Nexa Resources S.A.
Condensed consolidated interim financial statements
at and for the three and nine-month periods ended September 30, 2019
Nexa Resources S.A.
Condensed consolidated interim income statement
Periods ended September 30
All amounts in thousands of US dollars, unless otherwise stated
_______________________________________________________________________________
Three-month period ended | Nine-month period ended | |||||||||||||||||||
Note | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||
Net revenues | 5 | 563,422 | 595,083 | 1,746,537 | 1,907,788 | |||||||||||||||
Cost of sales | 6 | (503,458) | (488,055) | (1,469,525) | (1,447,331) | |||||||||||||||
Gross profit | 59,964 | 107,028 | 277,012 | 460,457 | ||||||||||||||||
Operating expenses | ||||||||||||||||||||
Selling, general and administrative | 6 | (57,206) | (36,613) | (140,353) | (123,773) | |||||||||||||||
Mineral exploration and project | 7 | (31,990) | (33,145) | (80,374) | (79,938) | |||||||||||||||
development | ||||||||||||||||||||
Impairment loss | 22 | (142,133) | - | (142,133) | - | |||||||||||||||
Other income and expenses, net | 8 | (6,507) | 15,954 | (20,120) | 12,397 | |||||||||||||||
(237,836) | (53,804) | (382,980) | (191,314) | |||||||||||||||||
Operating income (loss) | (177,872) | 53,224 | (105,968) | 269,143 | ||||||||||||||||
Net financial results | 9 | |||||||||||||||||||
Financial income | 6,600 | 7,202 | 24,394 | 26,523 | ||||||||||||||||
Financial expenses | (30,806) | (29,408) | (95,553) | (90,850) | ||||||||||||||||
Foreign exchange loss, net | (32,911) | (22,130) | (27,186) | (161,393) | ||||||||||||||||
(57,117) | (44,336) | (98,345) | (225,720) | |||||||||||||||||
Income (loss) before income tax | (234,989) | 8,888 | (204,313) | 43,423 | ||||||||||||||||
Income tax | 10 | |||||||||||||||||||
Current | (9,862) | (4,555) | (36,492) | (56,678) | ||||||||||||||||
Deferred | 73,585 | 2,582 | 84,538 | 47,598 | ||||||||||||||||
Net income (loss) for the period | (171,266) | 6,915 | (156,267) | 34,343 | ||||||||||||||||
Attributable to NEXA's shareholders | (150,237) | 7,359 | (143,851) | 22,007 | ||||||||||||||||
Attributable to non-controlling interests | (21,029) | (444) | (12,416) | 12,336 | ||||||||||||||||
Net income (loss) for the period | (171,266) | 6,915 | (156,267) | 34,343 | ||||||||||||||||
Weighted average number of | 132,439 | 133,320 | 132,684 | 133,320 | ||||||||||||||||
outstanding shares - in thousand | ||||||||||||||||||||
Basic and diluted earnings (loss) per | (1.13) | 0.06 | (1.08) | 0.17 | ||||||||||||||||
share - USD | ||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated interim financial statements
2 of 29
Nexa Resources S.A.
Condensed consolidated interim statement of comprehensive income Periods ended September 30
All amounts in thousands of US dollars, unless otherwise stated
_______________________________________________________________________________
Three-month period ended | Nine-month period ended | ||||
2019 | 2018 | 2019 | 2018 | ||
Net income (loss) for the period | (171,266) | 6,915 | (156,267) | 34,343 | |
Other comprehensive income (loss), net of taxes, | |||||
items that can be reclassified to the income statement | |||||
Cash flow hedge accounting | (2,350) | 1,428 | 1,085 | 1,058 | |
Translation adjustment of foreign subsidiaries | (53,678) | 11,752 | (51,138) | (21,274) | |
(56,028) | 13,180 | (50,053) | (20,216) | ||
Total comprehensive income (loss) for the period | (227,294) | 20,095 | (206,320) | 14,127 | |
Attributable to NEXA's shareholders | (201,773) | 20,276 | (194,062) | 13,063 | |
Attributable to non-controlling interests | (25,521) | (181) | (12,258) | 1,064 | |
Total comprehensive income (loss) for the period | (227,294) | 20,095 | (206,320) | 14,127 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements
3 of 29
Nexa Resources S.A.
Condensed consolidated interim balance sheet
All amounts in thousands of US dollars, unless otherwise stated
_______________________________________________________________________________
Assets | Note | September 30, 2019 | December 31, 2018 |
Current assets | |||
Cash and cash equivalents | 11 | 786,730 | 1,032,938 |
Financial investments | 70,507 | 91,878 | |
Derivative financial instruments | 12 | 8,039 | 7,385 |
Trade accounts receivable | 154,675 | 173,204 | |
Inventory | 13 | 293,021 | 269,705 |
Other assets | 14 | 176,729 | 122,857 |
1,489,701 | 1,697,967 | ||
Non-current assets | |||
Financial investments | 337 | 355 | |
Derivative financial instruments | 12 | 1,052 | 3,820 |
Deferred income taxes | 10 | 251,246 | 201,154 |
Other assets | 14 | 131,761 | 121,198 |
Property, plant and equipment | 15 | 1,950,945 | 1,968,451 |
Intangible assets | 16 | 1,557,743 | 1,742,461 |
Right-of-use assets | 17 | 32,268 | - |
3,925,352 | 4,037,439 | ||
Total assets | 5,415,053 | 5,735,406 | |
Liabilities and shareholders' equity | |||
Current liabilities | |||
Loans and financing | 18 | 39,428 | 32,513 |
Lease liabilities | 17 | 17,119 | - |
Derivative financial instruments | 12 | 14,517 | 8,662 |
Trade payables | 346,224 | 387,225 | |
Confirming payable | 78,849 | 70,411 | |
Dividends payable | 3,321 | 663 | |
Asset retirement and environmental obligations | 19 | 19,114 | 20,357 |
Contractual liabilities | 25,885 | 31,992 | |
Other liabilities | 125,944 | 100,027 | |
670,401 | 651,850 | ||
Non-current liabilities | |||
Loans and financing | 18 | 1,380,180 | 1,392,354 |
Lease liabilities | 17 | 19,960 | - |
Derivative financial instruments | 12 | 1,765 | 5,560 |
Asset retirement and environmental obligations | 19 | 233,609 | 249,925 |
Provisions | 20 | 26,314 | 30,641 |
Deferred income taxes | 10 | 286,425 | 298,598 |
Contractual liabilities | 161,058 | 167,645 | |
Other liabilities | 31,503 | 37,032 | |
2,140,814 | 2,181,755 | ||
Total liabilities | 2,811,215 | 2,833,605 | |
Shareholders' equity | |||
Attributable to NEXA's shareholders | 2,198,388 | 2,476,593 | |
Attributable to non-controlling interests | 405,450 | 425,208 | |
2,603,838 | 2,901,801 | ||
Total liabilities and shareholders' equity | 5,415,053 | 5,735,406 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements
4 of 29
Nexa Resources S.A.
Condensed consolidated interim statement of cash flows
Periods ended September 30
All amounts in thousands of US dollars
_______________________________________________________________________________
Three-month period ended | Nine-month period ended | ||||||||||||||||||||
Note | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||
Cash flows from operating activities | |||||||||||||||||||||
Income (loss) before income tax | (234,989) | 8,888 | (204,313) | 43,423 | |||||||||||||||||
Impairment loss | 142,133 | 142,133 | |||||||||||||||||||
Depreciation and amortization | 15, 16 | 93,498 | 66,596 | 247,922 | 205,195 | ||||||||||||||||
and 17 | |||||||||||||||||||||
Interest and foreign exchange effect | 35,610 | 68,823 | 77,247 | 167,024 | |||||||||||||||||
Loss (gain) on sale of property, plant and | 8 | (1,590) | 182 | (608) | 8,909 | ||||||||||||||||
equipment and intangible assets | |||||||||||||||||||||
Gain on sale of investment | - | - | - | (348) | |||||||||||||||||
Changes in provisions | (1,203) | 987 | 11,377 | (9,347) | |||||||||||||||||
Changes in operating assets and liabilities | 11 (b) | 87,644 | 2,921 | (86,271) | (53,303) | ||||||||||||||||
Interest paid on loans and financing | 18 | (10,465) | (9,536) | (47,029) | (47,123) | ||||||||||||||||
Interest paid on lease liabilities | 17 | (328) | - | (687) | - | ||||||||||||||||
Income taxes paid | (5,238) | (18,217) | (39,563) | (91,326) | |||||||||||||||||
Net cash provided by operating activities | 105,072 | 120,644 | 100,208 | 223,104 | |||||||||||||||||
Cash flows from investing activities | |||||||||||||||||||||
Acquisitions of property, plant and equipment | 15 | (104,349) | (71,240) | (263,958) | (162,702) | ||||||||||||||||
Net (purchases) sales of financial investments | 42,015 | 17,173 | 35,975 | 109,950 | |||||||||||||||||
Proceeds from the sale of property, plant and | 4,326 | 231 | 5,135 | 1,268 | |||||||||||||||||
equipment | |||||||||||||||||||||
Net cash (used in) investing activities | (58,008) | (53,836) | (222,848) | (51,484) | |||||||||||||||||
Cash flows from financing activities | |||||||||||||||||||||
New loans and financing | 18 (c) | - | 9,145 | 13,369 | 275,452 | ||||||||||||||||
Payments of loans and financing | 18 (c) | (7,703) | (16,669) | (15,019) | (287,843) | ||||||||||||||||
Payments of lease liabilities | 17 (b) | (3,516) | - | (11,849) | - | ||||||||||||||||
Dividends paid | (2,460) | - | (104,876) | - | |||||||||||||||||
Reimbursement of share premium | - | - | - | (80,000) | |||||||||||||||||
Repurchase of the Company's own shares | - | - | (8,103) | - | |||||||||||||||||
Net cash (used in) financing activities | (13,679) | (7,524) | (126,478) | (92,391) | |||||||||||||||||
Foreign exchange effect on cash and | 2,332 | 5,672 | 2,910 | (175) | |||||||||||||||||
cash equivalents | |||||||||||||||||||||
Increase (decrease) in cash and cash | 35,717 | 64,956 | (246,208) | 79,054 | |||||||||||||||||
equivalents | |||||||||||||||||||||
Cash and cash equivalents at the beginning of | 751,013 | 1,033,135 | 1,032,938 | 1,019,037 | |||||||||||||||||
the period | |||||||||||||||||||||
Cash and cash equivalents at the end of the | 786,730 | 1,098,091 | 786,730 | 1,098,091 | |||||||||||||||||
period | |||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated interim financial statements
5 of 29
Nexa Resources S.A.
