Exhibit 99.1
Nexa Resources S.A. | |
Condensed consolidated interim financial statements (Unaudited) at and for the three and six-month periods ended June 30, 2020 |
Nexa Resources S.A. |
Condensed consolidated interim income statement
Unaudited
Periods ended June 30
All amounts in thousands of US dollars, unless otherwise stated
Three-month period ended | Six-month period ended | |||||||||||||||||||
Note | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||
Net revenues | 4 | 336,569 | 613,299 | 778,581 | 1,183,115 | |||||||||||||||
Cost of sales | 5 | (315,733 | ) | (478,720 | ) | (706,379 | ) | (966,067 | ) | |||||||||||
Gross profit | 20,836 | 134,579 | 72,202 | 217,048 | ||||||||||||||||
Operating expenses | ||||||||||||||||||||
Selling, general and administrative | 5 | (29,173 | ) | (42,076 | ) | (70,821 | ) | (83,147 | ) | |||||||||||
Mineral exploration and project development | 5 and 6 | (8,457 | ) | (28,085 | ) | (22,934 | ) | (48,384 | ) | |||||||||||
Impairment loss | 25 | - | - | (484,594 | ) | - | ||||||||||||||
Other income and expenses, net | 7 | 5,185 | (19,257 | ) | (13,940 | ) | (13,613 | ) | ||||||||||||
(32,445 | ) | (89,418 | ) | (592,289 | ) | (145,144 | ) | |||||||||||||
Operating (loss) income | (11,609 | ) | 45,161 | (520,087 | ) | 71,904 | ||||||||||||||
Net financial results | 8 | |||||||||||||||||||
Financial income | 6,973 | 9,766 | 32,117 | 17,794 | ||||||||||||||||
Financial expenses | (41,282 | ) | (33,173 | ) | (113,049 | ) | (64,747 | ) | ||||||||||||
Foreign exchange effects | (20,158 | ) | 8,063 | (138,882 | ) | 5,725 | ||||||||||||||
(54,467 | ) | (15,344 | ) | (219,814 | ) | (41,228 | ) | |||||||||||||
(Loss) income before income tax | (66,076 | ) | 29,817 | (739,901 | ) | 30,676 | ||||||||||||||
Income tax | 9 | |||||||||||||||||||
Current | 223 | (4,513 | ) | (20,497 | ) | (26,630 | ) | |||||||||||||
Deferred | 6,797 | (2,009 | ) | 89,287 | 10,953 | |||||||||||||||
Net (loss) income for the period | (59,056 | ) | 23,295 | (671,111 | ) | 14,999 | ||||||||||||||
Attributable to NEXA's shareholders | (58,616 | ) | 20,393 | (580,529 | ) | 6,386 | ||||||||||||||
Attributable to non-controlling interests | (440 | ) | 2,902 | (90,582 | ) | 8,613 | ||||||||||||||
Net (loss) income for the period | (59,056 | ) | 23,295 | (671,111 | ) | 14,999 | ||||||||||||||
Weighted average number of outstanding shares – in thousands | 132,439 | 132,628 | 132,439 | 132,809 | ||||||||||||||||
Basic and diluted (losses) earnings per share – USD | (0.44 | ) | 0.15 | (4.38 | ) | 0.05 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
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Nexa Resources S.A. |
Condensed consolidated interim statement of comprehensive income
Unaudited
Periods ended June 30
All amounts in thousands of US dollars, unless otherwise stated
Three-month period ended | Six-month period ended | |||||||||||||||||||
Note | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||
Net (loss) income for the period | (59,056 | ) | 23,295 | (671,111 | ) | 14,999 | ||||||||||||||
Other comprehensive (loss) income, net of taxes - items that can be reclassified to the income statement | ||||||||||||||||||||
Cash flow hedge accounting | 15 | (b) | (1,824 | ) | 3,125 | (202 | ) | 4,872 | ||||||||||||
Deferred tax | 585 | (922 | ) | 60 | (1,437 | ) | ||||||||||||||
(1,239 | ) | 2,203 | (142 | ) | 3,435 | |||||||||||||||
Translation adjustment of foreign subsidiaries | (19,018 | ) | 4,627 | (167,725 | ) | 2,540 | ||||||||||||||
(20,257 | ) | 6,830 | (167,867 | ) | 5,975 | |||||||||||||||
Other comprehensive (loss) income, net of taxes - items that will not be reclassified to the income statement | ||||||||||||||||||||
Changes in fair value of financial liabilities that relate to changes in the Company’s own credit risk | 22 | (c) | (16,674 | ) | - | 15,784 | - | |||||||||||||
Deferred tax | 5,511 | - | (5,322 | ) | - | |||||||||||||||
(11,163 | ) | - | 10,462 | - | ||||||||||||||||
Other comprehensive (loss) income for the period, net of taxes | (31,420 | ) | 6,830 | (157,405 | ) | 5,975 | ||||||||||||||
Total comprehensive (loss) income for the period | (90,476 | ) | 30,125 | (828,516 | ) | 20,974 | ||||||||||||||
Attributable to NEXA’s shareholders | (87,575 | ) | 22,431 | (720,788 | ) | 7,711 | ||||||||||||||
Attributable to non-controlling interests | (2,901 | ) | 7,694 | (107,728 | ) | 13,263 | ||||||||||||||
Total comprehensive (loss) income for the period | (90,476 | ) | 30,125 | (828,516 | ) | 20,974 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
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Nexa Resources S.A. |
Condensed consolidated interim balance sheet
Unaudited
All amounts in thousands of US dollars, unless otherwise stated
Assets | Note | June 30, 2020 | December 31, 2019 | |||||||||
Current assets | ||||||||||||
Cash and cash equivalents | 13 | 795,603 | 698,618 | |||||||||
Financial investments | 14 | 117,861 | 58,423 | |||||||||
Derivative financial instruments | 15 | 11,412 | 4,835 | |||||||||
Trade accounts receivable | 16 | 137,155 | 177,231 | |||||||||
Inventory | 17 | 195,500 | 295,258 | |||||||||
Other assets | 18 | 114,008 | 140,984 | |||||||||
1,371,539 | 1,375,349 | |||||||||||
Non-current assets | ||||||||||||
Financial investments | 14 | - | 352 | |||||||||
Derivative financial instruments | 15 | 52,658 | 14,689 | |||||||||
Deferred income tax | 9 | 268,312 | 262,941 | |||||||||
Other assets | 18 | 124,427 | 145,471 | |||||||||
Property, plant and equipment | 19 | 1,789,630 | 2,122,690 | |||||||||
Intangible assets | 20 | 1,124,955 | 1,538,526 | |||||||||
Right-of-use assets | 21 | 18,602 | 29,547 | |||||||||
3,378,584 | 4,114,216 | |||||||||||
Total assets | 4,750,123 | 5,489,565 | ||||||||||
Liabilities and shareholders’ equity | ||||||||||||
Current liabilities | ||||||||||||
Loans and financings | 22 | 137,750 | 33,149 | |||||||||
Lease liabilities | 21 | 13,794 | 16,474 | |||||||||
Derivative financial instruments | 15 | 22,131 | 8,276 | |||||||||
Trade payables | 250,546 | 414,080 | ||||||||||
Confirming payables | 57,142 | 82,770 | ||||||||||
Dividends payable | 3,538 | 6,662 | ||||||||||
Asset retirement and environmental obligations | 23 | 26,924 | 19,001 | |||||||||
Contractual liabilities | 24,889 | 26,351 | ||||||||||
Other liabilities | 90,287 | 92,227 | ||||||||||
627,001 | 698,990 | |||||||||||
Non-current liabilities | ||||||||||||
Loans and financings | 22 | 1,777,762 | 1,475,408 | |||||||||
Lease liabilities | 21 | 11,173 | 17,910 | |||||||||
Derivative financial instruments | 15 | 41,070 | 13,542 | |||||||||
Asset retirement and environmental obligations | 23 | 224,198 | 274,826 | |||||||||
Provisions | 24 | 27,218 | 26,071 | |||||||||
Deferred income tax | 9 | 238,315 | 273,278 | |||||||||
Contractual liabilities | 143,022 | 154,171 | ||||||||||
Other liabilities | 37,543 | 35,308 | ||||||||||
2,500,301 | 2,270,514 | |||||||||||
Total liabilities | 3,127,302 | 2,969,504 | ||||||||||
Shareholders’ equity | ||||||||||||
Attributable to NEXA’s shareholders | 1,376,664 | 2,147,452 | ||||||||||
Attributable to non-controlling interests | 246,157 | 372,609 | ||||||||||
1,622,821 | 2,520,061 | |||||||||||
Total liabilities and shareholders’ equity | 4,750,123 | 5,489,565 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
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Nexa Resources S.A. |
Condensed consolidated interim statement of cash flows
Unaudited
Periods ended June 30
All amounts in thousands of US dollars, unless otherwise stated
Three-month period ended | Six-month period ended | |||||||||||||||||||
Note | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||
Cash flows from operating activities | ||||||||||||||||||||
(Loss) income before income tax | (66,076 | ) | 29,817 | (739,901 | ) | 30,676 | ||||||||||||||
Impairment loss | 25 | - | - | 484,594 | - | |||||||||||||||
Depreciation and amortization | 19, 20 and 21 | 52,128 | 73,315 | 119,725 | 154,424 | |||||||||||||||
Interest and foreign exchange effects | 59,559 | 11,456 | 196,311 | 41,637 | ||||||||||||||||
(Loss) gain on sale of property, plant and equipment and intangible assets | 7 | 263 | 596 | 93 | 982 | |||||||||||||||
Changes in provisions | (9,178 | ) | 14,966 | 8,936 | 12,580 | |||||||||||||||
Changes in operating assets and liabilities | 13 | (b) | 18,960 | (59,913 | ) | (48,989 | ) | (173,915 | ) | |||||||||||
Interest paid on loans and financings | 22 | (c) | (27,153 | ) | (26,362 | ) | (37,400 | ) | (36,564 | ) | ||||||||||
Changes in fair value of loans and financings | 8 | (1,976 | ) | - | 7,567 | - | ||||||||||||||
Interest paid on lease liabilities | 21 | (b) | (403 | ) | (211 | ) | (890 | ) | (359 | ) | ||||||||||
Premium paid on bonds repurchases | 22 | (c) | - | - | (14,481 | ) | - | |||||||||||||
Income tax paid | (1,983 | ) | (8,566 | ) | (17,544 | ) | (34,325 | ) | ||||||||||||
Net cash (used in) provided by operating activities | 24,141 | 35,098 | (41,979 | ) | (4,864 | ) | ||||||||||||||
Cash flows from investing activities | ||||||||||||||||||||
Acquisitions of property, plant and equipment | 19 | (59,657 | ) | (94,641 | ) | (144,966 | ) | (159,609 | ) | |||||||||||
Net (purchases) sales of financial investments | 65,207 | (53,031 | ) | (99,890 | ) | (6,040 | ) | |||||||||||||
Proceeds from the sale of property, plant and equipment | 354 | 694 | 358 | 809 | ||||||||||||||||
Net cash (used in) provided by investing activities | 5,904 | (146,978 | ) | (244,498 | ) | (164,840 | ) | |||||||||||||
Cash flows from financing activities | ||||||||||||||||||||
New loans and financings | 22 | (c) | 833,606 | 13,369 | 1,177,813 | 13,369 | ||||||||||||||
Payments of loans and financings | 22 | (c) | (491,643 | ) | (5,601 | ) | (707,267 | ) | (7,316 | ) | ||||||||||
Payments of lease liabilities | 21 | (b) | (2,040 | ) | (4,524 | ) | (4,626 | ) | (8,333 | ) | ||||||||||
Dividends paid | 1 | (b) | (5,952 | ) | (118 | ) | (55,952 | ) | (102,416 | ) | ||||||||||
Repurchase of the Company’s own shares | - | (4,347 | ) | - | (8,103 | ) | ||||||||||||||
Capital reduction of subsidiary - non-controlling interests | (1,826 | ) | - | (1,826 | ) | - | ||||||||||||||
Net cash (used in) provided by financing activities | 332,145 | (1,221 | ) | 408,142 | (112,799 | ) | ||||||||||||||
Foreign exchange effects on cash and cash equivalents | (18,770 | ) | 236 | (24,680 | ) | 578 | ||||||||||||||
Increase (decrease) in cash and cash equivalents | 343,420 | (112,865 | ) | 96,985 | (281,925 | ) | ||||||||||||||
Cash and cash equivalents at the beginning of the period | 452,183 | 863,878 | 698,618 | 1,032,938 | ||||||||||||||||
Cash and cash equivalents at the end of the period | 795,603 | 751,013 | 795,603 | 751,013 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
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Nexa Resources S.A. |
Condensed consolidated interim statement of changes in shareholders’ equity
Unaudited
At and for the three-month period ended June 30
All amounts in thousands of US dollars, unless otherwise stated
Capital | Treasury shares | Share premium | Additional paid in capital | Retained earnings (cumulative deficit) | Accumulated other comprehensive (loss) income | Total | Non-controlling interests | Total shareholders’ equity | ||||||||||||||||||||
At March 31, 2019 | 133,320 | (5,108 | ) | 1,043,755 | 1,316,472 | (26,361 | ) | (80,001 | ) | 2,382,077 | 406,150 | 2,788,227 | ||||||||||||||||
Net income for the period | - | - | - | - | 20,393 | - | 20,393 | 2,902 | 23,295 | |||||||||||||||||||
Other comprehensive income for the period | - | - | - | - | - | 2,038 | 2,038 | 4,792 | 6,830 | |||||||||||||||||||
Total comprehensive income for the period | - | - | - | - | 20,393 | 2,038 | 22,431 | 7,694 | 30,125 | |||||||||||||||||||
Capital increase from non-controlling interest | - | - | - | - | - | - | - | 13,911 | 13,911 | |||||||||||||||||||
Repurchase of the Company’s own shares | - | (4,347 | ) | - | - | - | - | (4,347 | ) | - | (4,347 | ) | ||||||||||||||||
Dividends distribution to non-controlling interests | - | - | - | - | - | - | - | (2,566 | ) | (2,566 | ) | |||||||||||||||||
Total contributions by and distributions to shareholders | - | (4,347 | ) | - | - | - | - | (4,347 | ) | 11,345 | 6,998 | |||||||||||||||||
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 | ||||||||||||||||
At March 31, 2020 | 133,320 | (9,455 | ) | 993,755 | 1,245,418 | (680,893 | ) | (217,906 | ) | 1,464,239 | 267,782 | 1,732,021 | ||||||||||||||||
Net loss for the period | - | - | - | - | (58,616 | ) | - | (58,616 | ) | (440 | ) | (59,056 | ) | |||||||||||||||
Other comprehensive loss for the period | - | - | - | - | - | (28,959 | ) | (28,959 | ) | (2,461 | ) | (31,420 | ) | |||||||||||||||
Total comprehensive loss for the period | - | - | - | - | (58,616 | ) | (28,959 | ) | (87,575 | ) | (2,901 | ) | (90,476 | ) | ||||||||||||||
Cancellation of 881,902 treasury shares acquired for USD 9,455 – note 1 (i) | (882 | ) | 9,455 | - | - | (8,573 | ) | - | - | - | - | |||||||||||||||||
Dividends distribution to non-controlling interests – note 1(b) | - | - | - | - | - | - | - | (5,332 | ) | (5,332 | ) | |||||||||||||||||
Capital reduction of subsidiary - non-controlling interests – note 1 (k) | - | - | - | - | - | - | - | (13,392 | ) | (13,392 | ) | |||||||||||||||||
Total contributions by and distributions to shareholders | (882 | ) | 9,455 | - | - | (8,573 | ) | - | - | (18,724 | ) | (18,724 | ) | |||||||||||||||
