Exhibit 99.1
Nexa Resources S.A. | |
Consolidated financial statements | |
At December 31, 2019 and independent auditor’s report |
Contents | |
Consolidated financial statements | |
Consolidated income statement | 3 |
Consolidated statement of comprehensive income | 4 |
Consolidated balance sheet | 5 |
Consolidated statement of cash flows | 6 |
Consolidated statement of changes in shareholder’s equity | 7 |
Notes to the consolidated financial statements
1 | General information | 9 |
2 | Information by business segment | 9 |
3 | Basis of preparation of the consolidated financial statements | 11 |
4 | Principles of consolidation | 11 |
5 | Changes in accounting policies and disclosures | 14 |
6 | Net revenue | 16 |
7 | Expenses by nature | 18 |
8 | Mineral exploration and Project development | 18 |
9 | Other income and expenses, net | 19 |
10 | Net financial results | 19 |
11 | Current and deferred income taxes | 20 |
12 | Financial risk management | 22 |
13 | Financial instruments | 27 |
14 | Fair value estimates | 29 |
15 | Cash and cash equivalents | 32 |
16 | Financial investments | 32 |
17 | Derivative financial instruments | 33 |
18 | Sensitivity analysis | 35 |
19 | Trade accounts receivable | 36 |
20 | Inventory | 37 |
21 | Other assets | 38 |
22 | Related parties | 39 |
23 | Property, plant and equipment | 40 |
24 | Intangible assets | 44 |
25 | Right-of-use assets and lease liabilities | 45 |
26 | Loans and financings | 47 |
27 | Asset retirement and environmental obligations | 51 |
28 | Provisions | 52 |
29 | Contractual liabilities | 54 |
30 | Shareholders’ equity | 55 |
31 | Impairment of non-current assets | 58 |
32 | Long-term commitments | 63 |
33 | Events after the reporting period | 64 |
Nexa Resources S.A.
Consolidated income statement
Years ended December 31
All amounts in thousands of US dollars, unless otherwise stated
Note | 2019 | 2018 | 2017 | |||||||||||||
Net revenues | 6 | 2,332,306 | 2,491,202 | 2,449,484 | ||||||||||||
Cost of sales | 7 | (1,944,683 | ) | (1,888,944 | ) | (1,752,825 | ) | |||||||||
Gross profit | 387,623 | 602,258 | 696,659 | |||||||||||||
Operating expenses | ||||||||||||||||
Selling, general and administrative | 7 | (216,511 | ) | (159,603 | ) | (154,494 | ) | |||||||||
Mineral exploration and project development | 8 | (112,984 | ) | (126,278 | ) | (92,698 | ) | |||||||||
Impairment loss | 31 | (142,133 | ) | (3,283 | ) | - | ||||||||||
Other income and expenses, net | 9 | (27,021 | ) | 21,459 | (47,887 | ) | ||||||||||
(498,649 | ) | (267,705 | ) | (295,079 | ) | |||||||||||
Operating (loss) income | (111,026 | ) | 334,553 | 401,580 | ||||||||||||
Net financial results | 10 | |||||||||||||||
Financial income | 37,629 | 67,509 | 29,868 | |||||||||||||
Financial expenses | (129,591 | ) | (121,662 | ) | (106,169 | ) | ||||||||||
Foreign exchange effect | (12,892 | ) | (148,501 | ) | (53,880 | ) | ||||||||||
(104,854 | ) | (202,654 | ) | (130,181 | ) | |||||||||||
Results of investees | ||||||||||||||||
Share in the results of associates | - | - | 60 | |||||||||||||
(Loss) income before income tax | (215,880 | ) | 131,899 | 271,459 | ||||||||||||
Income tax | 11(a) | |||||||||||||||
Current | (46,382 | ) | (71,787 | ) | (125,691 | ) | ||||||||||
Deferred | 103,255 | 30,864 | 19,497 | |||||||||||||
Net (loss) income for the period | (159,007 | ) | 90,976 | 165,265 | ||||||||||||
Attributable to NEXA's shareholders | (146,626 | ) | 74,860 | 126,885 | ||||||||||||
Attributable to non-controlling interests | (12,381 | ) | 16,116 | 38,380 | ||||||||||||
Net (loss) income for the period | (159,007 | ) | 90,976 | 165,265 | ||||||||||||
Weighted average number of outstanding shares – in thousand | 132,622 | 133,313 | 116,527 | |||||||||||||
Basic and diluted earnings (losses) per share – USD | 30(f) | (1.11 | ) | 0.56 | 1.09 |
The accompanying notes are an integral part of these consolidated financial statements
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Nexa Resources S.A. |
Consolidated statement of comprehensive income
Years ended December 31
All amounts in thousands of US dollars, unless otherwise stated
Note | 2019 | 2018 | 2017 | |||||||||||||
Net (loss) income for the period | (159,007 | ) | 90,976 | 165,265 | ||||||||||||
Other comprehensive (loss) income, net of taxes - items that can be reclassified to the income statement | ||||||||||||||||
Cash flow hedge accounting | 17 | 879 | (2,192 | ) | 12,556 | |||||||||||
Translation adjustment of foreign subsidiaries | 30 (e) | (54,765 | ) | (9,959 | ) | (10,742 | ) | |||||||||
(53,886 | ) | (12,151 | ) | 1,814 | ||||||||||||
Total comprehensive (loss) income for the period | (212,893 | ) | 78,825 | 167,079 | ||||||||||||
Attributable to NEXA’s shareholders | (207,594 | ) | 72,928 | 125,941 | ||||||||||||
Attributable to non-controlling interests | (5,299 | ) | 5,897 | 41,138 | ||||||||||||
Total comprehensive (loss) income for the period | (212,893 | ) | 78,825 | 167,079 |
The accompanying notes are an integral part of these consolidated financial statements
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Nexa Resources S.A. |
Consolidated balance sheet
As at December 31
All amounts in thousands of US dollars, unless otherwise stated
Assets | Note | 2019 | 2018 | |||||||||
Current assets | ||||||||||||
Cash and cash equivalents | 15 | 698,618 | 1,032,938 | |||||||||
Financial investments | 16 | 58,423 | 91,878 | |||||||||
Derivative financial instruments | 17 | 4,835 | 7,385 | |||||||||
Trade accounts receivable | 19 | 177,231 | 173,204 | |||||||||
Inventory | 20 | 295,258 | 269,705 | |||||||||
Other assets | 21 | 140,984 | 122,857 | |||||||||
1,375,349 | 1,697,967 | |||||||||||
Non-current assets | ||||||||||||
Financial investments | 16 | 352 | 355 | |||||||||
Derivative financial instruments | 17 | 14,689 | 3,820 | |||||||||
Deferred income taxes | 11 | 262,941 | 201,154 | |||||||||
Related parties | 22 | 744 | 740 | |||||||||
Other assets | 21 | 144,727 | 120,458 | |||||||||
Property, plant and equipment | 23 | 2,122,690 | 1,968,451 | |||||||||
Intangible assets | 24 | 1,538,526 | 1,742,461 | |||||||||
Right-of-use assets | 25 | 29,547 | - | |||||||||
4,114,216 | 4,037,439 | |||||||||||
Total assets | 5,489,565 | 5,735,406 | ||||||||||
Liabilities and shareholders’ equity | ||||||||||||
Current liabilities | ||||||||||||
Loans and financing | 26 | 33,149 | 32,513 | |||||||||
Lease liabilities | 25 | 16,474 | - | |||||||||
Derivative financial instruments | 17 | 8,276 | 8,662 | |||||||||
Trade payables | 414,080 | 387,225 | ||||||||||
Confirming payable | 82,770 | 70,411 | ||||||||||
Dividends payable | 6,662 | 663 | ||||||||||
Environmental obligations | 27 | 19,001 | 20,357 | |||||||||
Contractual liabilities | 29 | 26,351 | 31,992 | |||||||||
Related parties | 22 | - | 63 | |||||||||
Other liabilities | 92,227 | 99,964 | ||||||||||
698,990 | 651,850 | |||||||||||
Non-current liabilities | ||||||||||||
Loans and financing | 26 | 1,475,408 | 1,392,354 | |||||||||
Lease liabilities | 25 | 17,910 | - | |||||||||
Derivative financial instruments | 17 | 13,542 | 5,560 | |||||||||
Asset retirement and environmental obligations | 27 | 274,826 | 249,925 | |||||||||
Provisions | 28 | 26,071 | 30,641 | |||||||||
Deferred income taxes | 11 | 273,278 | 298,598 | |||||||||
Contractual liabilities | 29 | 154,171 | 167,645 | |||||||||
Related parties | 22 | 834 | 1,517 | |||||||||
Other liabilities | 34,474 | 35,515 | ||||||||||
2,270,514 | 2,181,755 | |||||||||||
Total liabilities | 2,969,504 | 2,833,605 | ||||||||||
Shareholders’ equity | ||||||||||||
Attributable to NEXA’s shareholders | 2,147,452 | 2,476,593 | ||||||||||
Attributable to non-controlling interests | 372,609 | 425,208 | ||||||||||
2,520,061 | 2,901,801 | |||||||||||
Total liabilities and shareholders’ equity | 5,489,565 | 5,735,406 |
The accompanying notes are an integral part of these consolidated financial statements
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Nexa Resources S.A. |
Consolidated statement of cash flows
Years ended December 31
All amounts in thousands of US dollars
Note | 2019 | 2018 | 2017 | |||||||||||||
Cash flows from operating activities | ||||||||||||||||
(Loss) income before income tax | (215,880 | ) | 131,899 | 271,459 | ||||||||||||
Impairment loss | 31 | 142,133 | 3,283 | - | ||||||||||||
Depreciation and amortization | 23, 24 and 25 | 317,892 | 267,189 | 270,454 | ||||||||||||
Interest and foreign exchange effect | 71,640 | 143,199 | 52,287 | |||||||||||||
Loss (gain) on sale of property, plant and equipment and intangible assets | 9 | (857 | ) | 8,616 | 694 | |||||||||||
Gain on sale of investment | 9 | - | (348 | ) | (4,588 | ) | ||||||||||
Changes in provisions | 3,854 | 29,777 | 32,798 | |||||||||||||
Changes in operating assets and liabilities | 15 (b) | (71,634 | ) | (53,040 | ) | (85,265 | ) | |||||||||
Interest paid on loans and financings | 26 | (71,804 | ) | (74,592 | ) | (58,635 | ) | |||||||||
Interest paid on lease liabilities | 25 | (3,259 | ) | - | - | |||||||||||
Income taxes paid | (49,262 | ) | (108,385 | ) | (100,265 | ) | ||||||||||
Net cash provided by operating activities | 122,823 | 347,598 | 378,939 | |||||||||||||
Cash flows from investing activities | ||||||||||||||||
Acquisitions of property, plant and equipment | 23 | (396,672 | ) | (299,773 | ) | (197,638 | ) | |||||||||
Net (purchases) sales of financial investments | 54,710 | 140,402 | (65,661 | ) | ||||||||||||
Proceeds from the sale of property, plant and equipment | 6,570 | 1,268 | 16,542 | |||||||||||||
Advance paid for Pollarix acquisition | - | - | (81,615 | ) | ||||||||||||
Net cash used in investing activities | (335,392 | ) | (158,103 | ) | (328,372 | ) | ||||||||||
Cash flows from financing activities | ||||||||||||||||
New loans and financings | 26 (c) | 105,974 | 292,901 | 830,598 | ||||||||||||
Payments of loans and financings | 26 (c) | (19,437 | ) | (295,104 | ) | (537,254 | ) | |||||||||
Payments of lease liabilities | 25 (b) | (13,280 | ) | - | - | |||||||||||
Dividends paid | (113,389 | ) | (3,475 | ) | ||||||||||||
Reimbursement of share premium | - | (80,000 | ) | (430,000 | ) | |||||||||||
Repurchase of the Company’s own shares | (8,103 | ) | (1,352 | ) | ||||||||||||
Acquisition of non-controlling interest | 30 (g) | (71,054 | ) | - | - | |||||||||||
Capital reduction related to Pollarix acquisition | - | (87,623 | ) | (55,380 | ) | |||||||||||
Disbursement from equity transactions with non-controlling shareholders | - | (2,757 | ) | (61,549 | ) | |||||||||||
Proceeds from initial public offering, net of underwriter expenses | - | - | 306,431 | |||||||||||||
Net cash (used in) provided by financing activities | (119,289 | ) | (177,410 | ) | 52,846 | |||||||||||
Foreign exchange effect on cash and cash equivalents | (2,462 | ) | 1,816 | 48 | ||||||||||||
Increase (decrease) in cash and cash equivalents | (334,320 | ) | 13,901 | 103,461 | ||||||||||||
Cash and cash equivalents at the beginning of the period | 1,032,938 | 1,019,037 | 915,576 | |||||||||||||
Cash and cash equivalents at the end of the period | 698,618 | 1,032,938 | 1,019,037 |
The accompanying notes are an integral part of these consolidated financial statements
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Nexa Resources S.A. | |
Consolidated statement of changes in shareholders’ equity | |
Years ended December 31 | |
All amounts in thousands of US dollars, unless otherwise stated |
Capital | Treasury shares | Share premium | Additional paid in capital | Retained | Accumulated other comprehensive (loss) | Total | Non-controlling interests | Total equity | ||||||||||||||||||||||||||||
At January 1, 2017 | 1,041,416 | - | 339,228 | 1,678,456 | (138,043 | ) | (73,085 | ) | 2,847,972 | 476,344 | 3,324,316 | |||||||||||||||||||||||||
Net income for the period | - | - | - | - | 126,885 | - | 126,885 | 38,380 | 165,265 | |||||||||||||||||||||||||||
Other comprehensive income (loss) for the period | - | - | - | - | 3,327 | (4,271 | ) | (944 | ) | 2,758 | 1,814 | |||||||||||||||||||||||||
Total comprehensive income (loss) for the period | - | - | - | - | 130,212 | (4,271 | ) | 125,941 | 41,138 | 167,079 | ||||||||||||||||||||||||||
Reversion of put option | - | - | - | 173,734 | - | - | 173,734 | - | 173,734 | |||||||||||||||||||||||||||
Purchase of Pollarix | - | - | - | (81,615 | ) | - | - | (81,615 | ) | - | (81,615 | ) | ||||||||||||||||||||||||
Capital reduction related to Pollarix acquisition | - | - | - | (87,711 | ) | - | - | (87,711 | ) | - | (87,711 | ) | ||||||||||||||||||||||||
Constitution of share premium | (928,596 | ) | - | 928,596 | - | - | - | - | - | - | ||||||||||||||||||||||||||
Decrease in non-controlling interests | - | - | - | (366,197 | ) | - | - | (366,197 | ) | (38,280 | ) | (404,477 | ) | |||||||||||||||||||||||
Increase in participation in associates | - | - | - | 2,061 | - | - | 2,061 | (2,061 | ) | - | ||||||||||||||||||||||||||
Reimbursement of share premium | - | - | (430,000 | ) | - | - | - | (430,000 | ) | - | (430,000 | ) | ||||||||||||||||||||||||
Proceed from initial public offering, net of underwriter expenses | 20,500 | - | 285,931 | - | - | - | 306,431 | - | 306,431 | |||||||||||||||||||||||||||
Dividends distribution | - | - | - | - | (3,781 | ) | - | (3,781 | ) | (55,073 | ) | (58,854 | ) | |||||||||||||||||||||||
Total contributions by and distributions to shareholders | (908,096 | ) | - | 784,527 | (359,728 | ) | (3,781 | ) | - | (487,078 | ) | (95,414 | ) | (582,492 | ) | |||||||||||||||||||||
At December 31, 2017 | 133,320 | - | 1,123,755 | 1,318,728 | (11,612 | ) | (77,356 | ) | 2,486,835 | 422,068 | 2,908,903 | |||||||||||||||||||||||||
At January 1, 2018 | 133,320 | - | 1,123,755 | 1,318,728 | (11,612 | ) | (77,356 | ) | 2,486,835 | 422,068 | 2,908,903 | |||||||||||||||||||||||||
Impact of the adoption of IFRS 9 | - | - | - | - | (1,818 | ) | - | (1,818 | ) | - | (1,818 | ) | ||||||||||||||||||||||||
At January 1, 2018 after impacts of the adoption of new standards | 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 | - | - | - | - | 74,860 | - | 74,860 | 16,116 | 90,976 | |||||||||||||||||||||||||||
Other comprehensive loss for the period | - | - | - | - | - | (1,932 | ) | (1,932 | ) | (10,219 | ) | (12,151 | ) | |||||||||||||||||||||||
Total comprehensive income (loss) for the period | - | - | - | - | 74,860 | (1,932 | ) | 72,928 | 5,897 | 78,825 | ||||||||||||||||||||||||||
Decrease in non-controlling interests | - | - | - | - | - | - | - | (2,757 | ) | (2,757 | ) | |||||||||||||||||||||||||
Reimbursement of share premium - USD 0.60 per share | - | - | (80,000 | ) | - | - | - | (80,000 | ) | - | (80,000 | ) | ||||||||||||||||||||||||
Repurchase of the Company’s own shares | - | (1,352 | ) | - | - | - | - | (1,352 | ) | - | (1,352 | ) | ||||||||||||||||||||||||
Total contributions by and distributions to shareholders | - | (1,352 | ) | (80,000 | ) | - | - | - | (81,352 | ) | (2,757 | ) | (84,109 | ) | ||||||||||||||||||||||
At December 31, 2018 | 133,320 | (1,352 | ) | 1,043,755 | 1,318,728 | 61,430 | (79,288 | ) | 2,476,593 | 425,208 | 2,901,801 |
The accompanying notes are an integral part of these consolidated financial statements
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Nexa Resources S.A.