Condensed consolidated interim statement of changes in shareholders' equity
At and for nine-month period ended September 30, 2019
All amounts in thousands of US dollars, unless otherwise stated
__________________________________________________________________________________________________________________________
Retained | Accumulated | |||||||||||||||||||||||||
Additional | earnings | other | Non- | Total | ||||||||||||||||||||||
Treasury | Share | paid in | (cumulative | comprehensive | controlling | shareholders' | ||||||||||||||||||||
Note | Capital | shares | premium | capital | deficit) | loss | Total | interests | equity | |||||||||||||||||
At January 1, 2018 | 133,320 | - | 1,123,755 | 1,318,728 | (13,430) | (77,356) | 2,485,017 | 422,068 | 2,907,085 | |||||||||||||||||
Net income for the period | - | - | - | - | 22,007 | - | 22,007 | 12,336 | 34,343 | |||||||||||||||||
Other comprehensive loss for the period | - | - | - | - | - | (8,944) | (8,944) | (11,272) | (20,216) | |||||||||||||||||
Total comprehensive income (loss) for the | ||||||||||||||||||||||||||
period | - | - | - | - | 22,007 | (8,944) | 13,063 | 1,064 | 14,127 | |||||||||||||||||
Decrease in non-controlling interests | - | - | - | - | - | - | - | (2,757) | (2,757) | |||||||||||||||||
Reimbursement of share premium | ||||||||||||||||||||||||||
- USD 0.60 per share | - | - | (80,000) | - | - | - | (80,000) | - | (80,000) | |||||||||||||||||
Total contributions by and distributions | ||||||||||||||||||||||||||
to shareholders | - | - | (80,000) | - | - | - | (80,000) | (2,757) | (82,757) | |||||||||||||||||
At September 30, 2018 | 133,320 | - | 1,043,755 | 1,318,728 | 8,577 | (86,300) | 2,418,080 | 420,375 | 2,838,455 | |||||||||||||||||
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 | 4 (a) | - | - | - | - | 71 | - | 71 | - | 71 | ||||||||||||||||
Impact of the adoption of IFRIC 23 | 4 (b) | - | - | - | - | (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 loss for the period | - | - | - | - | (143,851) | - | (143,851) | (12,416) | (156,267) | |||||||||||||||||
Other comprehensive loss for the period | - | - | - | - | - | (50,211) | (50,211) | 158 | (50,053) | |||||||||||||||||
Total comprehensive loss for the period | - | - | - | - | (143,851) | (50,211) | (194,062) | (12,258) | (206,320) | |||||||||||||||||
Capital increase from non-controlling interest | 1 (a) | - | - | - | - | - | - | - | 27,946 | 27,946 | ||||||||||||||||
Repurchase of the Company's own shares | 1 (c) | - | (8,103) | - | - | - | - | (8,103) | - | (8,103) | ||||||||||||||||
Dividends distribution to NEXA's | 1 (d) | |||||||||||||||||||||||||
shareholders - USD 0.53 per share | - | - | - | - | (69,832) | - | (69,832) | - | (69,832) | |||||||||||||||||
Dividends distribution to non-controlling | 1 (d) | |||||||||||||||||||||||||
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) | (7,500) | (87,691) | |||||||||||||||||
At September 30, 2019 | 133,320 | (9,455) | 1,043,755 | 1,316,472 | (156,205) | (129,499) | 2,198,388 | 405,450 | 2,603,838 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements
6 of 29
Nexa Resources S.A.
Condensed consolidated interim statement of changes in shareholders' equity
At and for three-month period ended September 30, 2019
All amounts in thousands of US dollars, unless otherwise stated
__________________________________________________________________________________________________________________________
Retained | Accumulated | |||||||||||||||||||||||
Additional | earnings | other | Non- | Total | ||||||||||||||||||||
Treasury | Share | paid in | (cumulative | comprehensive | controlling | shareholders' | ||||||||||||||||||
Capital | shares | premium | capital | deficit) | loss | Total | interests | equity | ||||||||||||||||
At June 30, 2018 | 133,320 | - | 1,043,755 | 1,318,728 | 1,217 | (99,216) | 2,397,804 | 420,556 | 2,818,360 | |||||||||||||||
Net income (loss) for the period | - | - | - | - | 7,359 | - | 7,359 | (444) | 6,915 | |||||||||||||||
Other comprehensive income for | - | - | - | - | - | 12,917 | 12,917 | 263 | 13,180 | |||||||||||||||
the period | ||||||||||||||||||||||||
Total comprehensive income | - | - | - | - | 7,359 | 12,917 | 20,276 | (181) | 20,095 | |||||||||||||||
(loss) for the period | ||||||||||||||||||||||||
At September 30, 2018 | 133,320 | - | 1,043,755 | 1,318,728 | 8,576 | (86,299) | 2,418,080 | 420,375 | 2,838,455 | |||||||||||||||
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 | |||||||||||||||
Net loss for the period | - | - | - | - | (150,237) | - | (150,237) | (21,029) | (171,266) | |||||||||||||||
Other comprehensive loss | - | - | - | - | - | (51,536) | (51,536) | (4,492) | (56,028) | |||||||||||||||
for the period | ||||||||||||||||||||||||
Total comprehensive loss for the | - | - | - | - | (150,237) | (51,536) | (201,773) | (25,521) | (227,294) | |||||||||||||||
period | ||||||||||||||||||||||||
Capital increase from non- | - | - | - | - | - | - | - | 5,782 | 5,782 | |||||||||||||||
controlling interest | ||||||||||||||||||||||||
Total contributions by and | - | - | - | - | - | - | - | 5,782 | 5,782 | |||||||||||||||
distributions to shareholders | ||||||||||||||||||||||||
At September 30, 2019 | 133,320 | (9,455) | 1,043,755 | 1,316,472 | (156,205) | (129,499) | 2,198,388 | 405,450 | 2,603,838 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements
7 of 29
Nexa Resources S.A.
Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated
______________________________________________________________________
-
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, two polymetallic mines in Brazil and is also constructing a polymetallic mine in Brazil. The Company operations are 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 transactions for the three and nine-month periods ended September 30, 2019
-
Karmin acquisition agreement
On August 26, 2019 the Company entered into a definitive arrangement with, among others, Karmin Exploration Inc. ("Karmin"), in which the Company agreed to acquire Karmin for an aggregate acquisition price of USD 70,000. Karmin indirectly held the remaining 30.0% interest of Mineração Dardanelos Ltda.("Dardanelos"), owner of the Aripuanã project.
The acquisition price contemplates (i) the acquisition of 89,945,479 common shares, representing 100% of the issued and outstanding common shares of Karmin, for an aggregate consideration of USD 69,300 paid at closing date to the shareholders of Karmin and (ii) a USD 700 loan from the Company to Karmin for general corporate purposes.
Pursuant to the arrangement, certain assets and liabilities of Karmin unrelated to Aripuanã project, were spun-off to a new private entity, which shares were distributed to Karmin's original shareholders. The Company will not be involved in the management or operations of the new entity. After the conclusion of the spin-off, the Aripuanã project is the only significant asset of Karmin.