At June 30, 2020 | 132,438 | - | 993,755 | 1,245,418 | (748,082 | ) | (246,865 | ) | 1,376,664 | 246,157 | 1,622,821 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
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Nexa Resources S.A. |
Condensed consolidated interim statement of changes in shareholders’ equity
Unaudited
At and for the six-month period ended June 30
All amounts in thousands of US dollars, unless otherwise stated
Capital | Treasury shares | Share premium | Additional paid in capital | Retained earnings (cumulative deficit) | Accumulated other comprehensive (loss) income | Total | Non-controlling interests | Total shareholders’ equity | ||||||||||||||||||||
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 | - | - | - | - | 71 | - | 71 | - | 71 | |||||||||||||||||||
Impact of the adoption of IFRIC 23 | - | - | - | - | (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 income for the period | - | - | - | - | 6,386 | - | 6,386 | 8,613 | 14,999 | |||||||||||||||||||
Other comprehensive income for the period | - | - | - | - | - | 1,325 | 1,325 | 4,650 | 5,975 | |||||||||||||||||||
Total comprehensive income for the period | - | - | - | - | 6,386 | 1,325 | 7,711 | 13,263 | 20,974 | |||||||||||||||||||
Capital increase from non-controlling interest | - | - | - | - | - | - | - | 22,164 | 22,164 | |||||||||||||||||||
Repurchase of the Company’s own shares | - | (8,103 | ) | - | - | - | - | (8,103 | ) | - | (8,103 | ) | ||||||||||||||||
Dividends distribution to NEXA's shareholders - USD 0.53 per share | - | - | - | - | (69,832 | ) | - | (69,832 | ) | - | (69,832 | ) | ||||||||||||||||
Dividends distribution to non-controlling 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 | ) | (13,282 | ) | (93,473 | ) | |||||||||||||
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 | ||||||||||||||||
At January 1, 2020 | 133,320 | (9,455 | ) | 1,043,755 | 1,279,068 | (158,980 | ) | (140,256 | ) | 2,147,452 | 372,609 | 2,520,061 | ||||||||||||||||
Reclassification – note 3 (Revision) | - | - | - | (33,650 | ) | - | 33,650 | - | - | - | ||||||||||||||||||
At January 1, 2020 after reclassification (Revised) | 133,320 | (9,455 | ) | 1,043,755 | 1,245,418 | (158,980 | ) | (106,606 | ) | 2,147,452 | 372,609 | 2,520,061 | ||||||||||||||||
Net loss for the period | (580,529 | ) | (580,529 | ) | (90,582 | ) | (671,111 | ) | ||||||||||||||||||||
Other comprehensive loss for the period | (140,259 | ) | (140,259 | ) | (17,146 | ) | (157,405 | ) | ||||||||||||||||||||
Total comprehensive loss for the period | - | - | - | - | (580,529 | ) | (140,259 | ) | (720,788 | ) | (107,728 | ) | (828,516 | ) | ||||||||||||||
Dividends distribution to NEXA's shareholders - USD 0.38 per share | - | - | (50,000 | ) | - | - | - | (50,000 | ) | - | (50,000 | ) | ||||||||||||||||
Cancellation of 881,902 treasury shares acquired for USD 9,455 – note 1 (i) | (882 | ) | 9,455 | - | - | (8,573 | ) | - | - | - | - | |||||||||||||||||
Dividends distribution to non-controlling interests – note 1(b) | - | - | - | - | - | - | - | (5,332 | ) | (5,332 | ) | |||||||||||||||||
Capital reduction of subsidiary - non-controlling interests – note 1 (k) | - | - | - | - | - | - | - | (13,392 | ) | (13,392 | ) | |||||||||||||||||
Total contributions by and distributions to shareholders | (882 | ) | 9,455 | (50,000 | ) | - | (8,573 | ) | - | (50,000 | ) | (18,724 | ) | (68,724 | ) | |||||||||||||
At June 30, 2020 | 132,438 | - | 993,755 | 1,245,418 | (748,082 | ) | (246,865 | ) | 1,376,664 | 246,157 | 1,622,821 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
7 of 39 |
Nexa Resources S.A. |
Notes to the condensed consolidated interim financial statements
Unaudited
At and for the three and six-month periods ended June 30, 2020
All amounts in thousands of US dollars, unless otherwise stated
1 | 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, and two polymetallic mines in Brazil. The Company is also constructing another polymetallic mine in Brazil. The Company's mining operations comprise 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 events and transactions
(a) | COVID-19 outbreak impacts on NEXA financial statements and operations |
In March 2020, the World Health Organization characterized the current COVID-19 disease (“COVID-19”) as a pandemic. Since then, COVID-19 continues to spread across the world, and it remains unclear how and to what extent the duration and severity of its effects will impact the Company’s business and the global economy in general. The Company has implemented and continues to implement additional safety procedures in all its operations to ensure the health and safety of its employees, contractors, and communities.
The Company also remains committed to the continuity of its business and has implemented measures to mitigate and reduce the potential impacts of the COVID-19 on its operations, supply chain and financial condition.
Government authorities in the countries in which the Company operates have implemented policies in response to the COVID-19 global outbreak, which have affected the Company’s operations and supply chain during the three and six-month periods ended on June 30, 2020, and, consequently, have also affected the Company’s financial position, results of operations and cash flows during these periods.
In this context, on March 15, 2020, the Peruvian government declared a state of emergency in response to COVID-19, imposing operating restrictions on non-essential industries, which included the mining sector. The restriction period was continuously extended until May 10, 2020 and consequently, mining operations at Cerro Lindo, Atacocha and El Porvenir were suspended during this period and the operation of the Cajamarquilla smelter was reduced to approximately 50% of its normal production capacity. After the end of the state of emergency, operations at the Cerro Lindo and El Porvenir mining units began a gradual ramp up phase following personnel mobilization restrictions and strict health and safety protocols. The Cerro Lindo and El Porvenir mines will continue to operate subject to additional measures to control and mitigate the COVID-19 spread. Safeguard protocols implemented for incoming site personnel may continue to limit their workforce. Considering the current macroeconomic environment, the uncertain time for recovery and the Company’s efforts to reduce costs and improve operational efficiency, the Company decided to maintain the suspension of the higher-cost Atacocha underground mine. Currently, the Company has not defined how long this suspension will last, the determination will depend on the duration and severity of the economic uncertainty related to COVID-19 and when production at the mine becomes economical again. The Company has accrued approximately US$ 3.5 million of costs related to this suspension, which is the best estimate as of June 30, 2020 and will be paid in the coming months. Additional costs may be incurred in the following months.
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Nexa Resources S.A. |
Notes to the condensed consolidated interim financial statements
Unaudited
At and for the three and six-month periods ended June 30, 2020
All amounts in thousands of US dollars, unless otherwise stated
In Brazil, the Company’s mining operations and the Três Marias smelter have been operating normally, while the Juiz de Fora smelter operated at 60% of its normal production capacity during May and June 2020, in anticipation of the lower market demand due to global economic conditions. In July, the Juiz de Fora smelter is operating close to full production and is expected to do so during the remainder of the year. Construction activities at the Aripuanã project continue to progress but at a reduced pace due to approximately 20% mobilization reduction requested by the local government authority.
Although the Company’s operations have begun their return to normality, the ultimate impact of the COVID-19 global outbreak on the Company’s financial performance, financial condition and cash flows, depends on its duration and severity, on the efforts to contain its spread and on the impact of measures taken by the Company, governments and others in response. A new period of disruption or an extended global recession caused by the outbreak, could materially and adversely impact the Company’s results of operations, access to sources of liquidity and its overall financial condition. As disclosed below, the Company has taken and continues to take measures to strengthen its cash position and enhance its short-term liquidity. Refer to note 22 for additional information.
(b) | Dividends distribution |
On February 13, 2020, the Company’s Board of Directors proposed to proceed with an advance on dividend to the Company’s shareholders of record on March 16, 2020 of approximately USD 50,000, which was paid on March 30, 2020. Additionally, during the quarter ended June 30, 2020, the Company’s subsidiary Pollarix S.A. (“Pollarix”) declared and paid dividends in the amount of USD 5,332 to non-controlling interests owned by Votorantim Geração de Energia S.A. (“VGE”) which is a related party.
(c) | Repurchase of Nexa Peru Bonds |
On February 24, 2020, the Company completed a tender offer to purchase for cash any and all of the outstanding 2023 Notes. Holders of the 2023 Notes tendered an aggregate principal amount of USD 214,530, or 62.55% of the outstanding principal amount as of the date of the offer. USD 128,470 of the 2023 Notes remain outstanding. Refer to note 22 (b) for additional information.
(d) | Loan agreement |
On March 12, 2020, the Company, through its subsidiary Nexa Resources Peru S.A.A. (“Nexa Peru”), entered into a term loan with a global financial institution, in the principal amount of BRL (Brazilian reais) 477,000 thousand (approximately USD 100,000) with a 5-years maturity. Refer to note 22 (b) for additional information.
(e) | Export Credit Notes |
At the end of March 2020, the Company entered into four Export Credit Note agreements in the total principal amount of BRL 1,247,000 thousand (approximately USD 250,000) with maturity dates between 1 and 5 years. Refer to note 22 (b) for additional information.
On April 9, 2020, the Company entered into an additional Export Credit Note agreement in the total principal amount of BRL 230,000 thousand, (approximately USD 45,297), with a 1-year maturity. Refer to note 22 (b) for additional information.
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Nexa Resources S.A. |
Notes to the condensed consolidated interim financial statements
Unaudited
At and for the three and six-month periods ended June 30, 2020
All amounts in thousands of US dollars, unless otherwise stated
(f) | Disbursement of Revolving Credit Facility |
On April 14, 2020, in order to enhance its short-term liquidity, the Company fully drew down its Revolving Credit Facility in the amount of USD 300,000. As of June 30, 2020, this amount was fully repaid with the proceeds obtained from the Bond Offering, described below. The Revolving Credit Facility remains available for the Company until October 2024. Refer to note 22 (b) for additional information.
(g) | Bond offering |
On June 15, 2020, the Company concluded a Bond Offering in the amount of USD 500,000, with a maturity date in January 2028 and an interest rate of 6.50% per year. This offering was made to refinance some of the Company’s existing debt, extending Nexa’s average debt term. Refer to note 22 (b) for additional information.
(h) | Debt prepayments |
With the funds raised through the Bond Offering mentioned above, the Company prepaid:
(i) on June 19, 2020, the outstanding principal and accrued interest of an Export Facility Agreement in the amount of USD 100,246;
(ii) on June 23, 2020, the outstanding principal and accrued interest of the Revolving Credit Facility in the total amount USD of 301,348; and,
(iii) on June 29, 2020, the outstanding principal and accrued interest of an Export Credit Note in Brazil in the amount of USD 96,425.
(i) | Cancellation of treasury shares |
On June 4, 2020, Nexa’s Extraordinary General Meeting of the shareholders approved the cancellation of the 881,902 shares held in treasury, previously repurchased by the Company under its normal course issuer bid executed in 2018 and 2019.
(j) | Acquisition and transfer of the 7.7% participation in the Aripuanã Project between subsidiaries |
On April 28, 2020, the Board of Directors of Nexa Peru approved the sale of this company’s participation in Mineração Dardanelos Ltda at a USD 17,970 market value, corresponding to its 7.7% interest in the Aripuanã project, to Nexa Recursos Minerais S.A. (“Nexa Brazil”). After the acquisition executed in 2019 of a third party’s 30% non-controlling interest in the Aripuanã Project, this transfer between Nexa Peru and Nexa Brazil consolidates the project’s ownership in Nexa’s principal wholly-owned subsidiary in Brazil. This sale, which was concluded in June, had no effect on Nexa’s consolidated financial statements.
(k) | Decrease in the subscribed capital from Pollarix |
On April 22, 2020, Nexa’s subsidiary Pollarix reduced proportionally its subscribed capital in the amount, to be paid to its shareholders, of BRL 110,001 thousand (USD 20,057), of which BRL 73,334 thousand (USD 13,392) were related to non-controlling interests owned by VGE, a related party. From this amount owed to VGE, Pollarix already paid back BRL 10,000 thousand (USD 1,826) and the amount of BRL 63,334 thousand (USD 11,566) was recorded in Other long-term liabilities.