Consolidated statement of changes in shareholders’ equity
Years ended December 31
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) | 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 loss for the period | - | - | - | - | (146,626 | ) | - | (146,626 | ) | (12,381 | ) | (159,007 | ) | |||||||||||||||||||||||
Other comprehensive income(loss) for the period | - | - | - | - | - | (60,968 | ) | (60,968 | ) | 7,082 | (53,886 | ) | ||||||||||||||||||||||||
Total comprehensive loss for the period | - | - | - | - | (146,626 | ) | (60,968 | ) | (207,594 | ) | (5,299 | ) | (212,893 | ) | ||||||||||||||||||||||
Capital increase from non-controlling interest | - | - | - | - | - | - | - | 33,650 | 33,650 | |||||||||||||||||||||||||||
Acquisition of non-controlling interest - note 30(g) | - | - | - | (37,404 | ) | - | - | (37,404 | ) | (33,650) | (71,054 | ) | ||||||||||||||||||||||||
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 | ) | (47,300 | ) | (49,556 | ) | |||||||||||||||||||||||
Total contributions by and distributions to shareholders | - | (8,103 | ) | - | (39,660 | ) | (69,832 | ) | - | (117,595 | ) | (47,300 | ) | (164,895 | ) | |||||||||||||||||||||
At December 31, 2019 | 133,320 | (9,455 | ) | 1,043,755 | 1,279,068 | (158,980 | ) | (140,256 | ) | 2,147,452 | 372,609 | 2,520,061 |
The accompanying notes are an integral part of these consolidated financial statements
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Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
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 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.
2 | Information by business segment |
Business segment definition
The Company’s Chief Executive Officer has been identified as the chief operating decision maker (“CODM”), since he has the final authority over resource allocation decisions and performance assessment. The CODM analyzes performance from a product perspective and the Company has identified two reportable segments:
· Mining: consists of five long-life polymetallic mines, three located in the Central Andes of Peru and two located in the state of Minas Gerais in Brazil. In addition to zinc, the Company produces substantial amounts of copper, lead, silver and gold as by-products, which reduce the overall cost to produce mined zinc.
· Smelting: consists of three operating units, one located in Cajamarquilla in Peru and two located in the state of Minas Gerais in Brazil. The facilities recover and produce metallic zinc (SHG zinc and zinc alloys), zinc oxide and by-products, such as sulfuric acid.
Accounting policy
Segment performance is measured based on Adjusted EBITDA, since financial results, comprising financial income and expenses and foreign exchange, and income taxes are managed at the corporate level and are not allocated to operating segments. Adjusted EBITDA is defined as net income (loss) for the period, adjusted by (i) share in the results of associates, (ii) depreciation and amortization, (iii) net financial results, (iv) income tax, (v) gain (loss) on sale of investments, and (vi) impairment and impairment reversals. In addition, management may adjust the effect of certain types of transactions that in management’s judgment are not indicative of the Company´s normal operating activities or do not necessarily occur on a regular basis.
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 consolidated financial statements in the column “Adjustments”. Reclassifications include manly 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.
The Company uses customary market terms for intersegment sales. The Company’s corporate headquarters expenses are allocated to the reportable segments to the extent they are allocated in the measures of performance used by the CODM.
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Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
The presentation of segment results and reconciliation to income before income tax in the consolidated income statement is as follows:
2019 | ||||||||||||||||||||
Mining | Smelting | Intersegment sales | Adjustments | Consolidated | ||||||||||||||||
Net revenues | 1,000,170 | 1,865,733 | (535,776 | ) | 2,179 | 2,332,306 | ||||||||||||||
Cost of sales | (801,985 | ) | (1,655,062 | ) | 535,776 | (23,412 | ) | (1,944,683 | ) | |||||||||||
Gross profit | 198,185 | 210,671 | - | (21,233 | ) | 387,623 | ||||||||||||||
Selling, general and administrative | (117,280 | ) | (89,540 | ) | - | (9,691 | ) | (216,511 | ) | |||||||||||
Mineral exploration and project Development | (103,470 | ) | (9,503 | ) | - | (11 | ) | (112,984 | ) | |||||||||||
Impairment loss | (142,133 | ) | - | - | - | (142,133 | ) | |||||||||||||
Other income and expenses, net | (22,697 | ) | (29,569 | ) | - | 25,245 | (27,021 | ) | ||||||||||||
Operating (loss) income | (187,395 | ) | 82,059 | - | (5,690 | ) | (111,026 | ) | ||||||||||||
Depreciation and amortization | 217,870 | 97,975 | - | 2,047 | 317,892 | |||||||||||||||
Exceptional items (i) | 142,133 | - | - | - | 142,133 | |||||||||||||||
Adjusted EBITDA | 172,608 | 180,034 | - | (3,643 | ) | 348,999 | ||||||||||||||
Exceptional items (i) | (142,133 | ) | ||||||||||||||||||
Depreciation and amortization | (317,892 | ) | ||||||||||||||||||
Net financial results | (104,854 | ) | ||||||||||||||||||
Loss before income tax | (215,880 | ) |
2018 | ||||||||||||||||||||
Mining | Smelting | Intersegment sales | Adjustments | Consolidated | ||||||||||||||||
Net revenues | 1,163,741 | 2,030,568 | (704,031 | ) | 924 | 2,491,202 | ||||||||||||||
Cost of sales | (707,751 | ) | (1,878,769 | ) | 704,031 | (6,455 | ) | (1,888,944 | ) | |||||||||||
Gross profit | 455,990 | 151,799 | - | (5,531 | ) | 602,258 | ||||||||||||||
Selling, general and administrative | (54,705 | ) | (87,929 | ) | - | (16,969 | ) | (159,603 | ) | |||||||||||
Mineral exploration and project Development | (112,713 | ) | (11,067 | ) | - | (2,498 | ) | (126,278 | ) | |||||||||||
Impairment loss | - | (3,283 | ) | - | - | (3,283 | ) | |||||||||||||
Other income and expenses, net | (30,551 | ) | 30,428 | - | 21,582 | 21,459 | ||||||||||||||
Operating income | 258,021 | 79,948 | - | (3,417 | ) | 334,553 | ||||||||||||||
Depreciation and amortization | 172,357 | 94,832 | - | - | 267,189 | |||||||||||||||
Exceptional items (i) | - | - | - | 3,050 | 3,050 | |||||||||||||||
Adjusted EBITDA | 430,378 | 174,780 | - | (367 | ) | 604,792 | ||||||||||||||
Exceptional items (i) | (3,050 | ) | (3,050 | ) | ||||||||||||||||
Depreciation and amortization | (267,189 | ) | ||||||||||||||||||
Net financial results | (202,654 | ) | ||||||||||||||||||
Income before income tax | 131,899 |
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Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
2017 | ||||||||||||||||||||
Mining | Smelting | Intersegment sales | Adjustments | Consolidated | ||||||||||||||||
Net revenues | 1,213,221 | 1,952,006 | (721,463 | ) | 5,720 | 2,449,484 | ||||||||||||||
Cost of sales | (680,811 | ) | (1,746,771 | ) | 721,463 | (46,706 | ) | (1,752,825 | ) | |||||||||||
Gross profit | 532,410 | 205,235 | - | (40,986 | ) | 696,659 | ||||||||||||||
Selling, general and administrative | (41,054 | ) | (89,128 | ) | - | (24,312 | ) | (154,494 | ) | |||||||||||
Mineral exploration and project Development | (86,119 | ) | (3,989 | ) | - | (2,590 | ) | (92,698 | ) | |||||||||||
Other income and expenses, net | (54,777 | ) | (58,749 | ) | - | 65,639 | (47,887 | ) | ||||||||||||
Operating income | 350,460 | 53,369 | - | (2,249 | ) | 401,580 | ||||||||||||||
Depreciation and amortization | 171,086 | 99,370 | - | - | 270,454 | |||||||||||||||
Exceptional items (ii) | - | - | - | (4,515 | ) | (4,515 | ) | |||||||||||||
Adjusted EBITDA | 521,546 | 152,739 | - | (6,764 | ) | 667,519 | ||||||||||||||
Exceptional items (ii) | 4,515 | 4,515 | ||||||||||||||||||
Share in the results of associates | 60 | |||||||||||||||||||
Depreciation and amortization | (270,454 | ) | ||||||||||||||||||
Net financial results | (130,181 | ) | ||||||||||||||||||
Income before income tax | 271,459 | |||||||||||||||||||
(i) Exceptional items are composed of impairment loss in the amount of USD 142,133 in 2019 (2018: USD 3,283) and miscellaneous adjustments to reconcile the segments’ Adjusted EBITDA to the consolidated Adjusted EBITDA.
(ii) Exceptional items are composed of gain on sale of investments in the amount of USD 4,588 and miscellaneous adjustments to reconcile the segments’ Adjusted EBITDA to the consolidated Adjusted EBITDA.
3 | Basis of preparation of the consolidated financial statements |
The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and interpretations issued by the IFRS Interpretations Committee applicable to companies reporting under IFRS. The consolidated financial statements comply with IFRS as issued by the International Accounting Standards Board.
The consolidated financial statements have been prepared under the historical cost convention, except for some financial assets and financial liabilities (including derivative financial instruments) measured at fair value at the end of each reporting period. Certain prior year amounts have been conformed to the current year’s presentation.
The consolidated financial statements of the Company for the year ended December 31, 2019 were approved to be issued in accordance with a resolution of the Board of Directors on February 13, 2020.
4 | Principles of consolidation |
(a) | Subsidiaries |
Subsidiaries include all entities over which the Company has control. The Company controls an entity when it (i) has the power over the entity; (ii) is exposed, or has the right, to variable returns from its involvement with the entity; and (iii) has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Company, except when the predecessor basis of accounting is applied. Subsidiaries are deconsolidated from the date that control ceases.
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Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
When the Company has less than a majority of the voting rights of an investee, it considers that it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally.
Inter-company transactions, balances and unrealized gains on transactions between companies in the consolidated group are eliminated. Unrealized losses are also eliminated unless the transaction indicates impairment of the transferred asset.
Accounting policies of subsidiaries are consistent with the policies adopted by the Consolidated group.
Non-controlling interests in the equity and results of subsidiaries are shown separately in the consolidated balance sheet, income statement, statement of comprehensive income and statement of changes in shareholders’ equity.
(b) | Joint operations |
The Company recognizes its direct right to the assets, liabilities, revenues and expenses of joint operations and its share of any jointly held assets or incurred liabilities and revenues and expenses. These have been included in the consolidated financial statements under the appropriate headings.
A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.
Transactions, balances and unrealized gains and losses between consolidated entities are eliminated.
The main entities included in the consolidated financial statements are:
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Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
Percentage of shares | ||||||||||||
2019 | 2018 | Headquarter | Activities | |||||||||
Subsidiaries | ||||||||||||
L.D.O.S.P.E. Geração de Energia e Participações Ltda. - L.D.O.S.P.E." | 100.00 | 100.00 | Brazil | Energy | ||||||||
L.D.Q.S.P.E. Geração de Energia e Participações Ltda. - "L.D.Q.S.P.E." | 100.00 | 100.00 | Brazil | Energy | ||||||||
L.D.R.S.P.E. Geração de Energia e Participações Ltda. - "L.D.R.S.P.E." | 100.00 | 100.00 | Brazil | Energy | ||||||||
Mineração Dardanelos Ltda. | 100.00 | 70.00 | Brazil | Mining projects | ||||||||
Nexa Recursos Minerais S.A. - "NEXA BR" | 100.00 | 100.00 | Brazil | Mining / Smelting | ||||||||
Mineração Santa Maria Ltda. | 99.99 | 99.99 | Brazil | Mining projects | ||||||||
Pollarix S.A. (i) | 33.33 | 33.33 | Brazil | Holding and others | ||||||||
Karmin Holding Ltda. | 100.00 | - | Brazil | Holding and others | ||||||||
Mineração Rio Aripuaña Ltda. | 100.00 | - | Brazil | Holding and others | ||||||||
Votorantim Metals Canada Inc. | 100.00 | 100.00 | Canada | Holding and others | ||||||||
Rayrock Antofagasta S.A.C | 99.99 | 99.99 | Chile | Holding and others | ||||||||
Cia. Magistral S.A.C | 100.00 | 100.00 | Peru | Mining projects | ||||||||
Nexa Resources El Porvenir S.A.C. | 99.99 | 99.99 | Peru | Mining | ||||||||
Minera Pampa de Cobre S.A.C | 99.99 | 99.99 | Peru | Mining | ||||||||
Nexa Resources Cajamarquilla S.A. - "NEXA CJM" | 99.99 | 99.99 | Peru | Smelting | ||||||||
Inversiones Garza Azul S.A.C | 99.75 | 99.75 | Peru | Holding and others | ||||||||
Nexa Resources Perú S.A.A. - "NEXA PERU" | 80.23 | 80.23 | Peru | Mining | ||||||||
Nexa Resources Atacocha S.A.A. - "NEXA ATACOCHA" | 66.62 | 66.62 | Peru | Mining | ||||||||
Minera Bongará S.A. | 61.00 | 61.00 | Peru | Mining projects | ||||||||
Nexa Resources UK Ltd. - "NEXA UK" | 100.00 | 100.00 | United Kingdom | Mining | ||||||||
Votorantim US. Inc. | 100.00 | 100.00 | United States | Holding and others | ||||||||
Joint-operation | ||||||||||||
Campos Novos Energia S.A. - "Enercan" | 20.98 | 20.98 | Brazil | Energy | ||||||||
Cia. Minera Shalipayco S.A.C | 75.00 | 75.00 | Peru | Mining projects |
(i)Pollarix is the energy holding company and sells energy to the Company’s Brazilian operating subsidiaries at market prices. NEXA BR owns all the common shares of Pollarix, which represents 33.33% of its total share capital. The remaining shares are preferred shares with limited voting rights, which are owned by NEXA’s controlling shareholder, VSA.
(c) | Transactions with non-controlling interests |
Transactions with non-controlling interests that do not result in a loss of control are accounted within shareholders’ equity as transactions with equity owners of the consolidated group. A change in ownership interest results in an adjustment between the carrying amounts of the controlling and non-controlling interests to reflect their relative interests in the subsidiary. Any difference between the amount of the adjustment to non-controlling interests and any consideration paid or received is recognized in additional paid in capital within shareholders’ equity.
(d) | Foreign currency translation |
(i) | Functional and presentation currency |
Items included in the financial statements of each of the Company’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The Company’s consolidated financial statements are presented in US Dollars ("USD"), which is NEXA’s functional and reporting currency.
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Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
(ii) | Transactions and balances |
Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at the end of each reporting period are recognized in the income statement. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss.
(iii) | Consolidated entities |
The results of operations and financial position of consolidated entities that have a functional currency different from the reporting currency are translated into the reporting currency as follows:
• | Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; |
• | Income and expenses for each income statement and statement of comprehensive income are translated at average exchange rates which is a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates; and |
• | All resulting exchange differences are recognized in other comprehensive income and accumulated in a separate component of shareholders’ equity. |
5 | Changes in accounting policies and disclosures |
Except for new standards, IFRS 16 and IFRIC 23, which are discussed below, the other amendments to standards that apply from January 1, 2019 are primarily clarifications and none required a change in the Company’s accounting policies.
Additionally, the Company has not early adopted any new standards, amendments or interpretations that are effective after December 31, 2019. It does not expect that these new standards, amendments or interpretations will have a material effect on the Company’s financial statements.
New and amended IFRS standards that are effective beginning on January 1, 2019
(a) | IFRS 16 – “Leases” |
Main aspects introduced by the standard
IFRS 16 was issued in January 2016 and applicable 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. The cumulative effect of applying the standard was recognized as an adjustment to the opening balance of retained earnings.
The lease liabilities related to leases previously classified as operating leases, were measured using the present value of the remaining lease payments, discounted by the incremental borrowing rate at the date of initial application.
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Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
Right-of-use assets were measured on transition at the same amount of the lease liability, adjusted by any prepaid or accrued lease expense, less impairment provision.
For leases previously classified as finance leases, the lease liability and the right of use asset represents the carrying amount of the lease liability immediately before the date of initial application.
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:
Ø | The accounting for low value leases and leases with a remaining term of less than 12 months as at January 1, 2019 as short-term leases; | |
Ø | The exclusion of initial direct costs from the measurement of the right-of-use asset at the date of initial application; and | |
Ø | The use of a single discount rate to a portfolio of leases with reasonably similar characteristics. |
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 reduced by USD 18,612 due to the presentation of a portion of the lease 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 3,319 for the year ended December 31, 2019.
(b) | IFRIC 23 – Uncertainty over income tax treatments |
Nature 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.
Transition method
The Company has applied the standard from its mandatory adoption date of January 1, 2019. On initial application, the Company applied the interpretation retrospectively with the cumulative effect of initially applying the interpretation as an adjustment to the opening balance of retained earnings. Comparative information has not been restated.
Impacts of adoption
The interpretation affected primarily the accounting for the Company’s uncertain income tax treatments where the likelihood that a taxation authority will not accept such treatments is probable. The impact of the adoption of IFRIC 23 at January 1, 2019 was USD 4,023. The Company also reclassified the amount of USD 6,047 from Provisions to Deferred income taxes.
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Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
6 | Net revenue |
Accounting policy
Revenue represents the fair value of the consideration received or receivable for the sale of goods in the ordinary course of the Company’s activities. Revenues are shown net of value-added tax, returns, rebates and discounts, after eliminating sales between the consolidated companies.
The Company recognizes revenue when a performance obligation is satisfied by transferring a promised good or service to a customer. The asset is transferred when the customer obtains control of that asset. To determine the point in time at which a customer obtains control of a promised asset the Company considers the following indicators: (i) the Company has a present right to payment for the asset; (ii) the customer has legal title to the asset; (iii) the Company has transferred physical possession of the asset; (iv) the customer has the significant risks and rewards of ownership of the asset; (v) the customer has accepted the asset.
Identification and timing of satisfaction of performance obligations
The Company has two distinct performance obligations included in certain sales contracts, being:
(i) the promise to provide goods to its customers, and (ii) the promise to provide freight services to its customers.
Promise to provide goods: this performance obligation is satisfied when the control of such goods is transferred to the final customer, which is substantially determined based on the Incoterms agreed upon in each of the contracts with customers.
Promise to provide freight service: this performance obligation is satisfied when the freight service contracted to customers is completed.
