Nexa closed out the first quarter of 2020 facing the challenges generated by the pandemic, mainly due to the declaration of a national emergency in Peru, where 70% of the Company’s zinc production is concentrated. At the same time, Nexa acted quickly to expand protection measures for its employees and service providers, in addition to supporting communities in the regions where it operates.
“Protecting our employees and communities has always been a priority for Nexa. As part of our efforts to combat COVID-19, we implemented additional health and safety measures in all our operations on top of the protocols required by local authorities. We also have initiated a series of awareness campaigns with our employees, contractors and local communities”, says Nexa CEO Tito Martins. At the company’s units, a crisis committee has also been created to ensure compliance with a strict plan of action on several fronts, involving the implementation of health-related protocols with preventive measures, among others. In the fight against COVID-19, Nexa has also joined forces with local governments in the municipalities where its units are located. “We have been focusing our actions mainly on providing more than 520,000 PPE to public healthcare professionals – such as masks, gloves, aprons, and hand sanitizer, among others – and rapid testing for the disease in Brazil and Peru,” emphasizes Nexa CEO Tito Martins. In Peru, Nexa has joined the efforts of the National Society of Mining, Petroleum and Energy (SNMPE) to donate 500,000 rapid tests for COVID-19 testing. Additionally, it distributed more than 11,000 basic food baskets to communities in situations of social vulnerability. The donations of PPE and food baskets were made in partnership with the Votorantim Institute.
With regard to its financial performance, Nexa reached US$ 442 million in consolidated net revenue in the 1Q20, down 22.4% compared to the same period of the previous year, due to the lower price of metals on the international market. During the period, 77,000 tons of zinc were produced, 14.3% less compared to the first three months of 2019, explained by the temporary suspension of our Peruvian mines in mid-March in response to the measures announced by the Peruvian government to control the COVID-19 outbreak. In the same period, copper production totaled 7,000 tons, 22.2% lower compared to the first quarter of the previous year, while lead production was 9,000 tons – down 23.8%. On the other hand, the sale of metals – 145 tons in all – remained in line with the same period of the previous year, still reflecting a positive scenario on the Latin American market up to mid-March.
Vis-à-vis this backdrop, Nexa’s adjusted EBITDA was US$ 44 million in 2019, against US$ 108 million in the same period last year. The positive performance of the refinery segment (smelting) was partially offset by the downturn of the mining segment in Peru. The company’s net income, in turn, was negative by US$ 612 million in the 1Q20, mainly due to losses generated by non-cash accounting effects (impairment) in the amount of US$ 485 million, also linked to operations in Peru.
“This quarter, the pandemic has negatively affected the commodities market, and its effects on the world economy are still uncertain. Measures taken by governments to limit the spread of COVID-19 continue to affect supply chains, prices, and global demand. In Brazil, our operations have not been largely affected, while in Peru, we are gradually resuming our activities,” highlights Nexa CEO Martins.
On March 15, a national state of emergency was decreed by Peru’s government and, as a result, Nexa’s mining operations were suspended starting on March 18, with the exception of critical and maintenance activities. In early May, the Peruvian government’s plan to gradually reactivate the economy was announced, allowing mining activities to resume at units with daily production of more than 5,000 tons, after adapting to new government-issued health protocols. Accordingly, production at the Cerro Lindo and El Porvenir mines is being resumed starting 11 May, and the period of gradual resumption is expected to last through the end of June. Activities at the Atacocha mine are to remain suspended. The Cajamarquilla refinery, in turn, has continued to operate at reduced capacity, and will gradually resume its previous production levels. In Brazil, the Juiz de Fora refinery is reducing its production volumes by up to 40% during the months of May and June and adjusting to the new levels of demand, which have been impacted by the pandemic.
Metal production forecast for 2020 has been revised
due to the effects of the pandemic
Considering the current scenario, zinc production for 2020 is estimated between 300,000 and 335,000 tons, 11% below the previous estimate, subject to the resumption and advancement of mining production in Peru. Regarding copper production, the Company estimates total volumes between 30,000 and 33,000 tons, while lead production is expected to reach between 33,000 and 38,000 tons. Silver production is expected to reach between 6.0 million and 6.8 million ounces over the course of 2020.
For Nexa’s current fiscal year, metal sales are estimated between 540,000 and 580,000 tons, 10% lower than the company’s previous estimate. In the second quarter, demand is also expected to be affected by the measures adopted worldwide to control the spread of COVID-19. Nexa also expects a gradual improvement in demand during the second half of the year, subject to the improvement of the business environment and future requests for control of COVID-19 in its operations.
2020 CAPEX is lowered to US$ 300 million
In response to COVID-19, and with the aim of preserving cash in this period of crisis, Nexa decreased its estimated CAPEX for 2020, from US$ 410 million to US$ 300 million. In this context, investments in greenfield projects have been suspended, with the exception of the Magistral project (Peru), as it is already at an advanced stage, and mineral exploration activities have been reduced.
In the first quarter, Nexa invested US$ 80 million in CAPEX, 51% of which was earmarked for expansion projects and 49% went to assets maintenance, improvements in the units’ environmental systems, innovation, and social projects. An amount of US$ 29 million was allocated in the first quarter for construction of the project in Aripuanã (MT). The company is currently working on a new schedule for the project, which is now slated to start operations in 3Q21 due to several factors, such as local climate conditions and logistical restrictions in the region. In 1Q20, construction work continued to move forward, reaching physical progress of 39%.