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Nexa Resources S.A. |
Notes to the condensed consolidated interim financial statements
Unaudited
At and for the three and six-month periods ended June 30, 2020
All amounts in thousands of US dollars, unless otherwise stated
2 | Information by business segment |
The presentation of segment results and reconciliation to (loss) income before income tax in the condensed consolidated interim income statement is as follows:
Three-month period ended | ||||||||||||||||||||
June 30, 2020 | ||||||||||||||||||||
Mining | Smelting | Intersegment sales | Adjustments | Consolidated | ||||||||||||||||
Net revenues (i) | 110,583 | 274,571 | (51,970 | ) | 3,385 | 336,569 | ||||||||||||||
Cost of sales | (118,937 | ) | (241,298 | ) | 51,970 | (7,468 | ) | (315,733 | ) | |||||||||||
Gross profit | (8,354 | ) | 33,273 | - | (4,083 | ) | 20,836 | |||||||||||||
Selling, general and administrative | (12,373 | ) | (14,294 | ) | - | (2,506 | ) | (29,173 | ) | |||||||||||
Mineral exploration and project development | (8,639 | ) | (939 | ) | - | 1,121 | (8,457 | ) | ||||||||||||
Impairment loss | - | - | - | - | - | |||||||||||||||
Other income and expenses, net | 1,465 | 813 | - | 2,907 | 5,185 | |||||||||||||||
Operating (loss) income | (27,901 | ) | 18,853 | - | (2,561 | ) | (11,609 | ) | ||||||||||||
Depreciation and amortization | 31,056 | 20,754 | - | 318 | 52,128 | |||||||||||||||
Exceptional items (iii) | (197 | ) | (413 | ) | - | - | (610 | ) | ||||||||||||
Adjusted EBITDA | 2,958 | 39,194 | - | (2,243 | ) | 39,909 | ||||||||||||||
Exceptional items (iii) | 610 | |||||||||||||||||||
Depreciation and amortization | (52,128 | ) | ||||||||||||||||||
Net financial results | (54,467 | ) | ||||||||||||||||||
(Loss) income before income tax | (66,076 | ) |
Three-month period ended | ||||||||||||||||||||
June 30, 2019 | ||||||||||||||||||||
Mining | Smelting | Intersegment sales | Adjustments | Consolidated | ||||||||||||||||
Net revenues (i) | 246,102 | 508,837 | (140,749 | ) | (891 | ) | 613,299 | |||||||||||||
Cost of sales | (186,627 | ) | (426,651 | ) | 140,749 | (6,191 | ) | (478,720 | ) | |||||||||||
Gross profit | 59,475 | 82,186 | - | (7,082 | ) | 134,579 | ||||||||||||||
Selling, general and administrative | (30,277 | ) | (17,236 | ) | - | 5,438 | (42,076 | ) | ||||||||||||
Mineral exploration and project development | (26,226 | ) | (1,859 | ) | - | - | (28,085 | ) | ||||||||||||
Other income and expenses, net | (6,971 | ) | (14,363 | ) | - | 2,077 | (19,257 | ) | ||||||||||||
Operating (loss) income | (4,000 | ) | 48,728 | - | 432 | 45,161 | ||||||||||||||
Depreciation and amortization | 47,985 | 24,647 | - | 683 | 73,315 | |||||||||||||||
Adjusted EBITDA | 43,986 | 73,375 | - | 1,115 | 118,476 | |||||||||||||||
Depreciation and amortization | (73,315 | ) | ||||||||||||||||||
Net financial results | (15,344 | ) | ||||||||||||||||||
(Loss) income before income tax | 29,817 |
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Nexa Resources S.A. |
Notes to the condensed consolidated interim financial statements
Unaudited
At and for the three and six-month periods ended June 30, 2020
All amounts in thousands of US dollars, unless otherwise stated
Six-month period ended | ||||||||||||||||||||
June 30, 2020 | ||||||||||||||||||||
Mining | Smelting | Intersegment sales | Adjustments | Consolidated | ||||||||||||||||
Net revenues (i) | 272,989 | 646,419 | (139,680 | ) | (1,147 | ) | 778,581 | |||||||||||||
Cost of sales | (301,412 | ) | (554,543 | ) | 139,680 | 9,896 | (706,379 | ) | ||||||||||||
Gross profit | (28,423 | ) | 91,876 | - | 8,749 | 72,202 | ||||||||||||||
Selling, general and administrative | (30,907 | ) | (30,983 | ) | - | (8,931 | ) | (70,821 | ) | |||||||||||
Mineral exploration and project development | (20,482 | ) | (5,100 | ) | - | 2,648 | (22,934 | ) | ||||||||||||
Impairment loss | (446,687 | ) | (37,907 | ) | - | - | (484,594 | ) | ||||||||||||
Other income and expenses, net | (10,166 | ) | 2,118 | - | (5,892 | ) | (13,940 | ) | ||||||||||||
Operating (loss) income | (536,665 | ) | 20,004 | - | (3,426 | ) | (520,087 | ) | ||||||||||||
Depreciation and amortization | 76,543 | 43,067 | - | 115 | 119,725 | |||||||||||||||
Exceptional items (iii) | 446,490 | 37,494 | - | - | 483,984 | |||||||||||||||
Adjusted EBITDA | (13,632 | ) | 100,565 | - | (3,311 | ) | 83,622 | |||||||||||||
Exceptional items (iii) | (483,984 | ) | ||||||||||||||||||
Depreciation and amortization | (119,725 | ) | ||||||||||||||||||
Net financial results | (219,814 | ) | ||||||||||||||||||
(Loss) income before income tax | (739,901 | ) |
Six-month period ended | ||||||||||||||||||||
June 30, 2019 | ||||||||||||||||||||
Mining | Smelting | Intersegment sales | Adjustments | Consolidated | ||||||||||||||||
Net revenues (i) | 518,344 | 963,813 | (299,919 | ) | 877 | 1,183,115 | ||||||||||||||
Cost of sales | (385,588 | ) | (853,835 | ) | 299,919 | (26,563 | ) | (966,067 | ) | |||||||||||
Gross profit | 132,756 | 109,978 | - | (25,686 | ) | 217,048 | ||||||||||||||
Selling, general and administrative | (50,539 | ) | (33,637 | ) | - | 1,030 | (83,147 | ) | ||||||||||||
Mineral exploration and project development | (44,858 | ) | (3,526 | ) | - | - | (48,384 | ) | ||||||||||||
Other income and expenses, net | (14,549 | ) | (24,374 | ) | - | 25,310 | (13,613 | ) | ||||||||||||
Operating (loss) income | 22,810 | 48,441 | - | 653 | 71,904 | |||||||||||||||
Depreciation and amortization | 103,703 | 50,715 | - | 6 | 154,424 | |||||||||||||||
Adjusted EBITDA | 126,513 | 99,156 | - | 659 | 226,328 | |||||||||||||||
Depreciation and amortization | (154,424 | ) | ||||||||||||||||||
Net financial results | (41,228 | ) | ||||||||||||||||||
(Loss) income before income tax | 30,676 |
(i) As more fully described in the consolidated financial statements at December 31, 2019, all revenue from goods or services transferred to customers occurs at a point in time.
(ii) The internal information used for making decisions is prepared using IFRS based accounting measurements and management reclassifications between income statement line items, which are reconciled to the condensed consolidated interim financial statements in the column “Adjustments”. Reclassifications are primarily comprised of derivative financial instruments from Other income and expenses to Cost of sales, and certain overhead cost centers from Other income and expenses to Cost of sales and/or Selling, general and administrative.
(iii) Exceptional items are composed of impairment losses (refer to note 25) in the amount of USD 484,594 and miscellaneous adjustments.
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Nexa Resources S.A. | |
Notes to the condensed consolidated interim financial statements | |
Unaudited At and for the three and six-month periods ended June 30, 2020 All amounts in thousands of US dollars, unless otherwise stated | |
3 | Basis of preparation of the condensed consolidated interim financial statements |
These condensed consolidated interim financial statements at and for the three and six-month periods ended June 30, 2020 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 cash flows for the three-month period ended June 30, 2020 and 2019.
The Company is also presenting a condensed consolidated interim statement of changes in shareholders’ equity for the three-month period ended June 30, 2020 and 2019 in accordance with SEC Final Rule Release No. 33-10532, Disclosure Update and Simplification.
These condensed consolidated interim financial statements do not include all disclosures required by IFRS for annual 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, 2019 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, 2019.
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 three and six-month periods ended June 30, 2020 are the same as those disclosed in the Company’s annual audited consolidated financial statements for the year ended December 31, 2019.
The COVID-19 pandemic has negatively impacted the Company’s results of operations, cash flows and financial position for the three and six-month periods ended June 30, 2020. The Company’s condensed consolidated interim financial statements presented herein reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities at the date of the condensed consolidated interim financial statements and reported amounts of revenue and expenses during the reporting periods presented. Such estimates and assumptions affect, among other things, the carrying amounts of the Company’s goodwill, long-lived assets, indefinite-lived intangible assets, inventory, deferred income taxes, and the allowance for doubtful accounts. Events and changes in circumstances arising after June 30, 2020, including those resulting from the impacts of COVID-19, will be reflected in management’s estimates for future periods.
These condensed consolidated interim financial statements of the Company for the three and six-month periods ended June 30, 2020 were approved on July 30, 2020 to be issued in accordance with a resolution of the Board of Directors.
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Nexa Resources S.A. | |
Notes to the condensed consolidated interim financial statements | |
Unaudited At and for the three and six-month periods ended June 30, 2020 All amounts in thousands of US dollars, unless otherwise stated | |
New and amended standards effective January 1, 2020
Several new or amended standards became applicable for the current reporting period. The Company does not expect any changes in its accounting policies or any retrospective adjustments as a result of the adoption of these standards and amendments.
Impact of new standards issued but not yet applied by the Company
During the current reporting period, the IASB issued ten new amendments to previously issued standards that are not yet effective and have not been applied by the Company. The Company does not believe that these new standards will have a material effect on its financial statements.
Revision of the condensed consolidated interim statement of changes in shareholders’ equity
These condensed consolidated interim statements of changes in shareholders’ equity have been revised to reflect an adjustment as of January 1, 2020 in the amount of USD 33,650 related to a reclassification affecting the cumulative translation reserve account within Accumulated Other Comprehensive Loss and Additional Paid in Capital in the statement of changes in shareholders’ equity, to correct a misclassification identified in these balances, with no effect to the total shareholders’ equity. This reclassification is not material for any of the periods presented and it has no impact on the Company’s financial position as of December 31, 2019, or the condensed consolidated interim income statement, comprehensive income, changes in shareholders’ equity or cash flows for the three and six-month periods ended June 30, 2019.
4 | Net revenue |
Three-month period ended | Six-month period ended | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Gross revenues | 365,198 | 672,214 | 851,000 | 1,298,111 | ||||||||||||
Revenues from products (i) | 356,434 | 652,932 | 824,541 | 1,261,952 | ||||||||||||
Revenues from services | 8,764 | 19,282 | 26,459 | 36,159 | ||||||||||||
Taxes on sales | (28,140 | ) | (57,676 | ) | (71,113 | ) | (112,649 | ) | ||||||||
Return of products sales | (489 | ) | (1,239 | ) | (1,306 | ) | (2,347 | ) | ||||||||
Net revenues | 336,569 | 613,299 | 778,581 | 1,183,115 |
(i) Revenues from products decreased in the three and six-month periods ended in June 2020, mainly because of significantly lower metal prices in the international market combined with lower mining production, due to the government imposed restriction period on the Company´s Peruvian operations, and lower smelting production, due to Cajamarquilla operating at 50% during this restricted period and Juiz de Fora operating at 60% of its capacity due to lower market demand resulting from the COVID-19 pandemic.
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Nexa Resources S.A. | |
Notes to the condensed consolidated interim financial statements | |
Unaudited At and for the three and six-month periods ended June 30, 2020 All amounts in thousands of US dollars, unless otherwise stated | |
5 | Expenses by nature |
Three-month period ended | ||||||||||||||||||||
2020 | 2019 | |||||||||||||||||||
Cost of sales (iv) | Selling, general and administrative | Mineral exploration and project development | Total | Total | ||||||||||||||||
Raw materials and consumables used (i) | (177,952 | ) | (2,408 | ) | - | (180,360 | ) | (262,534 | ) | |||||||||||
Third-party services (ii) | (50,711 | ) | (8,988 | ) | (4,751 | ) | (64,450 | ) | (138,648 | ) | ||||||||||
Depreciation and amortization (iii) | (50,868 | ) | (1,253 | ) | (6 | ) | (52,127 | ) | (73,315 | ) | ||||||||||
Employee benefit expenses | (34,464 | ) | (11,299 | ) | (2,298 | ) | (48,061 | ) | (56,670 | ) | ||||||||||
Other expenses | (1,738 | ) | (5,225 | ) | (1,402 | ) | (8,365 | ) | (17,714 | ) | ||||||||||
(315,733 | ) | (29,173 | ) | (8,457 | ) | (353,363 | ) | (548,881 | ) |
Six-month period ended | ||||||||||||||||||||
2020 | 2019 | |||||||||||||||||||
Cost of sales (iv) | Selling, general and administrative | Mineral exploration and project development | Total | Total | ||||||||||||||||
Raw materials and consumables used (i) | (379,369 | ) | (2,778 | ) | - | (382,147 | ) | (532,017 | ) | |||||||||||
Third-party services (ii) | (134,141 | ) | (21,219 | ) | (13,571 | ) | (168,931 | ) | (258,742 | ) | ||||||||||
Depreciation and amortization (iii) | (117,098 | ) | (2,616 | ) | (11 | ) | (119,725 | ) | (154,425 | ) | ||||||||||
Employee benefit expenses | (71,834 | ) | (29,180 | ) | (5,329 | ) | (106,343 | ) | (117,430 | ) | ||||||||||
Other expenses | (3,937 | ) | (15,028 | ) | (4,023 | ) | (22,988 | ) | (34,984 | ) | ||||||||||
(706,379 | ) | (70,821 | ) | (22,934 | ) | (800,134 | ) | (1,097,598 | ) |
(i) Raw materials and consumables used decreased in the three and six-month periods ended in June 2020, mainly due to the lower production in the Company’s operations, as described in note 1 (a).
(ii) Third-party services decreased in the three and six-month periods ended in June 2020, mainly due to the lower production in the Peruvian mining operations which decreased the services contracted for the mines’ preparation and development and the expenses related with maintenance services.
(iii) Depreciation and amortization decreased in the three and six-month periods ended in June 2020, mainly due to the reduction in the carrying amount of long-lived assets as a result of the impairment loss recorded in 2019 and in the first quarter of 2020. This decrease is also associated with the lower production in the Peruvian mining operations, since the Company uses the units of production method of depreciation and amortization for certain assets.
(iv) Refer to note 17 for information about idle capacity costs and inventory impairment, both mainly associated with the COVID-19 outbreak.
6 | Mineral exploration and project development |
Three-month period ended | Six-month period ended | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Mineral exploration | (4,787 | ) | (18,984 | ) | (14,524 | ) | (32,733 | ) | ||||||||
Project development (FEL 1 and FEL 2) | (3,670 | ) | (9,101 | ) | (8,410 | ) | (15,651 | ) | ||||||||
(8,457 | ) | (28,085 | ) | (22,934 | ) | (48,384 | ) |
The decrease in mineral exploration and project development in the three and six-month periods ended in June 2020, is mainly related to the Company´s response to COVID-19, having revised its short-term capital allocation, suspended its greenfield projects and reduced its mineral exploration expenses. The effects of the temporary suspension of such projects have been reflected in the Company’s cash flow estimates for the impairment test as of March 31, 2020.