As a result of the distinct performance obligations identified part of the Company’s revenue is presented as revenue from services. Cost related to revenue from services is presented as “Cost of sales”.
Determining the transaction price and the amounts allocated to performance obligations
The Company has considered the terms of the contract and its customary business practices to determine the transaction price. The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods or services to its customers. Transaction price is allocated to each performance obligation on a relative standalone selling price basis.
For the purpose of determining the transaction price, the entity has mainly fixed prices. However, the Company’s silver streaming arrangement for Cerro Lindo mine has the transaction price linked to silver production, which might change over time. Therefore, it is accounted for as variable consideration. Revenue related to silver streaming sales was not material for the year ended December 31, 2019.
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Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
(a) | Composition of net revenues |
(i) | Gross revenue reconciliation |
2019 | 2018 | 2017 | ||||||||||
Gross revenues | 2,552,275 | 2,779,008 | 2,709,236 | |||||||||
Revenues from products | 2,473,534 | 2,708,112 | 2,637,613 | |||||||||
Revenues from services | 78,741 | 70,896 | 71,623 | |||||||||
Taxes on sales | (216,550 | ) | (284,316 | ) | (257,347 | ) | ||||||
Return of products sales | (3,419 | ) | (3,490 | ) | (2,405 | ) | ||||||
Net revenues | 2,332,306 | 2,491,202 | 2,449,484 |
(ii) | Net revenue of products |
2019 | 2018 | 2017 | ||||||||||
Zinc | 1,592,050 | 1,817,139 | 1,725,719 | |||||||||
Lead | 259,238 | 283,861 | 302,877 | |||||||||
Copper | 174,697 | 151,939 | 174,274 | |||||||||
Silver | 63,867 | 66,112 | 99,179 | |||||||||
Other | 163,713 | 101,255 | 75,812 | |||||||||
Net revenues from products | 2,253,565 | 2,420,306 | 2,377,861 | |||||||||
Taxes on sales | 216,550 | 284,316 | 257,347 | |||||||||
Return of products sales | 3,419 | 3,490 | 2,405 | |||||||||
Gross revenue from products | 2,473,534 | 2,708,112 | 2,637,613 |
(b) | Information on geographical areas in which the Company operates |
The geographical areas are determined based on the location of the Company’s customers. The net revenues of the Company, classified by currency and destination, is as follows:
(i) | Revenues by destination |
2019 | 2018 | 2017 | ||||||||||
Brazil | 625,033 | 693,409 | 721,640 | |||||||||
Peru | 595,601 | 674,228 | 696,527 | |||||||||
Luxembourg | 145,493 | 172,791 | 130,723 | |||||||||
United States | 159,672 | 141,131 | 158,060 | |||||||||
Switzerland | 101,636 | 126,156 | 108,798 | |||||||||
Japan | 71,352 | 93,474 | 69,565 | |||||||||
Argentina | 60,850 | 90,338 | 79,463 | |||||||||
Korea | 95,913 | 54,894 | 7,064 | |||||||||
Colombia | 37,149 | 51,724 | 47,734 | |||||||||
Chile | 80,849 | 51,215 | 38,101 | |||||||||
Turkey | 33,905 | 48,265 | 35,522 | |||||||||
Austria | 39,897 | 40,531 | 37,270 | |||||||||
Singapore | 99,488 | 37,506 | 60,857 | |||||||||
Germany | 20,749 | 20,906 | 23,154 | |||||||||
China | 9,940 | 9,538 | 18,172 | |||||||||
Italy | 9,000 | 5,327 | 15,799 | |||||||||
Other | 145,779 | 179,769 | 201,035 | |||||||||
Net revenues | 2,332,306 | 2,491,202 | 2,449,484 |
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Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
(ii) | Revenues by currency |
2019 | 2018 | 2017 | ||||||||||
US Dollar | 1,731,765 | 1,806,590 | 1,729,234 | |||||||||
Brazilian Real | 600,541 | 684,612 | 717,032 | |||||||||
Other | - | - | 3,218 | |||||||||
Net revenues | 2,332,306 | 2,491,202 | 2,449,484 |
7 | Expenses by nature |
2019 | 2018 | 2017 | ||||||||||||||||||||||
Cost of sales | Selling, general and administrative | Mineral exploration and project development | Total | Total | Total | |||||||||||||||||||
Raw materials and consumables used | (1,056,426 | ) | (6,668 | ) | - | (1,063,094 | ) | (1,086,974 | ) | (1,037,288 | ) | |||||||||||||
Third-party services | (401,598 | ) | (96,996 | ) | (75,634 | ) | (574,228 | ) | (471,266 | ) | (326,889 | ) | ||||||||||||
Depreciation and amortization | (310,254 | ) | (7,614 | ) | (24 | ) | (317,892 | ) | (267,189 | ) | (270,454 | ) | ||||||||||||
Employee benefit expenses | (161,110 | ) | (74,183 | ) | (18,958 | ) | (254,251 | ) | (262,964 | ) | (279,371 | ) | ||||||||||||
Other expenses | (15,295 | ) | (31,050 | ) | (18,368 | ) | (64,713 | ) | (86,432 | ) | (86,015 | ) | ||||||||||||
(1,944,683 | ) | (216,511 | ) | (112,984 | ) | (2,274,178 | ) | (2,174,825 | ) | (2,000,017 | ) |
8 | Mineral exploration and Project development |
Accounting policy
The Company incurs mineral exploration costs such as exploratory drilling, geological and geophysical studies in order to determine the mineral potential of a given area, which are expensed as incurred.
The Company uses the front-end loading (“FEL”) methodology for project and development management. Development scoping costs and pre-feasibility studies for greenfield and brownfield projects are expensed during FEL 1 and FEL 2 phases, together with research and development costs for the smelting segment, until the project has demonstrated technical feasibility and economic viability.
Development costs are capitalized when the FEL 3 phase starts and the mineral potential and commercial viability of the project can be assessed reliably. Such costs include researching and analyzing existing exploration data, conducting geological studies, exploratory drilling and sampling, examining and testing extraction and treatment methods, and feasibility studies. Capitalized development costs are presented as property, plant and equipment.
Capitalized development costs are assessed for impairment at least annually or whenever evidences indicate that the assets may be impaired. For purposes of impairment assessment, the development costs are allocated to cash generating units.
(a) | Composition of mineral exploration and project development |
2019 | 2018 | 2017 | ||||||||||
Mineral exploration | (73,759 | ) | (83,182 | ) | (76,161 | ) | ||||||
Project development (FEL 1 and FEL 2) | (39,225 | ) | (43,096 | ) | (16,537 | ) | ||||||
(112,984 | ) | (126,278 | ) | (92,968 | ) |
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Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
9 | Other income and expenses, net |
2019 | 2018 | 2017 | ||||||||||
Tax credits (i) | 4,721 | 37,582 | 57 | |||||||||
Remeasurement of environmental obligations (ii) | 2,477 | 12,078 | 433 | |||||||||
Commodities derivative financial instruments | (833 | ) | 17,528 | (18,785 | ) | |||||||
Gain (loss) on sale of property, plant and equipment (ii) | (857 | ) | (9,884 | ) | (694 | ) | ||||||
Gain on sale of investments | - | 348 | 4,588 | |||||||||
Contribution to communities | (5,205 | ) | (13,445 | ) | (12,947 | ) | ||||||
(Provision) reversal of legal claims | (4,424 | ) | (3,671 | ) | 258 | |||||||
Mining obligations | (14,012 | ) | (12,637 | ) | (11,498 | ) | ||||||
Other operating income (expenses), net | (8,888 | ) | (6,440 | ) | (9,299 | ) | ||||||
(27,021 | ) | 21,459 | (47,887 | ) |
(i) On October 2018, a final decision by the Regional Federal Court (TRF) granted NEXA BR the right to recover federal tax credits recognized as “Other assets” in the amount of USD 59,686, being USD 33,653 principal amount and recognized at “Other income and expenses, net” and USD 26,033 corresponding to interest and recognized as “Financial income”. The credits recognized will be used to reduce future federal tax payments.
(ii) 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.
10 | Net financial results |
2019 | 2018 | 2017 | ||||||||||
Financial income | ||||||||||||
Gains on financial investments | 20,909 | 26,062 | 21,388 | |||||||||
Derivative financial instruments - Note 17 (b) | 5,951 | - | - | |||||||||
Interest on tax credits – Note 9 | 5,498 | 26,033 | - | |||||||||
Other financial income | 5,271 | 15,414 | 8,480 | |||||||||
37,629 | 67,509 | 29,868 | ||||||||||
Financial expense | ||||||||||||
Interest on loans and financing | (74,635 | ) | (77,647 | ) | (56,434 | ) | ||||||
Interest on contractual liabilities | (6,526 | ) | (7,294 | ) | (8,184 | ) | ||||||
Interest on other liabilities | (10,864 | ) | (4,763 | ) | (9,478 | ) | ||||||
Derivative financial instruments - Note 17 (b) | (4,927 | ) | (2,538 | ) | - | |||||||
Interest on lease liabilities | (3,416 | ) | - | - | ||||||||
Other financial expenses | (29,223 | ) | (29,420 | ) | (32,073 | ) | ||||||
(129,591 | ) | (121,662 | ) | (106,169 | ) | |||||||
Foreign exchange effects | (12,892 | ) | (148,501 | ) | (53,880 | ) | ||||||
Net financial results | (104,854 | ) | (202,654 | ) | (130,181 | ) |
19 of 64
Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
11 | Current and deferred income taxes |
Accounting policy
The current and deferred taxes on income are calculated based on the tax laws enacted or substantively enacted up to balance sheet date in the countries where the entities operate and generate taxable income. Management periodically evaluates positions taken by the Company in the taxes on income returns with respect to situations in which the applicable tax regulations are subject to interpretation. It establishes provisions where appropriate considering amounts expected to be paid to the tax authorities.
The current income tax is presented net, separated by taxpaying entity, in liabilities when there are amounts payable, or in assets when the amounts prepaid exceed the total amount due on the reporting date.
Deferred tax assets are recognized only to the extent it is probable that future taxable income will be available against which the temporary differences and/or tax losses can be utilized. Deferred tax assets and liabilities are offset when there is a legally enforceable right and an intention to offset them in the calculation of current taxes, generally when they are related to the same legal entity and the same tax authority. Accordingly, deferred tax assets and liabilities in different entities or in different countries are generally presented separately, and not on a net basis.
Deferred tax liabilities and assets are not recognized for temporary differences between the carrying amounts and tax bases of investments in foreign operations where the Company is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not be reversed in the near future.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognized if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from the initial recognition of an asset or liability in a transaction other than a business combination that, at the time of the transaction affects neither the accounting nor the taxable income or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income taxes asset is realized or the deferred income tax liability is settled.
Critical accounting estimates and judgments
The Company is subject to income tax in all countries in which it operates. Significant judgment is required in determining the income tax provision. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Company also recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due and if it is more likely than not that a tax authority will not accept the income tax treatments adopted by the Company, in the cases that there is an uncertainty over the income tax treatments or if the Company have a present legal or constructive obligation as a result of past events. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred tax assets and liabilities in the period in which such determination is made.
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Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
(a) | Reconciliation of income tax benefit (expense) |
2019 | 2018 | 2017 | ||||||||||
(Loss) income before income tax | (215,880 | ) | 131,899 | 271,459 | ||||||||
Standard rate (i) | 24.94 | % | 26.01 | % | 27.08 | % | ||||||
Income tax benefit (expense) at standard rate | 53,840 | (34,307 | ) | (73,511 | ) | |||||||
Difference in tax rate of subsidiaries outside Luxembourg | 24,698 | (11,227 | ) | (19,912 | ) | |||||||
Special mining levy and special mining tax | (7,431 | ) | (14,565 | ) | (22,766 | ) | ||||||
Withholding tax on dividends paid by subsidiaries | (9,764 | ) | - | (8,299 | ) | |||||||
Other permanent tax differences | (4,470 | ) | 19,176 | 18,294 | ||||||||
Income tax benefit (expense) | 56,873 | (40,923 | ) | (106,194 | ) | |||||||
Current | (46,382 | ) | (71,787 | ) | (125,691 | ) | ||||||
Deferred | 103,255 | 30,864 | 19,497 | |||||||||
Income tax benefit (expense) | 56,873 | (40,923 | ) | (106,194 | ) |
(i) 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 did not impact the consolidated income statement, consolidated balance sheet, or the consolidated statement of cash flows.
(b) | Analysis of deferred income tax assets and liabilities |
2019 | 2018 | |||||||
Tax credits on net operating losses | 160,905 | 106,817 | ||||||
Uncertain income tax treatments - note 5(b) | (9,779 | ) | - | |||||
Tax credits on temporary differences | ||||||||
Foreign exchange losses | 31,027 | 50,766 | ||||||
Environmental liabilities | 24,293 | 28,808 | ||||||
Asset retirement obligation | 18,751 | 19,879 | ||||||
Tax, civil and labor provisions | 6,962 | 9,389 | ||||||
Other provisions | 7,933 | 6,443 | ||||||
Provision for obsolete and slow-moving inventory | 5,734 | 5,308 | ||||||
Provision for employee benefits | 7,270 | 5,409 | ||||||
Other | 14,381 | 12,094 | ||||||
Tax debits on temporary differences | ||||||||
Capitalized interest | (28,505 | ) | (11,725 | ) | ||||
Depreciation, amortization and asset impairment | (247,552 | ) | (328,834 | ) | ||||
Other | (1,757 | ) | (1,798 | ) | ||||
(10,337 | ) | (97,444 | ) | |||||
Deferred income tax assets | 262,941 | 201,154 | ||||||
Deferred income tax liabilities | (273,278 | ) | (298,598 | ) | ||||
(10,337 | ) | (97,444 | ) |
(c) | 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 December 31, 2019, the main legal proceedings are related to carryforward calculation of net operating losses, deductibility of foreign exchange losses and expenses. The estimated financial effect of these contingent liabilities is USD 182,380.
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Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
(d) | Effects of deferred tax on income statement and other comprehensive income |
2019 | 2018 | 2017 | ||||||||||
Balance at beginning of the year | (97,444 | ) | (100,418 | ) | (107,304 | ) | ||||||
Effect on income for the year | 103,255 | 30,864 | 19,497 | |||||||||
Effect on other comprehensive income | 453 | (126 | ) | (4,119 | ) | |||||||
Impact of the adoption of IFRIC 23 | (10,070 | ) | - | - | ||||||||
Foreign exchange gain | (6,531 | ) | (27,764 | ) | (8,492 | ) | ||||||
Balance at end of the year | (10,337 | ) | (97,444 | ) | (100,418 | ) |
12 | 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 indices 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.
(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, commodity prices and interest rates.
(i) | Foreign exchange risk |
Foreign exchange 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 December 31, 2019. These mainly result from the foreign operations of NEXA BR for which the functional currency is the BRL.
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Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
Intercompany loans balances are fully eliminated in the consolidated financial statements. However, the related foreign exchange gain or loss is not, and is presented as foreign exchange effects at note 10.
USD amounts of foreign currency balances | 2019 | 2018 | ||||||
Assets | ||||||||
Cash, cash equivalents and financial investments | 350,772 | 320,069 | ||||||
Derivative financial instruments | 19,524 | 11,205 | ||||||
Trade accounts receivable | 27,005 | 39,000 | ||||||
397,301 | 370,274 | |||||||
Liabilities | ||||||||
Loans and financing | 119,095 | 123,471 | ||||||
Derivative financial instruments | 21,818 | 14,222 | ||||||
Trade payables | 323 | 4,689 | ||||||
Lease liabilities | 22,020 | - | ||||||
163,256 | 142,382 | |||||||
Net exposure | 234,045 | 227,892 |
(ii) | Interest rate 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. For further information related to interest rates, refer to Note 25.
The Company’s Financial Risk Management Policy establishes guidelines and rules to hedge against changes in interest rates that impact the cash flows of the Company. Exposure to each interest rate is projected until the maturity of the assets and liabilities exposed to this index. Occasionally the Company enters into floating to fixed interest rate swaps to manage its cash flow interest rate risk.
(iii) | Commodity price 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 Hedges)
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.
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Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
Hedges for the operating margin of metals (Strategic Hedges)
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 BR, the transaction also involves the sale of USD forward contracts in order to hedge the operating margin in BRL.
(b) | Credit risk |
Trade receivables, derivative financial instruments, term deposits, bank deposit certificates ("CDBs") and repurchase transactions backed by debentures 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). In the specific case of financial institutions in Peru where only global rating assessments are available, it will be eligible provided it has a rating of "BBB-" at least by 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 were obtained from the rating agencies Standard & Poor's, Moody's and Fitch ratings and are related to commitments in foreign or local currency and, in both cases, they 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.
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.
