Q4 2019 Earnings Call

Dead dead dead dead.

dead dead

Good morning, and welcome to the next resources fourth-quarter and full-year 2019 conference call. All participants will be in listen-only mode. So do you need assistance on a signal a conference specialist by pressing the star key followed by zero after today's presentation. There will be an opportunity to ask questions to ask a question. You may press star then one on your telephone keypad to withdraw your question, please press star then to the presenter in this call is Roberta for Ella head of investor relations. Also joining calling available for questions are Mister Tito Martin's CEO of Mexico resources and mr. Rodrigo manic F CFO of Mexico resources. Please note that your call is being recorded. I would now like to turn the conference over to mister, Roberto Varela, please go ahead.

Thank you. Good morning, and good afternoon everyone and thank you for participating in another Nexus earnings conference call today. We'll be talking about our results for fourth quarter a year of 2019, please let's move to slide three. We will begin. Our presentation next is a large-scale low-cost integrated in producer with a Nick position in America. We are strategically located in Brazil and Peru, which is the second largest producer in the world and where we operate three hundred grand Minds. We also creating a market is melted the larger cities in the Americas.

In Brazil, we operate two minds into his mouth and we are developing their appointment process located in the master Bruce state is a world-class underground polymetallic nine months to produce zinc and copper among other metals & Beyond that it will not we have important strategic process that are in different stages of maturity like my sister took off and you let you know which should support their respective organic group of increasing our capacity on copper and zinc and fully integrate our mine and smelter visits. We remain confident in the long-term prospects in Market fundamentals of zinc and copper but the scenario is still challenging in 2019, These prices faces downward pressure due to the volatile economic scenario zinc and copper prices between 13 and 8% respectively compared to 2018 as a result. Next is not the revenue of 2.3 billion dollars or 6% lower than mm.

Lower prices were partially offset by higher sales volumes.

Prediction sales guidance for 2019 were achieved. However, we also face some setbacks in our operations primarily now remaining segments which affected our performance package. I just said $80 excluding delivery correct answers for 402 million dollars in 2019 compared with 605 million dollars in 2018 month which was possibly affected by the recognition of a tax credit of thirty-four million dollars and we are attended to this challenging new word and the need to improve the efficiency of our operations off entry form our sales and based on that in 2019 Maxima. She ate our operational efficiency program whole next week, which are you calling on the Nexus light bulb.

William first rebooted differentiated sustainable and cost-efficient business model generating value for all our stakeholders.

thank you for calling

Just would like also to reinforce our commitment of returning Capital to the shareholders visit on our statutory account. We are Pleasant to announce even distribution of fifty million dollars. Fifty much moving to next is light as we mentioned in our third quarter results, the operational efficiency program initiated the end of the first semester not only aims to reduce our costs but also aims to struggle improve our business model and to transform our culture to develop and Implement to the initiatives of this program. We have the support of external consulting firms off next week. Both all our employees. We are looking for opportunities to improve our operations and our corporate areas such as commercial Tax and Finance during 2018. We implemented initiatives that cost us forty 1 million dollars in that we expect it will generate a minimum of $120 in any one recurring abbottabad.

any twenty-one

Twisty operation and filter changes. We not only improve our results but it will also strengthen us as a company supporting our next growth cycle in the new decade. We believe we found the right back to building the mining of the future moving to the next slide.

When would you like 5 I would comment on article on a project located in Brazil is under development 125 million dollars in 2019. And we estimate a cat tax of $220 for 20 20 by the end of fourth quarter twenty-eight percent of physical progress was achieved this is behind and we're reason is Kevin due to external factors including weather conditions a great of the public bridge and a blame our engineering studies. We are working on a new phone lines Campbell. We are also revising original box of 12 months and we expect to accelerate this period compared to the initial estimates.

We do not expect.