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Nexa Resources S.A. | |
Notes to the condensed consolidated interim financial statements | |
Unaudited At and for the three and six-month periods ended June 30, 2020 All amounts in thousands of US dollars, unless otherwise stated | |
7 | Other income and expenses, net |
Three-month period ended | Six-month period ended | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Remeasurement of environmental obligations | 1,188 | (1,220 | ) | 5,296 | 3,912 | |||||||||||
(Provision) reversal of legal claims - note 24 | 258 | (5,606 | ) | (7,993 | ) | (4,255 | ) | |||||||||
Derivative financial instruments - note 15 | 2,910 | (4,671 | ) | (7,889 | ) | 1,641 | ||||||||||
(Loss) gain on sale of property, plant and equipment and intangible assets | (263 | ) | (596 | ) | (93 | ) | (982 | ) | ||||||||
Contribution to communities | (609 | ) | (719 | ) | (1,328 | ) | (1,309 | ) | ||||||||
Mining obligations | (1,341 | ) | (2,074 | ) | (3,272 | ) | (5,956 | ) | ||||||||
Other operating income (expenses), net | 3,042 | (4,371 | ) | 1,339 | (6,664 | ) | ||||||||||
5,185 | (19,257 | ) | (13,940 | ) | (13,613 | ) |
8 | Net financial results |
Three-month period ended | Six-month period ended | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Financial income | ||||||||||||||||
Interest income on financial investments and cash equivalents | 2,481 | 5,673 | 5,035 | 11,168 | ||||||||||||
Derivative financial instruments - note 15 | 3,542 | 3,608 | 25,064 | 5,459 | ||||||||||||
Other financial income | 950 | 485 | 2,018 | 1,167 | ||||||||||||
6,973 | 9,766 | 32,117 | 17,794 | |||||||||||||
Financial expenses | ||||||||||||||||
Interest on loans and financings | (26,217 | ) | (18,083 | ) | (42,311 | ) | (36,550 | ) | ||||||||
Premium paid on bonds repurchase - note 22 (c) | - | - | (14,481 | ) | - | |||||||||||
Derivative financial instruments - note 15 | (4,163 | ) | (872 | ) | (26,645 | ) | (872 | ) | ||||||||
Fair value of loans and financings - note 22 (c) | 1,976 | - | (7,567 | ) | - | |||||||||||
Interest on other liabilities | (1,875 | ) | (3,502 | ) | (3,873 | ) | (5,787 | ) | ||||||||
Interest on contractual liabilities | (1,465 | ) | (1,673 | ) | (2,986 | ) | (3,388 | ) | ||||||||
Interest on lease liabilities | (411 | ) | (891 | ) | (1,036 | ) | (1,874 | ) | ||||||||
Other financial expenses | (9,127 | ) | (8,152 | ) | (14,150 | ) | (16,276 | ) | ||||||||
(41,282 | ) | (33,173 | ) | (113,049 | ) | (64,747 | ) | |||||||||
Foreign exchange (losses) gains (i) | (20,158 | ) | 8,063 | (138,882 | ) | 5,725 | ||||||||||
Net financial results | (54,467 | ) | (15,344 | ) | (219,814 | ) | (41,228 | ) |
(i) The increase in foreign exchange losses in the three and six-month periods ended June 30, 2020, is mainly driven by the significant devaluation of BRL against USD, which affected Nexa Brazil’s financial liabilities denominated in USD by 5% and 31% for the three and six-month periods ended June 30, 2020, respectively. The amount of USD 79,036 is included in the foreign exchange losses, for the six-month period ended June 30, 2020, related to the outstanding USD denominated intercompany debt of Nexa Brazil with Nexa (USD 13,465 for the three-month period ended June 30, 2020). Intercompany loan balances are fully eliminated in the consolidated financial statements; however, foreign exchange losses or gains are not eliminated in the consolidated financial statements. As of June 30, 2020, the outstanding intercompany balance is USD 250,745 (December 31, 2019: USD 250,570).
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Nexa Resources S.A. | |
Notes to the condensed consolidated interim financial statements | |
Unaudited At and for the three and six-month periods ended June 30, 2020 All amounts in thousands of US dollars, unless otherwise stated | |
9 | Current and deferred income tax |
(a) | Reconciliation of income tax benefit (expense) |
Three-month period ended | Six-month period ended | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(Loss) income before income tax | (66,076 | ) | 29,817 | (739,901 | ) | 30,676 | ||||||||||
Standard rate | 24.94 | % | 24.94 | % | 24.94 | % | 24.94 | % | ||||||||
Income tax (expense) benefit at standard rate | 16,480 | (7,436 | ) | 184,531 | (7,650 | ) | ||||||||||
Difference in tax rate of subsidiaries outside Luxembourg | 17,087 | 4,173 | 36,031 | 2,544 | ||||||||||||
Special mining levy and special mining tax | 187 | (1,578 | ) | (453 | ) | (5,025 | ) | |||||||||
Deferred tax on net operating losses (i) | (822 | ) | - | (29,600 | ) | - | ||||||||||
Withholding tax on dividends paid by subsidiaries | - | - | - | (9,764 | ) | |||||||||||
Deferred charges on exchange variation of non-monetary entries | (10,042 | ) | 145 | (22,191 | ) | 1,534 | ||||||||||
Impairment of goodwill (ii) | - | - | (78,197 | ) | - | |||||||||||
Other permanent tax differences | (15,870 | ) | (1,826 | ) | (21,331 | ) | 2,684 | |||||||||
Income tax (expense) benefit | 7,020 | (6,522 | ) | 68,790 | (15,677 | ) | ||||||||||
Current | 223 | (4,513 | ) | (20,497 | ) | (26,630 | ) | |||||||||
Deferred | 6,797 | (2,009 | ) | 89,287 | 10,953 | |||||||||||
Income tax (expense) benefit | 7,020 | (6,522 | ) | 68,790 | (15,677 | ) |
(i) As of June 30 and March 31, 2020, Nexa Resources Atacocha S.A.A (“Nexa Atacocha”) derecognized deferred income taxes in relation to temporary differences that will not be recovered and may not give rise to future tax consequences.
(ii) As of March 31, 2020, the Company recognized an impairment of goodwill (for additional information refer to note 25) and its deferred income tax will not be recovered and may not give rise to future tax consequences.
(b) | Analysis of deferred income tax assets and liabilities |
June 30, 2020 | December 31, 2019 | |||||||
Tax credits on net operating losses (i) | 115,335 | 160,905 | ||||||
Uncertain income tax treatments (ii) | (6,873 | ) | (9,779 | ) | ||||
Tax credits on temporary differences | ||||||||
Foreign exchange losses | 53,144 | 31,027 | ||||||
Environmental liabilities | 15,842 | 24,293 | ||||||
Asset retirement obligation | 17,553 | 18,751 | ||||||
Tax, civil and labor provisions | 6,226 | 6,962 | ||||||
Other provisions | 7,780 | 7,933 | ||||||
Provision for obsolete and slow-moving inventory | 6,300 | 5,734 | ||||||
Provision for employee benefits | 3,904 | 7,270 | ||||||
Revaluation of derivative financial instruments | 8,909 | 2,864 | ||||||
Other | 16,880 | 11,517 | ||||||
Tax debits on temporary differences | ||||||||
Depreciation, amortization and asset impairment | (192,829 | ) | (247,552 | ) | ||||
Revaluation of loans and financings | (5,322 | ) | - | |||||
Capitalized interest | (11,116 | ) | (28,505 | ) | ||||
Other | (5,736 | ) | (1,757 | ) | ||||
29,997 | (10,337 | ) | ||||||
Deferred income tax assets | 268,312 | 262,941 | ||||||
Deferred income tax liabilities | (238,315 | ) | (273,278 | ) | ||||
29,997 | (10,337 | ) |
17 of 39
Nexa Resources S.A. |
Notes to the condensed consolidated interim financial statements
Unaudited
At and for the three and six-month periods ended June 30, 2020
All amounts in thousands of US dollars, unless otherwise stated
(i) The decrease in tax credits on net operating losses, in the six-month period ended in June 2020, is mainly driven by the devaluation of BRL against USD during this period, which affected the Company’s tax credits coming from the Company’s Brazilian legal entities.
(ii) Uncertain income tax treatments decrease is mainly related to the settlement of certain income tax uncertain positions in Nexa Peru and Nexa Atacocha.
(c) | Effects of deferred tax on income statement and other comprehensive income |
June 30, 2020 | December 31, 2019 | |||||||
Balance at the beginning of the period | (10,337 | ) | (97,444 | ) | ||||
Effect on income for the period | 89,287 | 103,255 | ||||||
Effects on other comprehensive income (i) | (53,278 | ) | 453 | |||||
Impact of IFRIC 23 adoption | - | (10,070 | ) | |||||
Foreign exchange (loss) gain | 4,325 | (6,531 | ) | |||||
Balance at the end of the period | 29,997 | (10,337 | ) |
(i) The main effect is related to foreign translation losses and gains. The decrease, as of June 30, 2020, is due to the foreign translation driven by the BRL devaluation against USD during this period.
(d) | Summary of contingent liabilities on income taxes |
There are uncertainties and legal proceedings for which it is unlikely that an outflow of resources will be required. In such cases, a provision is not recognized. As of June 30, 2020, the main legal proceedings are related to carryforward calculation of net operating losses and deductibility of foreign exchange losses and other expenses. The estimated amount of these contingent liabilities is USD 166,137 (December 31, 2019: USD 182,380). The decrease in the contingent liabilities on income taxes is mainly driven by the BRL and PEN devaluation against USD during this period.
10 | Financial risk management |
Financial risk factors
The Company’s activities expose it to a variety of financial risks: a) market risk (including currency risk, interest rate risk and commodities risk); b) credit risk; and c) liquidity risk.
A significant portion of the products sold by the Company are commodities, with prices pegged to international prices observed on the London Metal Exchange ("LME") and denominated in USD. Part of the costs of production, however, is denominated in Brazilian Reais (“BRL”) and Peruvian Soles (“PEN”), and therefore, there is a mismatch of currencies between revenues and costs. Additionally, the Company has debts linked to different indices and currencies, which may impact its cash flows.
In order to mitigate the potential adverse effects of each financial risk factor, the Company follows a Financial Risk Management Policy that establishes governance and guidelines for the financial risk management process, as well as metrics for measurement and monitoring. This policy establishes guidelines and rules for:
(i) Commodities Exposure Management, (ii) Foreign Exchange Exposure Management, (iii) Interest Rate Exposure Management, (iv) Issuers and Counterparties Risk Management and (v) Liquidity and Financial Indebtedness Management. All strategies and proposals must comply with the Financial Risk Management Policy guidelines and rules, be presented to and discussed with the Finance Committee of the board of directors, and, when applicable, submitted for the approval of the Board of Directors, under the governance structure described in the Financial Risk Management Policy.
18 of 39 |
Nexa Resources S.A. |
Notes to the condensed consolidated interim financial statements
Unaudited
At and for the three and six-month periods ended June 30, 2020
All amounts in thousands of US dollars, unless otherwise stated
(a) | Market risk |
The purpose of the market risk management process is to protect the Company's cash flow against adverse events, such as changes in foreign exchange rates, interest rates and commodity prices.
(i) | Foreign exchange rates risk |
Foreign exchange rates risk is managed through the Company’s Financial Risk Management Policy, which states that the objectives of derivative transactions are to reduce cash flow volatility, hedge against foreign exchange exposure and minimize currency mismatches.
All actions related to the market risk management process are intended to protect cash flows in USD, to maintain the ability to pay financial obligations, and comply with liquidity and indebtedness levels defined by management.
Presented below are the financial assets and liabilities in foreign currencies at June 30, 2020. These mainly result from the foreign operations of Nexa Brazil for which the functional currency is the BRL. The increased economic uncertainty and risks due to the COVID-19 global outbreak have introduced significant volatility in foreign exchange rates in relation to the USD that has impacted Nexa since the Company has foreign operations mainly related to Nexa Brazil.
Intercompany loans balances are fully eliminated in the condensed consolidated interim financial statements. However, the related foreign exchange losses or gains are not and are presented as foreign exchange effects in the financial results. Refer to note 8 for additional information.
USD amounts of foreign currency balances | June 30, 2020 | December 31, 2019 | ||||||
Assets | ||||||||
Cash, cash equivalents and financial investments | 169,041 | 109,511 | ||||||
Derivative financial instruments | 64,070 | 19,524 | ||||||
Trade accounts receivable | 35,422 | 27,883 | ||||||
Use of public assets | 3,613 | 5,065 | ||||||
272,146 | 161,983 | |||||||
Liabilities | ||||||||
Loans and financings | 366,137 | 119,095 | ||||||
Derivative financial instruments | 63,201 | 21,818 | ||||||
Trade payables | 125,482 | 194,646 | ||||||
Lease liabilities | 19,034 | 22,020 | ||||||
Use of public assets | 17,387 | 23,279 | ||||||
591,241 | 380,858 | |||||||
Net exposure | (319,095 | ) | (218,875 | ) |
(ii) | Interest rates risk |
The Company's interest rate risk arises mainly from long-term loans. Loans at variable rates expose the Company to cash flow interest rate risk. Loans at fixed rates expose the Company to fair value risk associated with interest rates. Refer to note 22 for further information related to interest rates.
The Company’s Financial Risk Management Policy establishes guidelines and rules to hedge against changes in interest rates that impact the Company’s cash flows of the Company. Exposure to each interest rate is projected until the maturity of the assets and liabilities exposed to the interest rate. Occasionally the Company enters into floating to fixed interest rate swaps to manage its cash flow interest rate risk.
As of June 30, 2020, there have been no significant impacts on the Company’s exposure to interest rate risk as a result of the COVID-19 global outbreak.
19 of 39 |
Nexa Resources S.A. |
Notes to the condensed consolidated interim financial statements
Unaudited
At and for the three and six-month periods ended June 30, 2020
All amounts in thousands of US dollars, unless otherwise stated
(iii) | Commodity prices risk |
This risk is related to the volatility in the prices of the Company's commodities. Prices fluctuate depending on demand, production capacity, producers' inventory levels, the commercial strategies adopted by large producers, and the availability of substitutes for these products in the global market.
The Company’s Financial Risk Management Policy establishes guidelines to mitigate the risk of fluctuations in commodity prices that could impact the cash flows of the Company. The exposure to the price of each commodity considers the monthly projections of production, purchases of inputs and the maturity flows of hedges associated with them.
Commodity prices hedge transactions are classified into the following hedging strategies:
Hedges for sales of zinc at a fixed price (Customer Hedge)
The objective is to convert fixed prices sales to floating prices, observed on the London Metal Exchange (LME). The purpose of the strategy is to maintain the revenues of a business unit linked to the LME prices. These transactions usually relate to purchases of zinc for future settlement on the over-the-counter market.
Hedges for mismatches of quotational periods (Book Hedge)
The objective is to hedge quotational periods mismatches arising between the purchases of metal concentrate or processed metal and the sale of the processed metal. These transactions usually relate to purchases and sales of zinc and silver for future trading on the over-the-counter market.
Hedges for the operating margin of metals (Strategic Hedge)
The objective is to reduce the volatility of the cash flow from LME prices for zinc, copper and silver and ensure a more predicable operating margin. This strategy is carried out through the sale of zinc forward contracts. For Nexa Brazil, the transaction also involves the sale of USD forward contracts in order to hedge the operating margin in BRL.
Because of the COVID-19 global outbreak, commodity prices have become more volatile. Consequently, the Company is reducing the volume of hedge transactions contracted to mitigate the risk of mismatches of quotational periods due to the unpredictability of production volumes and sales of metals.
(b) | Credit risk |
Trade receivables, derivative financial instruments, term deposits, bank deposit certificates ("CDBs") and government securities create exposure to credit risk with respect to the counterparties and issuers. The Company has a policy of making deposits in financial institutions that have, at least, a rating from two of the following international rating agencies: Fitch, Moody’s or Standard & Poor’s. The minimum rating required for counterparties is A+/A1 (local rating scale) or BBB-/Baa3 (global rating scale). Financial institutions in Peru, where only global rating assessments are available, can meet the Company’s policy provided they have a rating of "BBB-" by at least one rating agency.