The following table reflects the credit quality of issuers and counterparties for transactions involving cash and cash equivalents, financial investments and derivative financial instruments:
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Nexa Resources S.A. | |
Notes to the consolidated financial statements | |
At and for year ended December 31, 2019 | |
All amounts in thousands of US dollars, unless otherwise stated |
2019 | 2018 | |||||||||||||||||||||||
Local rating | Global rating | Total | Local rating | Global rating | Total | |||||||||||||||||||
Cash and cash equivalents | ||||||||||||||||||||||||
AAA | 11,243 | - | 11,243 | 1,484 | - | 1,484 | ||||||||||||||||||
AA+ | 5,997 | - | 5,997 | 861 | - | 861 | ||||||||||||||||||
AA | 18 | 99,853 | 99,871 | 24 | 78,245 | 78,269 | ||||||||||||||||||
AA- | 1 | 10,869 | 10,870 | - | 20,179 | 20,179 | ||||||||||||||||||
A+ | - | 156,032 | 156,032 | - | 178,730 | 178,730 | ||||||||||||||||||
A | - | 230,084 | 230,084 | - | 361,484 | 361,484 | ||||||||||||||||||
A- | - | 38,824 | 38,824 | - | 29,162 | 29,162 | ||||||||||||||||||
BBB+ | - | 67,467 | 67,467 | - | 181,411 | 181,411 | ||||||||||||||||||
BBB | - | 23,552 | 23,552 | - | 20,245 | 20,245 | ||||||||||||||||||
BBB- | - | 31,416 | 31,416 | - | 83,919 | 83,919 | ||||||||||||||||||
No rating | 3 | 23,259 | 23,262 | 3 | 77,191 | 77,194 | ||||||||||||||||||
17,262 | 681,356 | 698,618 | 2,372 | 1,030,566 | 1,032,938 | |||||||||||||||||||
Financial investments | ||||||||||||||||||||||||
AAA | 44,985 | - | 44,985 | 51,913 | - | 51,913 | ||||||||||||||||||
AA+ | 8,170 | - | 8,170 | 10,840 | - | 10,840 | ||||||||||||||||||
AA | 352 | - | 352 | 24,965 | - | 24,965 | ||||||||||||||||||
AA- | 656 | - | 656 | - | - | - | ||||||||||||||||||
No rating | 4,612 | - | 4,612 | 4,515 | - | 4,515 | ||||||||||||||||||
58,775 | - | 58,775 | 92,233 | - | 92,233 | |||||||||||||||||||
Derivative financial instruments | ||||||||||||||||||||||||
AAA | 16,025 | - | 16,025 | 3,749 | - | 3,749 | ||||||||||||||||||
AA | - | 1,029 | 1,029 | - | 2,164 | 2,164 | ||||||||||||||||||
A+ | - | 422 | 422 | - | 5,275 | 5,275 | ||||||||||||||||||
A | - | - | - | - | 17 | 17 | ||||||||||||||||||
A- | - | 2,048 | 2,048 | - | - | - | ||||||||||||||||||
16,025 | 3,499 | 19,524 | 3,749 | 7,456 | 11,205 | |||||||||||||||||||
92,062 | 684,855 | 776,917 | 98,354 | 1,038,022 | 1,136,376 |
(c) | Liquidity risk |
This 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 analyzes 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 below 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 consolidated balance sheet.
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Nexa Resources S.A. | |
Notes to the consolidated financial statements | |
At and for year ended December 31, 2019 | |
All amounts in thousands of US dollars, unless otherwise stated |
Less than 1 year | Between 1 and 3 years | Between 3 and 5 years | Over 5 years | Total | ||||||||||||||||
2019 | ||||||||||||||||||||
Loans and financing | 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 payable | 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 | 15,406 | 26,275 | 60,406 | 235,190 | 337,277 | |||||||||||||||
Use of public assets | 1,446 | 3,177 | 3,581 | 30,729 | 38,933 | |||||||||||||||
696,969 | 395,660 | 681,434 | 1,108,192 | 2,882,255 | ||||||||||||||||
2018 | ||||||||||||||||||||
Loans and financing | 91,890 | 261,186 | 619,958 | 897,701 | 1,870,735 | |||||||||||||||
Derivative financial instruments | 8,663 | 4,954 | 605 | - | 14,222 | |||||||||||||||
Trade payables | 387,225 | - | - | - | 387,225 | |||||||||||||||
Confirming payable | 70,411 | - | - | - | 70,411 | |||||||||||||||
Salaries and payroll charges | 58,166 | - | - | - | 58,166 | |||||||||||||||
Dividends payable | 663 | - | - | - | 663 | |||||||||||||||
Related parties | 63 | 1,517 | - | - | 1,580 | |||||||||||||||
Asset Retirement Obligation | 12,283 | 40,171 | 36,561 | 198,061 | 287,075 | |||||||||||||||
Use of public assets | 1,411 | 3,092 | 3,485 | 33,658 | 41,646 | |||||||||||||||
630,775 | 310,920 | 660,609 | 1,129,420 | 2,731,723 |
(d) Capital management
The Company is subject to financial covenants on its loans and financing. The compliance with the financial covenants is verified by using the gearing ratio, calculated as net debt divided by Adjusted EBITDA.
Net debt is defined as (i) loans and financing, less (ii) cash and cash equivalents, less (iii) financial investments, plus or minus (iv) the fair value of derivative financial liabilities or assets, respectively. Adjusted EBITDA for capital management calculation uses the same assumptions described in Note 1 for Adjusted EBITDA by segment.
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.
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Nexa Resources S.A. | |
Notes to the consolidated financial statements | |
At and for year ended December 31, 2019 | |
All amounts in thousands of US dollars, unless otherwise stated |
The gearing ratio is as follows:
Note | 2019 | 2018 | 2017 | |||||||||||||
Loans and financing | 26 | 1,508,557 | 1,424,867 | 1,447,299 | ||||||||||||
Cash and cash equivalents | 15 | (698,618 | ) | (1,032,938 | ) | (1,019,037 | ) | |||||||||
Derivative financial instruments | 17 | 2,294 | 3,017 | 3,260 | ||||||||||||
Lease liabilities | 25 | 34,384 | - | |||||||||||||
Financial investments | 16 | (58,775 | ) | (92,233 | ) | (206,547 | ) | |||||||||
Net debt | 787,842 | 302,713 | 224,975 | |||||||||||||
Net (loss) income for the year | (159,007 | ) | 90,976 | 165,265 | ||||||||||||
Plus (less): | ||||||||||||||||
Share in the results of associates | - | - | (60 | ) | ||||||||||||
Depreciation and amortization | 23, 24 and 25 | 317,892 | 267,189 | 270,454 | ||||||||||||
Net financial results | 10 | 104,854 | 202,654 | 130,181 | ||||||||||||
Income tax (benefit) expense | 11(a) | (56,873 | ) | 40,923 | 106,194 | |||||||||||
EBITDA | 206,866 | 601,742 | 672,034 | |||||||||||||
Exceptional items - note 2 | 142,133 | 3,050 | (4,515 | ) | ||||||||||||
Adjusted EBITDA | 348,999 | 604,792 | 667,519 | |||||||||||||
Gearing ratio (Net debt/Adjusted EBITDA) | 2.26 | 0.50 | 0.34 |
13 | Financial instruments |
Accounting policy
Normal purchases and sales of financial assets are recognized on the trade date – the date on which the Company commits to purchase or sell the asset. Financial assets are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss, if any, are initially recognized at fair value, and transaction costs are expensed in the income statement. Financial assets are derecognized when the rights to receive cash flow from the investments have expired or the Company has transferred substantially all of the risks and rewards of ownership. Financial assets at fair value through profit or loss and at fair value through other comprehensive income are subsequently carried at fair value. Financial assets at amortized costs are subsequently measured using the effective interest rate method.
(i) | Amortized cost |
Financial assets measured at amortized cost are assets held within a business model whose objective is to hold financial assets in order to collect contractual cash flows and for which the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
(ii) | Fair value through profit or loss |
Financial assets measured at fair value through profit or loss are assets which an entity manages with the objective of realizing cash flows through the sale of such assets and financial assets that do not give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding.
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Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
(iii) | Fair value through other comprehensive income |
Financial assets measured at fair value through other comprehensive income are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and for which the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
(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.
2019 | ||||||||||||||||||||
Assets per balance sheet | Note | Amortized cost | Fair value through profit or loss | Fair value through other comprehensive income | Total | |||||||||||||||
Cash and cash equivalents | 15 | - | 698,618 | - | 698,618 | |||||||||||||||
Financial investments | 16 | - | 58,775 | - | 58,775 | |||||||||||||||
Derivative financial instruments | 17 | - | 17,249 | 2,275 | 19,524 | |||||||||||||||
Trade accounts receivable | 19 | 107,995 | 69,236 | - | 177,231 | |||||||||||||||
Related parties | 22 | 744 | - | - | 744 | |||||||||||||||
108,739 | 843,878 | 2,275 | 954,892 |
2019 | ||||||||||||||||||||
Liabilities per balance sheet | Note | Amortized cost | Fair value through profit or loss | Fair value through other comprehensive income | Total | |||||||||||||||
Loans and financing | 26 | 1,508,557 | - | - | 1,508,557 | |||||||||||||||
Lease liabilities | 25 | 34,384 | - | - | 34,384 | |||||||||||||||
Derivative financial instruments | 17 | - | 19,300 | 2,518 | 21,818 | |||||||||||||||
Trade payables | 414,080 | - | - | 414,080 | ||||||||||||||||
Confirming payables | 82,770 | - | - | 82,770 | ||||||||||||||||
Use of public assets (i) | 23,279 | - | - | 23,279 | ||||||||||||||||
Related parties | 22 | 834 | - | - | 834 | |||||||||||||||
2,063,904 | 19,300 | 2,518 | 2,085,722 |
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Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
2018 | ||||||||||||||||||||
Assets per balance sheet | Note | Amortized cost | Fair value through profit or loss | Fair value through other comprehensive income | Total | |||||||||||||||
Cash and cash equivalents | 15 | - | 1,032,938 | - | 1,032,938 | |||||||||||||||
Financial investments | 16 | - | 92,233 | - | 92,233 | |||||||||||||||
Derivative financial instruments | 17 | - | 6,885 | 4,320 | 11,205 | |||||||||||||||
Trade accounts receivable | 19 | 22,146 | 151,058 | - | 173,204 | |||||||||||||||
Related parties | 22 | 740 | - | - | 740 | |||||||||||||||
22,886 | 1,283,114 | 4,320 | 1,310,320 |
2018 | ||||||||||||||||||||
Liabilities per balance sheet | Note | Amortized cost | Fair value through profit or loss | Fair value through other comprehensive income | Total | |||||||||||||||
Loans and financing | 26 | 1,424,867 | - | - | 1,424,867 | |||||||||||||||
Derivative financial instruments | 17 | - | 10,155 | 4,068 | 14,223 | |||||||||||||||
Trade payables | 387,225 | - | - | 387,225 | ||||||||||||||||
Confirming payables | 70,411 | - | - | 70,411 | ||||||||||||||||
Use of public assets (i) | 22,126 | - | - | 22,126 | ||||||||||||||||
Related parties | 22 | 1,580 | - | - | 1,580 | |||||||||||||||
1,906,209 | 10,155 | 4,068 | 1,920,432 |
(i) Classified as Other liabilities in the consolidated balance sheet.
14 | Fair value estimates |
Critical accounting estimates and judgments
The fair value of financial instruments that are not traded in an active market is determined using Valuation techniques. The Company uses judgment to select among a variety of methods and makes assumptions that are mainly based on market conditions existing at the end of each reporting period.
(a) | Analysis |
The carrying amounts of trade accounts receivable, less impairment losses, confirming payables and advances from customers approximate their fair values. The fair value of loans and financing for disclosure purposes are estimated by discounting the future contractual cash flow at the current market interest rate and adjusted for the Company’s credit risk.
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Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
The main financial instruments and the assumptions made by the Company for their valuation are described below:
· | Cash and cash equivalents, financial investments, trade accounts receivable and other current assets - considering their nature, terms and maturity, the carrying amounts approximate their fair value. |
· | Financial liabilities - these instruments are subject to the usual market interest rates. The fair value was based on the present value of expected future cash disbursement, at interest rates currently available for debt with similar maturities and terms and adjusted for the Company’s credit risk. |
· | Derivative financial instruments the fair value of the derivative financial instruments is determined by calculating their present value through yield curves at the closing dates. The curves and prices used in the calculation for each group of instruments are developed based on data from Brazilian Securities, Commodities and Futures Exchange - B3, Central Bank of Brazil, LME and Bloomberg, interpolated between the available maturities. |
· | Swap contracts - the present value of both the assets and liabilities are calculated through the discount of forecasted cash flow by the interest rate of the currency in which the swap is denominated. The difference between the present value of the assets and the liabilities generates its fair value. |
· | Forward contracts – the present value is estimated by discounting the notional amount multiplied by the difference between the future price at the reference date and the contracted price. The future price is calculated using the convenience yield of the underlying asset. It is common to use Asian non-deliverable forwards for hedging non-ferrous metals positions. Asian contracts are derivatives in which the underlying is the average price of certain asset over a range of days. | |
· | Option contracts - the present value is estimated based on Black model, with assumptions that include the underlying asset price, strike price, volatility, time to maturity and interest rate. The underlying asset price is the average price of the foreign exchange rate in the fixing month. |
30 of 64
Nexa Resources S.A. | |
Notes to the consolidated financial statements | |
At and for year ended December 31, 2019 | |
All amounts in thousands of US dollars, unless otherwise stated |
(b) | Fair value by hierarchy |
2019 | ||||||||||||
Level 1 | Level 2 | Total | ||||||||||
Assets | ||||||||||||
Cash and cash equivalents | 698,618 | - | 698,618 | |||||||||
Financial investments | 28,126 | 30,649 | 58,775 | |||||||||
Derivative financial instruments | - | 19,524 | 19,524 | |||||||||
Trade accounts receivable | - | 69,236 | 69,236 | |||||||||
726,744 | 119,409 | 846,153 | ||||||||||
Liabilities | ||||||||||||
Derivative financial instruments | - | 21,818 | 21,818 | |||||||||
Loans and financing (i) | 1,199,694 | 377,855 | 1,577,549 | |||||||||
1,199,694 | 399,673 | 1,599,367 | ||||||||||
2018 | ||||||||||||
Level 1 | Level 2 | Total | ||||||||||
Assets | ||||||||||||
Cash and cash equivalents | 1,032,938 | - | 1,032,938 | |||||||||
Financial investments | 39,167 | 53,065 | 92,232 | |||||||||
Derivative financial instruments | - | 11,205 | 11,205 | |||||||||
Trade accounts receivable | - | 151,058 | 151,058 | |||||||||
1,072,105 | 215,328 | 1,287,433 | ||||||||||
Liabilities | ||||||||||||
Derivative financial instruments | - | 14,222 | 14,222 | |||||||||
Loans and financing (i) | 1,014,974 | 390,848 | 1,405,822 | |||||||||
1,014,974 | 405,070 | 1,420,044 |
(i) Loans and financing are measured at amortized cost. Therefore, the amounts presented in this note do not match with the consolidated balance sheet.
The carrying amount of other financial instruments measured at amortized cost do not differ significantly from their fair value.
The Company discloses fair value measurements based on their level of the following fair value measurement hierarchy:
Level 1:
Quoted prices (unadjusted) in active markets for identical assets and liabilities traded in active markets at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm's length basis. The quoted market price used for financial assets held by the Company is the current bid price.
Level 2:
Financial instruments not traded in an active market for which fair value is determined using valuation techniques, when all of the significant inputs required to identify the fair value of an instrument are observable. Specific valuation techniques used to value financial instruments include:
· | Quoted market prices or dealer quotes for similar instruments are used where available |
· | The fair values of interest rate swaps are calculated at the present value of the estimated futurecash flow based on observable yield curves; and |
· | The fair value of forward foreign exchange contracts is determined using forward exchange rates at the balance sheet date, with the resulting value discounted to present value. |
31 of 64
Nexa Resources S.A. | |
Notes to the consolidated financial statements | |
At and for year ended December 31, 2019 | |
All amounts in thousands of US dollars, unless otherwise stated |
Other techniques, such as discounted cash flow analysis, are used to determine the fair value for the remaining financial instruments.
Level 3:
Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) are classified as Level 3. As of December 31, 2019, there were no financial assets and liabilities carried at fair value classified as Level 3.
15 | Cash and cash equivalents |
Accounting policy
Cash and cash equivalents includes cash, bank deposits, and highly liquid short-term investments (investments with an original maturity less than 90 days), which are readily convertible into a known amount of cash and subject to an immaterial risk of changes in value. Bank overdrafts are shown within loans and financing in current liabilities in the balance sheet.
(a) | Composition |
2019 | 2018 | |||||||
Cash and banks | 299,374 | 320,069 | ||||||
Term deposits | 399,245 | 712,869 | ||||||
698,618 | 1,032,938 |
The decrease in cash and cash equivalents balance is mainly related to dividends payments in the amount of USD 113,389, and increase in acquisitions of property, plant and equipment.
(b) | Changes in operating assets and liabilities |
2019 | 2018 | 2017 | ||||||||||
Decrease (increase) in assets | ||||||||||||
Trade accounts receivable | (8,634 | ) | 8,537 | (63,172 | ) | |||||||
Inventory | (35,425 | ) | 52,472 | (15,675 | ) | |||||||
Other assets | (45,891 | ) | (133,716 | ) | 23,143 | |||||||
Increase (decrease) in liabilities | ||||||||||||
Trade payables | 18,823 | 57,411 | 47,573 | |||||||||
Confirming payables | 12,278 | (40,613 | ) | 8,737 | ||||||||
Contractual liabilities | (25,641 | ) | (29,543 | ) | (36,299 | ) | ||||||
Other liabilities | 12,856 | 32,412 | (49,572 | ) | ||||||||
(71,634 | ) | (53,040 | ) | (85,265 | ) |
(c) | Non-cash transactions |
The Company has had additions to right-of-use assets and liabilities in the amount of USD 3,114 in 2019. The also has had non-cash additions to property, plant and equipment in the amount of USD 16,473 in 2019. Non-cash additions to property, plant and equipment were not material in prior years.
16 | Financial investments |
Accounting policy
Financial investments are mainly short-term investments that do not meet the definition of cash and cash equivalents. The financial investments are used as part of the cash-management strategy of the Company and are measured at fair value through profit or loss.
32 of 64
Nexa Resources S.A. | |
Notes to the consolidated financial statements | |
At and for year ended December 31, 2019 | |
All amounts in thousands of US dollars, unless otherwise stated |
(a) | Composition |
2019 | 2018 | |||||||
Investment fund quotas | 28,126 | 38,677 | ||||||
Bank deposit certificate | 25,540 | 44,595 | ||||||
Other | 5,109 | 8,961 | ||||||
58,775 | 92,233 |
17 | Derivative financial instruments |
Accounting policy
Derivatives are initially recognized at fair value as at the date on which a derivative contract is entered into and are subsequently measured at fair value. Derivatives are only used for risk mitigation purposes and not as speculative investments. When derivatives do not meet the hedge accounting criteria, they are classified as held for trading and accounted for at fair value through profit or loss.
