Nexa Reports Third Quarter 2020 Results and Adjusted EBITDA of US$152 Million
October 29 2020 - 5:21PM
Business Wire
Nexa Resources S.A. (“Nexa Resources” or “Nexa” or the
“Company”) (NYSE: NEXA) (TSX : NEXA) has published its 3Q20
Results.
CEO Message – Tito Martins
“The COVID-19 outbreak remains a concern. In recent weeks, some
regions have started to see an increase in the number of cases,
which could result in additional restrictions from local
governments to combat the spread of the virus. Governments and
businesses around the world are still learning how to adapt to this
new reality without jeopardizing the recovery of the global
economy.
The health and safety of our employees, third-party contractors
and our host communities continues to be our highest priority.
International benchmark procedures to mitigate the spread of
COVID-19 remain in place throughout all of our operations and
projects.
We have delivered a strong quarter despite this challenging
environment. Our team’s commitment, together with the business
continuity measures that have been adopted since the beginning of
the pandemic, coupled with the Nexa Way continuous improvement
program have enabled us to achieve such performance.
In Peru, mining operations gradually ramped up during the
quarter, following government-mandated closures, and are operating
at normal levels. In Brazil, we recorded another solid quarter.
Nexa’s smelters have also been operating at normal capacity
utilization rates.
In terms of our project pipeline, we have recently provided an
update on the Aripuanã project. The project is progressing
according to the updated plan and we have undertaken different
actions to mitigate further risk, such complete the acquisition of
all the critical equipment with about 70% of this equipment already
on the site. The operational readiness team has been mobilized to
the site.
We have also updated our capital allocation strategy and project
pipeline timeline has also been revised in light of the current
circumstances and our commitment to delivering growth with capital
discipline. We remain optimistic about the long-term prospects for
zinc and copper, and after Aripuanã starts to generate cash we
intend to have a further investment discussion on the Magistral
project, which as of today is the most advanced project in our
pipeline.
Our balance sheet remains solid and we have proactively adopted
measures to continue to strengthen our business and protect our
people, contractors and host communities. Nexa has a unique
portfolio of assets in Latin America and we believe we are on the
right path to building the mining of the future.”
Highlights:
- Consolidated net revenue reached US$538 million in the third
quarter compared with US$564 million a year ago driven by lower
volumes and average price. In 9M20, net revenue was US$1,316
million compared to US$1,747 million a year ago.
- Zinc production of 82kt in 3Q20 was 16% lower than in 3Q19
mainly explained by the gradual ramp up of our Peruvian mines
during the quarter, which resumed operations in the second quarter
after the temporary suspension required by the Peruvian government
to control the COVID-19 outbreak. Compared to 2Q20, zinc production
increased by 31%. Total zinc and zinc equivalent production for
9M20 was 221kt and 326kt, respectively.
- Following the end of the quarantine period in Peru and the
recovery in demand, the capacity utilization rates of our smelters
have improved and total metal production was 154kt in 3Q20, up 21%
from 2Q20. Compared to 3Q19, production was slightly down (1.4%)
and totaled 427kt for 9M20.
- In 3Q20, metal sales were 158kt, up 0.1% year-over-year and 32%
from 2Q20, as demand has started to recover following the lifting
of regional and global governments restrictions and totaled 424kt
for 9M20.
- Adjusted EBITDA was US$152 million in 3Q20 compared with US$58
million in 3Q19 and US$40 million in 2Q20 with Adjusted EBITDA for
the nine months ended September 30, 2020 totalling US$236
million.
- Mining cash cost in 3Q20 was US$0.33/lb compared with
US$0.42/lb in 3Q19 mainly driven by the temporary decrease in
operating costs and the increase in by-products credits. Compared
to 2Q20, mining cash cost decreased by 7%.
- In 3Q20, smelting cash cost was US$0.79/lb, down 20% from 3Q19
due to higher TCs and lower LME prices. Compared to 2Q20, smelting
cash cost increased by 13%.
- Incremental costs related to COVID-19 amounted to US$5.0
million in 3Q20, which were partially offset by other costs
savings.
- Nexa also recognized a non-cash US$65 million pre-tax
impairment loss in 3Q20 primarily related to the Cerro Pasco cash
generating unit and the Jarosite conversion project.
- Net loss totaled US$35 million, a US$0.22 loss per share,
including the impairment loss effect of US$49 million (net of
taxes) in 3Q20.
- Net debt to Adjusted EBITDA for the last twelve months reversed
its upward trend and stood at 3.23x, reflecting the improvement in
the results of our operations and cash generation.
- Liquidity remains strong. Total cash amounted to US$985 million
at September 30, 2020 and our current available liquidity is
US$1,285 million, including the revolving credit facility.
- Operational efficiency initiatives program | Nexa Way
- The Nexa Way program generated an estimated positive impact to
EBITDA of US$24 million in 3Q20 and US$67 million in 9M20.
