Nexa Resources S.A. — 2023 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2023; filed March 27, 2024. This is an annual report, not a standalone fourth-quarter filing. Financial statements are audited and prepared under IFRS as issued by the IASB. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Business context
Nexa is a Luxembourg-incorporated, integrated zinc miner and smelter operating in Peru and Brazil. It reported six mines, including Aripuanã, which remained in ramp-up, and three zinc smelters. Votorantim S.A. owned 64.68% of the common shares as of March 27, 2024.
Key financial and operating metrics
| Metric | 2023 | 2022 |
|---|---|---|
| Net revenue | US$2,573.2 million | US$3,034.0 million |
| Gross profit / gross margin | US$296.5 million / 11.5% | US$638.8 million / 21.1% |
| Operating income (loss) | (US$155.4 million) | US$359.2 million |
| Net income (loss) | (US$289.2 million) | US$76.4 million |
| Adjusted EBITDA (non-IFRS) | US$391.2 million | US$760.3 million |
| Adjusted EBITDA margin (non-IFRS) | 15.2% | 25.1% |
| Net cash from operating activities | US$246.8 million | US$266.6 million |
| Capital expenditures | US$309.0 million | US$381.2 million |
| Cash and cash equivalents at year-end | US$457.3 million | US$497.8 million |
| Loans and financings | US$1,725.6 million | US$1,669.3 million |
| Net debt / Adjusted EBITDA | 3.24x | 1.53x |
Net debt was US$1,269.1 million at year-end. Cash from operations less reported capital expenditures was approximately negative US$62 million, a simple comparison rather than a company-reported free-cash-flow measure. Current assets were US$1,059.8 million and current liabilities US$1,074.9 million; adjusted working capital was negative US$111.8 million.
Mining production was 611.1 thousand tonnes on a zinc-equivalent basis, up 8.2%; zinc in concentrates rose 12.4% to 333.2 thousand tonnes. Smelters produced 587.5 thousand tonnes of zinc metal and oxide available for sale, while total sales were 589.8 thousand tonnes, down 4.3%.
Changes versus 2022
- Revenue fell 15.2%, mainly because average LME zinc prices declined 23.9%, copper prices fell 3.6%, and smelting sales volumes were lower; increased mining production partly offset the declines.
- Adjusted EBITDA decreased 48.6%. The mining segment’s Adjusted EBITDA fell to US$149.1 million from US$439.8 million; smelting fell to US$247.0 million from US$326.4 million.
- The company recorded a US$114.6 million non-cash, pre-tax impairment loss, including US$59.0 million for Morro Agudo, US$42.7 million of Peru mining goodwill, and US$13.0 million on individual assets, mainly projects under construction.
- Operating cash flow declined 7.4%; cash and cash equivalents decreased US$40.6 million. Capital expenditures fell 18.9%, primarily as Aripuanã construction wound down, while sustaining investment increased.
- Net debt rose about US$108 million and leverage increased to 3.24x from 1.53x.
Outlook, commentary, risks and unusual items
- 2024 guidance: zinc in concentrates 323–381 thousand tonnes; copper 30–35 thousand tonnes; lead 66–82 thousand tonnes; silver 11–13 million ounces. Zinc output at the midpoint is expected to increase 5.6% from 2023, mainly due to Aripuanã. Management expects zinc production in 2025–2026 to be broadly similar to 2024.
- Sales and costs: 2024 metallic zinc sales guidance is 545–565 thousand tonnes and zinc oxide 35–40 thousand tonnes. Mining cash cost guidance, excluding Aripuanã during ramp-up, is US$0.23–US$0.42 per pound; smelting cash cost guidance is US$1.07–US$1.18 per pound.
- Investment: 2024 capital expenditure guidance is US$311 million, including US$261 million for sustaining investments. Exploration and project evaluation expenses are estimated at US$72 million. Guidance is preliminary and depends on prices, operating performance, costs, exchange rates, and political and social conditions.
- Aripuanã: plant utilization averaged 61% in fourth-quarter 2023; management expected nameplate capacity in mid-2024. Design limitations and rainy-season constraints delayed ramp-up; verify actual subsequent performance.
- Portfolio actions: Nexa announced on March 19, 2024 that Morro Agudo mining operations would be suspended from May 1, 2024 until further notice, citing portfolio optimization and free-cash-flow priorities.
- Tax matter: Nexa agreed to make payments relating to former customers’ VAT matters in Minas Gerais without admitting primary responsibility. The 2023 agreements included US$75.8 million of liabilities; a second resolution in February 2024 added US$27.1 million. The company said the investigation was concluded and it did not expect further provisions. It reserved recovery rights for amounts paid on customers’ behalf.
- Other contingencies: legal proceedings classified as probable or possible totaled US$727.8 million, with net provisions of US$70.6 million at year-end. Separately, SUNAT’s Cerro Lindo tax-stability dispute had an estimated contingency of US$293.1 million for 2014–2017; further audits and potential payments could affect results, cash flow and liquidity.
- Dam obligations: Minas Gerais rules require environmental guarantees estimated by Nexa at US$27.3 million, with phased contracting through 2026. Nexa also recognized a US$7.0 million provision for obligations relating to certain closed industrial-waste structures.
- Operating and market risks: volatile metal prices, high treatment-charge volatility, inflation, foreign exchange and interest rates; Aripuanã ramp-up and cost execution; dependence on third-party zinc concentrate; energy and water availability; community protests and permitting; tailings-dam safety and climate-related disruption. Atacocha experienced temporary protest-related stoppages, and Cerro Lindo suspended production for about two weeks after heavy rainfall in 2023.
- Balance-sheet access: a US$320 million sustainability-linked revolving facility was undrawn at year-end and matures in 2028. Nexa reported compliance with debt covenants at December 31, 2023. About 29.7% of debt bore variable interest rates.
Most important facts for investors to verify
- Whether Aripuanã reaches stable nameplate production on the stated timetable, and the resulting unit costs and cash contribution.
- Whether 2024 production, sales, cash-cost and capital-spending guidance is achieved, particularly given the planned Morro Agudo suspension.
- Cash conversion, working-capital movements and the role of confirming payables, which totaled US$234.4 million at year-end.
- Debt maturities, variable-rate exposure, liquidity headroom and progress in reducing net debt and leverage.
- Final cash payments and any further developments from the Minas Gerais VAT agreements and Cerro Lindo tax dispute.
- Funding and implementation of dam guarantees, remediation obligations and other environmental provisions.
- Metal prices and treatment charges underlying margins; 2023 average LME zinc price was US$2,646.57 per tonne versus US$3,478.32 in 2022.