The Company documents at the inception of the hedging transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking the hedge transactions. The Company also documents its assessment, both at hedge inception and on an ongoing basis, whether the derivatives that are used in hedging transactions and accounted for as hedge accounting were, and will continue to be, highly effective in offsetting changes in the fair value or cash flow of hedged items.
(i) | Cash flow hedge |
Derivatives that are designated for hedge accounting recognition are qualified as cash flow hedges when they are related to a highly probable forecasted transaction. The effective portion of the changes in fair value is recognized in shareholders’ equity in "Accumulated other comprehensive income (loss)" and is subsequently reclassified to the income statement in the same period when the hedged expected cash flows affect the income statement.
The reclassification adjustment is recognized in the same income statement line item affected by the highly probable forecasted transaction, while gains or losses related to the non-effective portion are immediately recognized as "Other income and expenses, net".
When a hedging instrument expires, is sold or no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in shareholders’ equity at that time remains in shareholders’ equity and is recognized when the forecast transaction is ultimately recognized in the income statement. When a forecasted transaction is no longer expected to occur, the cumulative gain or loss that was previously accounted in shareholders’ equity is immediately transferred to the income statement within "Other income and expenses, net".
(ii) | Fair value hedge |
Derivatives that are designated for hedge accounting are qualified as fair value hedges when they are related to assets or liabilities already recognized in the consolidated balance sheet. Changes in the fair values of derivatives that are designated and qualify as fair value hedges and changes in the fair value of the hedged item are recorded in the income statement in the same period.
33 of 64
Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
(iii) | Derivatives not designated as hedging instruments |
Changes in the fair value of derivative financial instruments not designated as hedging instruments are recognized immediately in the income statement within "Other income and expenses, net" when related to price risk and within "Net financial results" when related to interest rate or foreign exchange rate risk.
This category includes derivatives contracts entered into in November 2018 by the Company to mitigate its exposure to the foreign currency risk associated with changes in the Brazilian real exchange rate for the majority of the estimated capital expenditures of the Aripuanã project. The transaction involved the purchase of collars in the notional amount of USD 294 million (BRL 1,057 million) which relates to the estimated Aripuanã’s disbursements from 2019 to 2021.
(a) | Fair value by strategy |
2019 | 2018 | ||||||||||||||||||
Strategy | Per Unit | Notional | Fair value | Notional | Fair value | ||||||||||||||
Mismatches of quotational periods | |||||||||||||||||||
Zinc forward | ton | 258,220 | (713 | ) | 261,020 | (557 | ) | ||||||||||||
(713 | ) | (557 | ) | ||||||||||||||||
Sales of zinc at a fixed price | |||||||||||||||||||
Zinc forward | ton | 15,252 | (1,043 | ) | 10,566 | (858 | ) | ||||||||||||
(1,043 | ) | (858 | ) | ||||||||||||||||
Inflation risk | |||||||||||||||||||
Three-month LIBOR vs. Brazilian interbank interest rate swap | USD | 90,000 | (1,413 | ) | - | - | |||||||||||||
Brazilian inflation vs. Brazilian interbank interest rate swap | BRL | 226,880 | 1,482 | - | - | ||||||||||||||
69 | - | ||||||||||||||||||
Foreign exchange risk | |||||||||||||||||||
Foreign exchange collars (USD) | BRL | 653,148 | (607 | ) | 1,056,922 | (1,602 | ) | ||||||||||||
(607 | ) | (1,602 | ) | ||||||||||||||||
(2,294 | ) | (3,017 | ) | ||||||||||||||||
Current assets | 4,835 | 7,385 | |||||||||||||||||
Non-current assets | 14,689 | 3,820 | |||||||||||||||||
Current liabilities | (8,276 | ) | (8,662 | ) | |||||||||||||||
Non-current liabilities | (13,542 | ) | (5,560 | ) |
(b) Changes in fair value
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 | 504 | (9,631 | ) | 4,791 | (231 | ) | 1,332 | (3,079 | ) | |||||||||||||||||||
Sales of zinc at a fixed price | (602 | ) | (417 | ) | ||||||||||||||||||||||||
Inflation risk USD | (1,413 | ) | - | |||||||||||||||||||||||||
Inflation risk BRL | 1,443 | (40 | ) | |||||||||||||||||||||||||
Foreign exchange risk | 994 | |||||||||||||||||||||||||||
504 | (9,631 | ) | 4,791 | (833 | ) | 1,024 | 1,332 | (3,536 | ) |
34 of 64
Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
18 | 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 financing, 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 December 31, 2019 are described below:
· | Scenario I: considers a change in the market forward yield curves and quotations as of December 31, 2019, according to the base scenario defined by the Company for March 31, 2020. |
· | Scenario II: considers a change of + or -25% in the market forward yield curves as of December 31, 2019. |
· | Scenario III: considers a change of + or -50% in the market forward yield curves as of December 31, 2019. |
Impacts on income statement | Impacts on statement of comprehensive income | ||||||||||||||||||||||||||||||||||||||||||||||
Scenario I | Scenarios II and III | Scenario I | Scenarios II and III | ||||||||||||||||||||||||||||||||||||||||||||
Risk factor | Cash and | Loans and financing | Principal of derivative financial instruments | Unit | Quotation at December 31, 2019 | Changes from 2019 | Results of scenario I | -25% | -50% | +25% | +50% | Results of scenario I | -25% | -50% | +25% | +50% | |||||||||||||||||||||||||||||||
Foreign exchange rates | |||||||||||||||||||||||||||||||||||||||||||||||
BRL | 76,038 | 119,095 | - | BRL | 4.0307 | 2.06 | % | - | - | - | - | - | 887 | 10,764 | 21,259 | (10,764 | ) | (21,529 | ) | ||||||||||||||||||||||||||||
EUR | 179 | - | - | EUR | 1.1240 | (0.36 | )% | (1 | ) | (45 | ) | (90 | ) | 45 | 90 | - | - | - | - | - | |||||||||||||||||||||||||||
PEN | 34,563 | - | - | PEN | 3.3253 | 0.74 | % | 257 | (8,641 | ) | (17,281 | ) | 8,641 | 17,281 | - | - | - | - | - | ||||||||||||||||||||||||||||
Interest rates | |||||||||||||||||||||||||||||||||||||||||||||||
BRL - CDI | 75,722 | 19,989 | 1,242,791 | BRL | 4.40 | % | (16 | )bps | 14 | 1,034 | 2,241 | (883 | ) | (1,637 | ) | - | - | - | - | - | |||||||||||||||||||||||||||
USD - LIBOR | - | 90,000 | 717,071 | USD | 1.91 | % | 2 | bps | (17 | ) | 388 | 809 | (358 | ) | (689 | ) | - | 1 | 2 | (1 | ) | (2 | ) | ||||||||||||||||||||||||
US Dollar coupon | - | - | 271,430 | USD | 2.41 | % | (19 | )bps | (31 | ) | (159 | ) | (323 | ) | 156 | 310 | - | - | - | - | - | ||||||||||||||||||||||||||
Price - commodities | |||||||||||||||||||||||||||||||||||||||||||||||
Zinc | - | - | 273,472 | TON | 2,293 | 4.67 | % | (5,482 | ) | 29,368 | 58,736 | (29,368 | ) | (58,736 | ) | 545 | (2,917 | ) | (5,835 | ) | 2,917 | 5,835 |
35 of 64
Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
19 | Trade accounts receivable |
Accounting policy
Trade accounts receivable are amounts due from customers for goods sold in the ordinary course of the Company’s business.
Trade accounts receivable are recognized initially at fair value and subsequently measured at:
(i) Fair value through profit or loss when related to the Company’s accounts receivable portfolio that is included in a true sale program whereby the Company, at its discretion, can discount certain outstanding trade accounts receivables and receive payments in advance. The program is used to meet short-term liquidity needs. Trade accounts receivable within this program are derecognized since the contractual rights to receive the cash flows of the assets are transferred to the counterparty.
(ii) Fair value through profit or loss when related to sales that are subsequently adjusted to changes of LME prices. These accounts receivable do not meet the solely payments of principal and interest (SPPI) criteria because there is a component of commodity price risk that modifies the cash flows that otherwise would be required by the sales contract.
(iii) Amortized cost using the effective interest rate method, less impairment, when the receivable does not meet the aforementioned classification.
Credit risk can arise from non-performance by counterparties of their contractual obligations to the Company. To ensure an effective evaluation of credit risk, management applies procedures related to the application for credit granting and approvals, renewal of credit limits, continuous monitoring of credit exposure in relation to established limits and events that trigger requirements for secured payment terms. As part of the Company’s process, the credit exposures with all counterparties are regularly monitored and assessed.
The Company applied the IFRS 9 simplified approach to measure the impairment losses for trade accounts receivable. This approach requires the use of the lifetime expected credit losses on its trade accounts receivable measured at amortized cost. To calculate the lifetime expected credit losses the Company used a provision matrix and forward-looking information. The additions to impairment of trade accounts receivable are included in selling expenses. Trade accounts receivable are generally written off when there is no expectation of recovering additional cash.
36 of 64
Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
(a) | Composition |
2019 | 2018 | |||||||
Trade accounts receivable | 175,948 | 174,931 | ||||||
Related parties | 3,620 | 963 | ||||||
Impairment of trade accounts receivable | (2,337 | ) | (2,690 | ) | ||||
177,231 | 173,204 |
(b) | Changes in impairment of trade accounts receivable |
2019 | 2018 | |||||||
Balance at the beginning of the year | (2,690 | ) | (2,146 | ) | ||||
Additions | (805 | ) | (1,238 | ) | ||||
Reversals | 1,085 | 428 | ||||||
Foreign exchange gains (losses) | 73 | 266 | ||||||
Balance at the end of the year | (2,337 | ) | (2,690 | ) |
(c) | Analysis by currency |
2019 | 2018 | |||||||
Brazilian Real | 26,817 | 39,000 | ||||||
US Dollar | 149,348 | 133,689 | ||||||
Other | 1,066 | 515 | ||||||
177,231 | 173,204 |
(d) | Aging of trade accounts receivable |
2019 | 2018 | |||||||
Current | 150,134 | 146,064 | ||||||
Up to 3 months past due | 26,810 | 28,366 | ||||||
From 3 to 6 months past due | 135 | 455 | ||||||
Over 6 months past due | 2,489 | 1,009 | ||||||
179,568 | 175,894 | |||||||
Impairment | (2,337 | ) | (2,690 | ) | ||||
177,231 | 173,204 |
20 | Inventory |
Accounting policy
Inventory is stated at the lower of cost and net realizable value. Cost is determined using the weighted average cost method. The cost of finished goods and work in progress comprises raw materials, direct labor, other direct costs and related fixed production overheads (based on normal operating capacity). Variable production overhead costs are included in inventory cost based on actual level of production. The net realizable value is the estimated selling price in the ordinary course of business, less any additional selling expenses. Imports in transit are stated at the accumulated cost of each import. A provision for obsolete inventory - finished products, semi-finished products, raw materials and auxiliary materials - is recognized when items cannot be used in normal production or sold because they are damaged or do not meet the Company’s specification. Slow-moving provision is recognized for inventory items that are in excess of the expected normal use or sale. The amount of slow-moving provision recognized is determined on the basis of 20% of the carrying amount for each six-month period without use or sale.
37 of 64
Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
(a) | Composition |
2019 | 2018 | |||||||
Finished products | 106,595 | 106,245 | ||||||
Semi-finished products | 89,239 | 52,534 | ||||||
Raw materials | 50,848 | 64,582 | ||||||
Auxiliary materials and consumables | 76,974 | 69,781 | ||||||
Inventory provisions | (28,398 | ) | (23,437 | ) | ||||
295,258 | 269,705 |
(b) | Changes to the provision of the year |
2019 | 2018 | |||||||
Balance at the beginning of the year | (23,437 | ) | (20,736 | ) | ||||
Additions | (16,171 | ) | (12,703 | ) | ||||
Reversals | 11,077 | 9,260 | ||||||
Exchange variation gains | 133 | 742 | ||||||
Balance at the end of the year | (28,398 | ) | (23,437 | ) |
21 | Other assets |
2019 | 2018 | |||||||
Recoverable taxes (i) | 201,522 | 183,628 | ||||||
Advances to third parties (ii) | 19,942 | 2,472 | ||||||
Prepaid expenses | 11,678 | 8,556 | ||||||
Judicial deposits | 7,281 | 9,230 | ||||||
Other assets | 45,288 | 39,429 | ||||||
285,711 | 243,315 | |||||||
Current assets | 140,984 | 122,857 | ||||||
Non-current assets | 144,727 | 120,458 |
(i) The increase in recoverable taxes is mainly due to a lower level of value added taxes (VAT) payable in the Company’s Brazilian operations.
(ii) The increase in advances to third parties is related to advances in the amount of USD 9,408 to service providers in Peru and advances in the amount of USD 8,825 to a third-party ore supplier in Brazil.
38 of 64
Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
22 | Related parties |
Trade accounts receivable | Related parties’ assets | Trade payables | Dividends payable | Related parties’ liabilities | ||||||||||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||||||||
Assets and liabilities | ||||||||||||||||||||||||||||||||||||||||
Parent | ||||||||||||||||||||||||||||||||||||||||
Votorantim S.A. (i) | - | - | 3 | 3 | 517 | 478 | - | - | - | - | ||||||||||||||||||||||||||||||
Related parties | ||||||||||||||||||||||||||||||||||||||||
Andrade Gutierrez Engenharia S.A. (ii) | - | - | - | - | 1,415 | - | - | - | - | - | ||||||||||||||||||||||||||||||
Companhia Brasileira de Alumínio | 1,812 | 214 | - | - | 341 | - | - | - | 11 | 12 | ||||||||||||||||||||||||||||||
Votorantim Cimentos S.A. | 1,518 | 623 | 738 | 737 | 48 | 85 | - | - | - | - | ||||||||||||||||||||||||||||||
Votener - Votorantim Comercializadora de Energia Ltda. | 290 | - | - | - | 7,172 | 2,060 | - | - | - | - | ||||||||||||||||||||||||||||||
Votorantim International CSC S.A.C | - | - | - | - | 500 | - | - | - | - | - | ||||||||||||||||||||||||||||||
Other | - | 126 | 3 | - | 1,352 | 785 | 6,662 | 663 | 823 | 1,568 | ||||||||||||||||||||||||||||||
3,620 | 963 | 744 | 740 | 11,345 | 3,408 | 6,662 | 663 | 834 | 1,580 | |||||||||||||||||||||||||||||||
Current | 3,620 | 963 | - | - | 11,345 | 3,408 | 6,662 | 663 | - | 63 | ||||||||||||||||||||||||||||||
Non-current | - | - | 744 | 740 | - | - | - | - | 834 | 1,517 | ||||||||||||||||||||||||||||||
3,620 | 963 | 744 | 740 | 11,345 | 3,408 | 6,662 | 663 | 834 | 1,580 |
Sales | Purchases | Financial results | ||||||||||||||||||||||||||||||||||||||
2019 | 2018 | 2017 | 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | ||||||||||||||||||||||||||||||||
Profit and loss | ||||||||||||||||||||||||||||||||||||||||
Parent | ||||||||||||||||||||||||||||||||||||||||
Votorantim S.A. (i) | 26 | - | - | 6,176 | 3,649 | 3,651 | - | - | - | |||||||||||||||||||||||||||||||
Related parties | ||||||||||||||||||||||||||||||||||||||||
Andrade Gutierrez Engenharia S.A. (ii) | - | - | - | 5,046 | - | - | - | - | - | |||||||||||||||||||||||||||||||
Companhia Brasileira de Alumínio | 2,157 | 39 | 2,125 | 1,964 | 1,626 | 36,912 | - | - | 1,012 | |||||||||||||||||||||||||||||||
Votener - Votorantim Comercializadora de Energia Ltda. | 3,288 | 2,115 | - | 9,596 | 10,054 | 13,510 | - | - | - | |||||||||||||||||||||||||||||||
Votorantim Cimentos S.A. | 196 | 173 | 138 | 2,186 | 365 | 365 | - | - | - | |||||||||||||||||||||||||||||||
Votorantim International CSC S.A.C | - | - | - | 5,584 | 4,136 | 5,522 | - | - | - | |||||||||||||||||||||||||||||||
Other | 510 | - | - | 1,581 | 784 | 1,134 | - | - | - | |||||||||||||||||||||||||||||||
6,177 | 2,327 | 2,263 | 32,133 | 20,614 | 61,094 | - | - | 1,012 |
39 of 64
Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
(i) The Company entered into an agreement with VSA on September 4, 2008, for services provided by the Center of Excellence (“CoE”) of VSA related to administrative activities, human resources, back office, accounting, taxes, technical assistance, and training, among others. Under a cost sharing agreement, the Company reimburses VSA for the expenses related to these activities in respect of the Company.
(ii) As part of the execution of the Aripuanã project, the Company entered into a mining development services agreement in the amount of USD 65,944 with Andrade Gutierrez Engenharia S.A., in which one of the Company director’s close family member has significant influence. The contract was executed in accordance with customary market terms.
(a) | Key management compensation |
Key management includes the members of the Company's global executive team and Board of directors. Key management compensation, including all benefits, was as follows:
2019 | 2018 | |||||||
Short-term benefits | 6,727 | 7,225 | ||||||
Other long-term benefits | 660 | 1,039 | ||||||
7,387 | 8,264 |
Short-term benefits include fixed compensation, payroll charges and short-term benefits under the Company’s variable compensation program. Other long-term benefits relate to the variable compensation program.
23 | Property, plant and equipment |
Accounting policy
Property, plant and equipment are stated at the historical cost of acquisition or construction less accumulated depreciation and any recognized impairment losses. Historical cost includes expenditures that are directly attributable to the acquisition and construction of the assets.
Subsequent costs are included in the asset’s carrying amount, or recognized as a separate asset as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and they can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognized when replaced. All other repairs and maintenance are charged to the income statement during the reporting period in which they are incurred.
Replacement costs are included in the carrying amount of the asset when it is probable that the Company will realize future economic benefits in excess of the benefits expected from the asset in its current condition. Replacement costs are depreciated over the remaining useful life of the related asset.
