,419,608

-

-

1,419,608

Lease liabilities

37,079

-

-

37,079

Derivative financial instruments

-

6,298

9,984

16,282

Trade payables

346,224

-

-

346,224

Confirming payables

78,849

-

-

78,849

Use of public assets (ii)

21,771

-

-

21,771

Related parties (ii)

599

-

-

599

1,904,130

6,298

9,984

1,920,412

December 31,2018

Fair value

Fair value through

Amortized

other

Assets per balance sheet

through profit or

Total

cost

comprehensive

loss

income

Cash and cash equivalents

-

1,032,938

-

1,032,938

Financial investments

-

92,233

-

92,233

Derivative financial instruments

-

6,885

4,320

11,205

Trade accounts receivable

22,146

151,058

-

173,204

Related parties (i)

740

-

-

740

22,886

1,283,114

4,320

1,310,320

December 31,2018

Fair value

Fair value through

Amortized

other

Liabilities per balance sheet

through profit or

Total

cost

comprehensive

loss

income

Loans and financing

1,424,867

-

-

1,424,867

Derivative financial instruments

-

10,155

4,068

14,223

Trade payables

387,225

-

-

387,225

Confirming payables

70,411

-

-

70,411

Use of public assets (ii)

22,126

-

-

22,126

Related parties (ii)

1,580

-

-

1,580

1,906,209

10,155

4,068

1,920,432

  1. Classified as Other assets in the condensed consolidated interim balance sheet.
  2. Classified as Other liabilities in the condensed consolidated interim balance sheet.

25 of 29

Nexa Resources S.A.

Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated

______________________________________________________________________

  1. Fair value by hierarchy

September 30, 2019

Level 1

Level 2

Total

Assets

Cash and cash equivalents

786,730

-

786,730

Financial investments

60,020

10,824

70,844

Derivative financial instruments

-

9,091

9,091

Trade accounts receivable

-

57,568

57,568

846,750

77,483

924,233

Liabilities

Derivative financial instruments

-

16,282

16,282

Loans and financing (i)

1,194,245

286,685

1,480,930

1,194,245

302,967

1,497,212

December 31, 2018

Level 1

Level 2

Total

Assets

Cash and cash equivalents

1,032,938

-

1,032,938

Financial investments

39,167

53,066

92,233

Derivative financial instruments

-

11,205

11,205

Trade accounts receivables

-

151,058

151,058

1,072,105

215,329

1,287,434

Liabilities

Derivative financial instruments

-

14,223

14,223

Loans and financing (i)

1,014,974

390,848

1,405,822

1,014,974

405,071

1,420,045

  1. Loans and financing are measured at amortized cost. Therefore, the amounts presented in this note do not match with the condensed consolidated interim balance sheet.

The carrying amount of other financial instruments measured at amortized cost do not differ significantly from their fair value.

  1. Fair value measurement and disclosures
    The valuation techniques used in the fair value measurement and disclosure processes, including the critical accounting estimates used and judgements made by the Company, are consistent with those applied and disclosed in the Company's annual audited consolidated financial statements for the year ended December 31, 2018.
    There were no reclassifications between fair value levels in the nine-month period ended September 30, 2019. None of the financial instruments were classified as Level 3 as of September 30, 2019.

22 Impairment loss

  • The Company performs an assessment of impairment indicators at each reporting date in accordance with notes 13 and 14 of the annual audited consolidated financial statements. For the three-month period ended September 30, 2019, the Company's assessment identified the following impairment indicators:

  • The spot average zinc LME prices declined 15.1% in comparison with thethree-month period ended June 30, 2019;
  • A reduction in the life of mine of some of our operations due to a decrease in mineral reserves and resources estimates;
  • The carrying amount of the net assets of the Company is persistently above the Company's market value.

26 of 29

Nexa Resources S.A.

Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated

______________________________________________________________________

The Company's management concluded that the combination of these indicators could indicate a material impact in the recoverable amount of our cash-generating units ("CGUs"). Therefore, an estimation of the recoverable amount of all the Company´s CGUs was performed as at September 30, 2019.

Below is a breakdown of the CGU's carrying amount tested for impairment as at September 30, 2019:

Fair value of

Other net assets

Total carrying

Goodwill

identifiable

carrying amount

amount

assets (iii)

Cerro Lindo

-

386,255

209,636

595,891

Cerro Pasco

-

318,218

204,045

522,263

Mining Peru (i)

578,280

704,473

413,681

1,696,434

Cajamarquilla

92,494

-

719,698

812,192

Três Marias system (ii)

-

-

628,874

628,874

Juiz de Fora

-

-

195,335

195,335

670,774

704,473

1,957,588

3,332,835

    1. Represents the lowest level within the Company at which the goodwill generated in the acquisition of NEXA PERU is monitored.
    2. Currently Três Marias smelter is integrated with the operations of Vazante and Morro Agudo and, therefore, are considered as a single CGU.
    3. Corresponds to the fair value of the identifiable intangible assets in the acquisition of NEXA PERU, which are recognized at the consolidated level.
  1. Key assumptions used in impairment test

  2. The recoverable amount of each CGUs was determined based on value-in-use method, which was higher than the fair value less costs to sell. This approach is consistent with the annual impairment testing disclosed in note 14 of the annual audited consolidated financial statements as at December 31, 2018.
    The Company identified long-term metal prices, pre-tax discount rate and life of mine ("LOM") as key assumptions for the recoverable amount determination, due to the material impact that such assumptions may cause on the discounted cash flow determination. These assumptions are summarized below:

27 of 29

Nexa Resources S.A.

Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated

______________________________________________________________________

September 30,

September 30,

2019

2018

Long-term zinc (USD/t)

2,571

2,517

Long-term copper (USD/t)

6,542

6,478

Pre-tax discount rate (Brazil)

11.34%

11.98%

Pre-tax discount rate (Peru)

10.03%

10.34%

Brownfield projects - LOM (years)

from 8 to 13

from 9 to 21

Greenfield projects - LOM (years)

from 12 to 24

from 12 to 24

  1. Impairment test analysis
    Following the determination of the recoverable amount of the CGUs, the Company compared the carrying amount of each CGU with its respective recoverable amount. At this step, the Company identified an impairment loss at the CGU Cerro Pasco (note 22(c)).
    The second step was to test whether the goodwill allocated to a CGU or a group of CGUs is recoverable. In performing this analysis, the recoverable amount of Cerro Lindo and Cerro Pasco are aggregated in a group of CGUs called Mining Peru, which represents the lowest level within the Company at which goodwill of the acquisition of NEXA PERU is monitored. This aggregated recoverable amount is compared with the aggregated carrying amount of the CGUs. No impairment loss was verified at this level.
  2. Impairment loss - Cerro Pasco
    The reduction in the mineral reserves and resources estimates that led to a shortening of the life of mine of Cerro Pasco CGU from 21 to 13 years was determinant for the recognition of an impairment loss of USD 142,133.
    As the impairment loss was identified at the CGU level and was not directly related to a single asset, the loss was allocated in a pro rata basis to the following assets:

Carrying amount

Carrying amount

prior to

Impairment

after

impairment loss

loss

impairment loss

Property, plant and equipment

192,719

(42,683)

150,036

Intangible assets

333,427

(99,450)

233,977

Other net assets

(3,883)

-

(3,883)

522,263

(142,133)

380,130

Fair value of identifiable assets

318,218

(97,308)

220,910

Other net assets carrying amount

204,045

(44,825)

159,220

522,263

(142,133)

380,130

The Company performed a stress test on the key assumptions used for the calculation of the value- in-use of the CGU Cerro Pasco. A decrease of 5% in the long-term LME zinc price to USD 2,442 per ton compared to management´s estimation at September 30, 2019 would have had resulted in the recognition of an additional impairment loss of USD 73,577. Also, an increase of 5% in the pre-tax discount rate to 10.53% ton compared to management´s estimation at September 30, 2019 would have had resulted in an additional impairment loss of USD 11,428.