We are production guidance to be affected a final report inspected during second quarter of twenty planning the room doctor knows for the arrest and Link or bodies were concluded and mind the black one point five thousand meters in addition. We continue advancing procurement and stockpiling ahead of the 20 21 commissioning. We are also contributing to the Social Development of a community and approximately five hundred people received the professional qualifications in 2019 of the total number of participants 52% were women moving to the next y

It's like six we discussed segment results beginning with the mining segment. The first rest on the upper left shows in production of eighty-three thousand times in Fort Worth 2019 compared with 103,000 in fourth quarter 2018 is increase was mainly driven by the temporary reduction in the central processing capacity resulting phone repair update when you use it in the concentration plant and by lower production is a Hollywood

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Reproduction was 261000 times down 3% for an 2018 which lowered average in grades?

My name is total 234 million dollars in 44 to 2019 down 18% versus the previous year. This performer was explained by the decrease in production though Eleni zinc and copper price and higher Benchmark. CiCi's in 2019. Net revenue amounted to 1 billion dollars worth of 14% compared to one point two billion dollars in 2018. Also affected by the same factors.

In respect to our segment in fourth-quarter sales increased by 2% to 162,000 possibly affected by the Improvement of metal in 2019 sales volume total 621000 times an increase of 1% following production group.

Revenue for these Melton segment was 460 million dollars in fourth quarter 2019 2% lower compared to a year ago mainly due to the decreasing zinc metal prices partially offset by the year-over-year increase in sales born in 2019, total 1.9 million dollars compared with two billion dollars in 2018 early in a press. Please let us know to like 7 where we discuss the my new segment Eddie. In 2019. I just needed a total $173 million home down 60% year-over-year. This decrease was primarily driven by market related factors such as lower prices and higher equipment charges with an injector issue instead of one hundred twenty six million dollars and sixty five million dollars respectively higher G&A expenses due to the increasing location of corporate expenses to the mining said,

including twenty-three

And all those related to operational efficiency initiatives and higher operating cost of eighty million dollars related to development expenses energy maintenance and 36 look into the glass at the bottom. Right we present the global cash card for further think we remain well-positioned at the end of second quartile beginning of the third quarter. I'm moving to the next slide on this is light will comment on our my new segment guidance.

Exposure in general we provide for your production guidance by model and for 2020 zinc production and mid-range of the guidance should be similar to 2019. The estimate degrees in production should be upset by improving performance advancement and to help us the complex.

For 20 21 in production is estimated to 4% over 2020 and a further 70% in 2022 over 20 21 after the Corner Pub in addition to the 3-year production guidance. This is the first time we also provide cash. Diamonds for 2020. We have made money average cost of $0.52 per pound. I think sold as before cast higher frequency charges and lower prices compared to 2019. Let's move on to the next slide down payment may be done in 2019 adjusted it up for the segment total one hundred and eighty million dollars or 3% Again 2018 High equipment charges and credits upset lower metal prices and increasing costs including the temporary increase of 18 million dollars related to next week Thursday.

Was around $1.

In 2019 down 80% from 2018 differently from our mind segment markets related factors had a positive contribution to our smelter cash car off. This is a good example of the importance of the mind is melting integration reinforcing our strategic advantage of having smelters in our portfolio. We believe we are well-positioned to make them and capture the opportunity of the commodity cycle look into the glass at the bottom right represent the global cash card card forcing smelters and access his position. And the first quarter of the, let's go to like pancakes.

This is new, on our is now can you segment guidance? We estimated sales increase over the next few years supported by productivity gains Reason by the increase in wage said to the basement is now altered the Improvement in secular makes feed to the jury before the smelter and the consumers improvement in our Market operation Is Not Your Average Joe's just made it at ninety cents per pound and decrease of 11% compared to 2019 Primary Vision by the expectation of lower concentrated prices and our efforts took operational efficiency gains.

Let's now move.

July 11th. Because Catholics and others raising expense in 2019 operation Investments amounted to 113 million dollars for twenty twenty-six need the total investment of $94 million dollars, including mineral exploration further development technology and communities expenses in the exploration. We continue our efforts to replace any freedom in the reserves and resources supporting our business growth mining activities involve substantial basis and safeties one of our highest priorities, we believe the use of Technology you help us mitigate those risks improving our efficiency and making our business safer. We also contribute to the local community in the countries where we operate be investing in education page and advisor employee end contract local service supporting their social and economic development in terms of capex for 2020 expect to invest 410 million dollars a month.