Land is not depreciated. Depreciation of other assets is calculated using the straight-line method to reduce their costs to their residual values over their estimated useful lives.
The assets' residual values and useful lives are reviewed annually and adjusted if appropriate.
An asset's carrying amount is reduced to its recoverable amount when it is greater than the estimated recoverable amount, in accordance with the criteria adopted by the Company in order to determine the recoverable amount.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized within "Other income and expenses, net" in the income statement.
Loans and financing costs directly related to the acquisition, construction or production of a qualifying asset that requires a substantial period of time to prepare for its intended use or sale are capitalized as part of the cost of that asset when it is probable that future economic benefits associated with the item will flow to the Company and costs can be measured reliably.
40 of 64
Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
Stripping costs
In its surface mining operations, the Company must remove overburden and other waste to gain access to mineral ore deposits. The removal process is referred to as stripping. During the development of a mine, before production commences, when the stripping activity improves access to the ore body, the component of the ore body for which access has been improved can be identified and the costs can be measured reliably, a stripping activity asset is capitalized as part of the investment in the construction of the mine, accounted for as part of property, plant and equipment, and subsequently depreciated over the life of the mine on a units of production basis.
Stripping costs incurred during the production phase of operations are treated as a production cost that forms part of the cost of inventory.
Exploration and development costs
Refer to note 8 for the Company’s accounting policy related to exploration and development costs for mining projects.
Asset retirement obligation
An asset retirement obligation is an obligation related to the permanent removal from service of a tangible long-lived asset that results from the acquisition, construction or development, or the normal operations of a tangible long-lived asset. At the initial recognition of an asset retirement obligation and at the periodical revisions of the expected disbursements and the discount rate, the changes in the liability are charged to property, plant and equipment.
The capitalized amount recognized in property, plant and equipment is depreciated based on the useful life of the underlying asset. Any reduction in the provision that exceeds the carrying amount of the asset, is immediately recognized in the income statement as "Other income and expenses, net".
Impairment
Refer to note 31 for the Company’s accounting policy related to impairment of property, plant and equipment.
41 of 64
Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
(a) | Changes in the year |
2019 | ||||||||||||||||||||||||||||
Dam and buildings | Machinery, equipment, and facilities | Assets and projects under construction | Asset retirement obligation | Mining projects | Other | Total | ||||||||||||||||||||||
Balance at the beginning of the year | ||||||||||||||||||||||||||||
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 | 550,325 | 802,526 | 349,069 | 83,632 | 156,725 | 26,174 | 1,968,451 | |||||||||||||||||||||
Additions (i) (ii) | 47 | 508 | 410,253 | 776 | 1,529 | 32 | 413,145 | |||||||||||||||||||||
Disposals | (569 | ) | (2,388 | ) | (315 | ) | - | (88 | ) | (2,833 | ) | (6,193 | ) | |||||||||||||||
Depreciation | (50,295 | ) | (134,092 | ) | - | (5,971 | ) | (2,297 | ) | (1,418 | ) | (194,073 | ) | |||||||||||||||
Impairment loss - Note 31 | (15,225 | ) | (27,458 | ) | - | - | - | - | (42,683 | ) | ||||||||||||||||||
Foreign exchange effect | (11,169 | ) | (13,431 | ) | (9,801 | ) | (2,115 | ) | - | (718 | ) | (37,234 | ) | |||||||||||||||
Transfers – Note 24 (a) | 65,545 | 129,167 | (214,114 | ) | - | 12,239 | 2,381 | (4,782 | ) | |||||||||||||||||||
Reclassification - note 5 (a) | - | (2,278 | ) | - | - | - | - | (2,278 | ) | |||||||||||||||||||
Remeasurement of asset retirement obligation | - | - | - | 28,337 | - | - | 28,337 | |||||||||||||||||||||
Balance at the end of the year | 538,659 | 752,554 | 535,092 | 104,659 | 168,108 | 23,618 | 2,122,690 | |||||||||||||||||||||
Cost | 1,027,045 | 2,399,957 | 535,092 | 201,892 | 261,117 | 45,035 | 4,470,138 | |||||||||||||||||||||
Accumulated depreciation | (488,386 | ) | (1,647,403 | ) | - | (97,233 | ) | (93,009 | ) | (21,417 | ) | (2,347,448 | ) | |||||||||||||||
Balance at the end of the year | 538,659 | 752,554 | 535,092 | 104,659 | 168,108 | 23,618 | 2,122,690 | |||||||||||||||||||||
Average annual depreciation rates % | 4 | 7 | - | 5 | 8 | - |
42 of 64
Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
2018 | ||||||||||||||||||||||||||||
Dam and buildings | Machinery, equipment, and facilities | Assets and projects under construction | Asset retirement obligation | Mining projects | Other | Total | ||||||||||||||||||||||
Balance at the beginning of the year | ||||||||||||||||||||||||||||
Cost | 1,030,686 | 2,422,254 | 235,501 | 178,662 | 243,938 | 59,545 | 4,170,586 | |||||||||||||||||||||
Accumulated depreciation | (453,140 | ) | (1,504,433 | ) | - | (101,527 | ) | (85,455 | ) | (29,517 | ) | (2,174,072 | ) | |||||||||||||||
Net balance | 577,546 | 917,821 | 235,501 | 77,135 | 158,483 | 30,028 | 1,996,514 | |||||||||||||||||||||
Additions (i) | 2,613 | 2,878 | 294,229 | - | - | 53 | 299,773 | |||||||||||||||||||||
Disposals | (3,207 | ) | (6,985 | ) | (1,148 | ) | - | - | (691 | ) | (12,031 | ) | ||||||||||||||||
Depreciation | (48,072 | ) | (131,099 | ) | - | (4,592 | ) | (1,931 | ) | (1,771 | ) | (187,465 | ) | |||||||||||||||
Impairment loss | - | - | (3,283 | ) | - | - | - | (3,283 | ) | |||||||||||||||||||
Foreign exchange effect | (42,117 | ) | (58,574 | ) | (28,827 | ) | (9,688 | ) | - | (2,637 | ) | (141,843 | ) | |||||||||||||||
Transfers – Note 24 (a) | 63,562 | 78,485 | (147,403 | ) | - | 173 | 1,192 | (3,991 | ) | |||||||||||||||||||
Remeasurement of asset retirement obligation | - | - | - | 20,777 | - | - | 20,777 | |||||||||||||||||||||
Balance at the end of the year | 550,325 | 802,526 | 349,069 | 83,632 | 156,725 | 26,174 | 1,968,451 | |||||||||||||||||||||
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 | ) | |||||||||||||||
Balance at the end of the year | 550,325 | 802,526 | 349,069 | 83,632 | 156,725 | 26,174 | 1,968,451 | |||||||||||||||||||||
Average annual depreciation rates % | - | 4 | 7 | - | 5 | 8 | - |
(i) Additions include capitalized borrowing costs in the amount of USD 8,719 for the year ended December 31, 2019 (December 31, 2018 – USD 10,037).
(ii) Increase in Assets and projects under construction is mainly due to the execution of Aripuanã project.
43 of 64
Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
24 | Intangible assets |
Accounting policy
Goodwill
Goodwill arising from business combinations is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net assets acquired. Goodwill is not amortized but is tested for impairment annually and whenever circumstances indicate that the carrying amount may not be recovered. Refer to note 31 for the Company’s impairment accounting policy.
Rights to use natural resources
Costs for the acquisition of rights to explore and develop mineral properties are capitalized and amortized as a cost of production using the units of production method over their useful lives. Useful lives consider the period of extraction for both mineral reserves and mineral resources, which includes a portion of the Company’s inferred resources in the Company’s mining operations.
The Company selected the physical unit model to compute amortization expenses under the units of production method. This model consists of amortization being calculated based on actual ore produced during the period compared to the total ore expected to be produced over the life of mine.
For purposes of impairment assessment, rights to use natural resources are allocated to cash generating units. Refer to note 31 for the Company’s impairment accounting policy.
Critical accounting estimates and judgments - Quantification of mineral reserves and resources for useful life calculation
The Company classifies measured, indicated and inferred resources based on the definitions of the Canadian Institute of Mining, Metallurgy and Petroleum (or CIM) Definition Standards for Mineral Resources and Mineral Reserves (or the 2014 CIM Definition Standards).
The useful life determination applied to the rights to use natural resources reflect the pattern in which the benefits are expected to be derived by the Company and is based on the estimated life of mine. Any changes to life of mine, based on new information regarding estimates of mineral reserves and mineral resources and mining plan, may affect prospectively the life of mine and amortization rates.
The estimation process of mineral reserves and mineral resources is based on a technical evaluation, which includes geological, geophysics, engineering, environmental, legal and economic estimates and may have relevant impact on the economic viability of the mineral reserves and mineral resources. These estimates are reviewed periodically, and any changes are reflected in the expected life of mine. Management is confident based on testing, continuity of the ore bodies and conversionexperience that a part of the inferred resources will be converted into measured and indicated resources, and if they are economically recoverable, and such inferred resources may also be classified as proven and probable mineral reserves. Where the Company can demonstrate the expected economic recovery with a high level of confidence, inferred resources are included in the calculation of amortization.
However, the future conversion of inferred resources is inherently uncertain and involves judgement and estimates that could have a material impact on the Company’s results of operations.
44 of 64
Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
(a) | Changes in the year |
2019 | ||||||||||||||||
Goodwill | Rights to use natural resources | Other | Total | |||||||||||||
Balance at the beginning of the year | ||||||||||||||||
Cost | 674,800 | 1,669,645 | 56,853 | 2,401,298 | ||||||||||||
Accumulated amortization | - | (620,600 | ) | (38,237 | ) | (658,837 | ) | |||||||||
Net balance | 674,800 | 1,049,045 | 18,616 | 1,742,461 | ||||||||||||
Additions | - | - | 56 | 56 | ||||||||||||
Disposals | - | - | (377 | ) | (377 | ) | ||||||||||
Amortization | - | (105,262 | ) | (2,332 | ) | (107,594 | ) | |||||||||
Impairment loss - Note 31 | - | (99,450 | ) | - | (99,450 | ) | ||||||||||
Transfers – Note 23 (a) | - | - | 4,782 | 4,782 | ||||||||||||
Foreign exchange effect | (155 | ) | (541 | ) | (656 | ) | (1,352 | ) | ||||||||
Balance at the end of the year | 674,645 | 843,792 | 20,089 | 1,538,526 | ||||||||||||
Cost | 674,645 | 1,569,504 | 59,409 | 2,303,558 | ||||||||||||
Accumulated amortization | - | (725,712 | ) | (39,320 | ) | (765,032 | ) | |||||||||
Net balance at the end of the year | 674,645 | 843,792 | 20,089 | 1,538,526 | ||||||||||||
Average annual amortization rates % | - | 6 | 19 |
2018 | ||||||||||||||||
Goodwill | Rights to use natural resources | Other | Total | |||||||||||||
Balance at the beginning of the year | ||||||||||||||||
Cost | 673,287 | 1,672,931 | 62,084 | 2,408,302 | ||||||||||||
Accumulated amortization | - | (543,927 | ) | (41,656 | ) | (585,583 | ) | |||||||||
Net balance | 673,287 | 1,129,004 | 20,428 | 1,822,719 | ||||||||||||
Disposals | - | (17 | ) | (11 | ) | (28 | ) | |||||||||
Amortization | - | (77,792 | ) | (1,932 | ) | (79,724 | ) | |||||||||
Transfers – Note 23 (a) | - | 1,463 | 2,528 | 3,991 | ||||||||||||
Foreign exchange effect | 1,513 | (3,613 | ) | (2,397 | ) | (4,497 | ) | |||||||||
Balance at the end of the year | 674,800 | 1,049,045 | 18,616 | 1,742,461 | ||||||||||||
Cost | 674,800 | 1,669,645 | 56,853 | 2,401,298 | ||||||||||||
Accumulated amortization | - | (620,600 | ) | (38,237 | ) | (658,837 | ) | |||||||||
Net balance at the end of the year | 674,800 | 1,049,045 | 18,616 | 1,742,461 | ||||||||||||
Average annual amortization rates % | - | 6 | 19 | - |
25 | Right-of-use assets and lease liabilities |
Accounting policy
Right-of-use assets represents the right to use an underlying asset for the lease term and lease liabilities represents the Company’s obligation to make lease payments arising from the lease.
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.
45 of 64
Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
The Company accounts for non-lease components such as service costs separately, whenever applicable. The Company’s lease terms may include options to extend or terminate the lease andwhen it is reasonably certain that we will exercise that option, the financial effect is included in the measurement of the contract.
Measurement
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 December 31, 2019, interest rates were between 6.67% to 11.39% for Brazil and 3.98% to 5.49% for Peru.
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 also includes any lease payments made and it is amortized over the shorter of the asset’s useful life and the lease term on a straight-line basis. Amortization expenses are classified either in cost of sales or administrative expenses based on the designation of the related assets.
46 of 64
Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
(a) | Right-of-use assets - Changes in the year |
2019 | ||||||||||||||||||||
Buildings | Machinery, equipment, and facilities | IT equipment | Vehicles | Total | ||||||||||||||||
At January 1 | 4,312 | 8,536 | 5,846 | 22,827 | 41,521 | |||||||||||||||
New contracts | 2,525 | 181 | - | 811 | 3,517 | |||||||||||||||
Amortization | (1,569 | ) | (2,878 | ) | (3,675 | ) | (8,103 | ) | (16,225 | ) | ||||||||||
Reclassification – Note 5 (a) | - | 2,278 | - | - | 2,278 | |||||||||||||||
Foreign exchange effect | (1 | ) | (715 | ) | - | (828 | ) | (1,544 | ) | |||||||||||
At the end of the year | 5,267 | 7,402 | 2,171 | 14,707 | 29,547 | |||||||||||||||
Average annual amortization rates % | 24 | 35 | 63 | 36 |
(b) | Lease liabilities - Changes in the year |
2019 | ||||
At January 1 | 41,450 | |||
New contracts | 3,517 | |||
Payments of lease liabilities | (13,280 | ) | ||
Interest paid | (3,259 | ) | ||
Interest accrued | 3,418 | |||
Reclassification – Note 5 (a) | 3,087 | |||
Foreign exchange effect | (549 | ) | ||
At the end of the year | 34,384 | |||
Current liabilities | 16,474 | |||
Non-current liabilities | 17,910 |
(c) | Maturity profile |
2019 | ||||||||||||||||||||||||
2020 | 2021 | 2022 | 2023 | As from 2024 | Total | |||||||||||||||||||
U.S. Dollar | 12,436 | 6,697 | 6,338 | 866 | 83 | 26,420 | ||||||||||||||||||
Real | 5,467 | 1,412 | 550 | 498 | 37 | 7,964 | ||||||||||||||||||
17,903 | 8,109 | 6,888 | 1,364 | 120 | 34,384 |
26 | Loans and financings |
Accounting policy
Loans and financings are recognized initially at fair value, net of transaction costs incurred, and are subsequently measured at amortized cost. Any difference between the proceeds (net of transaction costs) and the total amount payable is recognized in the income statement as interest expense over the period of the loans using the effective interest rate method.
Loans and financings are classified as current liabilities unless the Company has the unconditional right to defer repayment of the liability for at least 12 months after the reporting period.
Fees paid on the establishment of loan facilities are recognized as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the drawdown occurs.
To the extent that there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalized as a prepayment for liquidity services and amortized over the period of the facility to which it relates.
47 of 64
Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
(a) | Composition |
2019 | 2018 | |||||||||||||||||||
Type | Average interest rate | Current | Non-current | Total | Total | |||||||||||||||
Eurobonds - USD | Fixed + 5.13% | 8,680 | 1,035,068 | 1,043,748 | 1,042,571 | |||||||||||||||
Debt with banks | LIBOR + 1.27% | - | 197,926 | 197,926 | 197,292 | |||||||||||||||
TJLP + 2.82% | ||||||||||||||||||||
BNDES | SELIC + 3.10% | 7,454 | 87,841 | 95,295 | 89,925 | |||||||||||||||
TLP - IPCA + 5,22% | ||||||||||||||||||||
Debentures | 107.50% CDI | 6,952 | 13,313 | 20,265 | 28,188 | |||||||||||||||
Export credit note | LIBOR + 1,54% | 811 | 96,567 | 97,378 | - | |||||||||||||||
Other | 9,252 | 44,693 | 53,945 | 66,891 | ||||||||||||||||
33,149 | 1,475,408 | 1,508,557 | 1,424,867 | |||||||||||||||||
Current portion of long-term loans and financing (principal) | 21,196 | |||||||||||||||||||
Interest on loans and financings | 11,953 |
(b) | Maturity profile |
2019 | ||||||||||||||||||||||||||||
2020 | 2021 | 2022 | 2023 | 2024 | As from 2025 | Total | ||||||||||||||||||||||
Eurobonds - USD | 8,680 | - | - | 341,828 | - | 693,240 | 1,043,748 | |||||||||||||||||||||
Debt with banks | - | 79,195 | 79,254 | 39,477 | - | - | 197,926 | |||||||||||||||||||||
BNDES | 7,454 | 9,035 | 14,353 | 14,353 | 14,006 | 36,094 | 95,295 | |||||||||||||||||||||
Debentures | 6,952 | 6,656 | 6,657 | - | - | - | 20,265 | |||||||||||||||||||||
Export credit note | 811 | 198 | 197 | 199 | 95,973 | - | 97,378 | |||||||||||||||||||||
Other | 9,252 | 9,184 | 8,033 | 8,023 | 7,737 | 11,716 | 53,945 | |||||||||||||||||||||
33,149 | 104,268 | 108,494 | 403,880 | 117,716 | 741,050 | 1,508,557 |
(c) | Changes in the year |
2019 | 2018 | |||||||
Balance at the beginning of the year | 1,424,867 | 1,447,299 | ||||||
New loans and financing | 105,974 | 292,901 | ||||||
Payments of loans and financings | (19,437 | ) | (295,104 | ) | ||||
Foreign exchange effect | (1,114 | ) | (5,777 | ) | ||||
Gain on debt modification | - | (3,428 | ) | |||||
Reclassification - note 5(a) | (3,490 | ) | - | |||||
Interest accrual | 73,561 | 61,385 | ||||||
Interest paid | (71,804 | ) | (72,409 | ) | ||||
Balance at the end of the year | 1,508,557 | 1,424,867 |
48 of 64
Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
(d) | Analysis by currency |
2019 | 2018 | |||||||||||||||
Current | Non-current | Total | Total | |||||||||||||
USD | 17,125 | 1,372,337 | 1,389,462 | 1,301,395 | ||||||||||||
BRL | 16,024 | 103,071 | 119,095 | 123,472 | ||||||||||||
33,149 | 1,475,408 | 1,508,557 | 1,424,867 |
(e) | Analysis by index |
2019 | 2018 | |||||||||||||||
Current | Non-current | Total | Total | |||||||||||||
Fixed rate | 8,989 | 1,035,575 | 1,044,564 | 1,047,245 | ||||||||||||
LIBOR | 8,333 | 337,268 | 345,601 | 255,333 | ||||||||||||
TLP | 6,063 | 47,649 | 53,712 | 58,486 | ||||||||||||
BNDES SELIC | 867 | 25,103 | 25,970 | 19,447 | ||||||||||||
CDI | 6,952 | 13,313 | 20,265 | 28,188 | ||||||||||||
TJLP | 1,833 | 16,500 | 18,333 | 16,168 | ||||||||||||
Other | 112 | - | 112 | - | ||||||||||||
33,149 | 1,475,408 | 1,508,557 | 1,424,867 |
(f) | Bonds |
On May 4, 2017, NEXA issued an aggregate principal amount of USD 700,000 in unsecured bonds set to mature in 2027 at an interest rate of 5.375% per year. The proceeds from this offering were used to repay a portion of existing consolidated debt with banks, thereby extending the maturity of outstanding debt. These securities are guaranteed by NEXA BR, NEXA PERU and NEXA CJM.