The pre-settlement risk methodology is used to assess counterparty risks in derivative transactions. This methodology consists of determining the risk associated with the likelihood (via Monte Carlo simulations) of a counterparty defaulting on the financial commitments defined by contract.
The global ratings are obtained from the rating agencies Standard & Poor's, Moody's and Fitch and are related to commitments in foreign or local currency and, in both cases, assess the capacity to honor these commitments, using a scale applicable on a global basis. Therefore, both ratings in foreign currency and in local currency are internationally comparable ratings.
20 of 39 |
Nexa Resources S.A. |
Notes to the condensed consolidated interim financial statements
Unaudited
At and for the three and six-month periods ended June 30, 2020
All amounts in thousands of US dollars, unless otherwise stated
The ratings used by the Company are always the most conservative ratings of the referred agencies.
In the case of credit risk arising from customer credit exposure, the Company assesses the credit quality of the customer, considering mainly the history of the relationship and financial indicators defining individual credit limits, which are continuously monitored. The Company performs initial analyses of customer credit and, when deemed necessary, guarantees or letters of credit are obtained to mitigate the credit risk. Additionally, most sales to the United States of America, Europe and Asia are collateralized by letters of credit and credit insurance. Refer to note 16 for additional information.
The following table reflects the credit quality of issuers and counterparties for transactions involving cash and cash equivalents, financial investments and derivative financial instruments, the variations presented are mainly related to the Company's transactions in the period and not to changes in the counterparties’ ratings.
June 30, 2020 | December 31, 2019 | |||||||||||||||||||||||
Local rating | Global rating | Total | Local rating | Global rating | Total | |||||||||||||||||||
Cash and cash equivalents | ||||||||||||||||||||||||
AAA | 38,707 | - | 38,707 | 11,243 | - | 11,243 | ||||||||||||||||||
AA+ | 1 | - | 1 | 5,997 | - | 5,997 | ||||||||||||||||||
AA | 28 | - | 28 | 18 | 99,853 | 99,871 | ||||||||||||||||||
AA- | 1 | 19,495 | 19,496 | 1 | 10,869 | 10,870 | ||||||||||||||||||
A+ | - | 276,426 | 276,426 | - | 156,032 | 156,032 | ||||||||||||||||||
A | - | 126,385 | 126,385 | - | 230,084 | 230,084 | ||||||||||||||||||
A- | - | 212,618 | 212,618 | - | 38,824 | 38,824 | ||||||||||||||||||
BBB+ | - | 89,227 | 89,227 | - | 67,467 | 67,467 | ||||||||||||||||||
BBB | - | 21,335 | 21,335 | - | 23,552 | 23,552 | ||||||||||||||||||
BBB- | - | 4,194 | 4,194 | - | 31,416 | 31,416 | ||||||||||||||||||
No rating (i) | 2 | 7,184 | 7,186 | 3 | 23,259 | 23,262 | ||||||||||||||||||
38,739 | 756,864 | 795,603 | 17,262 | 681,356 | 698,618 | |||||||||||||||||||
June 30, 2020 | December 31, 2019 | |||||||||||||||||||||||
Local rating | Global rating | Total | Local rating | Global rating | Total | |||||||||||||||||||
Financial investments | ||||||||||||||||||||||||
AAA | 80,623 | - | 80,623 | 44,985 | - | 44,985 | ||||||||||||||||||
AA+ | 1,359 | - | 1,359 | 8,170 | - | 8,170 | ||||||||||||||||||
AA | 9,162 | - | 9,162 | 352 | - | 352 | ||||||||||||||||||
AA- | 23,268 | - | 23,268 | 656 | - | 656 | ||||||||||||||||||
No rating (i) | 3,449 | - | 3,449 | 4,612 | - | 4,612 | ||||||||||||||||||
117,861 | - | 117,861 | 58,775 | - | 58,775 |
21 of 39 |
Nexa Resources S.A. |
Notes to the condensed consolidated interim financial statements
Unaudited
At and for the three and six-month periods ended June 30, 2020
All amounts in thousands of US dollars, unless otherwise stated
June 30, 2020 | December 31, 2019 | |||||||||||||||||||||||
Local rating | Global rating | Total | Local rating | Global rating | Total | |||||||||||||||||||
Derivative financial instruments | ||||||||||||||||||||||||
AAA | 36,118 | - | 36,118 | 16,025 | - | 16,025 | ||||||||||||||||||
AA | - | - | - | - | 1,029 | 1,029 | ||||||||||||||||||
A+ | - | 1,829 | 1,829 | - | 422 | 422 | ||||||||||||||||||
A- | - | 26,123 | 26,123 | - | 2,048 | 2,048 | ||||||||||||||||||
36,118 | 27,952 | 64,070 | 16,025 | 3,499 | 19,524 |
(i) Refers to subsidiaries of international financial institutions that do not have a global rating available in the international rating agencies. According to the Company's policy, for these financial institutions, the rating of the financial institution controlling entities is assumed, which must be at least BBB-.
(c) | Liquidity risk |
Liquidity risk is managed through the Company's Financial Risk Management Policy, which aims to ensure the availability of funds to meet the Company’s financial commitments. The main liquidity measurement and monitoring instrument is the cash flow projection, using a minimum projection period of 12 months from the benchmark date.
The table below shows the Company's financial liabilities to be settled by the Company based on their maturity (the remaining period from the balance sheet up to the contractual maturity date). The amounts shown represent the estimated undiscounted future cash flow, which include interest to be incurred and, accordingly, do not reconcile directly with the amounts presented in the condensed consolidated interim balance sheet.
June 30, 2020 | Less than 1 year | Between 1 and 3 years | Between 3 and 5 years | Over 5 years | Total | |||||||||||||||
Loans and financings | 208,787 | 199,409 | 701,887 | 1,403,802 | 2,513,885 | |||||||||||||||
Lease liabilities | 11,812 | 13,056 | 99 | - | 24,967 | |||||||||||||||
Derivative financial instruments | 22,131 | 4,970 | 36,042 | 58 | 63,201 | |||||||||||||||
Trade payables | 250,546 | - | - | - | 250,546 | |||||||||||||||
Confirming payables | 57,142 | - | - | - | 57,142 | |||||||||||||||
Salaries and payroll charges | 44,785 | - | - | - | 44,785 | |||||||||||||||
Dividends payable | 3,538 | - | - | - | 3,538 | |||||||||||||||
Related parties | - | 12,070 | - | - | 12,070 | |||||||||||||||
Asset retirement obligation and environmental obligation | 26,924 | 55,086 | 62,334 | 229,079 | 373,423 | |||||||||||||||
Use of public assets | 1,052 | 2,419 | 4,218 | 20,506 | 28,195 | |||||||||||||||
626,717 | 287,010 | 804,580 | 1,653,445 | 3,371,752 |
22 of 39 |
Nexa Resources S.A. |
Notes to the condensed consolidated interim financial statements
Unaudited
At and for the three and six-month periods ended June 30, 2020
All amounts in thousands of US dollars, unless otherwise stated
December 31, 2019 | Less than 1 year | Between 1 and 3 years | Between 3 and 5 years | Over 5 years | Total | |||||||||||||||
Loans and financings | 91,511 | 342,095 | 610,750 | 842,222 | 1,886,578 | |||||||||||||||
Lease liabilities | 17,903 | 16,361 | 120 | - | 34,384 | |||||||||||||||
Derivative financial instruments | 8,272 | 6,918 | 6,577 | 51 | 21,818 | |||||||||||||||
Trade payables | 414,080 | - | - | - | 414,080 | |||||||||||||||
Confirming payables | 82,770 | - | - | - | 82,770 | |||||||||||||||
Salaries and payroll charges | 58,919 | - | - | - | 58,919 | |||||||||||||||
Dividends payable | 6,662 | - | - | - | 6,662 | |||||||||||||||
Related parties | - | 834 | - | - | 834 | |||||||||||||||
Asset retirement obligation and environmental obligation | 19,001 | 68,296 | 76,629 | 273,484 | 437,410 | |||||||||||||||
Use of public assets | 1,446 | 3,177 | 3,581 | 30,729 | 38,933 | |||||||||||||||
700,564 | 437,681 | 697,657 | 1,146,486 | 2,982,388 |
As discussed in note 1, the Company has taken measures to enhance its short-term liquidity to mitigate the effects of the current economic scenario due to the COVID-19 global outbreak on the Company’s cash flows. Such measures include the strengthening of its cash position by incurring new loans and obtaining new financings. As a result, the total amount of financial liabilities, related to Loans and financings, maturing in less than 1 year increased by the amount of USD 117,276. Refer to note 22 for information about debt covenants.
(d) | Capital Management |
The Company’s objectives when managing capital are to safeguard its ability to continue as a going concern, so it can continue to provide returns for shareholders and benefits for other stakeholders; and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Company may adjust the level of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets or metals produced to reduce debt. The Company monitors capital mainly using the leverage ratio, calculated as net debt to Adjusted EBITDA.
Net debt and Adjusted EBITDA measures should not be considered in isolation or as a substitute for net income or operating income, as indicators of operating performance, or as alternatives to cash flow as measures of liquidity. Additionally, management’s calculation of Adjusted EBITDA may be different from the calculation used by other companies, including competitors in the mining and smelting industry, so these measures may not be comparable to those of other companies.
23 of 39 |
Nexa Resources S.A. |
Notes to the condensed consolidated interim financial statements
Unaudited
At and for the three and six-month periods ended June 30, 2020
All amounts in thousands of US dollars, unless otherwise stated
Note | June 30, 2020 | December 31, 2019 | ||||||||||
Loans and financings | 22 | 1,915,512 | 1,508,557 | |||||||||
Lease liabilities | 21 | 24,967 | 34,384 | |||||||||
Derivative financial instruments | 15 | (869 | ) | 2,294 | ||||||||
Cash and cash equivalents | 13 | (795,603 | ) | (698,618 | ) | |||||||
Financial investments | 14 | (117,861 | ) | (58,775 | ) | |||||||
Net debt (i) | 1,026,146 | 787,842 | ||||||||||
Net loss for the year | (845,117 | ) | (159,007 | ) | ||||||||
Plus (less): | ||||||||||||
Depreciation and amortization | 283,193 | 317,892 | ||||||||||
Net financial results | 283,440 | 104,854 | ||||||||||
Income tax (expense) benefit | (141,340 | ) | (56,873 | ) | ||||||||
EBITDA (ii) | (419,824 | ) | 206,866 | |||||||||
Exceptional items | 626,117 | 142,133 | ||||||||||
Adjusted EBITDA (i) | 206,293 | 348,999 | ||||||||||
Leverage ratio (Net debt/Adjusted EBITDA) | 4.97 | 2.26 |
(i) Net debt is defined as (a) loans and financings, plus or minus (b) the fair value of derivative financial instruments less (c) cash and cash equivalents, less (d) financial investments. Adjusted EBITDA for capital management calculation uses the same assumptions described in note 2 for Adjusted EBITDA by segment.
(ii) EBITDA for Leverage ratio purpose is comprised of the prior 12 months profits and losses of the Company for the disclosed period. Refer to note 22 (g) for information regarding financial covenants clauses in debt contracts.
24 of 39 |
Nexa Resources S.A. |
Notes to the condensed consolidated interim financial statements
Unaudited
At and for the three and six-month periods ended June 30, 2020
All amounts in thousands of US dollars, unless otherwise stated
11 | Sensitivity analysis |
Presented below is a sensitivity analysis of the main risk factors that affect the pricing of the outstanding financial instruments relating to cash and cash equivalents, financial investments, loans and financings, and derivative financial instruments. The main sensitivities are the exposure to changes of the US Dollar exchange rate, the London Interbank Offered Rate (LIBOR) and Interbank Deposit Certificate (CDI) interest rates, the US Dollar coupon and the commodity prices. The scenarios for these factors are prepared using market sources and other relevant sources, in compliance with the Company's policies. The scenarios at June 30, 2020 are described below:
· | Probable: the probable scenario was defined as the fair value of the derivative financial instruments and the outstanding amount of the assets and liabilities as of June 30, 2020. |
· | Scenario I: considers a change of + or -25% in the assumptions as of June 30, 2020. |
· | Scenario II: considers a change of + or -50% in the assumptions as of June 30, 2020. |
Impacts on income statement | Impacts on statement of comprehensive income | |||||||||||||||||||||||||||||||||||||||||||||||
Probable | Scenarios I and II | Scenarios I and II | ||||||||||||||||||||||||||||||||||||||||||||||
Risk factor | Quotation at June 30, 2020 | Cash and cash investments | Loans and financing | Derivative financial instruments | -25% | -50% | +25% | +50% | -25% | -50% | +25% | +50% | ||||||||||||||||||||||||||||||||||||
Foreign exchange rates | ||||||||||||||||||||||||||||||||||||||||||||||||
BRL | 5.4760 | 156,600 | 364,586 | 284,206 | 2,813 | 5,541 | (6,475 | ) | (19,188 | ) | 27,942 | 55,884 | (27,942 | ) | (55,884 | ) | ||||||||||||||||||||||||||||||||
EUR | 1.1238 | 582 | - | - | (146 | ) | (291 | ) | 146 | 291 | - | - | - | - | ||||||||||||||||||||||||||||||||||
PEN | 3.4383 | 9,077 | 2,829 | - | (1,562 | ) | (3,124 | ) | 1,562 | 3,124 | - | - | - | - | ||||||||||||||||||||||||||||||||||
CAD | 1.3617 | 1,411 | - | - | - | - | - | - | (353 | ) | (706 | ) | 353 | 706 | ||||||||||||||||||||||||||||||||||
NAD | 17.3640 | 1,370 | - | - | - | - | - | - | (343 | ) | (685 | ) | 343 | 685 | ||||||||||||||||||||||||||||||||||
Interest rates | ||||||||||||||||||||||||||||||||||||||||||||||||
BRL - CDI | 2,15 | % | 155,703 | 195,397 | 284,206 | 6,569 | 13,641 | (6,112 | ) | (11,807 | ) | - | - | - | - | |||||||||||||||||||||||||||||||||
USD - LIBOR 3M | 0,37 | % | - | 79,815 | 682,745 | (326 | ) | (654 | ) | 323 | 643 | (1 | ) | (3 | ) | 1 | 3 | |||||||||||||||||||||||||||||||
USD - LIBOR 6M | 0,30 | % | - | 147,056 | - | 136 | 272 | (136 | ) | (272 | ) | - | - | - | - | |||||||||||||||||||||||||||||||||
US Dollar coupon | 0,85 | % | - | - | 65,667 | (155 | ) | (311 | ) | 154 | 307 | - | - | - | - | |||||||||||||||||||||||||||||||||
Price – commodities | ||||||||||||||||||||||||||||||||||||||||||||||||
Zinc | 2.057 | - | - | 245,873 | 22,246 | 44,492 | (22,246 | ) | (44,492 | ) | (2,841 | ) | (5,683 | ) | 2,841 | 5,683 |
25 of 39 |
Nexa Resources S.A. |
Notes to the condensed consolidated interim financial statements
Unaudited
At and for the three and six-month periods ended June 30, 2020
All amounts in thousands of US dollars, unless otherwise stated
12 | Financial instruments |
(a) | 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 instrument 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, 2019.