2019 amount

We know that the most of our essential late investments will be in an opponent. We estimated cabbage of 220 million dollars. Let's move on to the next stage was like, well we present Nexus we cash flow generation is starting from our 349 million dollars which includes the impact of the temporary expense is worth $1000000. We had a negative change in working capital off $72 million-euro radio driven by an increase in Ventura and in recovery, Texas

We spent two hundred seventy million dollars in sustaining Catholics and interest rate as a result cash flow before Expansion Project was -28 million dollars, you know, sustain Catholics which includes our expansion process that we contribute to additional cash generation your future amounted to 215 million dollars during 2009. You also had that position of the appointment or stick and the payment of dividends related to the fiscal year 2018 as a result next to record a negative cash flow of 336 million dollars thirteen rated in the upper-left read our liquidity remains strong and we continue to report a healthy balance sheet with extended life at the end of 2019. Our currently available is liquidity was 1.1 billion dollars which includes our and round revolving credit facility of three hundred million dollars a month.

Did that break?

Don't care if the issues and courage he's shown the lower left side on the top of the page as of December 31st, the average material for a total that was 5.2 years back right side. We see net debt increase as a result of our current cycle of investment and the cash statement of their opponent might not take a position. Our levers measured by the duration that that needs to be done was 2.3 times as a result of Florida and increasing that debt is excluded in a recurring expenses from the analysis and that is through that 1.96 times.

Please let me Choose Wisely you coming home Market scenario despite some moments of everything price in 2019 decreased by 30% compared to 2018 and end the year at $116 per pound short-term prices are still affected by the uncertainties related to the global economy and performance package. Its impact on sectors growth will find in stores worldwide maintain their downward Trend and in December we exchange stocks available for consumption of only a couple of days off on the bottom left. We show up comparisons production between the market as majors in 2017 and 2019 as Illustrated Supply projections are usually more optimistic than reality show me the regular operating disruptions using supplies. Do not start up as an issue forecast.

however

Short-term prices are still affected by the uncertainties regarding Global GDP Road and us and China free reward and more recently the potential negative impact of the coronavirus upgrade in a situation where demand is relatively stable and Micro Center is level website. You do prices should reflect Market fundamentals improving from current levels moving towards final slide earlier took the next week problem insurance claims hour break loose and transform. Our culture is strengthening us as a company supporting our future growth during the day when you continue to advance with the problem and as a result or performance should better reflect. The estimated Gates an appointment is one of our main priorities and for the year, we expect 220 million dollars. You can choose developing the process. Our balance sheet has been prepared to support her investment cycle even in a diverse Mark or scenario. We expect to continue to call

guidance and the consumer

Including a cover wait on our email to support our following rules and commenting the market regular update in order to better evaluate our potential value creation. We plan on filing the lounge area, assessment reports on your own project within the first quarter engineering studies for hours for our corporate projects. We continue to progress and the new technical report will be re-evaluated after the conclusion of filtering our child python projects are visible to stage and we are working some license to advance to the next engineering team these leads temporary. We also expect you to the shower updated many reserves and resources report. Thank you all for your time and let's move on to the free and affection.

We will now begin the question-and-answer session to ask the question. You may press * then 1 on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press * then two at this time. We will pause momentarily to assemble our roster.

Our first question comes from Carlos de Alba with Morgan Stanley, please go ahead. Yeah, good morning. Thank you very much. So the first question is on the 120 million benefit from the several initiatives that are you guys are implementing to improve e b. Can you talk a little bit more about how do you see this progression to that level? I can you guided 220 million incremental annualized to be done by Twenty Twenty-One. But if you could give us some comments around, you know the ramp up to get to that level as well as the cost that you believe you will incur in 2020, which was mentioned in the press release. But if you have a a number or even a arrange that would be very useful as well as just to confirm given that the success fee was paid off front. So I just wanted yep.

firm that if you get to the level

120 million which I think is is the Target or above would incremental success fees related to this initiative will have to be paid to the Consultants along when the club but that's one topic and and the second topic I would like to explore is if you can have you have any further comments be on those presented in the release around the magistrate took effect. What were the changes if you can mention what were the changes in in the engineering studies that you that you faced? Thank you God.