On October 16, 2019, the transaction was approved by Karmin's shareholders and it was closed on October 30, 2019, when the articles of arrangement were filed and the aggregate consideration was paid. The transaction will be accounted for as a transaction with non-controlling interests, as the Company controls Dardanelos. Any difference between the transaction's aggregated acquisition price and the non-controlling interest will be recognized in equity attributable to the NEXA's shareholders. - Aripuanã project developments
During the nine-month period ended September 30, 2019, Dardanelos' equity was increased by USD 93,885. The Company fully subscribed for its portion of the equity increase in the amount of USD
64,455. As of September 30, 2019, the Company had registered a receivable of USD 27,946 related to a commitment made by Mineração Rio Aripuanã Ltda. to subscribe for its portion of the equity increase of Dardanelos. As part of the Karmin acquisition agreement this receivable will be derecognized against the non-controlling interest at the transaction effective date.
8 of 29
Nexa Resources S.A.
Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated
______________________________________________________________________
Construction works continue to advance and 66% of the total project capital expenditures has been committed and 18% of physical progress was achieved at September 30, 2019.
-
Share buyback program
At September 30, 2019, the Company has repurchased its own shares in the total amount of USD 8,103, corresponding to 881,922 shares. These shares are being held in treasury and have not been cancelled. The repurchases are part of the Company's USD 30,000 shares buyback program initiated in 2018. - Dividend distribution
On February 15, 2019, the Board of Directors approved a dividend distribution to the Company's shareholders of record on March 14, 2019 in the amount of USD 0.53 cents per common share, for a total amount of USD 69,832. Dividends were paid in cash on March 28, 2019.
The Company's subsidiary, NEXA PERU, also declared dividends in the three-month period ended March 31, 2019 in the amount of USD 200,001, including USD 32,880 to non-controlling interests and USD 2,256 to holders of investments shares (acciones de inversión). These shares give the holders the right to receive dividends but are not entitled to voting rights or the residual value of NEXA PERU's equity. - Interest rate swap
On January 2019, the Company entered into a ten-year interest rate swap in the notional amount of USD 58,233 (equivalent to BRL 226,880) to change the Brazilian inflation component ("IPC-A") of financing arrangements with BNDES to 53.04% of the Brazilian interbank rate ("CDI"). In accordance with the Company's accounting policy, the fair value adjustment of this derivative financial instrument is accounted for in "Net financial results".
9 of 29
Nexa Resources S.A.
Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated
______________________________________________________________________
-
Segment results
The presentation of segment results and reconciliation to income before income tax in the condensed consolidated interim income statement is as follows:
Three-month period ended
September 30,2019
Mining | Smelting | Intersegment | Adjustments | Consolidated | |||||||||
sales | |||||||||||||
Net revenues | 248,223 | 442,161 | (124,477) | (2,485) | 563,422 | ||||||||
Cost of sales | (220,373) | (414,712) | 124,477 | 7,150 | (503,458) | ||||||||
Gross profit | 27,850 | 27,449 | - | 4,665 | 59,964 | ||||||||
Selling, general and administrative | (29,919) | (23,571) | - | (3,716) | (57,206) | ||||||||
Mineral exploration and project | (29,437) | (2,553) | - | - | (31,990) | ||||||||
development | |||||||||||||
Impairment loss | (142,133) | - | - | - | (142,133) | ||||||||
Other income and expenses, net | (3,604) | (431) | - | (2,472) | (6,507) | ||||||||
Operating income | (177,243) | 894 | - | (1,523) | (177,872) | ||||||||
Depreciation and amortization | 68,183 | 23,661 | - | 1,653 | 93,497 | ||||||||
Exceptional items (i) | 142,133 | - | - | - | 142,133 | ||||||||
Adjusted EBITDA | 33,073 | 24,555 | - | 130 | 57,758 | ||||||||
Exceptional items (i) | (142,133) | ||||||||||||
Depreciation and amortization | (93,497) | ||||||||||||
Net financial results | (57,117) | ||||||||||||
Income before income tax | (234,989) | ||||||||||||
Three-month period ended | |||||||||||||
September 30,2018 | |||||||||||||
Mining | Smelting | Intersegment | Adjustments | Consolidated | |||||||||
sales | |||||||||||||
Net revenues | 249,638 | 483,006 | (139,736) | 2,176 | 595,083 | ||||||||
Cost of sales | (179,871) | (444,156) | 139,736 | (3,765) | (488,055) | ||||||||
Gross profit | 69,767 | 38,850 | - | (1,589) | 107,028 | ||||||||
Selling, general and administrative | (11,541) | (20,363) | - | (4,709) | (36,613) | ||||||||
Mineral exploration and project | (30,420) | (2,725) | - | - | (33,145) | ||||||||
development | |||||||||||||
Other income and expenses, net | (6,258) | 17,795 | - | 4,417 | 15,954 | ||||||||
Operating income | 21,548 | 33,557 | (1,881) | 53,224 | |||||||||
Depreciation and amortization | 43,540 | 23,395 | - | (339) | 66,596 | ||||||||
Exceptional items (i) | - | - | - | - | (44) | ||||||||
Adjusted EBITDA | 65,088 | 56,952 | - | (2,176) | 119,776 | ||||||||
Exceptional items (i) | 44 | ||||||||||||
Depreciation and amortization | (66,596) | ||||||||||||
Net financial results | (44,336) | ||||||||||||
Income before income tax | 8,888 |
10 of 29
Nexa Resources S.A.
Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated
______________________________________________________________________
Nine-month period ended
September 30,2019
Mining | Smelting | Intersegment | Adjustments | Consolidated | |||||||||
sales | |||||||||||||
Net revenues | 766,567 | 1,405,974 | (424,396) | (1,608) | 1,746,537 | ||||||||
Cost of sales | (605,961) | (1,268,547) | 424,396 | (19,413) | (1,469,525) | ||||||||
Gross profit | 160,606 | 137,427 | - | (21,021) | 277,012 | ||||||||
- | |||||||||||||
Selling, general and administrative | (80,458) | (57,208) | - | (2,687) | (140,353) | ||||||||
Mineral exploration and project | (74,295) | (6,079) | - | - | (80,374) | ||||||||
development | |||||||||||||
Impairment loss | (142,133) | - | - | - | (142,133) | ||||||||
Other income and expenses, net | (18,153) | (24,805) | - | 22,838 | (20,120) | ||||||||
Operating income | (154,433) | 49,335 | - | (870) | (105,968) | ||||||||
Depreciation and amortization | 171,886 | 74,376 | - | 1,660 | 247,922 | ||||||||
Exceptional items (i) | 142,133 | - | - | - | 142,133 | ||||||||
Adjusted EBITDA | 159,586 | 123,711 | - | 790 | 284,087 | ||||||||
Exceptional items (i) | (142,133) | ||||||||||||
Depreciation and amortization | (247,922) | ||||||||||||
Net financial results | (98,345) | ||||||||||||
Income before income tax | (204,313) | ||||||||||||
Nine-month period ended | |||||||||||||
September 30,2018 | |||||||||||||
Mining | Smelting | Intersegment | Adjustments | Consolidated | |||||||||
sales | |||||||||||||
Net revenues | 878,203 | 1,560,527 | (532,361) | 1,419 | 1,907,788 | ||||||||
Cost of sales | (528,451) | (1,442,565) | 532,361 | (8,676) | (1,447,331) | ||||||||
Gross profit | 349,752 | 117,962 | - | (7,257) | 460,457 | ||||||||
Selling, general and administrative | (37,668) | (64,774) | - | (21,331) | (123,773) | ||||||||
Mineral exploration and project | (74,316) | (5,622) | - | - | (79,938) | ||||||||
development | |||||||||||||
Other income and expenses, net | (28,944) | 14,203 | - | 27,138 | 12,397 | ||||||||
Operating income | 208,824 | 61,769 | - | (1,450) | 269,143 | ||||||||
Depreciation and amortization | 133,179 | 71,776 | - | 240 | 205,195 | ||||||||
Exceptional items (i) | (392) | (392) | |||||||||||
Adjusted EBITDA | 342,003 | 133,545 | (1,602) | 473,946 | |||||||||
Exceptional items (i) | 392 | ||||||||||||
Depreciation and amortization | (205,195) | ||||||||||||
Net financial results | (225,720) | ||||||||||||
Income before income tax | 43,423 |
- Exceptional items are composed of impairment loss and miscellaneous adjustments and reconcile the segments' Adjusted EBITDA to the consolidated Adjusted EBITDA.
-
Basis of preparation of the consolidated financial statements
These condensed consolidated interim financial statements for the three and nine-month periods ended September 30, 2019 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
11 of 29
Nexa Resources S.A.
Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated
______________________________________________________________________
cash flows for the three-month period ended September 30, 2019 and 2018.
The Company is also presenting a condensed consolidated interim statement of changes in shareholders' equity for the three-month period ended September 30, 2019 and 2018 in accordance with SEC Act Release No. 33-10532, Disclosure update and simplification.
These condensed consolidated interim financial statements do not include all disclosures required by IFRS for annual audited 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, 2018 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, 2018, except for the adoption of new IFRS and interpretation disclosed in Note 4.