June 30, 2020 | ||||||||||||||||
Assets per balance sheet | Note | Amortized cost | Fair value through profit or loss | Total | ||||||||||||
Cash and cash equivalents | 13 | - | 795,603 | 795,603 | ||||||||||||
Financial investments | 14 | - | 117,861 | 117,861 | ||||||||||||
Derivative financial instruments | 15 (a) | - | 64,070 | 64,070 | ||||||||||||
Trade accounts receivable | 16 | 64,627 | 72,528 | 137,155 | ||||||||||||
Related parties (i) | 853 | - | 853 | |||||||||||||
65,480 | 1,050,062 | 1,115,542 |
June 30, 2020 | ||||||||||||||||
Liabilities per balance sheet | Note | Amortized cost | Fair value through profit or loss | Total | ||||||||||||
Loans and financings | 22 (a) | 1,739,481 | 176,031 | 1,915,512 | ||||||||||||
Lease liabilities | 21 (b) | 24,967 | - | 24,967 | ||||||||||||
Derivative financial instruments | 15 (a) | - | 63,201 | 63,201 | ||||||||||||
Trade payables | 250,546 | - | 250,546 | |||||||||||||
Confirming payables | 57,142 | - | 57,142 | |||||||||||||
Use of public assets (ii) | 17,387 | - | 17,387 | |||||||||||||
Related parties (ii) | 12,070 | - | 12,070 | |||||||||||||
2,101,593 | 239,232 | 2,340,825 |
December 31, 2019 | ||||||||||||||||
Assets per balance sheet | Note | Amortized cost | Fair value through profit or loss | Total | ||||||||||||
Cash and cash equivalents | 13 | - | 698,618 | 698,618 | ||||||||||||
Financial investments | 14 | - | 58,775 | 58,775 | ||||||||||||
Derivative financial instruments | 15 (a) | - | 19,524 | 19,524 | ||||||||||||
Trade accounts receivable | 16 | 107,995 | 69,236 | 177,231 | ||||||||||||
Related parties (i) | 744 | - | 744 | |||||||||||||
108,739 | 846,153 | 954,892 |
December 31, 2019 | ||||||||||||||||
Liabilities per balance sheet | Note | Amortized cost | Fair value through profit or loss | Total | ||||||||||||
Loans and financings | 22 (a) | 1,411,179 | 97,378 | 1,508,557 | ||||||||||||
Lease liabilities | 21 (b) | 34,384 | - | 34,384 | ||||||||||||
Derivative financial instruments | 15 (a) | - | 21,818 | 21,818 | ||||||||||||
Trade payables | 414,080 | - | 414,080 | |||||||||||||
Confirming payables | 82,770 | - | 82,770 | |||||||||||||
Use of public assets (ii) | 23,279 | - | 23,279 | |||||||||||||
Related parties (ii) | 834 | - | 834 | |||||||||||||
1,966,526 | 119,196 | 2,085,722 |
(i) Classified as Other assets in the condensed consolidated interim balance sheet.
(ii) Classified as Other liabilities in the condensed consolidated interim balance sheet.
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Nexa Resources S.A. |
Notes to the condensed consolidated interim financial statements
Unaudited
At and for the three and six-month periods ended June 30, 2020
All amounts in thousands of US dollars, unless otherwise stated
(b) | Fair value by hierarchy |
June 30, 2020 | ||||||||||||||||
Note | Level 1 | Level 2 | Total | |||||||||||||
Assets | ||||||||||||||||
Cash and cash equivalents | 13 | 795,603 | - | 795,603 | ||||||||||||
Financial investments | 14 | 47,144 | 70,717 | 117,861 | ||||||||||||
Derivative financial instruments | 15 | - | 64,070 | 64,070 | ||||||||||||
Trade accounts receivable | - | 72,528 | 72,528 | |||||||||||||
842,747 | 207,315 | 1,050,062 | ||||||||||||||
Liabilities | ||||||||||||||||
Loans and financings designated at fair value (i) | - | 176,031 | 176,031 | |||||||||||||
Derivative financial instruments | - | 63,201 | 63,201 | |||||||||||||
- | 239,232 | 239,232 |
December 31, 2019 | ||||||||||||||||
Note | Level 1 | Level 2 | Total | |||||||||||||
Assets | ||||||||||||||||
Cash and cash equivalents | 13 | 698,618 | - | 698,618 | ||||||||||||
Financial investments | 14 | 28,126 | 30,649 | 58,775 | ||||||||||||
Derivative financial instruments | 15 | - | 19,524 | 19,524 | ||||||||||||
Trade accounts receivable | - | 69,236 | 69,236 | |||||||||||||
726,744 | 119,409 | 846,153 | ||||||||||||||
Liabilities | �� | |||||||||||||||
Loans and financings designated at fair value (i) | - | 97,378 | 97,378 | |||||||||||||
Derivative financial instruments | - | 21,818 | 21,818 | |||||||||||||
- | 119,196 | 119,196 |
(i) Loans and financings are measured at amortized cost, except for certain contracts for which the Company has elected the fair value option. The carrying amount of other financial instruments measured at amortized cost do not differ significantly from their fair value.
(c) | 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, 2019.
There were no reclassifications between fair value levels in the six-month period ended June 30, 2020. None of the financial instruments were classified as Level 3 as of June 30, 2020.
Fair value estimates were assessed by the Company to evaluate the impacts of the COVID-19 global outbreak and the only impact identified is related to the changes in the Company’s credit risk which affect the fair value of debts which are designated as fair value option. Refer to note 22 (c).
13 | Cash and cash equivalents |
(a) | Composition |
June 30, 2020 | December 31, 2019 | |||||||
Cash and banks | 549,410 | 299,374 | ||||||
Term deposits | 246,193 | 399,244 | ||||||
795,603 | 698,618 |
The increase in the cash and cash equivalents balance, as of June 30, 2020, is mainly because of the new loans and financings completed by the Company during the first half of 2020 as explained in note 22.
27 of 39 |
Nexa Resources S.A.
Notes to the condensed consolidated interim financial statements Unaudited At and for the three and six-month periods ended June 30, 2020 All amounts in thousands of US dollars, unless otherwise stated
|
(b) | Changes in operating assets and liabilities |
Three-month period ended | Six-month period ended | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Decrease (increase) in assets | ||||||||||||||||
Trade accounts receivable (i) | (28,040 | ) | (4,538 | ) | 22,280 | 4,550 | ||||||||||
Inventory (ii) | 10,405 | (23,980 | ) | 65,547 | (52,755 | ) | ||||||||||
Other assets (iii) | 11,851 | (58,670 | ) | (7,197 | ) | (86,258 | ) | |||||||||
Increase (decrease) in liabilities | ||||||||||||||||
Trade payables (iv) | 54,396 | (10,769 | ) | (73,518 | ) | (42,266 | ) | |||||||||
Confirming payables (v) | (9,427 | ) | 9,022 | (25,628 | ) | (4,542 | ) | |||||||||
Contractual liabilities | (5,675 | ) | (7,880 | ) | (15,597 | ) | (12,658 | ) | ||||||||
Other liabilities | (14,550 | ) | 36,902 | (14,876 | ) | 20,014 | ||||||||||
18,960 | (59,913 | ) | (48,989 | ) | (173,915 | ) |
(i) Changes in trade accounts receivable, in the six-month period, are mainly due to significantly lower metal prices in the international market and lower sales volume driven by the stoppage of mining operations in Peru and the reduction of smelting operations in Peru and Brazil.
(ii) Changes in inventories, in the six-month period, are mainly due to lower purchases of raw materials, mainly for the Company’s smelter segment that uses zinc concentrate in its operations, and also to the decrease in mining production in Peru and smelting production in Peru and Brazil.
(iii) Changes in other assets, in the six-month period, are mainly due to the variation of derivative financial instruments, refer to note 15 for additional information.
(iv) Changes in trade payables, in the six-month period, are mainly due to lower contracted services and reduced purchases from suppliers, as a result of the stoppage of mining operations in Peru and the lower smelting production in Peru and Brazil.
(v) Changes in confirming payables, in the six-month period, are due to factoring transactions in Cajamarquilla, mainly due to higher payments to suppliers and new operations carried out in June 2020.
(c) | Non-cash transactions |
During the six-month period ended June 30, 2020, the Company had additions related to asset retirement obligation in the amount of USD 1,544 (June 30,2019: USD 3,180), additions to right-of-use assets in the amount of USD 1,324 (June 30,2019: USD 3,464), a provision to acquire assets in a contract with a third party in the amount of USD 1,783, and a liability with a related party arising from the Pollarix’s capital reduction, as explained in note 1 (k), in the amount of USD 11,566.
14 | Financial investments |
(a) | Composition |
June 30, 2020 | December 31, 2019 | |||||||
Investment fund quotas | 47,144 | 28,126 | ||||||
Bank certificates of deposit | 67,268 | 25,540 | ||||||
Other | 3,449 | 5,109 | ||||||
117,861 | 58,775 |
The increase in financial investments is mainly related to the acquisition of certificates of deposit using funds from the new loans and financings. Certificates of deposit have a maturity of 1 year.
28 of 39
Nexa Resources S.A.
Notes to the condensed consolidated interim financial statements Unaudited At and for the three and six-month periods ended June 30, 2020 All amounts in thousands of US dollars, unless otherwise stated
|
15 | Derivative financial instruments |
(a) | Fair value by strategy |
June 30, 2020 | December 31, 2019 | |||||||||||||||||||
Strategy | Per Unit | Notional | Fair value | Notional | Fair value | |||||||||||||||
Mismatches of quotational periods | ||||||||||||||||||||
Zinc forward | ton | 221,643 | (824 | ) | 258,220 | (713 | ) | |||||||||||||
(824 | ) | (713 | ) | |||||||||||||||||
Sales of zinc at a fixed price | ||||||||||||||||||||
Zinc forward | ton | 24,230 | (1,391 | ) | 15,252 | (1,043 | ) | |||||||||||||
(1,391 | ) | (1,043 | ) | |||||||||||||||||
Interest rate risk | ||||||||||||||||||||
LIBOR vs. CDI (i) | USD | 90,000 | 24,300 | 90,000 | (1,413 | ) | ||||||||||||||
IPCA vs. CDI | BRL | 226,880 | 573 | 226,880 | 1,482 | |||||||||||||||
24,873 | 69 | |||||||||||||||||||
Foreign exchange risk | ||||||||||||||||||||
BRL vs. USD (i) | BRL | 477,000 | (8,402 | ) | - | - | ||||||||||||||
Foreign exchange collars (USD vs. BRL) | BRL | 359,591 | (13,387 | ) | 653,148 | (607 | ) | |||||||||||||
(21,789 | ) | (607 | ) | |||||||||||||||||
869 | (2,294 | ) | ||||||||||||||||||
Current assets | 11,412 | 4,835 | ||||||||||||||||||
Non-current assets | 52,658 | 14,689 | ||||||||||||||||||
Current liabilities | (22,131 | ) | (8,276 | ) | ||||||||||||||||
Non-current liabilities | (41,070 | ) | (13,542 | ) |
(i) Related to derivative financial instruments entered into at the same time of certain debt contracts in order to manage some of the risks of such debt contracts. Refer to note 22 (c) for additional information.
(b) Changes in fair value in the six-month period ended
Strategy | Inventory | Cost of sales | Net revenues | Other income and expenses, net | Net financial results | Other comprehensive income | Realized gain (loss) | |||||||||||||||||||||
Mismatches of quotational periods | 235 | 13,313 | (6,067 | ) | (2,502 | ) | - | (202 | ) | 4,888 | ||||||||||||||||||
Sales of zinc at a fixed price | - | - | - | (5,387 | ) | - | - | (5,041 | ) | |||||||||||||||||||
Interest rate risk – LIBOR vs. CDI (i) | - | - | - | - | 25,064 | - | (647 | ) | ||||||||||||||||||||
Interest rate risk – IPCA vs. CDI | - | - | - | - | (461 | ) | - | 448 | ||||||||||||||||||||
Foreign exchange risk - BRL vs USD (i) | - | - | - | - | (8,402 | ) | - | - | ||||||||||||||||||||
Foreign exchange risk – Collars USD vs. BRL (ii) | - | - | - | - | (17,782 | ) | - | (5,002 | ) | |||||||||||||||||||
235 | 13,313 | (6,067 | ) | (7,889 | ) | (1,581 | ) | (202 | ) | (5,354 | ) |
(i) Related to the changes in the fair value of certain derivative financial instruments entered into at the same time of certain debt contracts in order to manage some of the risks of such debt contracts. Refer to note 22 (c) for additional information.
(ii) Related to zero cost collars entered into to manage foreign currency risk on the Aripuanã project capital expenditures. Losses are driven by the devaluation of BRL against USD during the six-month period ended June 30, 2020.
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Nexa Resources S.A.
Notes to the condensed consolidated interim financial statements Unaudited At and for the three and six-month periods ended June 30, 2020 All amounts in thousands of US dollars, unless otherwise stated
|
16 | Trade accounts receivable |
(a) | Composition |
June 30, 2020 | December 31, 2019 | |||||||
Trade accounts receivable (i) | 137,483 | 175,948 | ||||||
Related parties | 2,505 | 3,620 | ||||||
Impairment of trade accounts receivable (ii) | (2,833 | ) | (2,337 | ) | ||||
137,155 | 177,231 |
(i) Trade accounts receivable reduction, as of June 30, 2020, is mainly due to significantly lower metal prices in the international market and lower sales volume driven by the stoppage of mining operations in Peru and the reduction of smelting operations in Peru and Brazil.
(ii) The COVID-19 global outbreak might change the risk profile of the Company’s customers, especially those clients that might have transactions, or are located in areas, which are affected, or are more prone to be affected economically. As such risks increase, the Company expects an increase in impairment losses on trade accounts receivables. As of June 30, 2020, the Company has taken an additional impairment of USD 496 in order to reflect the actual economic scenario and the deterioration in the risk profile of the Company´s clients.