- The Nexa Way program continues to progress and based on the
initiatives implemented in 2019, we continue to target an increase
of at least US$120 million in annualized EBITDA by the end of
2021.
- In light of the COVID-19 outbreak, new initiatives have emerged
and are being evaluated. In 3Q20, some of these additional
initiatives have been implemented at a cost included in our
SG&A of US$7.7 million.
- We expect additional initiatives to be implemented in the next
three quarters at an estimated cost of US$12 to 27 million,
temporarily increasing selling, general and administrative expenses
(“SG&A”), which should generate a potential additional EBITDA
contribution of approximately US$100 million.
- Our ability to achieve this target through 2021 depends on
future metal prices, production and demand recovery, among other
factors.
Guidance
- We maintain our 2020 production guidance for zinc of 300-335kt
and lead of 33-38kt. We have reduced our copper guidance range by
4kt to between 26-29kt in light of the gradual ramp up of our
mining operations in Peru in 3Q20, which was limited by workforce
constraints due to COVID-19 related-measures. We have increased our
silver range from 6,072-6,761koz to 6,256-6,761koz.
- We are updating our mining cash cost guidance from US$0.59/lb
to US$0.45/lb.
- 2020 sales guidance of 540-580kt remains unchanged.
- Smelting cash cost guidance has been updated from US$0.74/lb to
US$0.78/lb.
- We are also updating our 2021-2022 production and sales
guidance that had previously been suspended.
- 2020 CAPEX guidance has been revised to US$350 million versus
US$300 million due to the updated expenditures for the Aripuanã
project and increase in sustaining investments, as operations have
resumed to normal utilization rates.
- Other operating investments, including mineral exploration
(US$20 million) and project development (US$12 million), have been
revised downwards from US$68 million to US$50 million.
- Guidance is subject to the continuous evaluation of several
factors, including the impact of COVID-19 on our operations, supply
chain and demand for our products.
- Refer to our “Nexa | Guidance” section for further
details.
Projects
- As a result of COVID-19 related-measures and our commitment to
capital discipline, Nexa has revised its project portfolio and
timeline.
- Magistral engineering studies (FEL3) continue to advance and
are expected to be completed in the first half of next year. In
2021, we also expect to advance further optimization opportunities
analysis before moving forward with project execution, which is
subject to all governance approvals throughout the process.
- The Vazante mine-deepening brownfield project continues as
planned and the investment amounted to US$1.8 million in the
quarter out of the expected CAPEX of US$13 million for the year; of
that total amount, US$9.8 million has been invested as of September
30, 2020.
- Exploration activities at the Bonsucesso project have been
resumed and engineering studies are expected to restart in 2021.
Bonsucesso is expected to extend the life of mine of Morro Agudo
and to use the existing infrastructure and mine facilities of the
complex.
- Exploration activities at the Hilarión project have also
restarted at the end of 3Q20 and we plan to complete 4,550 meters
of exploratory drilling.
- Shalipayco, Pukaqaqa and Caçapava projects remain on hold.
Aripuanã:
- On October 06, Nexa published an update on the Aripuanã project
and we expect to publicly file an updated technical report in
November 2020.
- Based on current Mineral Reserves, zinc equivalent production
is estimated at 119kt per year for approximately 11 years. The
Inferred Mineral Resources contains 2,515kt of zinc
equivalent.
- The total estimated CAPEX has escalated to US$547 million,
compared to the US$392 million set out in the Aripuanã feasibility
study published in 2018, based on a detailed review and update of
the project. Estimated CAPEX for 2020 is now US$193 million (as
compared to our previous estimate of US$172 million).
- Mechanical completion is expected in 4Q21 and production is
scheduled to start in early 2022.
- Aripuanã is estimated to generate an after-tax net present
value (“NPV”) of US$27 million (at a discount rate of 9%, real
terms) over the 11-year life-of-mine.
- The Aripuanã project is currently positioned on the second
quartile of the zinc normal cost curve based on Wood Mackenzie’s
methodology, with C1 zinc five-year average cash cost estimated at
US$0.12/lb net of by-product credits.
- Refer to our “Aripuanã project” section for further
details.
For full details, please visit our Investor Relations webpage
at: http://ir.nexaresources.com
E-mail: ir@nexaresources.com
About Nexa Resources
Nexa is a large-scale, low-cost integrated zinc producer with
over 60 years of experience developing and operating mining and
smelting assets in Latin America. Nexa currently owns and operates
five long-life underground mines - three located in the Central
Andes of Peru and two located in the state of Minas Gerais in
Brazil - and is developing the Aripuanã Project as its sixth
underground mine in Mato Grosso, Brazil. Nexa was among the top
five producers of mined zinc globally in 2019 and also one of the
top five metallic zinc producers worldwide in 2019, according to
Wood Mackenzie.
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Nexa Resources - Investor Relations Roberta Varella
ir@nexaresources.com
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