On March 28, 2013, NEXA PERU conducted a bond offering in the international market for USD 350,000, at an annual fixed interest rate of 4.625% to be paid semi-annually. These financial instruments have a term of ten years and will be redeemed on March 28, 2023.
(g) | Loans |
On May 22, 2018, the Company entered into a term loan agreement in the principal amount of USD 100,000, maturing in May 2023 and with a cost of six-month LIBOR plus 1.27% p.a. Proceeds from this transaction were used to prepay a term loan with interest rate of three-month Libor plus 2.55% p.a. No gain or loss were recognized on the early payment of the debt. This loan is guaranteed by NEXA CJM and NEXA BR.
On June 27, 2018, the Company entered into an export credit agency (ECA) facility, amounting to USD 62,500. The proceeds of this facility were used to finance the purchase of machinery and equipment. The facility matures in June 2026 and has an interest rate of six-month LIBOR plus 1.10% p.a.
(h) | Renegotiation of debt in prior years |
On May 22, 2018, the Company renegotiated a term loan with principal amount of USD 100,000, maturity of November 2021 and cost of six-month LIBOR plus 2.50% p.a. The renegotiated debt with the same counterparty has a maturity of May 2023 and a cost of six-month LIBOR plus 1.27% p.a.
49 of 64
Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
This transaction was accounted for as debt modification due to non-substantial modifications made to the original debt and a gain of USD 3,428 was recognized in Net financial results. This loan is guaranteed by NEXA CJM and NEXA BR.
On December 27, 2018, NEXA BR renegotiated contractual terms with BNDES comprising loans of a total principal amount of USD 58,990 (equivalent to BRL 228,573), original maturity dates from 2019 until 2023 and subjected to interest rates of TJLP plus spread (between 2.36% and 2.48% p.a.) or SELIC plus spread (between 2.48% to 2.72% p.a.). The renegotiated debts with the same counterparty have the final maturity in December 2028 and are subjected to a cost of TLP plus spread (between 2.09% to 2.29% p.a.) and replaces the guarantor from VSA to NEXA. This transaction was accounted for as a debt extinguishment due to the substantial modifications made to the original debt and no gain or loss was recognized in the income statement.
(i) | 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”.
(j) | Revolving credit facility |
The Company has a revolving credit facility with a syndicate of lenders that was issued on October 25, 2019, 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 were capitalized and amortized over the contractual term impacting the financial results. At December 31, 2019, the Company has not used this revolving credit facility.
(k) | 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 three-month Libor + 1.5% p.a., with a 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 accounted for the Export Credit Note under the fair value option to eliminate the accounting mismatch that would arise if amortized cost were used.
(l) | Guarantees and covenants |
At December 31, 2019, NEXA is the guarantor of NEXA BR’s loans with BNDES in the amount of USD 95,925.
The Company has borrowings that are subject to financial covenants at the consolidated level, such as: (i) the gearing ratio (net debt/adjusted EBITDA); (ii) the capitalization ratio (total debt/total debt + shareholders’ equity or shareholders’ equity/total assets); and (iii) interest coverage ratio (cash + adjusted EBITDA/interest + short-term debt). When applicable, these compliance obligations are standardized for all borrowing agreements. No changes to the contractual guarantees or to the financial covenants occurred in year ended December 31, 2019. At December 31, 2019, the Company was in compliance with all applicable covenants.
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Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
27 | Asset retirement and environmental obligations |
Accounting policy
Provision is made for asset retirement obligation, restoration and environmental costs when the liability arises due to the development or mineral production of an operating asset, based on the net present value of estimated closure costs. Management uses its judgment and previous experience to determine the potential scope of rehabilitation work required and the related costs associated with that work.
The cash flows are discounted to present value using a credit risk-adjusted rate that reflects current market assessments of the time value of the money and the specifics risks for the asset to be restored. The interest rate charges relating to the liability are recognized as an accretion expense in net financial results. Difference in the settlement amount of the liability are recognized in the income statement.
Critical accounting estimates and judgments - Asset retirement obligations
The initial recognition and the subsequent revisions of the asset retirement obligation considers critical future closure costs estimates and several assumptions such as interest rates, inflation and useful lives of the assets. These estimates are reviewed quarterly by the Company.
Cost estimates can vary in response to many factors of each site that include timing, expected life of mine, changes to the relevant legal or government requirements and commitments with stakeholders, review of remediation and relinquishment options, emergence of new restoration techniques, among others.
External experts support the cost estimation process where appropriate. These factors either isolated or consolidated could significantly affect the future financial results and balance sheet position. At December 31, 2019, the credit risk-adjusted rate used for Peru was between 5.2% to 7.8% (2018: 3.4% to 9.5%) and for Brazil was between 3.5% to 5.3% (2018: 3% to 5.4%).
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Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
(a) | Changes in the year |
Asset retirement | Environmental | 2019 | 2018 | |||||||||||||
obligation | Obligations | Total | Total | |||||||||||||
Balance at the beginning of the year | 185,553 | 84,730 | 270,283 | 283,280 | ||||||||||||
Addition | 777 | - | 777 | |||||||||||||
Payments | (2,893 | ) | (11,657 | ) | (14,550 | ) | (4,678 | ) | ||||||||
Foreign exchange effect | (1,258 | ) | (3,043 | ) | (4,301 | ) | (27,396 | ) | ||||||||
Interest accrual | 9,528 | 3,897 | 13,425 | 20,703 | ||||||||||||
Remeasurement discount rate | (1.158 | ) | (2,477 | ) | (3,635 | ) | 13,492 | |||||||||
Changes in amount and time of cash flows (i) | 31,828 | - | 31,828 | - | ||||||||||||
Reversals | - | - | - | (15,119 | ) | |||||||||||
Balance at the end of the year | 222,377 | 71,450 | 293,827 | 270,282 | ||||||||||||
Current liabilities | - | 19,001 | 19,001 | 20,357 | ||||||||||||
Non-current liabilities | 222,377 | 52,449 | 274,826 | 249,925 |
(i) As part of its annual asset retirement obligation review, the Company increased its expectation of disbursements on decommissioning obligations in certain operations. Property, plant and equipment has been increased by the same amount.
28 | Provisions |
Accounting policy
Provisions for legal claims and judicial deposits
Provisions for legal claims are recognized when: (i) the Company has a present legal or constructive obligation as a result of past events; (ii) it is probable that an outflow of resources will be required to settle the obligation; and (iii) the amount can be reliably estimated. The provisions are periodically estimated, and the likelihood of losses is supported by the Company's legal counsel.
Provisions are measured at the present value of the expenditure expected to be required to settle the obligation using a discount rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognized as "Financial expenses".
When a claim is secured by a judicial deposit, the Company offsets the provision with the judicial deposit amount in the consolidated balance sheet. However, the Company also has judicial deposits for claims for which the likelihood of loss is possible or remote and for which no provision is recognized. In such cases, these amounts are recognized as outstanding judicial deposits in the Company’s assets.
Critical accounting estimates – Provisions for legal claims
The Company is part of ongoing labor, civil, tax and environmental lawsuits which are pending at different court levels. The provisions for potentially unfavorable outcomes of litigation in progress are established and updated based on management evaluation, as supported by the positions of external legal counsel, and require a high level of judgment regarding the matters involved. Income taxes claims are discussed at the current and deferred income taxes section (Note 10).
Contingent liabilities
Legal claims that have a possible likelihood that an obligation will arise are disclosed in the Company’s financial statement. The Company does not recognize a liability because it is unlikely that an outflow of resources will be required or because the amount of the liability cannot be reliably calculated.
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Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
(a) | Breakdown of legal claims provisions |
The provisions and the corresponding judicial deposits are as follows:
2019 | 2018 | ||||||||||||||||||||||||
Judicial deposits | Provisions | Carrying amount | Judicial deposits | Provisions | Carrying amount | ||||||||||||||||||||
Tax | (2,449 | ) | 10,197 | 7,748 | (2,048 | ) | 14,116 | 12,068 | |||||||||||||||||
Labor | (3,071 | ) | 16,850 | 13,779 | (4,258 | ) | 16,446 | 12,188 | |||||||||||||||||
Civil | (832 | ) | 1,893 | 1,061 | (746 | ) | 2,117 | 1,371 | |||||||||||||||||
Environmental | - | 3,483 | 3,483 | - | 5,014 | 5,014 | |||||||||||||||||||
(6,352 | ) | 32,423 | 26,071 | (7,052 | ) | 37,693 | 30,641 |
The outstanding judicial deposits of the Company as of December 31, 2019 are USD 7,281 (2018: USD 9,230).
(b) | Changes in the year |
2019 | 2018 | |||||||||||||||||||||||
Tax | Labor | Civil | Environmental | Total | Total | |||||||||||||||||||
Balance at beginning of the year | 12,068 | 12,188 | 1,371 | 5,014 | 30,641 | 57,881 | ||||||||||||||||||
Additions | 4,218 | 6,016 | 404 | 1,374 | 12,012 | 21,902 | ||||||||||||||||||
Reversals | (1,311 | ) | (4,546 | ) | (383 | ) | (2,593 | ) | (8,833 | ) | (46,993 | ) | ||||||||||||
Interest accrual | 522 | 1,454 | 91 | (19 | ) | 2,048 | 2,499 | |||||||||||||||||
Payments | (2,723 | ) | (2,030 | ) | (240 | ) | (270 | ) | (5,263 | ) | - | |||||||||||||
Foreign exchange effect | 1,489 | (310 | ) | (52 | ) | (23 | ) | 1,104 | (4,514 | ) | ||||||||||||||
Adoption of IFRIC 23 – Note 5(b) | (6,047 | ) | - | - | - | (6,047 | ) | - | ||||||||||||||||
Other | (468 | ) | 1,007 | (130 | ) | - | 409 | (134 | ) | |||||||||||||||
Balance at the end of the year | 7,748 | 13,779 | 1,061 | 3,483 | 26,071 | 30,641 |
(c) | Summary of contingent liabilities |
The Company is a party to other litigation involving a risk of possible loss, for which no provision has been recognized, as detailed below:
2019 | 2018 | ||||||||
Tax | 196,031 | 137,170 | |||||||
Labor | 39,918 | 39,079 | |||||||
Civil | 21,549 | 20,130 | |||||||
Environmental | 112,920 | 119,747 | |||||||
370,418 | 316,126 |
(i) | Comments on contingent tax liabilities |
The main contingent liabilities relating to tax lawsuits are discussed below.
Income tax over transfers of shares in Peru
Relates to assessments issued by the Peruvian internal revenue services, where the Company was jointly and severally liable for the payment of income tax by a foreign investor, in a supposed capital gain on transfer of shares. The estimated financial effect of this contingent liability is USD 97,020.
Compensation for exploration for mineral resources
Relates to assessments issued by the Brazilian National Department of Mineral Production for the alleged failure to pay or underpayment of financial compensation for the exploration of mineral resources (“CFEM”). The estimated financial effect of this contingent liability is USD 17,932.
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Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
Indirect taxes on sales
Relates to assessments issued by the Brazilian Internal Revenue Service concerning certain creditstaken by the Company when calculating those indirect taxes on sales. The estimated financial effect of this contingent liability is USD 5,589.
Value-added tax on sales
Relates to assessments issued by the tax authorities of the State of Minas Gerais concerning the following:
• | Incidence of value-added tax on sales of certain energy contracts. The estimated financial effect of this contingent liability is USD 29,098. |
• | The tax rate applied to interstate sales for manufactured goods with imported content. The estimated financial effect of this contingent liability is USD 4,055. |
• | The Company was challenged by the tax authorities regarding certain credits to the purchases of property, plant and equipment. The estimated financial effect of this contingent liability is USD 7,830. |
(ii) | Comments on contingent labor liabilities |
Include several claims filed by former employees, third parties and labor unions, mostly claiming the payment of indemnities on dismissals, health hazard premiums and hazardous duty premiums, overtime and commuting hours, as well as indemnity claims by former employees and third parties based on alleged occupational illnesses and work accidents. The individual amount of the claims are not material.
(iii) | Comments on contingent civil liabilities |
The main contingent civil liability is related to indemnity lawsuits against the Company alleging property damage, pain and suffering. The estimated financial effect of this contingent liability is USD 10,294.
(iv) | Comments on contingent environmental liabilities |
The main contingent environmental liabilities were filed by fishermen communities against the Company for indemnification, compensation for material and moral damages due to alleged pollution of the São Francisco River near the Company’s Três Marias operation in Brazil. The estimated financial effect of these contingent liabilities is USD 95,664.
29 | Contractual liabilities |
In 2016, the Company entered into a silver streaming arrangement, which consisted of an upfront payment of USD 250,000 for the anticipated sale of a portion of the silver contained in the ore concentrates produced by the Cerro Lindo mining unit. The prepaid amount was recognized as a contractual liability and the corresponding revenue is recognized as the silver is delivered, which is the time that the contractual performance obligations are satisfied.
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Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
The changes in the contractual liabilities are shown below:
2019 | 2018 | |||||||
Balance at the beginning of the year | 199,637 | 221,885 | ||||||
Revenue recognition upon ore delivery | (25,660 | ) | (29,543 | ) | ||||
Accretion for year | 6,545 | 7,295 | ||||||
Balance at the end of year | 180,522 | 199,637 | ||||||
Current | 26,351 | 31,992 | ||||||
Non-current | 154,171 | 167,645 |
30 | Shareholders’ equity |
Accounting policy
Common shares are classified in shareholders’ equity. Each time a share premium is paid to the Company for an issued share, the respective share premium is allocated to the share premium account. Each time the repayment of a share premium is decided, such repayment shall be done pro-rata to the existing shareholders.
The distribution of dividends to the Company’s shareholders is recognized as a liability in the Company’s consolidated financial statements in the period in which the dividends are approved by the Company’s shareholders.
Shares repurchased under the Company’s buyback program and that are not cancelled, are reported as treasury shares and are deducted from shareholders’ equity. These shares are also deducted in earnings per share calculation.
(a) | Capital |
As of December 31, 2019, the outstanding capital of USD 133,320 (2018: 133,320) is comprised of 133,320 thousand subscribed and issued common shares (2018: 133,320 thousand), with par value of US$ 1.00 per share. In addition to the subscribed and issued common shares, NEXA also has an authorized, but unissued and unsubscribed share capital set at USD 231,925.
(b) | Treasury shares |
On September 20, 2018, the Company’s Board of Directors approved a share buyback program to repurchase up to USD 30,000 of its outstanding common shares, over the 12-month period beginning on November 6, 2018 and ending on November 6, 2019. The repurchased shares will not be cancelled but held in treasury at this time. As of December 31, 2019, the Company had repurchased USD 9,435, corresponding to 881,922 shares.
(c) | Share premium |
The share premium, if any, may be distributed to the shareholders in accordance with Luxembourg Commercial Companies Act by a resolution of the Board of Directors.
(d) | Additional paid in capital |
Additional paid in capital arises from transactions recognized in equity that do not qualify as capital or share premium in accordance with Luxembourg Commercial Companies Act and, therefore, cannot be distributed to the shareholders of the Company.
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Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
(e) | Accumulated other comprehensive income (loss) |
The changes in the accumulated other comprehensive income (loss) are as follows:
Cumulative translation adjustment | Remeasurements of retirement benefits | Hedge accounting | Total | |||||||||||||
At January 01, 2017 | (89,087 | ) | 3,327 | (9,980 | ) | (95,740 | ) | |||||||||
Translation adjustment on foreign investments | (10,742 | ) | - | - | (10,742 | ) | ||||||||||
Cash flow hedge accounting | - | - | 12,556 | 12,556 | ||||||||||||
Remeasurements of retirement benefits | - | (3,327 | ) | - | (3,327 | ) | ||||||||||
At December 31, 2017 | (99,829 | ) | - | 2,576 | (97,253 | ) | ||||||||||
Translation adjustment on foreign investments | (9,959 | ) | - | - | (9,959 | ) | ||||||||||
Cash flow hedge accounting | - | - | (2,192 | ) | (2,192 | ) | ||||||||||
At December 31, 2018 | (109,788 | ) | - | 384 | (109,404 | ) | ||||||||||
Translation adjustment on foreign investments | (54,765 | ) | - | - | (54,765 | ) | ||||||||||
Cash flow hedge accounting | - | - | 879 | 879 | ||||||||||||
At December 31, 2019 | (164,553 | ) | - | 1,263 | (163,290 | ) | ||||||||||
Attributable to non-controlling interests | (23,034 | ) | ||||||||||||||
Attributable to NEXA's shareholders | (140,256 | ) |
(f) | Earnings per share |
Basic earnings per share are computed by dividing the net income attributable to the NEXA’s shareholders by the average number of outstanding shares for the year. Diluted earnings per share is computed in a similar way, but with the adjustment in the denominator when assuming the conversion of all shares that may be dilutive. The Company does not have any dilutive shares and consequently the basic and diluted earnings per share are the same.