  1. Impairment results - Other CGUs
    The impairment indicators listed above led to a decrease in the recoverable amount of all our CGUs. However, the effects were less prominent than in the CGU Cerro Pasco and no impairment loss were identified in other CGUs.
    28 of 29

Nexa Resources S.A.

Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated

______________________________________________________________________

The Company also assessed that, for some of the CGUs that were not subjected to an impairment loss, a reasonably possible change in some of the key assumptions used for cash flow determination of the CGUs, would cause the carrying amount to exceed its recoverable amount. As a result, the Company estimated the amount by which the value assigned to each of these key assumptions must change in order for the CGU recoverable amount to be equal to its carrying amount:

Excess over

Decrease in long term

Increase in pre-tax

zinc (USD/t)

discount rate

Cash generating unit

carrying

amount

Change

Price

Change

Rate

Cerro Lindo

1,103,384

(44%)

1,432

104%

20.42%

Cajamarquilla

264,773

(6%)

2,412

27%

12.74%

Três Marias system

517,748

(15%)

2,180

72%

19.51%

Juiz de Fora

270,841

(26%)

1,895

76%

19.99%

23 Events after the reporting period

  1. Revolving credit facility
    On October 25, 2019, the Company entered into a revolving credit facility with a syndicate of lenders, which allows the Company to borrow up to USD 300,000. The revolving credit facility is to be used for general corporate purposes and provides the Company with increased liquidity and additional flexibility. The revolving credit facility has a term of five years and the amounts drawn are subject to an interest rate of 1.0% + LIBOR 3M. The transaction costs will be capitalized and amortized over the contractual term.
  2. Export credit note
    On October 23, 2019, in order to expand short-term liquidity in Brazil, the Company entered into an Export Credit Note agreement in the principal amount of USD 90,000 and cost of Libor 3M + 1.5% p.a., with maturity of 5 years. Simultaneously, the Company contracted a swap to exchange the interest index to CDI rate + 1.30% p.a., as well as the currency of debt service repayments from USD to BRL. The Company will account for the Export Credit Note under the fair value option to eliminate the accounting mismatch that would arise if amortized cost were used.
  3. Vazante equipment failure
    During a regular inspection activity on October 25, 2019, a crack was identified in one of the components of the concentration plant of Vazante. Equipment repair should last approximately 30 days and during this period the mine should operate at 30% of its nominal production capacity. As a result, the Company expects a decrease in 2019 production of 8 to 10 thousand tons of zinc in concentrate. No work accidents nor environmental impacts from this failure were reported. The Company could not estimate the cost of the repairs needed as of the approval date of the condensed consolidated interim financial statements.
    * * *

29 of 29

Disclaimer

Nexa Resources SA published this content on 31 October 2019 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 31 October 2019 22:31:05 UTC

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Financials (USD)
Sales 2020 2 082 M
EBIT 2020 121 M
Net income 2020 -99,7 M
Debt 2020 1 066 M
Yield 2020 9,07%
P/E ratio 2020 -9,49x
P/E ratio 2021 65,0x
EV / Sales2020 0,73x
EV / Sales2021 0,66x
Capitalization 461 M
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Mean consensus HOLD
Number of Analysts 11
Average target price 7,96  $
Last Close Price 3,48  $
Spread / Highest target 245%
Spread / Average Target 129%
Spread / Lowest Target -13,8%
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Managers
NameTitle
Tito Botelho Martins President & Chief Executive Officer
Luis Ermírio de Moraes Chairman
Rodrigo Nazareth Menck Chief Financial Officer & Senior Vice President
Jones Aparecido Belther Senior VP-Mineral Exploration & Technology
João Henrique Batista de Souza Schmidt Non-Independent Director