I thank you for your questions. This is Diedre speaking about the 120 million dollars. I would say that you should see a long spread it out along the your we expecting to have it being added to our cash generation along the time. Why is that because there are a group of almost three hundred initiatives that we are carrying on right now that will generate those results and those initiatives are related to the public relations and two different procedures to operate different different corporate procedures that will be made so I'm not I'm not expecting a any let's see.

Difference a lovely year in terms of if there is a one specific month that the cash generation would be higher or not. It will be embedded in the numbers along the year in terms of the the piece as we said in the in the earnings release and also last year when we had the 30,000 those fees applies as success fee on the on the on the the results as a result of the the the increase in cash generation that will be some along the year. We I cannot provide a number now because it will depend on when the benefits will be enjoy it but I would guess that also will be along the year and the impact will be diluted by by the authors.

the additional cash in

In terms of the other question. I'm going to pass through what do you want to answer you hear about the only thing is that we we had an estimation to to disclose the technical now in the beginning of the year, but as we will proceed with the felled tree, which is feasibility study into the end of the year. We thought it would be much more complete to disclose the the report once we finalize the feasibility study. So that's that's the only difference the project remains being studied as scheduled and as mentioned in the previous releases.

All right. Thank you very much. Dear. Thank you.

Our next question comes from a rest while with Scotiabank, please go ahead. Hi. Good morning. Could you please clarify what's happening with the airport a development. I find the language in the release a little bit confusing because you've disclosed that there is a delay in development. But at the same time you don't think there's any impact to the the 3-year production guides. Can you maybe give us a bit of color on on what's going on and and why it's not if there's a delay why you don't think it's going to impact the production. Thank you.

Oh hellos hardest thing for the question. Basically the following is happening. When we provided is we were very conservative if you compare them with a second report, we were already being conservative. That's why we think that there will be no impact.

On the other hand, we will be the delay but we are also working on the in advancing the ramp up originally the wrong part was scheduled to be in South. We we believe that they can do it in between six and nine months. That's why what's going on over there. There was the month every three to four years one of the bridge that gives us access to the size goes through and upgrades some construction on the refurbishment you publish ma'am. So what happened is here is when they do that they have a uh, a parallel bridge that Gap. This is built just to During the period of the the construction sister what happened is it's raining a lot they're dead.

which caused the

The destruction of this is still have reach and with that those Innovations. They took longer than expected down in a month than expected besides that we had also a problem with the the some of the engineering package. They were a little bit delayed wage laws was actually to reassess and see how long we actually we will have the project impacted. We should have this problem in that in the second part time. But once more I I want to restate that we are not expecting in fact in the production 21 because of this

The project is evolving well with this concern but evolving well, and we already have 28% of hit Cahoon. Yeah. We already have a thousand five hundred people at the site right now, So things are going very well in terms of execution.

Okay, thank you for that and I can follow as a follow-up Tito just on the Consulting investment that you're making. I'm a little surprised by the magnitude of the investment you're making and I think you mentioned last quarter. It's a success-based fee. So I'm having trouble understanding why the fees are so large now before you actually realize the same the same X the technical thing. Let me try to explain what happened is you generate the initiatives that will result in games when those initiatives are validated and they are they based on technical procedures that can be approached you pay the fee off Consultants doesn't take the risk. So we are now in the process of implementing those initiatives and then we will see the games.

we

In some already. That's that's why I'm saying that and I've seen the same approach done in other companies. So we are we are falling up those the the we carry both of those initiatives and expecting to have the the additional cast additional generation happening along to 20 20.

Thanks Tito. Thank you.

Again, if you'd like to ask a question, please press * then 1 our next question comes from Alex hacking with City, please go ahead.

Yeah, good morning. I just wanted to follow up on the on the hundred twenty million. I'm not sure if you can answer this question, but how much of that should we expect to see, through cogs and sg&a and how much of that is going to be showing up in Revenue through improved recoveries and things like that.

