Nexa Resources S.A. — FY2021 Form 20-F summary
Reporting period: Fiscal year ended December 31, 2021; filed March 17, 2022. This is an annual report, not a standalone Q4 filing, and the supplied filing text does not provide a clear set of Q4-only financial results. Financial statements are prepared under IFRS as issued by the IASB, in U.S. dollars.
Business context
Nexa is an integrated zinc miner and smelter with five operating polymetallic mines in Peru and Brazil and three zinc smelters. Aripuanã, its sixth mine, was nearing completion at year-end. Votorantim S.A. owned 64.68% of Nexa’s shares. Common shares trade on the NYSE under NEXA; the TSX listing ended November 30, 2021.
Key financial and operating metrics
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net revenue | US$2,622.1 million | US$1,950.9 million |
| Gross profit / gross margin | US$656.1 million / 25.0% | US$387.0 million / 19.8% |
| Operating income (loss) | US$446.2 million | (US$398.5 million) |
| Net income (loss) | US$156.1 million; US$0.86 per share | (US$652.5 million); (US$4.22) per share |
| Adjusted EBITDA (non-IFRS) / margin | US$704.2 million / 26.9% | US$402.9 million / 20.7% |
| Net cash from operating activities | US$493.0 million | US$291.7 million |
| Capital expenditures | US$507.9 million | US$336.5 million |
| Cash and cash equivalents at year-end | US$743.8 million | US$1,086.2 million |
| Loans and financings at year-end | US$1,699.3 million | US$2,024.3 million |
| Net debt (non-IFRS) / net debt-to-Adjusted EBITDA | US$962.5 million / 1.37x | US$923.7 million / 2.29x |
Mining production was 537.0 thousand tonnes on a zinc-equivalent basis, up 7.8%; zinc contained in concentrates was 320.0 thousand tonnes, up 2.2%. Smelters sold 618.8 thousand tonnes of zinc metal products, including zinc oxide, up 5.7%. Average LME prices rose year over year: zinc 33%, copper 51% and lead 21%.
Material changes and drivers
- Revenue increased 34.4%, primarily from higher metal prices and sales volumes. Mining-segment gross profit rose to US$446.2 million from US$123.0 million; smelting-segment gross profit declined to US$232.7 million from US$262.4 million, as concentrate prices, lower treatment charges and operating costs increased.
- Nexa returned to profitability after 2020’s US$557.5 million impairment charge; no additional impairment or reversal was recorded in 2021. Lower foreign-exchange losses and the absence of the 2020 bond-repurchase premium also reduced net financial expense.
- Operating cash flow improved, but cash fell by US$342.3 million. Investing cash outflow was US$469.3 million and financing cash outflow US$344.1 million, including debt repayments and prepayments, dividends and the Tinka share purchase.
- Net debt increased modestly despite lower gross borrowings, while leverage improved because Adjusted EBITDA rose sharply. About 21.1% of debt carried floating interest rates; the company reported compliance with its financial covenants.
Outlook, commentary, risks and unusual items
- 2022 guidance: zinc in concentrate 287–318 thousand tonnes; copper 28–35 thousand tonnes; lead 46–55 thousand tonnes; silver 8.6–10.0 million ounces. Zinc metal product sales guidance was 528–551 thousand tonnes, with zinc oxide sales of 37–39 thousand tonnes. Mining cash cost guidance was US$0.23 per pound of zinc sold and smelting cash cost US$1.15 per pound; these are non-IFRS measures.
- 2022 capital expenditure was budgeted at approximately US$385 million, including US$59 million for Aripuanã. Management expected Aripuanã ramp-up to begin in Q3 2022; estimated total project capex rose to US$625 million from a prior US$575–595 million range after cost, weather, workforce and COVID-related pressures delayed the schedule.
- Management expected lower 2022 output from lower Cerro Lindo grades, temporary Vazante disruption and reduced third-party calcine supply. It expected zinc production to increase in 2023 as Aripuanã reached full throughput. Guidance depended on prices, grades, operating performance, costs, exchange rates, social conditions and pandemic developments.
- In January 2022, heavy rainfall partially flooded lower levels of Vazante and reduced underground output; Nexa expected full-capacity operations to resume in early April 2022. Community road blockades repeatedly disrupted Peruvian sites, and Atacocha’s San Gerardo open pit was temporarily suspended amid renewed protests in March 2022. The higher-cost Atacocha underground mine remained under care and maintenance.
- Notable reported items included a US$71.9 million ICMS tax incentive benefit in other income; US$19.4 million of recovered GSF energy costs reducing cost of sales; a US$19.3 million silver-stream revenue remeasurement reduction, partly reflecting updated prices and mine-plan assumptions; and a US$6.7 million non-cash net expense for asset-retirement and environmental obligation remeasurement. COVID-19 direct costs were US$18 million.
- Legal and administrative matters with probable or possible loss totaled approximately US$346.5 million; provisions, net of judicial deposits, were US$36.8 million. Separately, Peruvian tax authority SUNAT assessed approximately US$47.6 million concerning Cerro Lindo’s expired tax-stability agreement. Management said it had strong grounds to contest the assessment and recorded no provision.
- Key risks include volatile metal prices and demand, inflation and currency movements, community and political disruption, mine geotechnical and flooding events, tailings and environmental liabilities, energy and raw-material supply, project execution, regulatory and tax changes, and COVID-19. Nexa also disclosed possible supply-chain and commodity-market effects from Russia’s invasion of Ukraine; it said the business impact was not yet predictable.
- The auditor issued an unqualified opinion on the IFRS financial statements and internal control over financial reporting. Management and the auditor concluded controls were effective. The auditor identified impairment assessment as a critical audit matter, emphasizing judgment in metal-price and discount-rate assumptions; no 2021 impairment was recorded.
Most important facts for investors to verify
- Whether Aripuanã ramped up on schedule and within the revised US$625 million total capex estimate, and whether its production and cost assumptions were achieved.
- Actual recovery at Vazante after flooding, the duration and financial effect of Atacocha and other community disruptions, and the status of third-party calcine supply.
- Whether 2022 production, sales, cash-cost and capex guidance was met; compare these non-IFRS cost measures with reported IFRS results and the company’s definitions.
- Cash generation and liquidity after capex, debt service and distributions; monitor debt maturities, variable-rate exposure, confirming payables and the planned redemption of Nexa Peru’s 2023 bonds.
- Developments in the SUNAT assessment and other tax, labor, civil and environmental contingencies, as well as tailings-dam licensing and remediation obligations.