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 nine- month period ended September 30, 2019 are the same as those disclosed in the Company's annual audited consolidated financial statements for the year ended December 31, 2018.
These condensed consolidated interim financial statements of the Company were approved by the Board of Directors on October 31, 2019.
- Changes in accounting policies and disclosures
New and amended IFRS standards that are effective beginning on January 1, 2019
-
IFRS 16 - "Leases"
Main aspects introduced by the standard
IFRS 16 was issued in January 2016 and should be applied for periods beginning after January 1, 2019. It results in certain leases being recognized on the balance sheet by lessees, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognized.
Transition method
The Company has applied IFRS 16 from its mandatory adoption date of January 1, 2019, using the simplified transition approach and did not restate comparative amounts for the periods prior to the adoption. Right-of-use assets were measured on transition at the amount of the lease liability, adjusted by any prepaid or accrued lease expense.
12 of 29
Nexa Resources S.A.
Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated
______________________________________________________________________
Practical expedients applied at the adoption
In applying IFRS 16 for the first time, the Company has used the following practical expedients permitted by the standard:
- The accounting for low value leases and leases with a remaining term of less than 12 months as at January 1, 2019;
- The exclusion of initial direct costs from the measurement of theright-of-use asset at the date of initial application; and
- The use of a single discount rate to a portfolio of leases with reasonably similar characteristics.
Accounting policy
The Company may lease assets in its normal course of business. Lease terms are negotiated on an individual asset basis and contractual provisions contain a wide range of different terms and conditions. The lease agreements do not impose any covenants, but leased assets may not be used as security for borrowing purposes.
Lease contracts are recognized as a liability with a corresponding right-of-use asset at the date at which the leased asset is available for use by the Company. The right-of-use asset is amortized over the shorter of the asset's useful life and the lease term on a straight-line basis.
Liabilities arising from a lease contract are initially measured on a present value basis, using the incremental borrowing rate approach. The incremental borrowing rate is determined by the Company based on equivalent financial costs that would be charged by a counterparty for a transaction with the same currency and a similar amount, term and risk of the lease contract. The finance cost charged to the income statement produces a constant periodic rate of interest over the lease term. At September 30, 2019, interest rates were between 7.47% to 11.39% for Brazil and 3.98% to 5.49% for Peru.
Impacts of adoption
The Company recognized lease liabilities and right-of-use assets in the amount of USD 41,450 and USD 41,521, respectively. Prepayments made in 2018 in the amount of USD 71 were recognized in retained earnings at January 1, 2019. Net current assets were lowered in USD 18,612 due to the presentation of a portion of the liability as a current liability. The Company also reclassified the amount of USD 2,278 from Property, plant and equipment to Right-of-use assets and USD 3,088 from Loans and financing to Lease liabilities corresponding to contracts previously classified as financial leases under IAS 17.
As a result of the adoption, income before tax decreased by USD 789 and USD 2,571 for the three- month and nine-month period ended September 30, 2019, respectively. Adjusted EBITDA, which is used to measure segment results, increased by USD 3,807 and USD 12,519 for the three-month and nine-month period ended September 30, 2019, respectively, as the operating lease payments were previously included in Adjusted EBITDA as operating costs, but the amortization of the right-of-use assets and interest on the lease liabilities are now excluded from this measure.
-
IFRIC 23 - Uncertainty over income tax treatmentsNature of change
The interpretation explains how to recognize, and measure current and deferred income tax assets and liabilities where there is uncertainty over a tax treatment.
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Nexa Resources S.A.
Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated
______________________________________________________________________
Transaction method
The Company has applied the standard from its mandatory adoption date of January 1, 2019.
Accounting policy
Income tax provisions for uncertainties over income tax treatments are recognized when (i) there is a probable assessment that an income tax treatment will not be accepted by a taxation authority; and (ii) the Company has a present legal or constructive obligation over income tax as a result of past events. The likelihood of losses and the estimated amount of uncertainties are periodically reviewed by the Company's legal counsel.
Income tax provisions for uncertainties over income tax treatments are measured at the present value by reflecting the effect of the uncertainty in determining the related taxable profit (tax loss), tax bases, unused tax losses, unused tax credits or tax rates, through the most likely amount method.
Impacts of adoption
The interpretation affected primarily the accounting for the Company's uncertain income taxes treatments with a probable likelihood that a taxation authority will not accept such treatments. The impact of the adoption of IFRIC 23 at January 1, 2019 is USD 4,023. The Company also reclassified the amount of USD 6,047 from Provisions to Deferred income taxes.
5 | Net revenue | |||||
Three-month period ended | Nine-month period ended | |||||
2019 | 2018 | 2019 | 2018 | |||
Gross revenues | 615,374 | 649,918 | 1,913,485 | 2,097,536 | ||
Revenues from products | 595,514 | 631,281 | 1,857,465 | 2,044,268 | ||
Revenues from services | 19,860 | 18,637 | 56,020 | 53,268 | ||
Taxes on sales | (51,155) | (54,405) | (163,804) | (186,948) | ||
Return of products sales | (797) | (430) | (3,144) | (2,800) | ||
Net revenues | 563,422 | 595,083 | 1,746,537 | 1,907,788 |
- Expenses by nature
Three-month period ended | |||||||||||||||
2019 | 2018 | ||||||||||||||
Selling, general | Mineral exploration | ||||||||||||||
Cost of sales | and | and project | Total | Total | |||||||||||
administrative | development | ||||||||||||||
Raw materials and | 271,449 | 1,531 | - | 272,980 | 297,860 | ||||||||||
consumables used | |||||||||||||||
Third-party services | 100,665 | 29,726 | 20,555 | 150,946 | 126,960 | ||||||||||
Depreciation and | 91,251 | 2,241 | 5 | 93,498 | 66,596 | ||||||||||
amortization | |||||||||||||||
Employee benefit | 38,477 | 20,712 | 5,610 | 64,799 | 55,660 | ||||||||||
expenses | |||||||||||||||
Other expenses | 1,616 | 2,996 | 5,820 | 10,432 | 10,738 | ||||||||||
503,458 | 57,206 | 31,990 | 592,654 | 557,814 |
14 of 29
Nexa Resources S.A.
Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated
______________________________________________________________________
Nine-month period ended | |||||||||||||||
2019 | 2018 | ||||||||||||||
Selling, general | Mineral exploration | ||||||||||||||
Cost of sales | and | and project | Total | Total | |||||||||||
administrative | development | ||||||||||||||
Raw materials and | 799,612 | 5,385 | - | 804,997 | 859,333 | ||||||||||
consumables used | |||||||||||||||
Third-party services | 296,999 | 57,900 | 54,789 | 409,688 | 344,397 | ||||||||||
Depreciation and | 241,936 | 5,967 | 19 | 247,922 | 205,195 | ||||||||||
amortization | |||||||||||||||
Employee benefit | 116,122 | 52,916 | 13,191 | 182,229 | 186,975 | ||||||||||
expenses | |||||||||||||||
Other expenses | 14,856 | 18,185 | 12,375 | 45,416 | 55,143 | ||||||||||
1,469,525 | 140,353 | 80,374 | 1,690,252 | 1,651,043 |
- Mineral exploration and project development
Three-month period ended | Nine-month period ended | ||||
2019 | 2018 | 2019 | 2018 | ||
Mineral exploration | (21,851) | (22,578) | (54,584) | (59,142) | |
Project development (FEL 1 and FEL 2) | (10,139) | (10,567) | (25,790) | (20,796) | |
(31,990) | (33,145) | (80,374) | (79,938) |
8 | Other income and expense, net | |||||
Three-month period ended | Nine-month period ended | |||||
2019 | 2018 | 2019 | 2018 | |||
Remeasurement of environmental obligations (i) | (517) | 4,532 | 3,395 | 17,541 | ||
Commodities derivative financial instruments | (1,566) | 15,957 | 75 | 23,474 | ||
Gain (loss) on sale of property, plant and equipment (i) | 1,590 | (182) | 608 | (8,909) | ||
Gain on sale of investments | - | - | - | 348 | ||
Projects and contribution to communities | (2,560) | (3,912) | (3,869) | (8,906) | ||
Provision for tax, labor, civil and environmental claims | (4,498) | (978) | (8,753) | (4,861) | ||
Mining obligations | (4,704) | (3,372) | (10,660) | (9,802) | ||
Other operating income (expenses), net | 5,748 | 3,909 | (916) | 3,512 | ||
(6,507) | 15,954 | (20,120) | 12,397 |
- On May 21, 2018, the Company entered into an agreement to sell assets and transfer certain liabilities of the Fortaleza de Minas facility. The transaction resulted in the recognition of a loss of USD 9,615 on the sale of property, plant and equipment and intangible assets and a gain of USD 13,009 related to the reversal of the related asset retirement obligation.
15 of 29
Nexa Resources S.A.
Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated
______________________________________________________________________
- Net financial results
Three-month period ended | Nine-month period ended | ||||
September 30, September 30, | September 30, September 30, | ||||
2019 | 2018 | 2019 | 2018 | ||
Financial income | |||||
Gains on financial investments | 5,745 | 6,730 | 16,913 | 18,869 | |
Derivative financial instruments - Note 12 (b) | 26 | - | 5,485 | - | |
Other financial income | 829 | 472 | 1,996 | 7,654 | |
6,600 | 7,202 | 24,394 | 26,523 | ||
Financial expense | |||||
Interest on loans and financing | (12,546) | (22,088) | (49,096) | (59,203) | |
Interest on contractual liabilities | (1,578) | (1,791) | (4,966) | (5,543) | |
Interest on other liabilities | (1,944) | (1,253) | (7,731) | (3,701) | |
Derivative financial instruments - Note 12 (b) | (4,708) | - | (5,580) | (939) | |
Interest on lease liabilities | (1,269) | - | (3,143) | - | |
Other financial expenses | (8,761) | (4,276) | (25,037) | (21,464) | |
(30,806) | (29,408) | (95,553) | (90,850) | ||
Foreign exchange effects | (32,911) | (22,130) | (27,186) | (161,393) | |
Net financial results | (57,117) | (44,336) | (98,345) | (225,720) |
10 Current and deferred income taxes
- Reconciliation of income tax benefit (expense)
Three-month period ended | Nine-month period ended | ||||
2019 | 2018 | 2019 | 2018 | ||
Income before income tax | (234,989) | 8,888 | (204,313) | 43,423 | |
Standard rate (i) | 24.94% | 26.01% | 24.94% | 26.01% | |
Income tax at standard rate | 58,607 | (2,312) | 50,956 | (11,294) | |
Difference in tax rate of subsidiaries outside Luxembourg | 6,463 | (1,930) | 9,007 | 13,909 | |
Special mining levy and special mining tax | (49) | (668) | (5,074) | (11,121) | |
Withholding tax on dividends paid by subsidiaries | - | - | (9,764) | - | |
Other permanent tax differences | (1,298) | 2,937 | 2,921 | (574) | |
Income tax | 63,723 | (1,973) | 48,046 | (9,080) | |
Current | (9,862) | (4,555) | (36,492) | (56,678) | |
Deferred | 73,585 | 2,582 | 84,538 | 47,598 | |
Income tax | 63,723 | (1,973) | 48,046 | (9,080) |
- On April 25, 2019 the Luxembourg Parliament approved the 2019 Budget Law, including a reduction of the corporate income tax rate from 26.01% to 24.94%, effective for year 2019. As NEXA's tax credits on net operating losses resulting from its standalone activities do not meet the recognition criteria, no deferred tax assets are recognized. As a result, the change has no impact to the condensed consolidated interim income statement.
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Nexa Resources S.A.
Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated
______________________________________________________________________
- Analysis of deferred income tax assets and liabilities
September 30, | December 31, | |||
2019 | 2018 | |||
Tax credits on net operating losses | 135,085 | 106,817 | ||
Uncertain income tax treatments | (10,974) | - | ||
Tax credits on temporary differences | ||||
Foreign exchange losses | 26,628 | 50,766 | ||
Environmental liabilities | 24,564 | 28,808 | ||
Asset retirement obligation | 22,914 | 19,879 | ||
Tax, civil and labor provisions | 7,936 | 9,389 | ||
Other provisions | 1,734 | 6,443 | ||
Provision for obsolete and slow-moving inventory | 5,183 | 5,308 | ||
Provision for employee benefits | 5,604 | 5,409 | ||
Other | 19,588 | 12,094 | ||
Tax debits on temporary differences | ||||
Capitalized interest | (20,230) | (11,725) | ||
Depreciation, amortization and asset impairment | (251,237) | (328,834) | ||
Other | (1,974) | (1,798) | ||
(35,179) | (97,444) | |||
Deferred income tax assets | 251,246 | 201,154 | ||
Deferred income tax liabilities | (286,425) | (298,598) | ||
(35,179) | (97,444) | |||
11 Cash and cash equivalents
- Composition
September 30, 2019 | December 31, 2018 | |
Bank accounts | 380,200 | 320,069 |
Term deposits | 406,530 | 712,869 |
786,730 | 1,032,938 |
The decrease in cash and cash equivalents balance is mainly related to dividends payments in the amount of USD 104,876, dividends paid to non-controlling interests of NEXA PERU and Pollarix, and increase in acquisitions of property, plant and equipment.
- Changes in operating assets and liabilities
Three-month period ended | Nine-month period ended | ||||
2019 | 2018 | 2019 | 2018 | ||
Decrease (increase) in assets | |||||
Trade accounts receivable | 12,285 | 56,672 | 16,835 | 28,143 | |
Inventory | 11,305 | 28,760 | (41,450) | 35,869 | |
Other assets | 36,153 | (36,522) | (50,105) | (45,146) | |
Increase (decrease) in liabilities | |||||
Trade payables | 7,782 | (13,843) | (34,484) | (16,046) | |
Confirming payables | 12,899 | (26,568) | 8,357 | (21,967) | |
Contractual liabilities | (5,002) | (6,975) | (17,660) | (22,041) | |
Other liabilities | 12,222 | 1,397 | 32,236 | (12,115) | |
. | 87,644 | 2,921 | (86,271) | (53,303) |
17 of 29
Nexa Resources S.A.
Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated
______________________________________________________________________
12 Derivative financial instruments
(a) Fair value by strategy
September 30, 2019 | December 31, 2018 | |||||||||
Strategy | Per Unit | Notional | Fair value | Notional | Fair value | |||||
Mismatches of quotational periods | ||||||||||
Zinc forward | ton | 246,462 | (4,826) | 261,020 | (557) | |||||
(4,826) | (557) | |||||||||
Sales of zinc at a fixed price | ||||||||||
Zinc forward | ton | 15,763 | (451) | 10,566 | (858) | |||||
(451) | (858) | |||||||||
Inflation risk | ||||||||||
Brazilian inflation vs. Brazilian interbank | BRL | 226,880 | 811 | - | - | |||||
interest rate swap | ||||||||||
811 | - | |||||||||
Foreign exchange risk | ||||||||||
Foreign exchange collars (USD) | BRL | 763,268 | (2,725) | 1,056,922 | (1,602) | |||||
(2,725) | (1,602) | |||||||||
(7,191) | (3,017) | |||||||||
Current assets | 8,039 | 7,385 | ||||||||
Non-current assets | 1,052 | 3,820 | ||||||||
Current liabilities | (14,517) | (8,662) | ||||||||
Non-current liabilities | (1,765) | (5,560) |
- Changes in fair value in thenine-month period ended September 30, 2019
Cost of | Net | Other income | Net | Other | Realized | |||||||||||||
Strategy | Inventory | sales | revenues | and expenses, | financial comprehensive | gain | ||||||||||||
net | results | income | (loss) | |||||||||||||||
Mismatches of | (1,681) | (10,825) | 5,018 | (551) | - | 1,644 | (2,127) | |||||||||||
quotational periods | ||||||||||||||||||
Sales of zinc at a fixed | - | - | - | 626 | - | - | 219 | |||||||||||
price | ||||||||||||||||||
Inflation risk | - | - | - | - | 1,028 | - | 217 | |||||||||||
Foreign exchange risk | - | - | - | - | (1,123) | - | - | |||||||||||
(1,681) | (10,825) | 5,018 | 75 | (95) | 1,644 | (1,691) |
13 | Inventory | ||
(a) | Composition | ||
September 30, | December 31, | ||
2019 | 2018 | ||
Finished products (i) | 110,811 | 106,245 | |
Semi-finished products | 73,928 | 52,534 | |
Raw materials | 67,037 | 64,582 | |
Auxiliary materials and consumables | 73,774 | 69,781 | |
Inventory provisions (ii) | (32,529) | (23,437) | |
293,021 | 269,705 |
- In thethree-month period ended September 30, 2019, Cajamarquilla inventory levels were normalized, due to the expected delays in the implementation of Jarosite conversion process.
- Comprises obsolete,slow-moving inventory and lower of cost or market value provisions.
18 of 29
Nexa Resources S.A.
Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated
______________________________________________________________________
- Changes to the provision in thenine-month period ended September 30
2019 | 2018 | |
Total | Total | |
At December 31 | (23,437) | (20,736) |
Additions | (15,043) | (14,608) |
Reversals | 5,659 | 11,291 |
Foreign exchange effect | 293 | 872 |
At September 30 | (32,529) | (23,181) |
14 Other assets
September 30, 2019 | December 31, 2018 | |
Recoverable taxes (i) | 205,601 | 183,628 |
Advances to third parties (ii) | 20,721 | 2,472 |
Dardanelos' equity increase commitment (iii) | 27,946 | - |
Prepaid expenses | 11,702 | 8,556 |
Judicial deposits | 7,306 | 9,230 |
Other assets | 35,213 | 39,429 |
308,489 | 243,315 | |
Current assets | 176,729 | 122,857 |
Non-current assets | 131,761 | 121,198 |
- The increase in recoverable taxes is due to an increase in value added tax credits in the amount of USD 12,670, compensation of recoverable tax of USD 15,205 from NEXA CJM and prepayment of income taxes in the amount of USD 19,755.