Yeah actually canceled as of that right now. Of course, there will be back in some of them in this day and other account, but I cannot be precise right now. Once we appropriate this throughout the year like we will be providing this in our news release.

Yeah, thanks. It would be helpful just so that we can track it, you know, given given the amount of fees that have been paid seems like we should be we should be kind of order to have like, um the benefits and then just just one follow-up. Could you just remind us the the cost guidance for our pilana and how we should I guess how we should think about the Cadence of that like when would you know, I guess what is the steady-state cost guidance? And what what year would you expect to to reach that thing?

Hi Alex, this is Roberto. Remember that for guidance we only provide for the 2021 so it didn't provide an appointment and updates and but he's still considered what we provide in our report back in 2018. It was like fourteen cents per pound.

Okay, perfect. Okay. So overall it's going to reduce your average cost right?

Yes, that's that's the idea in terms of what we have when we are analyzing the process we have problems in the first and second quarter of the cash Costco's. That's one of the assumptions that we have for future p.m.

Okay. Thank you.

Our next question comes from Diego Torres with MCC, please go ahead.

Thank you for the call just questions regarding the the dividend policy. What is what is the dividend policy going forward and also in terms of the presentation? This is it would like to text say one one number that I couldn't match on the at the beginning you mentioned that the cash dividend payment of 50 million months that is on page three, I guess and at the end there's when it you mentioned about the beep. Sorry the cash flows into something nineteen. They say details of 1013. So I would like to I don't I don't understand the difference between the two numbers. Thank you. Okay. Thank you for the question. First of all, let me answer. These are one the when you say dividends in the cash flow for 2019 that we we declared and paid approximately seventy million dollars of dividends from Mexico resources.

Let's see. It looks number.

Well, we have internal payment dividend payments between next apparel and the other going the cash reports do next and then to next look Sandburg in except Thursday. We are listed company. We have we have 16% in the market. So we pay the proportional dividend to the minority shareholders on page two hundred million dollars. So it was approximately the difference that you see there. Right? The second thing is we close approximately fifty million dollars of dividends in the press release. You have the accurate number per share. I don't have it in front of me right now, but it's approximately $0.37. It's $0.37 per share. So when you get to the the total amount of shares you going to get to approximately fifty million dollars. Is that clear?

Okay, thank you. Yes and provide you the the the didn't policy going forward. Oh, sorry. I was missing that one. Our policy Remains the Same. We have a lunch shift in policy that states I will pay a minimum dividend of 2% on the the average market capitalization in the the the past 12 months the policy remains.

Okay. Thank you.

Our next question comes from Lucas Yang with JPMorgan, please. Go ahead. Hi. Good morning. Very brief one. Can't give an update on the conversion project is this to happen this year? If not when if you happen at all? Thank you.

Thank you for the question. Yes, it will happen. We are not sure when it's going to be alone the year, but we are reassessing as as we said in our office is released. We are reassessing the whole project also talking with the contractors and equipment suppliers in order to 2 a.m. Rearrange the schedule we should be news about that by the second quarter Our intention is assumed move on with the brought along the year. But of course we depend on these discussions with it the contractors but the idea is to move on with this along to twenty-twenty and the dead the recovery race. They should remain the same from 94% to ninety seven or would that change as well? Yeah. Yeah. We are interested in good question. We were recovering something around $91.

2%

And last year the phone is was much better than before was around ninety four and the 3% still applies. So which means that after the party we should be able to go up 97% Thank you. Thank you.

Our next question is a follow-up from Carlos de Alba with Morgan Stanley, please go ahead great. Thank you. Thank you. So just could you could you comment about the trends that you have seen in in the premiums that you realize in your different markets? Particularly Brazil is probably a little bit more of a unique situation you could you you comment or talk about how how's those are moving they'll be very useful you realize prices came above what we expected. So perhaps that is the reason and then finally on on the inter-company loan with Luxembourg. Can you maybe remind us what what are the the plans for for that do in 2020?

cuz I'm not sure if

The second question is is the inter-company loan that you have with the Luxembourg holding company if you what are the plans for that loan in 2028? Okay. Let's talk about the premiums first. We we actually have not seen a big change in the previous along the year. I mean the previous we are off having you in Latin America are pretty much the same we had in the year before actually if you compare our premiums with all the continents song, they they being they have they have not changed much even when the the market condition is not favorable. Uh-huh. I I cannot explain why your mother did not price the same as that was there was nothing nothing new on or off.

