Nexa Resources S.A. — 2020 Form 20-F
Reporting period: Fiscal year ended December 31, 2020; filed March 22, 2021. This is an annual report, not a standalone fourth-quarter filing, and the provided text does not give a clear separate Q4 financial result. Nexa is an integrated zinc miner and smelter operating in Brazil and Peru. Financial statements are prepared under IFRS as issued by the IASB.
Financial and operating results
| Metric | 2020 | 2019 | Change / context |
|---|---|---|---|
| Net revenue | US$1,950.9 million | US$2,332.7 million | Down 16.4%, mainly from lower zinc and lead prices and COVID-related volume reductions |
| Gross profit / margin | US$387.0 million / 19.8% | US$384.9 million / 16.5% | Gross profit was broadly flat; lower cost of sales supported margin |
| Operating income (loss) | (US$398.5 million) | (US$111.0 million) | Includes a substantial increase in impairment charges |
| Net income (loss) | (US$652.5 million) | (US$157.5 million) | Net loss attributable to Nexa shareholders was US$559.2 million |
| Adjusted EBITDA | US$402.9 million | US$349.0 million | Up about 15%; non-IFRS measure. Adjusted EBITDA margin was 20.7%, versus 15.0% |
| Cash from operating activities | US$291.7 million | US$122.8 million | Higher, supported by operating and working-capital effects |
| Cash and cash equivalents | US$1,086.2 million | US$698.6 million | Increased after significant financing activity |
| Loans and financing | US$2,024.3 million | US$1,508.6 million | Net debt was US$923.7 million; net debt/Adjusted EBITDA was 2.3x |
| Capital expenditures | US$336.5 million | US$410.3 million | Down 18%; US$186.7 million was for Aripuanã |
Cash used in investing activities was US$369.2 million and cash provided by financing activities was US$451.6 million. The filing reports US$323.7 million of property, plant and equipment additions in the cash-flow statement; its separate capital-expenditure measure was US$336.5 million net of tax credits. The company reported compliance with its financial covenants at year-end. Its US$300 million revolving credit facility was undrawn at December 31, 2020.
Material changes and unusual items
- Mining production fell: zinc equivalent output was 498.3 thousand tonnes, down 18% from 609.4 thousand tonnes in 2019. Zinc, copper and lead contained in concentrates declined 13%, 26% and 26%, respectively. Refined zinc and zinc oxide sales fell 5.8% to 585.4 thousand tonnes.
- A non-cash impairment charge of US$557.5 million was recorded, including US$225.6 million for the Cerro Pasco CGU, US$267.3 million of Mining Peru goodwill, US$45.2 million for the Jarosite project, US$10.4 million for Ambrosia and US$10.1 million for Atacocha underground assets.
- Net financial expense increased to US$278.2 million from US$104.9 million, primarily due to foreign-exchange losses, higher interest expense and the premium paid to repurchase bonds. The Brazilian real’s depreciation materially contributed to foreign-exchange losses.
- The higher-cost Atacocha underground mine remained under care and maintenance. A local protest temporarily suspended San Gerardo open-pit operations in March 2021; the filing says they were temporarily suspended as of its filing date.
- In March 2021, Nexa temporarily suspended activity in an area of the Extremo Norte mine at Vazante after identifying above-normal ground movement near access and escape routes. Assessment with outside experts was ongoing.
Outlook, management commentary and risks
- For 2021, management projected mined zinc of 322–353 thousand tonnes, copper of 26–30 thousand tonnes, lead of 42–49 thousand tonnes and silver of 8.531–9.317 million ounces. These forecasts assume normal mine utilization except for the continued indefinite suspension of Atacocha underground, and continued COVID-19 safeguards.
- 2021 zinc-equivalent production guidance was 518–578 thousand tonnes, compared with 545–637 thousand tonnes in 2022 and 538–625 thousand tonnes in 2023. Management expected three-year average zinc-equivalent production growth of 6.1%, mainly driven by Aripuanã.
- Aripuanã’s estimated total capital cost increased to US$547 million from US$392 million. Mechanical completion was expected in Q4 2021, with production scheduled to begin in early 2022. Nexa budgeted US$232 million for the project in 2021.
- 2021 capital expenditures were budgeted at US$450 million. Mineral exploration and project evaluation expenses were estimated at US$71 million. Management expected to fund capital needs from operating cash flow and cash on hand, while noting that borrowing could also be required.
- 2021 cash-cost guidance was US$0.33 per pound of zinc sold for mining and US$0.95 per pound for smelting. These are non-IFRS measures and are subject to operating, price and cost assumptions.
- COVID-19 caused Peruvian mine suspensions and reduced Cajamarquilla output in the first half of 2020; operations subsequently ramped up. COVID-related costs were US$15 million, and management expected such costs to recur in 2021. Commodity prices, demand, supply-chain constraints, exchange rates, operational conditions and further pandemic measures remain important uncertainties.
- Other material risks include tailings and environmental obligations, water and energy availability, labor and community disputes, permitting and political risks, mineral reserve uncertainty, and dependence on volatile metal prices. Probable and possible legal claims totaled US$318.5 million; the net provision for probable losses was US$30.9 million.
- After year-end, the board approved a US$35 million dividend, subject to shareholder ratification. The company also disclosed an upcoming 2021 expiry of Cerro Lindo’s Peruvian tax stability agreement, after which different taxes and levies may apply.
Key investor verification points
- Review the full impairment note and valuation assumptions, especially the Cerro Pasco and Mining Peru goodwill headroom and sensitivity to metal prices and discount rates.
- Track Aripuanã’s revised US$547 million budget, construction progress, remaining commitments and early-2022 start-up target.
- Confirm the status and operational effects of the Atacocha community protests and the Extremo Norte ground-stability review.
- Assess debt maturities, refinancing needs, variable-rate exposure and liquidity after the 2020 borrowing and bond repurchase activity.
- Compare 2021 production, sales, cash-cost and capital-spending guidance with realized results, noting that guidance is assumption-dependent and cash-cost measures are non-IFRS.
- Review contingent claims, asset-retirement obligations and tax exposures, including the Cerro Lindo tax-stability agreement expiry.
- Note that the auditor issued an unqualified IFRS opinion and concluded internal control over financial reporting was effective. The audit identified impairment assessment and recoverability of deferred tax assets as critical audit matters.