(b) | Analysis by currency |
June 30, 2020 | December 31, 2019 | |||||||
Brazilian Real | 29,372 | 26,817 | ||||||
US Dollar | 101,733 | 149,348 | ||||||
Other | 6,050 | 1,066 | ||||||
137,155 | 177,231 |
(c) | Aging of trade accounts receivable |
June 30, 2020 | December 31, 2019 | |||||||
Current | 126,984 | 150,134 | ||||||
Up to 3 months past due | 9,901 | 26,810 | ||||||
From 3 to 6 months past due | 418 | 135 | ||||||
Over 6 months past due | 2,685 | 2,489 | ||||||
139,988 | 179,568 | |||||||
Impairment | (2,833 | ) | (2,337 | ) | ||||
137,155 | 177,231 |
17 | Inventory |
(a) | Composition |
June 30, 2020 | December 31, 2019 | |||||||
Finished products (i) | 82,122 | 106,595 | ||||||
Semi-finished products (i) | 42,246 | 89,239 | ||||||
Raw materials (i) | 31,939 | 50,848 | ||||||
Auxiliary materials and consumables | 67,148 | 76,974 | ||||||
Inventory provisions (ii) | (27,955 | ) | (28,398 | ) | ||||
195,500 | 295,258 |
(i) The decrease in inventories, as of June 30, 2020, is mainly due to lower purchases of raw materials, mainly for the Company smelter segment that uses zinc concentrate in its operations, and also to the decrease in mining production in Peru and smelting production in Peru and Brazil.
30 of 39
Nexa Resources S.A.
Notes to the condensed consolidated interim financial statements Unaudited At and for the three and six-month periods ended June 30, 2020 All amounts in thousands of US dollars, unless otherwise stated
|
(ii) As a result of the lower metal prices in the six-month period ended June 30, 2020, an additional provision to reduce inventory costs to net realizable value in the amount of USD 2,287 has been recognized in cost of sales. Any additional economic downturn associated with the COVID-19 global outbreak might impact the Company’s capacity to sell its inventories as global demand for its products decrease. As a result, additional provision for non-realizable inventories might be required in the future.
Due to the lower mining production and smelting production in Peru because of the Peruvian government mandates in response to the COVID-19 outbreak (as explained in Note 1) and also due to the 40% reduction in production at Juiz de Fora smelting unit in Brazil because of the anticipated lower market demand also associated with COVID-19, the Company has recognized USD 69,466 in cost of sales related to abnormal cost of production for the six-month period ended June 30, 2020. Idle capacity used to determine the abnormal cost of production was calculated using the historical production data to the actual production during the six-month period ended June 30, 2020.
18 | Other assets |
June 30, 2020 | December 31, 2019 | |||||||
Recoverable income tax | 43,120 | 44,513 | ||||||
Other recoverable taxes (i) | 130,765 | 157,008 | ||||||
Advances to third parties | 14,345 | 19,942 | ||||||
Prepaid expenses | 12,206 | 11,678 | ||||||
Judicial deposits | 5,347 | 7,281 | ||||||
Other assets | 32,652 | 46,033 | ||||||
238,435 | 286,455 | |||||||
Current assets | 114,008 | 140,984 | ||||||
Non-current assets | 124,427 | 145,471 |
(i) The decrease in other recoverable taxes is mainly related to certain tax strategies adopted by the Company to offset those tax credits, mainly related to payroll taxes.
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Nexa Resources S.A.
At and for six-month period ended June 30, 2020 All amounts in thousands of US dollars, unless otherwise stated
|
19 | Property, plant and equipment |
(a) | Changes in the six-month period ended |
June 30, 2020 | June 30, 2019 | |||||||||||||||||||||||||||||||
Dam and buildings | Machinery, equipment, and facilities | Assets and projects under construction | Asset retirement obligation | Mining projects | Other | Total | Total | |||||||||||||||||||||||||
At December 31 | ||||||||||||||||||||||||||||||||
Cost | 1,027,045 | 2,399,957 | 535,092 | 201,892 | 261,117 | 45,035 | 4,470,138 | 4,179,485 | ||||||||||||||||||||||||
Accumulated depreciation | (488,386 | ) | (1,647,403 | ) | - | (97,233 | ) | (93,009 | ) | (21,417 | ) | (2,347,448 | ) | (2,211,034 | ) | |||||||||||||||||
Net balance at the beginning of the period | 538,659 | 752,554 | 535,092 | 104,659 | 168,108 | 23,618 | 2,122,690 | 1,968,451 | ||||||||||||||||||||||||
Additions (i) | - | 2,659 | 149,025 | - | - | 1,579 | 153,263 | 159,609 | ||||||||||||||||||||||||
Disposals | - | (342 | ) | (4 | ) | - | - | (12 | ) | (358 | ) | (809 | ) | |||||||||||||||||||
Depreciation | (25,529 | ) | (55,539 | ) | - | (3,102 | ) | (383 | ) | (624 | ) | (85,177 | ) | (97,977 | ) | |||||||||||||||||
Impairment loss (ii) | (22,628 | ) | (16,703 | ) | (52,544 | ) | (9,461 | ) | (4,880 | ) | - | (106,216 | ) | - | ||||||||||||||||||
Foreign exchange effects | (73,068 | ) | (95,648 | ) | (108,332 | ) | (14,485 | ) | (403 | ) | (4,116 | ) | (296,052 | ) | 11,125 | |||||||||||||||||
Transfers - note 20 (a) | 22,868 | 25,538 | (50,136 | ) | - | 10 | 1,656 | (64 | ) | (3,715 | ) | |||||||||||||||||||||
Reclassification - note 21 (a) | - | - | - | - | - | - | - | (2,278 | ) | |||||||||||||||||||||||
Remeasurement of asset retirement obligation | - | - | - | 1,544 | - | - | 1,544 | (3,180 | ) | |||||||||||||||||||||||
Balance at the end of the period | 440,302 | 612,519 | 473,101 | 79,155 | 162,452 | 22,101 | 1,789,630 | 2,031,226 | ||||||||||||||||||||||||
Cost | 914,203 | 2,242,430 | 473,101 | 184,401 | 261,701 | 38,889 | 4,114,725 | 4,337,261 | ||||||||||||||||||||||||
Accumulated depreciation | (473,901 | ) | (1,629,911 | ) | - | (105,246 | ) | (99,249 | ) | (16,788 | ) | (2,325,095 | ) | (2,306,035 | ) | |||||||||||||||||
Balance at the end of the period | 440,302 | 612,519 | 473,101 | 79,155 | 162,452 | 22,101 | 1,789,630 | 2,031,226 | ||||||||||||||||||||||||
Average annual depreciation rates % | 4 | 7 | - | 5 | 8 | - |
(i) Additions include capitalized borrowing costs on assets and projects under construction in the amount of USD 4,377 for the six-month period ended June 30, 2020 (June 30, 2019 – USD 4,221).
(ii) Impairment loss of USD 106,826 is comprised of impairment of non-financial assets in the amount of USD 68,919 (note 25) and impairment of assets and projects under construction in the amount of USD 37,907 (note 19 (b)).
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Nexa Resources S.A. |
Notes to the condensed consolidated interim financial statements
Unaudited
At and for the three and six-month periods ended June 30, 2020
All amounts in thousands of US dollars, unless otherwise stated
(b) | Impairment of Jarosite project |
The Company has reviewed its portfolio of assets and projects under construction and concluded that there are no impairment indicators for its projects under construction, with the exception of the Jarosite project. Execution of the Jarosite project is suspended with no predictable expectation to resume. The Company used the fair value method to test the Jarosite project for impairment and recorded an impairment loss in the amount of USD 37,907 for the three-month period ended March 31, 2020, expenses related to the project after the aforementioned impairment will be registered as impairment loss in the income statement. No material expenses were capitalized for the project in the six-month period ended June 30, 2020, therefore there was no additional amount impaired in the period.
For the impairment calculation, the Company has analyzed each component of the project and classified them as saleable, scrap, or labor expenses directly attributable to the project. Saleable and scrap were evaluated in accordance with the Company historical recoverability on sale of assets in accordance with each category, and capitalized labor expenses were written off entirely.
(c) | Capital Commitments - Aripuanã Project |
At June 30, 2020, the Company had contracted USD 135,405 (USD 211,259 in December 31, 2019) of capital expenditures related to the Aripuanã project for the purchase of property, plant and equipment that have not been incurred yet. Decrease of capital commitments is mainly related to the devaluation of BRL against USD during the six-month period, commitments that were agreed on December and already received during the six-month period, and the reduced pace of the mobilization in the project due to COVID-19 as explained in note 1 (a).
20 | Intangible assets |
(a) | Changes in the six-month period ended |
June 30, | June 30, | |||||||||||||||||||
2020 | 2019 | |||||||||||||||||||
Goodwill | Rights to use natural resources | Other | Total | Total | ||||||||||||||||
At December 31 | ||||||||||||||||||||
Cost | 674,645 | 1,569,505 | 59,408 | 2,303,558 | 2,401,298 | |||||||||||||||
Accumulated amortization | - | (725,712 | ) | (39,320 | ) | (765,032 | ) | (658,837 | ) | |||||||||||
Net balance at the beginning of the period | 674,645 | 843,793 | 20,088 | 1,538,526 | 1,742,461 | |||||||||||||||
Disposals | - | - | - | - | (378 | ) | ||||||||||||||
Amortization | - | (26,089 | ) | (1,321 | ) | (27,410 | ) | (47,813 | ) | |||||||||||
Transfers - note 19 (a) | - | - | 64 | 64 | 3,715 | |||||||||||||||
Impairment loss - note 25 | (267,342 | ) | (110,426 | ) | - | (377,768 | ) | - | ||||||||||||
Foreign exchange effects | (1,022 | ) | (3,385 | ) | (4,050 | ) | (8,457 | ) | 390 | |||||||||||
Balance at the end of the period | 406,281 | 703,893 | 14,781 | 1,124,955 | 1,698,375 | |||||||||||||||
Cost | 406,281 | 1,454,571 | 44,201 | 1,905,053 | 2,405,455 | |||||||||||||||
Accumulated amortization | - | (750,678 | ) | (29,420 | ) | (780,098 | ) | (707,080 | ) | |||||||||||
Net balance at the end of the period | 406,281 | 703,893 | 14,781 | 1,124,955 | 1,698,375 | |||||||||||||||
Average annual amortization rates % | - | 6 | - | - |
33 of 39 |
Nexa Resources S.A. |
Notes to the condensed consolidated interim financial statements
Unaudited
At and for the three and six-month periods ended June 30, 2020
All amounts in thousands of US dollars, unless otherwise stated
21 | Right-of-use assets and lease liabilities |
(a) | Changes in the six-month period ended - Right-of-use assets |
June 30, 2020 | June 30, 2019 | |||||||||||||||||||||||
Lands and Buildings | Machinery, equipment, and facilities | IT equipment | Vehicles | Total | Total | |||||||||||||||||||
At December 31 | ||||||||||||||||||||||||
Cost | 6,836 | 10,280 | 5,846 | 22,810 | 45,772 | 41,521 | ||||||||||||||||||
Accumulated amortization | (1,569 | ) | (2,878 | ) | (3,675 | ) | (8,103 | ) | (16,225 | ) | - | |||||||||||||
Net balance at the beginning of the period | 5,267 | 7,402 | 2,171 | 14,707 | 29,547 | 41,521 | ||||||||||||||||||
New contracts | 329 | 995 | - | - | 1,324 | 3,464 | ||||||||||||||||||
Amortization | (846 | ) | (1,574 | ) | (1,555 | ) | (3,163 | ) | (7,138 | ) | (8,634 | ) | ||||||||||||
Reclassification – note 19 (a) | - | - | - | - | - | 2,278 | ||||||||||||||||||
Foreign exchange effects | (798 | ) | (1,305 | ) | - | (3,028 | ) | (5,131 | ) | (23 | ) | |||||||||||||
Balance at the end of the period | 3,952 | 5,518 | 616 | 8,516 | 18,602 | 38,606 | ||||||||||||||||||
Cost | 7,165 | 11,276 | 5,846 | 22,810 | 47,097 | 47,294 | ||||||||||||||||||
Accumulated amortization | (3,213 | ) | (5,758 | ) | (5,230 | ) | (14,294 | ) | (28,495 | ) | (8,688 | ) | ||||||||||||
Net balance at the end of the period | 3,952 | 5,518 | 616 | 8,516 | 18,602 | 38,606 | ||||||||||||||||||
Average annual amortization rates % | 25 | 34 | 63 | 37 |
(b) | Changes in the six-month period ended – Lease liabilities |
June 30, 2020 | June 30, 2019 | |||||||
At December 31 | 34,384 | 41,450 | ||||||
New contracts | 1,324 | 3,464 | ||||||
Payments of lease liabilities | (4,626 | ) | (8,333 | ) | ||||
Interest paid | (890 | ) | (359 | ) | ||||
Interest accrued | 1,036 | 1,874 | ||||||
Reclassification | - | 3,088 | ||||||
Foreign exchange effects | (6,261 | ) | 943 | |||||
Net balance at the end of the period | 24,967 | 42,127 | ||||||
Current liabilities | 13,794 | 18,612 | ||||||
Non-current liabilities | 11,173 | 23,515 |
Leasing agreements were assessed by the Company to evaluate any COVID-19 impacts, and no material impacts in the measurement of the liabilities were identified for the six-month period ended June 30, 2020.
34 of 39 |
Nexa Resources S.A. |
Notes to the condensed consolidated interim financial statements
Unaudited
At and for the three and six-month periods ended June 30, 2020
All amounts in thousands of US dollars, unless otherwise stated
22 | Loans and financings |
(a) | Composition |
June 30, 2020 | December 31, 2019 | |||||||||||||||||
Type | Average interest rate | Current | Non-current | Total | Total | |||||||||||||
Eurobonds - USD | Fixed + 5.73% | 6,607 | 1,316,371 | 1,322,978 | 1,043,748 | |||||||||||||
Export credit notes | LIBOR + 1.54% 108.83% CDI | 89,634 | 170,318 | 259,952 | 97,378 | |||||||||||||
Term loans | LIBOR + 1.27% Fixed + 8.49% | 22,787 | 173,535 | 196,322 | 197,926 | |||||||||||||
BNDES | TJPL + 2.82% SELIC + 3.10% TLP - IPCA + 5.22% | 4,496 | 65,616 | 70,112 | 95,295 | |||||||||||||
Debentures | 107.50% CDI | 5,039 | 9,802 | 14,841 | 20,265 | |||||||||||||
Other | 9,187 | 42,120 | 51,307 | 53,945 | ||||||||||||||
137,750 | 1,777,762 | 1,915,512 | 1,508,557 | |||||||||||||||
Current portion of long-term loans and financing (principal) | 123,958 | |||||||||||||||||
Interest on loans and financings | 13,792 |
(b) | Loans and financing transactions during the six-month period ended June 30,2020 |
On February 24, 2020, the Company completed a tender offer to purchase for cash any and all of the outstanding 2023 Notes. Holders of the 2023 Notes tendered an aggregate principal amount of USD 214,530, or 62.55% of the outstanding principal amount as of the date of the offer. USD 128,470 of the 2023 Notes at a cost of 4.625% p.a. remain outstanding. In the transaction the Company also paid an amount of USD 14,481 related to the premium over the notes, which was recognized in the net financial results. Refer to note 8 for additional information on the effect on income statement.
On March 12, 2020, in order to enhance its short-term liquidity, Nexa Peru entered into a term loan with a global financial institution, in the principal amount of BRL 477,000 thousand (approximately USD 100,000) at a cost of 8.5% p.a., with a five-year maturity and an option to prepay before maturity. Simultaneously, the Company contracted a swap to exchange the interest rate to 2.45% p.a. as well as the currency of debt service repayments from BRL to USD. The Company accounted for the term loan under the fair value option to eliminate the accounting mismatch that would arise if amortized cost were used. The term loan is guaranteed by NEXA.