No, not not at all.

Not at all.

Is about the company loaned we have in reducing this exposure which is internal exposure. Actually, the only practical effect the inter-company loan has changed the the figures you you see there. Is that on a Consolidated basis any currency devaluation impact the the the the the net income there right? In any case we have reduced these two below two hundred million dollars and throughout the year. We'll we'll evaluate the best way to treat it in keep producing it as you know, the president balance sheet. This is the one being used now for the investment on every corner. So there are some peculiarities in in terms of when is the best time to keep reducing it, but don't forget the intention is to reduce the dollar exposure in the in the Brazilian benefit.

Great. Thanks again.

Thank you. Welcome.

Our next question comes from Oscar Cabrera with c i b c please go ahead. Thank you for later and good morning or afternoon guys. I'm I apologize. I came in late into the call. So if you know you already answered this question, I can just go back to the transcripts. Do you have have that what appears to be a very successful exploration program for the second half of two thousand and nineteen. I've just wondering if you feel you know confidential you can meet your target of you know, if I remember correctly increasing your research from seven to twelve years. That would be the first question and a follow-up that is based on what you've seen so far and in in completing your feasibility studies, do you still have the same priorities in terms of development projects?

After you finish our opponent. Thank you.

Oscar Tango for a question exploration. Yes. We have a very aggressive program. If you look at the numbers We Believe from the page. It's a little bit lower than the number for last year. We still intend to reach the twelve years, but wage is volume down a little bit given the price volatility zinc price volatility. So we wanted to be more careful about the expenses along 20 28. It was even before the coronavirus issue, but the plans are actually to reach the the the targets the previous targets.

In terms of the projects. Yes, we intend to move on with them after when we should have a decision to make about magistral long as what's that before we do. We we have a bunch of strong didn't study or paltry ready on the second half of this year. So we have in between the second half and the first half of next year to decide about the execution of the project and if everything goes as it's back there was a month for the majority of the garage and expected return and soul. We should approve it and move on with that probably starting on 2nd June twenty one after that. We having a pipeline which is right now is going under metallurgical review.

we

Side through to be more courses about the frauds and and actually it's helping to move faster, but just route and after that we have already Orange Leaf. I am so the pipeline still they are we are confident that they can go for those projects. I think with you know, just take the you know, if if you were to start my distraught and second half of 2021 do we then lower, you know expectations for Jose exploration. I think you're spending about sixty million dollars in round numbers in 2020. Would that expenditure? The client would just keep it at the same level too long. Do we had your research at all? No, no, but I mean just in general.

No in general that this the the the the the slices of reduction we have an expiration. We was slowed down the the increase in light of mine of some of our operation doesn't mean that we are not pursuing to reach the twelve years.

Okay, thank you. Thank you.

This concludes our question-and-answer session now we will hand over to Tito for his final remarks Mister Martin's please go ahead.

Thank you. I would like to thank you all for being with us in the call. I would like to also to reinforce our commitment with our plans off before moving on with the Department of Education is going very well. Unfortunately, we had this setback but we are confident that with the wage reduction in the wrong part time. We can't actually move ahead with the production 21 the company had some issues last year, but we believe we are back on track starting to have a very good year despite the problems. We have seen around the world with the corona beers and issues about trading and so we are confident we can accomplish what we intend to and we have to remember one thing pricing price.

Are lower than what we were expecting but we are not seeing any change in the fundamentals just to give an example at the very beginning of the the link price were around $2,400 when everybody was saying that they should be lower than that and they just came down because of the corona Corona Vehicles prices took in still confident in the zine market and we are enjoying one thing that a few people realize the fact that we have. We Prevail is melting off over my knee. But this is being a level they are today it actually benefits us as as as as the net result was more. Thank you very much anything you need to be available to to to provide the proper information. Have a good day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.