2019 | 2018 | 2017 | ||||||||||
Net income(loss) for the year attributable to NEXA's shareholders | (146,626 | ) | 74,860 | 126,885 | ||||||||
Weighted average number of outstanding common shares (thousands) | 132,622 | 133,313 | 116,527 | |||||||||
Earnings per share in US Dollars | (1.11 | ) | 0.56 | 1.09 |
(g) | Karmin acquisition agreement |
The Company, through its subsidiary Votorantim Metals Canada Inc., acquired Karmin Exploration Inc. (“Karmin”), a public company listed on the TSX Venture Exchange (Canada) and the Lima Stock Exchange (Peru), for an aggregate acquisition price of USD 70,000. Karmin indirectly held the minority 30.0% interest of Mineração Dardanelos Ltda.(“Dardanelos”), owner of the Aripuanã project, not otherwise owned by the Company. On October 16, 2019, the transaction was approved by Karmin’s shareholders and it closed on October 30, 2019, when the articles of arrangement were filed and the aggregate consideration was paid.
The acquisition price contemplated (i) the acquisition of 89,945,479 common shares, representing 100% of the issued and outstanding 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.
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Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
On November 1 and 4, 2019, Karmin delisted its shares from the TSX Venture Exchange and the Lima Stock Exchange, respectively. At the date of the delisting, the Company owned 100% of the outstanding Karmin shares. On November 5, 2019 Votorantim Metals Canada Inc. and Karmin were amalgamated and Karmin ceased to exist.
The transaction was accounted for as a transaction with non-controlling interests, as the Company already controlled Dardanelos at the acquisition date. An amount of USD 37,404 related to the difference between the transaction’s acquisition price and the carrying amount of the non-controlling interest held prior to the acquisition was recognized in equity attributable to the NEXA’s shareholders.
(h) | 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.
(i) | Non-controlling interests |
Summarized balance sheet | NEXA PERU | Pollarix S.A. | ||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Current assets | 725,103 | 957,821 | 24,365 | 10,280 | ||||||||||||
Current liabilities | 23,736 | 248,938 | 15,058 | 3,459 | ||||||||||||
Current net assets | 701,367 | 708,883 | 9,307 | 6,821 | ||||||||||||
Non-current assets | 695,712 | 642,007 | 125,335 | 91,702 | ||||||||||||
Non-current liabilities | 602,357 | 581,172 | 35,872 | 21,478 | ||||||||||||
Non-current net assets | 93,355 | 60,835 | 89,463 | 70,224 | ||||||||||||
Net assets | 794,722 | 769,718 | 98,770 | 77,045 | ||||||||||||
Accumulated non-controlling interests | 313,818 | 373,838 | 65,846 | 51,363 |
Summarized income statement | NEXA PERU | Pollarix S.A. | ||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net revenues | 745,181 | 827,537 | 83,597 | 11,916 | ||||||||||||
Net income for the year | 11,370 | 142,082 | 50,350 | 3,742 | ||||||||||||
Other comprehensive income | - | - | 1,552 | (15,322 | ) | |||||||||||
Total comprehensive income for the year | 11,370 | 142,082 | 51,902 | (11,580 | ) | |||||||||||
Comprehensive income (loss) attributable to non-controlling interests | (6,918 | ) | 13,621 | 1,619 | (7,724 | ) | ||||||||||
Dividends paid to non-controlling interests | 30,427 | - | 10,867 | 2,137 |
Summarized statement of cash flows | NEXA PERU | Pollarix S.A. | ||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net cash provided by (used in) operating activities | 43,341 | 232,391 | (55,426 | ) | 7,201 | |||||||||||
Net cash (used in) provided by investing activities | (111,268 | ) | (76,695 | ) | 36,152 | (762 | ) | |||||||||
Net cash provided by (used in) financing activities | (200,248 | ) | - | 9,564 | (6,441 | ) | ||||||||||
Increase (decrease) in cash and cash equivalents | (268,175 | ) | 155,696 | (9,710 | ) | (2 | ) |
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Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
31 | Impairment of non-current assets |
Accounting policy
Impairment of goodwill
As part of the impairment testing procedures, the goodwill arising from business combination is allocated to a CGU or groups of CGUs that are expected to benefit from the related business combination and is tested at the lowest level that goodwill is monitored by management. Goodwill is tested annually for impairment as at September 30, regardless of whether there has been an impairment indicator or, more frequently, if circumstances indicate that the carrying amount may not be recovered.
Impairment of non-financial assets
The Company assesses, at each reporting date, whether there are indicators that the carrying amount of an asset or CGU may not be recovered. If any indicator exists, such as change in forecasted commodity prices, significant increase in operational costs, significant decrease in production volumes, reduction in life of mine, cancelation or significant reduction in scope of a project, market conditions or unusual events that can affect the business, the Company estimates the asset’s or CGU’s recoverable amount.
The recoverable amount is estimated by reference to the higher of an asset’s or CGU’s fair value less cost of disposal and its value in use (being the net present value of expected future cash flows of an asset or CGU in its current condition). The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case, the asset is tested as part of a larger CGU to which it belongs.
If the carrying amount of an asset or CGU exceeds its recoverable amount, the asset or CGU is considered impaired and is reduced to its recoverable amount. Non-financial assets other than goodwill that were adjusted due to impairment are subsequently reviewed for possible reversal of the impairment at each reporting date. Generally, the opposite of indicators that gave rise to an impairment loss would be considered indicators that impairment losses might have reversed. If the underlying reasons for the original impairment have been removed or the service potential of the asset or CGU has increased, assessment of impairment reversals is performed by the Company. Reversals of impairment losses that arise simply from the passage of time are not recognized.
Impairment of exploration assets and development projects
Exploration assets representing mineral rights acquired in business combinations included in intangible assets and development projects at the FEL 3 stage included in property, plant and equipment are tested for impairment in aggregation with CGU or groups of CGUs that include producing assets. The allocation of exploration assets and development projects to CGUs or group of CGUs is based on 1) expected synergies or share of producing assets infrastructure, 2) legal entity level and 3) country level. When testing a CGU or a group of CGUs that include exploration assets and development projects, the Company performs the impairment test in two steps. In the first step, producing assets our group of producing assets are tested for impairment on an individual basis. In the second step, exploration assets and development projects are allocated to a CGU or a group of CGUs and tested for impairment on a combined basis.
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Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
Valuation methods and assumptions for recoverable amount
Fair value less cost of disposal (FVLCD)
FVLCD is an estimate of the price that the Company would receive to sell an asset, CGU or group of CGUs in an orderly transaction between market participants at the measurement date, less the cost of disposal. FVLCD is not an entity-specific measurement but is focused on market participants’ assumptions for a particular asset. FVLCD is estimated by the Company using discounted cash flows techniques and, although the Company considers observable inputs, a substantial portion of the assumptions used in the calculations are unobservable. These cash flows are classified as level 3 in the fair value hierarchy. No CGUs are currently assessed for impairment by reference to a recoverable amount based on FVLCD classified as level 1 or level 2.
Value in use (VIU)
VIU is determined as the present value of the estimated future cash flows expected to arise from the continued use of the asset in its current condition and its residual value. VIU is determined by applying assumptions specific to the Company’s continued use and does not consider enhancements or future developments. These assumptions are different to those used in calculating FVLCD and consequently the VIU calculation is likely to give a different result (usually lower) than a FVLCD calculation.
Forecast assumptions
The cash flow forecasts are based on management’s best estimates of expected future revenues and costs, including the future cash costs of production, capital expenditure, and closure, restoration and environmental costs. The resulting estimates are based on detailed life-of-mine and/or long-term production plans. When calculating FVLCD, these forecasts may include anticipated expansions which are at the evaluation stage of study.
The cash flow forecasts may include net cash flows expected to be realized from the extraction, processing and sale of material that does not currently qualify for inclusion in ore reserves. Such non-reserve material is only included when the Company has confidence it will be converted to reserve. This expectation is usually based on preliminary drilling and sampling of areas of mineralization that are contiguous with existing ore reserves. Typically, the additional evaluation required to conversion to reserves for such material has not yet been done because this would involve incurring evaluation costs earlier than is required for the efficient planning and operation of the producing mine.
For the purposes of determining FVLCD from a market participant’s perspective, the cash flows incorporate management’s price forecast. The price forecasts used for ore reserve estimation and the Company’s strategic planning are generally consistent with those used for impairment testing.
Cost levels incorporated in the cash flow forecasts are based on the current life-of-mine plan or long-term production plan for the CGU, which are based on detailed research, analysis and iterative modelling to optimize the level of return from investment, output and sequence of extraction. The mine plan takes account of all relevant characteristics of the orebody, including waste-to-ore ratios, ore grades, haul distances, chemical and metallurgical properties of the ore impacting process recoveries and capacities of processing equipment that can be used. The life-of-mine plan and/or long-term production plans are, therefore, the basis for forecasting production output and production costs in each future year.
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Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
The discount rates applied to the future cash flow forecasts represent the Company’s estimate of the rate that a market participant would apply having regard to the time value of money and the risks specific to the asset for which the future cash flow estimates have not been adjusted. The Company’s weighted average cost of capital is generally used for determining the discount rates, with appropriate adjustments for the risk profile of the countries in which the individual CGUs operate. With respect to the estimated future cash flows of capitalized exploration assets and development projects in FEL 3 stage, the Company applies a price to net assets value ratio discount in order to reflect the inherent risk of such projects and that are neither adjusted in the discount rate nor in the future cash flows. The discount is based on the stage of the project and type of metal.
Critical accounting estimates and judgments - Impairment of non-current assets
Impairment is assessed at the CGU level. A CGU is the smallest identifiable asset or group of assets that generates independent cash inflows. Judgment is applied to identify the Company’s CGUs, particularly when assets belong to integrated operations, and changes in CGUs could impact impairment charges and reversals. When applying its judgment in grouping CGUs, the Company concluded that its mining operations in Vazante and Morro Agudo should be grouped with its Três Marias smelter operation, as these two mines are vertically integrated operations. Also, the Company concluded that Shalipayco greenfield project should be grouped with the Cerro Pasco CGU as the current plan, as determined in the scoping study of the project, is to integrate Shalipayco to the Cerro Pasco complex.
External and internal factors are monitored for impairment indicators and include quarterly internal review of impairment indicators. Judgment is required to determine whether the impact of adverse spot commodity price movements is significant and structural in nature. Also, the Company’s assessment whether internal factors such as increase in production costs and delay in projects result in impairment indicators requires significant judgment.
The process of estimating the recoverable amount involves the use of assumptions, judgment and projections for future cash flows. These calculations use cash flow projections, based on approved financial and operational budgets for a five-year period. After the five-year period, the cash flows are extended until the end of the useful life of mine or indefinitely for the smelters. The smelters cash flows do not use growth rates in the cash flow projections of the terminal value. Management’s assumptions and estimates of future cash flow used for the Company’s impairment testing of goodwill and non-financial assets are subject to risk and uncertainties, including metal prices and macroeconomic conditions, which are particularly volatile and partially or totally outside the Company’s control. Future changes in these variables may differ from management’s expectations and may materially change the recoverable amounts of the CGUs.
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Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
Impairment analysis
When performing its annual impairment assessments, the Company identified the following impairment indicators:
• A reduction in the life of mine of Cerro Pasco Complex operations due to a decrease in mineral reserves and resources estimates;
• The spot average zinc LME prices declined substantially in comparison with prior year;
• The carrying amount of the net assets of the Company is persistently above the Company’s market value.
The Company concluded that the combination of these indicators could result in the recoverable amount of its cash-generating units being lower than the carrying amount. An impairment test of all the Company´s CGUs was performed. Below is a summary of the CGUs’ carrying amounts tested for impairment as at September 30, 2019:
Goodwill | Fair value of identifiable assets (iii) | Other net assets carrying amount | Total carrying amount | |||||||||||||
Cerro Lindo (i) | - | 386,255 | 185,697 | 571,952 | ||||||||||||
Cerro Pasco (i) | - | 318,218 | 204,045 | 522,263 | ||||||||||||
Mining Peru (ii) | 578,280 | 704,473 | 389,742 | 1,672,495 | ||||||||||||
Cajamarquilla | 92,494 | - | 719,698 | 812,192 | ||||||||||||
Três Marias system (ii) | - | - | 571,277 | 571,277 | ||||||||||||
Aripuanã | - | - | 67,337 | 67,337 | ||||||||||||
Juiz de Fora | - | - | 177,445 | 177,445 | ||||||||||||
670,774 | 704,473 | 1,925,499 | 3,300,746 |
(i) Includes exploration assets and development projects with capitalized mining rights and development costs allocated.
(ii) Represents the lowest level within the Company at which the goodwill generated in the acquisition of NEXA PERU is monitored by the Company’s management.
(ii) Currently Três Marias smelter is integrated with the mining operations of Vazante and Morro Agudo and, therefore, are considered as a single CGU.
(iii) Corresponds to the fair value of the identifiable intangible assets in the acquisition of NEXA PERU, which are recognized at the consolidated level.
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Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
(a) | Key assumptions used in impairment test |
The recoverable amount of each CGUs was determined based on FVLCD method, which was higher than the value in use.
The Company identified long-term metal prices, 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 recoverable value. These assumptions are summarized below:
September 30, 2019 | September 30, 2018 | |||||||
Long-term zinc (USD/t) | 2,571 | 2,517 | ||||||
Discount rate (Brazil) | 7.10 | % | 7.13 | % | ||||
Discount rate (Peru) | 6.38 | % | 6.30 | % | ||||
Brownfield projects - LOM (years) | from 8 to 13 | from 9 to 21 | ||||||
Greenfield projects - LOM (years) | from 12 to 24 | from 12 to 24 |
(b) | Impairment test process |
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 (refer to note 31(c)).
The second step was to test whether the goodwill allocated to a CGU or a group of CGUs was recoverable. In performing this analysis, the recoverable amount of Cerro Lindo and Cerro Pasco were 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 by management. This aggregated recoverable amount is compared with the aggregated carrying amount of the CGUs. No impairment loss was verified at this level.
(c) | Impairment loss – Cerro Pasco CGU |
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 on a pro rata basis to the following assets:
Carrying amount prior to impairment loss | Impairment loss | Carrying amount | ||||||||||
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 |
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Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
The Company performed a stress test on the key assumptions used for the calculation of the recoverable amount 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 as at September 30, 2019 would have had resulted in the recognition of an additional impairment loss of USD 56,633. Also, an increase of 5% in discount rate compared to management´s estimation as at September 30, 2019 would have had resulted in an additional impairment loss of USD 10,670.
(d) | 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.
The Company has reviewed impairment indicators as at December 31, 2019 and concluded that no impairment indicators exist at the reporting date. Therefore, no additional impairment test was performed.
The Company also estimated the amount by which the value assigned to each of these key assumptions must change in order for the CGUs recoverable amount to be equal to its carrying amount:
Cash generating unit | Excess over carrying | Decrease in long term zinc (USD/t) | Increase in discount rate | |||||||||||||||||
amount | Change | Price | Change | Rate | ||||||||||||||||
Cerro Lindo | 625,998 | (17 | )% | 2,143 | 116 | % | 13.80 | % | ||||||||||||
Cajamarquilla | 341,815 | (9 | )% | 2,343 | 31 | % | 8.40 | % | ||||||||||||
Três Marias system | 248,869 | (8 | )% | 2,730 | 65 | % | 11.70 | % | ||||||||||||
Juiz de fora | 381,076 | (25 | )% | 1,920 | 142 | % | 17.20 | % | ||||||||||||
Aripuanã | 515,807 | (32 | )% | 1,748 | 167 | % | 19.00 | % | ||||||||||||
Goodwill – Mining Peru | 47,709 | (1 | )% | 2,538 | 6 | % | 6.80 | % |
32 | Long-term commitments |
(a) | Capital commitments – Aripuanã project |
At December 31, 2019, the Company had contracted for USD 211,259 of capital expenditures related to the Aripuanã project that have not yet been incurred for the purchase of property, plant and equipment.
(b) | Purchase of raw materials |
The Company has forward purchase commitments in the amount of USD 24,473 for raw materials, which are used as part of the Company’s operations. These contracts contain monthly fixed prices and expire in 2026.
(c) | Projects development |
As part of its development activities in certain greenfield projects, the Company has agreed to minimum levels of investments that would require disbursements up to the amount of USD 102.900 after September 2024 in case the Company does not meet such specified minimum investments for these projects.
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Nexa Resources S.A.
Notes to the consolidated financial statements
At and for year ended December 31, 2019
All amounts in thousands of US dollars, unless otherwise stated
33 | Events after the reporting period |
Dividends distribution
On February 13, 2020, the Company's Board of Directors approved, subject to ratification by the Company's shareholders at the 2021 annual shareholders' meeting in accordance with Luxembourg laws, a cash dividend distribution to the Company's shareholders of record on March 16, 2020 of approximately USD 50,000 to be paid on March 30, 2020.
*.*.*
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Nexa Resources S.A.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Nexa Resources S.A. and its subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in shareholders’ equity and consolidated statement of cash flows for each of the three years in the period ended December 31, 2019, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established inInternal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established inInternal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 5 to the consolidated financial statements, the Company changed the manner in which it accounts for leases and the manner in which it accounts for uncertainty over income tax treatments in 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the Management report on internal control over financial reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers Auditores Independentes
Curitiba, Brazil
February 13, 2020
We have served as the Company’s auditor since 2001.