At the end of March 2020, in order to enhance its short-term liquidity in Brazil, the Company entered into four export credit note agreements in the total principal amount of BRL 1,247,000 thousand (approximately USD 250,000) at costs between 134.2% of CDI and CDI + 1.80% up to 4.20%, with maturity dates between 1 and 5 years. All these credit notes were obtained from global financial institutions and can be repaid before maturity.
On April 9, 2020, Nexa Brazil entered into an additional export credit note agreement in the total principal amount of BRL 230,000 thousand, representing USD 45,297 approximately, registered in the date of the received cash, at a cost of CDI + 3.90%, with a one-year maturity. The export credit note is guaranteed by NEXA.
On April 14, 2020, in order to enhance its short-term liquidity, the Company fully drew down its revolving credit facility in the amount of USD 300,000.
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Nexa Resources S.A. |
Notes to the condensed consolidated interim financial statements
Unaudited
At and for the three and six-month periods ended June 30, 2020
All amounts in thousands of US dollars, unless otherwise stated
On June 15, 2020, the Company concluded the Bond Offering in the amount of USD 500,000, with a maturity date in January 2028 at an interest rate of 6.50% per year. The interest on the notes will be paid semi-annually commencing on January 18, 2021. The bonds are guaranteed by Nexa Brazil, Nexa Peru and Nexa Cajamarquilla. The funds of this new offering were used to prepay three outstanding debts, as follows:
a. | Export Facility Agreement in the aggregate principal amount of USD 100,000 and USD 246 of accrued interest, on June 19, 2020; |
b. | Revolving Credit Facility in the aggregate principal amount of USD 300,000 and USD 1,348 of accrued interest, on June 23, 2020; and |
c. | Export Credit Note in Brazil in the aggregate principal amount of USD 91,308, USD 4,521 of accrued interest and USD 596 of penalty charge, on June 29, 2020. |
(c) | Changes in the six-month period ended |
June 30, 2020 | June 30, 2019 | |||||||
Balance at the beginning of the period | 1,508,557 | 1,424,867 | ||||||
New loans and financings | 1,177,813 | 13,369 | ||||||
Payments of loans and financings | (707,267 | ) | (7,316 | ) | ||||
Foreign exchange effects | (60,285 | ) | 2,463 | |||||
Changes in the Company´s credit risk of the financial liability (i) | (15,784 | ) | - | |||||
Fair value of loans and financings (i) | 7,567 | - | ||||||
Reclassification | - | (3,088 | ) | |||||
Interest accrual | 56,792 | 36,550 | ||||||
Premium paid on bonds repurchase | (14,481 | ) | - | |||||
Interest paid | (37,400 | ) | (36,564 | ) | ||||
Balance at the end of the period | 1,915,512 | 1,430,281 |
(i) Related to the changes in fair value of two debt contracts for which the Company elected to apply the fair value option. The fair value option aims to eliminate accounting mismatch that would arise if amortized cost were used since such debt contracts have derivative financial instruments contracted to economically modify certain of their terms. The fair value of the relevant derivative financial instruments resulted in a gain in the total amount of USD 16,661. Therefore, the net result between the debt contracts and the relevant derivative financial instruments was a gain of USD 9,094 (excluding the effect of changes in the Company´s credit risk on its financial liabilities in the amount of USD 15,784, included in other comprehensive income). Below is a summary of these two debt contracts terms:
a. Export Credit Note agreement in the principal amount of USD 90,000, at a cost of three-month Libor + 1.54% p.a., with a five-year maturity. Simultaneously, the Company contracted a swap to exchange the interest index to CDI + 1.30% p.a., as well as the currency of debt service repayments from USD to BRL.
b. Term loan in the principal amount of BRL 477,000 thousand (approximately USD 100,000) at a cost of 8.5% p.a., with a five-year maturity. Simultaneously, the Company contracted a swap to exchange the interest rate to 2.45% p.a. as well as the currency of debt service repayments from BRL to USD.
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Nexa Resources S.A. |
Notes to the condensed consolidated interim financial statements
Unaudited
At and for the three and six-month periods ended June 30, 2020
All amounts in thousands of US dollars, unless otherwise stated
(d) | Maturity profile |
June 30, 2020 | ||||||||||||||||||||||||||||||||
2020 | 2021 | 2022 | 2023 | 2024 | 2025 | As from 2026 | Total | |||||||||||||||||||||||||
Eurobonds - USD | 6,512 | - | - | 123,787 | - | - | 1,192,679 | 1,322,978 | ||||||||||||||||||||||||
Export credit notes | 727 | 86,298 | 44,553 | - | 82,274 | 46,100 | - | 259,952 | ||||||||||||||||||||||||
Term loans | 160 | 42,613 | 40,490 | 20,467 | 434 | 92,158 | - | 196,322 | ||||||||||||||||||||||||
BNDES | 1,529 | 7,220 | 11,175 | 11,175 | 10,882 | 10,002 | 18,129 | 70,112 | ||||||||||||||||||||||||
Debentures | 5,041 | 4,899 | 4,901 | - | - | - | - | 14,841 | ||||||||||||||||||||||||
Other | 4,540 | 9,758 | 9,435 | 8,236 | 7,737 | 7,736 | 3,865 | 51,307 | ||||||||||||||||||||||||
18,509 | 150,788 | 110,554 | 163,665 | 101,327 | 155,996 | 1,214,673 | 1,915,512 |
(e) | Analysis by currency |
June 30, 2020 | December 31, 2019 | ||||||||||||||||
Current | Non-current | Total | Total | ||||||||||||||
USD | 34,747 | 1,514,627 | 1,549,374 | 1,389,462 | |||||||||||||
BRL | 102,789 | 260,519 | 363,308 | 119,095 | |||||||||||||
Other | 214 | 2,616 | 2,830 | - | |||||||||||||
137,750 | 1,777,762 | 1,915,512 | 1,508,557 |
(f) | Analysis by index |
June 30, 2020 | December 31, 2019 | |||||||||||||||
Current | Non-current | Total | Total | |||||||||||||
Fixed rate | 9,678 | 1,412,827 | 1,422,505 | 1,044,564 | ||||||||||||
LIBOR | 28,078 | 198,256 | 226,334 | 345,601 | ||||||||||||
TLP | 3,603 | 35,417 | 39,020 | 53,712 | ||||||||||||
BNDES SELIC | 556 | 18,905 | 19,461 | 25,970 | ||||||||||||
CDI | 94,474 | 100,503 | 194,977 | 20,265 | ||||||||||||
TJLP | 1,299 | 11,854 | 13,153 | 18,333 | ||||||||||||
Other | 62 | - | 62 | 112 | ||||||||||||
137,750 | 1,777,762 | 1,915,512 | 1,508,557 |
(g) | Guarantees and covenants |
The Company has loans and financings that are subject to certain financial covenants at the consolidated level, such as: (i) leverage ratio; (ii) capitalization ratio; and (iii) debt service coverage ratio. When applicable, these compliance obligations are standardized for all debt agreements. No changes to the contractual guarantees occurred in the six-month period ended June 30, 2020, and waiver agreements were concluded before the end of the aforementioned period as explained below.
The financial covenants are measured annually and semiannually, as required by the debt contracts. The Company obtained waivers in respect of its Leverage Ratio as of June 30, 2020 and as of December 31, 2020 and repaid certain of its debts with Leverage Ratio covenants. Nexa will not be required to measure its financial covenants until June 30, 2021. These waivers were negotiated in anticipation of a possible breach of the Leverage Ratio at the end of June and December 2020, and the Company paid waiver fees in the amount of USD 2,234.
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Nexa Resources S.A. |
Notes to the condensed consolidated interim financial statements
Unaudited
At and for the three and six-month periods ended June 30, 2020
All amounts in thousands of US dollars, unless otherwise stated
23 | Asset retirement and environmental obligations |
(a) | Changes in the six-month period ended |
June 30, 2020 | June 30, 2019 | |||||||||||||||
Asset retirement obligation | Environmental Obligations | Total | Total | |||||||||||||
Balance at the beginning of the period | 222,377 | 71,450 | 293,827 | 270,283 | ||||||||||||
Payments | (1,144 | ) | (3,074 | ) | (4,218 | ) | (4,138 | ) | ||||||||
Foreign exchange effect | (25,185 | ) | (18,031 | ) | (43,216 | ) | 4,800 | |||||||||
Interest accrual | 5,324 | 1,544 | 6,868 | 7,677 | ||||||||||||
Remeasurement discount rate (i) | 3,157 | (5,296 | ) | (2,139 | ) | (3,351 | ) | |||||||||
Balance at the end of the period | 204,529 | 46,593 | 251,122 | 275,271 | ||||||||||||
Current liabilities | 11,746 | 15,178 | 26,924 | 22,392 | ||||||||||||
Non-current liabilities | 192,783 | 31,415 | 224,198 | 252,879 |
(i) As of June 30, 2020, the credit risk-adjusted rate used for Peru was between 2.5% to 4.8% (December 31, 2019: 5.2% to 7.8%) and for Brazil was between 3.5% to 9.3% (December 31, 2019: 3.5% to 5.3%). As of June 30, 2019, the credit risk-adjusted rate used for Peru was between 3.5% to 6.0 % (December 31, 2018: 3.4% to 9.5%) and Brazil was between 2.2% to 6.1% (December 31, 2018: 3% to 5.4%).
24 | Provisions |
(a) | Changes in the six-month period ended |
June 30, 2020 | June 30, 2019 | |||||||||||||||||||||||
Tax | Labor (i) | Civil | Environmental (ii) | Total | Total | |||||||||||||||||||
Balance at the beginning of the period | 7,748 | 13,779 | 1,061 | 3,483 | 26,071 | 30,641 | ||||||||||||||||||
Additions | 377 | 9,190 | 4 | 4,208 | 13,779 | 6,281 | ||||||||||||||||||
Reversals | (23 | ) | (3,459 | ) | - | (1,311 | ) | (4,793 | ) | (6,161 | ) | |||||||||||||
Interest accrual | 141 | 628 | 22 | 8 | 799 | 1,602 | ||||||||||||||||||
Payments | (8 | ) | (985 | ) | - | - | (993 | ) | (2,294 | ) | ||||||||||||||
Foreign exchange effects | (1,530 | ) | (3,592 | ) | (278 | ) | (606 | ) | (6,006 | ) | 344 | |||||||||||||
Adoption of IFRIC 23 | - | - | - | - | - | (6,047 | ) | |||||||||||||||||
Other | 45 | (1,637 | ) | (47 | ) | - | (1,639 | ) | (436 | ) | ||||||||||||||
Balance at the end of the period | 6,750 | 13,924 | 762 | 5,782 | 27,218 | 23,930 |
(i) The increase is related to unfavorable rulings in certain labor lawsuits for which the Company has updated its provision estimate.
(ii) The increase in environmental provisions, as of June 30, 2020, is mainly related to the assessment issued by the Peruvian environmental agency that proposed corrective measures on the Company’s mine operations in Peru, as well as further inquiries by said agency.
(b) | Breakdown of legal claims provisions |
The provisions and the corresponding judicial deposits are as follows:
June 30, 2020 | December 31, 2019 | ||||||||||||||||||||||||
Judicial deposits | Provisions | Carrying amount | Judicial deposits | Provisions | Carrying amount | ||||||||||||||||||||
Tax | (1,507 | ) | 8,257 | 6,750 | (2,449 | ) | 10,197 | 7,748 | |||||||||||||||||
Labor | (2,337 | ) | 16,261 | 13,924 | (3,071 | ) | 16,850 | 13,779 | |||||||||||||||||
Civil | (651 | ) | 1,413 | 762 | (832 | ) | 1,893 | 1,061 | |||||||||||||||||
Environmental | - | 5,782 | 5,782 | - | 3,483 | 3,483 | |||||||||||||||||||
(4,495 | ) | 31,713 | 27,218 | (6,352 | ) | 32,423 | 26,071 |
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Nexa Resources S.A. |
Notes to the condensed consolidated interim financial statements
Unaudited
At and for the three and six-month periods ended June 30, 2020
All amounts in thousands of US dollars, unless otherwise stated
The outstanding judicial deposits of the Company as of six-month period ended June 30, 2020 are USD 5,347 (December 31, 2019: USD 7,281).
(c) | Summary of contingent liabilities |
The Company is part of other litigations involving a risk of possible loss, for which no provision is recognized, as detailed below:
June 30, 2020 | December 31, 2019 | |||||||
Tax | 182,896 | 196,031 | ||||||
Labor | 32,745 | 39,918 | ||||||
Civil | 16,384 | 21,549 | ||||||
Environmental (i) | 80,737 | 112,920 | ||||||
312,762 | 370,418 |
(i) The decrease in contingent liabilities on environmental liabilities is mainly driven by the BRL devaluation against USD during this period.
25 | Impairment of non-current assets |
On March 31, 2020, the Company recognized a total pre-tax impairment loss of USD 446,687 (after-tax USD 368,490) comprised of an impairment loss of USD 179,345 in its Cerro Pasco cash generating unit (CGU) and an impairment loss of USD 267,342 in goodwill in Mining Peru (Mining Peru is the lowest level within the Company at which the goodwill generated in the acquisition of Nexa Peru is monitored by the Company’s management). On March 31, 2020, in addition, an impairment loss of USD 37,907 was recognized on the Jarosite project described in note 19. For more information, please see note 25 of Nexa’s condensed consolidated interim financial Statements as of March 31, 2020.
For the period ended on June 30, 2020 the Company assessed whether there have been any new impairment indicators that would require an additional impairment assessment of its non-current assets and concluded that there have been no changes in the circumstances, in comparison to those defined in March, that would indicate an additional impairment loss.
26 | Events after the reporting period |
(a) | BNDES new Loan agreement |
The Company, through one of its subsidiaries, entered into a new loan agreement of up to R$750 million, or approximately up to US$140 million, with the Brazilian Economic and Social Bank (“BNDES”). The proceeds will be used to finance the Aripuanã project.
The new loan agreement matures in 2040, its average annual interest rate is TLP plus 3.39% and has guarantees from Nexa Brazil and Nexa. Over the course of the year, Nexa expects to disburse an amount proportional to the completion curve of the project, depending on the satisfaction of all precedent conditions, with the remaining amount in 2021.
(b) | Unwinding of derivative financial instruments |
On July 02, 2020, the Company unwound two derivative financial instruments to mitigate the exposure to the foreign currency risk associated with changes in the Brazilian real exchange rate:
- Collars, which were contracted in November 2018; and
- A cross-currency swap, which was contracted jointly with a NCE in November 2019.
As a result of this transaction, Nexa expended USD 12,526 and realized a profit of USD 16,217, respectively, resulting in net proceeds of USD 3,691 to the Company.
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