- The increase in advances to third parties is related to advances in the amount of USD 9,085 to service providers in Peru and advances in the amount of USD 7,302 to athird-party ore supplier in Brazil.
- The increase is due to the unsubscribed portion of Dardanelos' equity increase (Note 1(b)).
19 of 29
Nexa Resources S.A.
Notes to the condensed consolidated interim financial statements At and for nine-month period ended September 30, 2019
All amounts in thousands of US dollars, unless otherwise stated
_____________________________________________________________________________________________________________
15 Property, plant and equipment
- Changes in thenine-month period ended September 30
2019 | ||||||||||||||||||||||||
Dam and | Machinery, | Assets and | Asset | Mining | ||||||||||||||||||||
equipment, and | projects under | retirement | Other | Total | ||||||||||||||||||||
buildings | projects | |||||||||||||||||||||||
facilities | construction | obligation | ||||||||||||||||||||||
At December 31 | ||||||||||||||||||||||||
Cost | 1,002,885 | 2,357,254 | 349,069 | 175,506 | 243,629 | 51,142 | 4,179,485 | |||||||||||||||||
Accumulated depreciation | (452,560) | (1,554,728) | - | (91,874) | (86,904) | (24,968) | (2,211,034) | |||||||||||||||||
Net balance at the beginning of the | 550,325 | 802,526 | 349,069 | 83,632 | 156,725 | 26,174 | 1,968,451 | |||||||||||||||||
period | ||||||||||||||||||||||||
Additions (i) | - | 348 | 263,599 | - | - | 11 | 263,958 | |||||||||||||||||
Disposals | (569) | (1,269) | (222) | - | - | (2,697) | (4,757) | |||||||||||||||||
Depreciation | (40,940) | (100,818) | - | (4,568) | (1,749) | (1,102) | (149,177) | |||||||||||||||||
Impairment loss - Note 22 | (15,225) | (27,458) | - | - | - | - | (42,683) | |||||||||||||||||
Foreign exchange effect | (19,931) | (24,854) | (21,236) | (4,123) | - | (1,201) | (71,345) | |||||||||||||||||
Transfers | 30,767 | 85,772 | (134,386) | - | 11,700 | 2,138 | (4,009) | |||||||||||||||||
Reclassification - Note 4(a) | - | (2,278) | - | - | - | - | (2,278) | |||||||||||||||||
Remeasurement of asset retirement | - | - | - | (7,215) | - | - | (7,215) | |||||||||||||||||
obligation | ||||||||||||||||||||||||
At September 30 | 504,427 | 731,969 | 456,824 | 67,726 | 166,676 | 23,323 | 1,950,945 | |||||||||||||||||
Cost | 1,000,377 | 2,388,635 | 456,824 | 163,014 | 255,329 | 46,000 | 4,310,179 | |||||||||||||||||
Accumulated depreciation and impairment | (495,950) | (1,656,666) | - | (95,288) | (88,653) | (22,677) | (2,359,234) | |||||||||||||||||
At September 30 | 504,427 | 731,969 | 456,824 | 67,726 | 166,676 | 23,323 | 1,950,945 | |||||||||||||||||
Average annual depreciation rates % | 4 | 7 | - | 5 | 8 | - |
2018
Total
4,170,586 |
(2,174,072) |
1,996,514
162,702
(10,145)
(140,507)
-
(166,877)
(3,488)
-
5,345
1,843,544
3,996,620
(2,153,076)
1,843,544
- Additions include capitalized borrowing costs in the amount of USD 6,306 for thenine-month period ended September 30, 2019 (September 30, 2018 - USD 6,896 ).
20 of 29
Nexa Resources S.A.
Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated
______________________________________________________________________
16 Intangible assets
- Changes in thenine-month period ended September 30
2019 | 2018 | ||||||||||||||||||
Rights to use | |||||||||||||||||||
Goodwill | natural | Other | Total | Total | |||||||||||||||
resources | |||||||||||||||||||
At December 31 | |||||||||||||||||||
Cost | 674,800 | 1,669,645 | 56,853 | 2,401,298 | 2,408,302 | ||||||||||||||
Accumulated amortization | - | (620,600) | (38,237) | (658,837) | (585,583) | ||||||||||||||
Net balance at the beginning of the | 674,800 | 1,049,045 | 18,616 | 1,742,461 | 1,822,719 | ||||||||||||||
period | |||||||||||||||||||
Disposals | - | - | (378) | (378) | - | ||||||||||||||
Amortization | - | (84,740) | (1,760) | (86,500) | (64,688) | ||||||||||||||
Impairment loss - Note 22 | - | (99,450) | - | (99,450) | - | ||||||||||||||
Transfers | - | - | 4,009 | 4,009 | 3,456 | ||||||||||||||
Foreign exchange effect | (280) | (959) | (1,160) | (2,399) | (5,549) | ||||||||||||||
At September 30 | 674,520 | 863,896 | 19,327 | 1,557,743 | 1,755,938 | ||||||||||||||
Cost | 674,520 | 1,668,407 | 56,898 | 2,399,825 | 2,398,558 | ||||||||||||||
Accumulated amortization and | - | (804,511) | (37,571) | (842,082) | (642,620) | ||||||||||||||
impairment | |||||||||||||||||||
At September 30 | 674,520 | 863,896 | 19,327 | 1,557,743 | 1,755,938 | ||||||||||||||
Average annual amortization rates % | - | 6 | - |
17 Right-of-use assets and lease liabilities
- Right-of-useassets - Changes in the nine-month period ended September 30
2019 | |||||
Machinery, | |||||
Buildings | equipment, and | IT equipment | Vehicles | Total | |
facilities | |||||
At January 1 | 4,312 | 8,536 | 5,846 | 22,827 | 41,521 |
New contracts | 2,525 | 181 | - | 811 | 3,517 |
Amortization | (1,166) | (2,053) | (3,048) | (5,978) | (12,245) |
Reclassification - Note 4 (a) | - | 2,278 | - | - | 2,278 |
Foreign exchange effect | (344) | (872) | - | (1,587) | (2,803) |
At September 30 | 5,327 | 8,070 | 2,798 | 16,073 | 32,268 |
Average annual amortization rates % | 24 | 35 | 63 | 39 |
- Lease liabilities - Changes in thenine-month period ended September 30
2019 | |
At January 1 | 41,450 |
New contracts | 3,517 |
Payments of lease liabilities | (11,849) |
Interest paid | (687) |
Interest accrued | 3,143 |
Reclassification - Note 4 (a) | 3,088 |
Foreign exchange effect | (1,583) |
September 30 | 37,079 |
Current liabilities | 17,119 |
Non-current liabilities | 19,960 |
21 of 29
Nexa Resources S.A.
Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated
______________________________________________________________________
- Maturity profile
September 30, 2019
2019 | 2020 | 2021 | 2022 | 2023 | As from | Total | ||||||
2024 | ||||||||||||
U.S. Dollar | 4,444 | 5,030 | 2,165 | 1,383 | 424 | 34 | 13,480 | |||||
Real | 2,857 | 8,628 | 6,422 | 5,033 | 608 | 51 | 23,599 | |||||
7,301 | 13,658 | 8,587 | 6,416 | 1,032 | 85 | 37,079 |
18 Loans and financings
- Composition
September | ||||
30, 2019 | ||||
Type | Average interest rate | Current | Non-current | Total |
Eurobonds - USD | Fixed 5.13% | 14,133 | 1,034,757 | 1,048,890 |
Debt with banks | LIBOR + 1.27% | 1,872 | 197,949 | 199,821 |
TJLP + 2.82% | ||||
SELIC + 3.10% | 7,168 | 85,919 | 93,087 | |
BNDES | TLP - IPCA + 5.22% | |||
Debentures | 107.50% CDI | 6,469 | 12,884 | 19,353 |
Other | 9,786 | 48,671 | 58,457 | |
39,428 | 1,380,180 | 1,419,608 | ||
Current portion of long-term loans and financing | ||||
(principal) | 20,653 | |||
Interest on loans and financing | 18,775 | |||
39,428 |
December 31, 2018
Total
1,042,571
197,292
89,925
28,188
66,891
1,424,867
- Maturity profile
September 30, 2019
2019 | 2020 | 2021 | 2022 | 2023 | As from 2024 | Total | |
Eurobonds - USD | 14,961 | - | - | - | 341,828 | 692,101 | 1,048,890 |
Debt with banks | 2,488 | - | 79,195 | 79,254 | 38,884 | - | 199,821 |
BNDES | 1,955 | 6,951 | 8,654 | 13,762 | 13,761 | 48,004 | 93,087 |
Debentures | - | 6,474 | 6,442 | 6,437 | - | - | 19,353 |
Other | 4,763 | 9,293 | 9,246 | 8,024 | 7,792 | 19,339 | 58,457 |
24,167 | 22,718 | 103,537 | 107,477 | 402,265 | 759,444 | 1,419,608 |
- Changes in thenine-month period
2019 | ||
At December 31 | 1,424,867 | |
New loans and financing | 13,369 | |
Payments of loans and financing | (15,019) | |
Foreign exchange effect | (8,894) | |
Gain on debt modification | - | |
Reclassification - Note 4(a) | (3,088) | |
Interest accrual | 55,402 | |
Interest paid | (47,029) | |
September 30 | 1,419,608 |
2018
1,447,299
275,452
(287,843)
(18,227)
(3,428)
-
53,674
(47,123)
1,419,804
22 of 29
Nexa Resources S.A.
Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated
______________________________________________________________________
- Analysis by currency
September 30, | December 31, | |||
2019 | 2018 | |||
Current | Non-current | Total | Total | |
U.S. Dollar | 24,214 | 1,279,138 | 1,303,352 | 1,301,395 |
Real | 15,214 | 101,042 | 116,256 | 123,472 |
39,428 | 1,380,180 | 1,419,608 | 1,424,867 |
- Analysis by index
September 30, | December 31, | |||
2019 | 2018 | |||
Current | Non-current | Total | Total | |
Fixed rate | 14,442 | 1,035,315 | 1,049,757 | 1,047,245 |
LIBOR | 10,081 | 244,381 | 254,462 | 255,333 |
TLP | 5,834 | 47,003 | 52,837 | 58,487 |
BNDES SELIC | 828 | 24,198 | 25,026 | 19,447 |
CDI | 6,469 | 12,884 | 19,353 | 28,188 |
TJLP | 1,774 | 16,399 | 18,173 | 16,167 |
39,428 | 1,380,180 | 1,419,608 | 1,424,867 |
- Guarantees and covenants
No changes to the contractual guarantees or to the financial covenants occurred in the nine-month period ended September 30, 2019. At September 30, 2019, the Company was in compliance with all applicable covenants.
19 Asset retirement and environmental obligations
- Changes in thenine-month period ended
2019 | 2018 | ||||||||
Asset retirement | Environmental | Total | Total | ||||||
obligation | Obligations | ||||||||
At December 31 | 185,553 | 84,730 | 270,283 | 283,280 | |||||
Payments | (1,398) | (7,660) | (9,058) | (4,001) | |||||
Foreign exchange effect | (4,494) | (5,374) | (9,868) | (32,115) | |||||
Interest accrual | 7,160 | 3,947 | 11,107 | 11,451 | |||||
Remeasurement | (6,346) | (3,395) | (9,741) | 698 | |||||
Reversals | - | - | - | (13,009) | |||||
At September 30 | 180,475 | 72,248 | 252,723 | 246,304 | |||||
Current liabilities | - | 19,114 | 19,114 | 18,094 | |||||
Non-current liabilities | 180,475 | 53,134 | 233,609 | 228,210 |
23 of 29
Nexa Resources S.A.
Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated
______________________________________________________________________
20 Provisions
- Changes in thenine-month period ended
2019 | 2018 | ||||||||||||||
Tax | Labor | Civil | Environmental | Total | Total | ||||||||||
At December 31 | 12,068 | 12,188 | 1,371 | 5,014 | 30,641 | 57,882 | |||||||||
Additions | 4,172 | 3,563 | 277 | 1,221 | 9,233 | 17,483 | |||||||||
Reversals | (2,583) | (2,596) | (269) | (1,782) | (7,230) | (14,737) | |||||||||
Interest accrual | 1,113 | 1,154 | 73 | 82 | 2,422 | 1,804 | |||||||||
Payments | (500) | (1,899) | (240) | (270) | (2,909) | (23,637) | |||||||||
Foreign exchange effect | (178) | (699) | (86) | (124) | (1,087) | (4,881) | |||||||||
Adoption of IFRIC 23 - | (6,047) | - | - | - | (6,047) | - | |||||||||
Note 4 (b) | |||||||||||||||
Other | 115 | 1,265 | (89) | - | 1,291 | - | |||||||||
At September 30 | 8,160 | 12,976 | 1,037 | 4,141 | 26,314 | 33,914 |
- Breakdown of tax, civil, labor and environmental provisionsThe provisions and the corresponding judicial deposits are as follow:
September 30, 2019
December 31, 2018
Judicial | Carrying | Outstanding |
Carrying
Outstanding
depositsProvisions | amount | judicial |
amount
judicial
deposits | ||||
Tax | (1,795) | 9,956 | 8,160 | 2,040 |
Labor | (2,747) | 15,723 | 12,976 | 4,735 |
Civil | (778) | 1,815 | 1,037 | 27 |
Environmental | - | 4,141 | 4,141 | 504 |
(5,320) | 31,635 | 26,314 | 7,306 |
deposits
12,068 2,245
12,188 6,555
1,371 17
5,014 413
30,641 9,230
- Summary of contingent liabilities
The Company is part of other litigation involving a risk of possible loss, for which no provision is recognized, as detailed below:
September 30, | December 31, 2018 | |
Tax | 131,178 | 137,110 |
Labor | 38,814 | 39,079 |
Civil | 20,587 | 20,130 |
Environmental | 112,632 | 119,747 |
303,211 | 316,066 |
21 Financial instrument
-
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 instruments 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, 2018.
24 of 29
Nexa Resources S.A.
Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated
______________________________________________________________________
September 30,2019
Fair value | Fair value through | |||||||
Amortized | other | |||||||
Assets per balance sheet | through profit or | Total | ||||||
cost | comprehensive | |||||||
loss | ||||||||
income | ||||||||
Cash and cash equivalents | - | 786,730 | - | 786,730 | ||||
Financial investments | - | 70,844 | - | 70,844 | ||||
Derivative financial instruments | - | 4,925 | 4,166 | 9,091 | ||||
Trade accounts receivable | 97,107 | 57,568 | 154,675 | |||||
Related parties (i) | 744 | - | - | 744 | ||||
97,851 | 920,067 | 4,166 | 1,022,084 | |||||
September 30,2019 | ||||||||
Fair value | Fair value through | |||||||
Amortized | other | |||||||
Liabilities per balance sheet | through profit or | Total | ||||||
cost | comprehensive | |||||||
loss | ||||||||
income | ||||||||
Loans and financing | 1,419,608 | - | - | 1,419,608 | ||||
Lease liabilities | 37,079 | - | - | 37,079 | ||||
Derivative financial instruments | - | 6,298 | 9,984 | 16,282 | ||||
Trade payables | 346,224 | - | - | 346,224 | ||||
Confirming payables | 78,849 | - | - | 78,849 | ||||
Use of public assets (ii) | 21,771 | - | - | 21,771 | ||||
Related parties (ii) | 599 | - | - | 599 | ||||
1,904,130 | 6,298 | 9,984 | 1,920,412 | |||||
December 31,2018 | ||||||||
Fair value | Fair value through | |||||||
Amortized | other | |||||||
Assets per balance sheet | through profit or | Total | ||||||
cost | comprehensive | |||||||
loss | ||||||||
income | ||||||||
Cash and cash equivalents | - | 1,032,938 | - | 1,032,938 | ||||
Financial investments | - | 92,233 | - | 92,233 | ||||
Derivative financial instruments | - | 6,885 | 4,320 | 11,205 | ||||
Trade accounts receivable | 22,146 | 151,058 | - | 173,204 | ||||
Related parties (i) | 740 | - | - | 740 | ||||
22,886 | 1,283,114 | 4,320 | 1,310,320 | |||||
December 31,2018 | ||||||||
Fair value | Fair value through | |||||||
Amortized | other | |||||||
Liabilities per balance sheet | through profit or | Total | ||||||
cost | comprehensive | |||||||
loss | ||||||||
income | ||||||||
Loans and financing | 1,424,867 | - | - | 1,424,867 | ||||
Derivative financial instruments | - | 10,155 | 4,068 | 14,223 | ||||
Trade payables | 387,225 | - | - | 387,225 | ||||
Confirming payables | 70,411 | - | - | 70,411 | ||||
Use of public assets (ii) | 22,126 | - | - | 22,126 | ||||
Related parties (ii) | 1,580 | - | - | 1,580 | ||||
1,906,209 | 10,155 | 4,068 | 1,920,432 |
- Classified as Other assets in the condensed consolidated interim balance sheet.
- Classified as Other liabilities in the condensed consolidated interim balance sheet.
25 of 29
Nexa Resources S.A.
Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated
______________________________________________________________________
- Fair value by hierarchy
September 30, 2019
Level 1 | Level 2 | Total | |
Assets | |||
Cash and cash equivalents | 786,730 | - | 786,730 |
Financial investments | 60,020 | 10,824 | 70,844 |
Derivative financial instruments | - | 9,091 | 9,091 |
Trade accounts receivable | - | 57,568 | 57,568 |
846,750 | 77,483 | 924,233 | |
Liabilities | |||
Derivative financial instruments | - | 16,282 | 16,282 |
Loans and financing (i) | 1,194,245 | 286,685 | 1,480,930 |
1,194,245 | 302,967 | 1,497,212 | |
December 31, 2018 | |||
Level 1 | Level 2 | Total | |
Assets | |||
Cash and cash equivalents | 1,032,938 | - | 1,032,938 |
Financial investments | 39,167 | 53,066 | 92,233 |
Derivative financial instruments | - | 11,205 | 11,205 |
Trade accounts receivables | - | 151,058 | 151,058 |
1,072,105 | 215,329 | 1,287,434 | |
Liabilities | |||
Derivative financial instruments | - | 14,223 | 14,223 |
Loans and financing (i) | 1,014,974 | 390,848 | 1,405,822 |
1,014,974 | 405,071 | 1,420,045 |
- Loans and financing are measured at amortized cost. Therefore, the amounts presented in this note do not match with the condensed consolidated interim balance sheet.
The carrying amount of other financial instruments measured at amortized cost do not differ significantly from their fair value.
-
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, 2018.
There were no reclassifications between fair value levels in the nine-month period ended September 30, 2019. None of the financial instruments were classified as Level 3 as of September 30, 2019.
22 Impairment loss
The Company performs an assessment of impairment indicators at each reporting date in accordance with notes 13 and 14 of the annual audited consolidated financial statements. For the three-month period ended September 30, 2019, the Company's assessment identified the following impairment indicators:
- The spot average zinc LME prices declined 15.1% in comparison with thethree-month period ended June 30, 2019;
- A reduction in the life of mine of some of our operations due to a decrease in mineral reserves and resources estimates;
- The carrying amount of the net assets of the Company is persistently above the Company's market value.
26 of 29
Nexa Resources S.A.
Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated
______________________________________________________________________
The Company's management concluded that the combination of these indicators could indicate a material impact in the recoverable amount of our cash-generating units ("CGUs"). Therefore, an estimation of the recoverable amount of all the Company´s CGUs was performed as at September 30, 2019.
Below is a breakdown of the CGU's carrying amount tested for impairment as at September 30, 2019:
Fair value of | Other net assets | Total carrying | |||
Goodwill | identifiable | ||||
carrying amount | amount | ||||
assets (iii) | |||||
Cerro Lindo | - | 386,255 | 209,636 | 595,891 | |
Cerro Pasco | - | 318,218 | 204,045 | 522,263 | |
Mining Peru (i) | 578,280 | 704,473 | 413,681 | 1,696,434 | |
Cajamarquilla | 92,494 | - | 719,698 | 812,192 | |
Três Marias system (ii) | - | - | 628,874 | 628,874 | |
Juiz de Fora | - | - | 195,335 | 195,335 | |
670,774 | 704,473 | 1,957,588 | 3,332,835 |
- Represents the lowest level within the Company at which the goodwill generated in the acquisition of NEXA PERU is monitored.
- Currently Três Marias smelter is integrated with the operations of Vazante and Morro Agudo and, therefore, are considered as a single CGU.
- Corresponds to the fair value of the identifiable intangible assets in the acquisition of NEXA PERU, which are recognized at the consolidated level.
- Key assumptions used in impairment test
The recoverable amount of each CGUs was determined based on value-in-use method, which was higher than the fair value less costs to sell. This approach is consistent with the annual impairment testing disclosed in note 14 of the annual audited consolidated financial statements as at December 31, 2018.
The Company identified long-term metal prices, pre-tax discount rate and life of mine ("LOM") as key assumptions for the recoverable amount determination, due to the material impact that such assumptions may cause on the discounted cash flow determination. These assumptions are summarized below:
27 of 29
Nexa Resources S.A.
Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated
______________________________________________________________________
September 30, | September 30, | |
2019 | 2018 | |
Long-term zinc (USD/t) | 2,571 | 2,517 |
Long-term copper (USD/t) | 6,542 | 6,478 |
Pre-tax discount rate (Brazil) | 11.34% | 11.98% |
Pre-tax discount rate (Peru) | 10.03% | 10.34% |
Brownfield projects - LOM (years) | from 8 to 13 | from 9 to 21 |
Greenfield projects - LOM (years) | from 12 to 24 | from 12 to 24 |
-
Impairment test analysis
Following the determination of the recoverable amount of the CGUs, the Company compared the carrying amount of each CGU with its respective recoverable amount. At this step, the Company identified an impairment loss at the CGU Cerro Pasco (note 22(c)).
The second step was to test whether the goodwill allocated to a CGU or a group of CGUs is recoverable. In performing this analysis, the recoverable amount of Cerro Lindo and Cerro Pasco are aggregated in a group of CGUs called Mining Peru, which represents the lowest level within the Company at which goodwill of the acquisition of NEXA PERU is monitored. This aggregated recoverable amount is compared with the aggregated carrying amount of the CGUs. No impairment loss was verified at this level. - Impairment loss - Cerro Pasco
The reduction in the mineral reserves and resources estimates that led to a shortening of the life of mine of Cerro Pasco CGU from 21 to 13 years was determinant for the recognition of an impairment loss of USD 142,133.
As the impairment loss was identified at the CGU level and was not directly related to a single asset, the loss was allocated in a pro rata basis to the following assets:
Carrying amount | Carrying amount | ||
prior to | Impairment | after | |
impairment loss | loss | impairment loss | |
Property, plant and equipment | 192,719 | (42,683) | 150,036 |
Intangible assets | 333,427 | (99,450) | 233,977 |
Other net assets | (3,883) | - | (3,883) |
522,263 | (142,133) | 380,130 | |
Fair value of identifiable assets | 318,218 | (97,308) | 220,910 |
Other net assets carrying amount | 204,045 | (44,825) | 159,220 |
522,263 | (142,133) | 380,130 |
The Company performed a stress test on the key assumptions used for the calculation of the value- in-use of the CGU Cerro Pasco. A decrease of 5% in the long-term LME zinc price to USD 2,442 per ton compared to management´s estimation at September 30, 2019 would have had resulted in the recognition of an additional impairment loss of USD 73,577. Also, an increase of 5% in the pre-tax discount rate to 10.53% ton compared to management´s estimation at September 30, 2019 would have had resulted in an additional impairment loss of USD 11,428.
-
Impairment results - Other CGUs
The impairment indicators listed above led to a decrease in the recoverable amount of all our CGUs. However, the effects were less prominent than in the CGU Cerro Pasco and no impairment loss were identified in other CGUs.
28 of 29
Nexa Resources S.A.
Notes to the condensed consolidated interim financial statements At and for three and nine-month periods ended September 30, 2019 All amounts in thousands of US dollars, unless otherwise stated
______________________________________________________________________
The Company also assessed that, for some of the CGUs that were not subjected to an impairment loss, a reasonably possible change in some of the key assumptions used for cash flow determination of the CGUs, would cause the carrying amount to exceed its recoverable amount. As a result, the Company estimated the amount by which the value assigned to each of these key assumptions must change in order for the CGU recoverable amount to be equal to its carrying amount:
Excess over | Decrease in long term | Increase in pre-tax | |||||||||
zinc (USD/t) | discount rate | ||||||||||
Cash generating unit | carrying | ||||||||||
amount | Change | Price | Change | Rate | |||||||
Cerro Lindo | 1,103,384 | (44%) | 1,432 | 104% | 20.42% | ||||||
Cajamarquilla | 264,773 | (6%) | 2,412 | 27% | 12.74% | ||||||
Três Marias system | 517,748 | (15%) | 2,180 | 72% | 19.51% | ||||||
Juiz de Fora | 270,841 | (26%) | 1,895 | 76% | 19.99% |
23 Events after the reporting period
-
Revolving credit facility
On October 25, 2019, the Company entered into a revolving credit facility with a syndicate of lenders, which allows the Company to borrow up to USD 300,000. The revolving credit facility is to be used for general corporate purposes and provides the Company with increased liquidity and additional flexibility. The revolving credit facility has a term of five years and the amounts drawn are subject to an interest rate of 1.0% + LIBOR 3M. The transaction costs will be capitalized and amortized over the contractual term. - Export credit note
On October 23, 2019, in order to expand short-term liquidity in Brazil, the Company entered into an Export Credit Note agreement in the principal amount of USD 90,000 and cost of Libor 3M + 1.5% p.a., with maturity of 5 years. Simultaneously, the Company contracted a swap to exchange the interest index to CDI rate + 1.30% p.a., as well as the currency of debt service repayments from USD to BRL. The Company will account for the Export Credit Note under the fair value option to eliminate the accounting mismatch that would arise if amortized cost were used. - Vazante equipment failure
During a regular inspection activity on October 25, 2019, a crack was identified in one of the components of the concentration plant of Vazante. Equipment repair should last approximately 30 days and during this period the mine should operate at 30% of its nominal production capacity. As a result, the Company expects a decrease in 2019 production of 8 to 10 thousand tons of zinc in concentrate. No work accidents nor environmental impacts from this failure were reported. The Company could not estimate the cost of the repairs needed as of the approval date of the condensed consolidated interim financial statements.
* * *
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Nexa Resources SA published this content on 31 October 2019 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 31 October 2019 22:31:05 UTC