Q3 2020 Nexa Resources SA Earnings Call
Good morning, and welcome to next or resources third quarter 2020 conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions.
Well ask a question you May press Star then one on your telephone keypad to withdraw your question. Please press Star then too.
The presenters on this call are Mr. Tito Martin's CEO of NEXAR resources, Mr. Rodrigo blank CFO of an extra resources and is Roberta Varella head of Investor Relations.
Please note. This event is what did I would now like to turn the conference over to Mr. Tito Martin's. Please go ahead.
Thank you and good morning, everyone.
Everyone. Thanks.
Thanks for joining us not all the Maxus Bourbon school by school.
Today, we will be talking about our results for the third quarter all switched away.
I hope you enjoy your loved ones remain safe and healthy.
Yes, that's moved as light Sweet, where we will begin always presentation.
In the last six months, we have been on profit by Cobiz night.
The spread of the virus about though is currently at this lower base, but remains a big concern.
Additional health and safety protocols NOL forward racial screen name.
Essential sites versus once you working people.
Mighty operationally you have Bradley.
Yes, we still face some constraints remains within workforce will be lumpy.
As a consequence of the situation, we are reducing our copper production guidance for the year.
Zinc and lead times or something and.
Mining cash cost cuts also.
No. So your guidance for the year remains unchanged.
As promising on last conference call. We are updating our two into one guidance that's have been suspended at the beginning of the bank.
Mick will discuss guidance more than they used to doing this business.
We already industry and all the clients I, just do learning how to adopt this new reality.
But I believe that you have done well so far one.
One thing I'll operational somewhat difficult conditions, keeping health employees and provide support for our company.
Let's walk it was a very strong Clark our adjusted EBIDA stood that obviously to be doing all those noted cash generation was over $150 million.
As a consequence by National average degrees from 4.9 times to three point fives.
These results come from our commitment to capital discipline in our efforts to reduce costs and improve our operational execution.
I also would like they do for Julie and thank our team we step up in such a challenging circumstance.
Although my high level walk uncertainty remains going forward, we are assuming our operations, we will be making operating at normal levels.
Market conditions are better than we anticipated.
As a consequence, we have also be buys our investment guidance for the year.
Yes, we will be discussing the next is locked so pleased to date by four.
And just working we invested $85 million with Oh that you've gotten structure one for the first nine months of the.
In response to the movies night Yeah.
Did the original Dol left to me, we've revised our comp sales and strong $400000 $300 million.
We also should you would have a better view what the marks the second half of the.
So pricing demand improvement has been faster than it used to be a long used to operating from the past.
Because you spoke to situation in in order to keep our operations are running safely and stable we have updated our sustaining capex to this new reality.
Additionally on October six we published and that's what they have to have you put up watch and it's Scott picks for the year was revised 2090 $3 million.
Oh suzerainty is no yes, you meet the total capex of $350 million for two empty Duane.
On the other hand aspirational in product development expenses have been revised downwards from $68 billion to $50.
Some of our explanation regarding the third quarter, but we decided to maintain some of our largest wonderful.
Turning on to the next slide slide five.
You know door, we published an up to date on deepening project.
But people like production is now estimated yeah, Adrienne 19 bonds very year.
For approximately 11 years I'd like to decrease from our previous estimate of 13 years.
Based on current inferred mineral resource in a post season, our track record of conversion we believe.
Usually life of mine would easily be extended beyond 20 years.
Total capex was revised to $547 million compared to the previously estimated of $392 million.
Roger Penske line was also made and all we can to completion spark yes, it's for the fourth quarter of two into one.
Plus increase in time expansion resulted primarily from among other factors the amazing to completion off the data engine Uri and some is marginally bass.
Despite the challenges we faced I didn't find out when she was to be good and that pretty broad.
Swann or the fuel zinc projects on developing in the war and its implementation was consistent with our strategy of increased integration between our mining and its melting operations.
Moving on to the next slide slide <unk>.
On this slide we provide if they might have started off Debbie pent up project.
Not at all brought a physical province reached 56.7% at the end of September with.
With the current stop Safari engineering procurement and construction packages.
We believe it will continue to delever according to the uptick institution.
In addition, we are preparing ourselves to commissioning and future production.
Have already mobilized the operational readiness.
Just be operational phase it be limits are on site and its stopes development should start in January 22 into one.
Please move to the next slide.
This slide shows the other projects in our pipeline.
Since the beginning of that and then having been very concerned about our kept on location.
Because of that we decided to revise our project booked flawed and standby.
Maestro project to date, the most of Tibet stretching our first floor.
Engineering studies continue to progress and we expect still to be completed the first half walk to enter into one.
The pre feasibility studies at Shire biking, who could remain chemicals.
In addition, we are renegotiating.
The environmental impact study for Luka.
We should also caused the extension of the project Bye bye.
Regarding ready now you have already resumed our exploration campaign, he was sort of Washington.
Successful project currently on hold is expect to resume in the beginning of two into one.
Now I would like to pass all about somebody else, our head of Investor Relations, who will comment on our third quarter results, albeit please.
Thank you Peter good morning, and good evening everyone.
Let's move to slide nine.
Beginning with the first start to wonder are left with Netscout up over 2000 pounds <unk> by 16% compared to third quarter of 2019.
Mickelson inside the formats, how far mine from Brazil, well saddened by the ramp up of our panels and lines.
After the war zinc production was 31% higher.
Copper production, followed the same plan and decreased by 25% year over year, but increased by 6% compared to the previous quarter.
In respect to two hours Mountain segment. So don't that they'll say is a simple Calvin and Tommy was likely higher versus the same period a year ago.
Going back to the second quarter sales were 32% higher milling weakened by the recovering demand in our home markets.
On the polygraph consolidated net revenue was.
Hi, Nick and Debbie.
Million dollars coal that we I cannot and $64 million a year ago, mainly driven by lower volumes and look, leaving one kindle and metal prices.
Interest like Ben will comment on our consolidated EBITDA.
I guess that I think we've had some people to $152 million in the quarter up 23.
Strong performance was mainly weakened by lower operating costs and expenses, we have lots of variation all quite $40 million net when that's on the exploration if I had to help banks assets being raising byproducts fried it's due to higher prices and worked on limestones Haynes Redcard, which were partially offset by.
I thought your answers related toward the end of well I suspect.
The U.S. dollar appreciation against Brazil.
[laughter] backed off $21 million.
Please let's move to slide 11, well discuss our mining segment performance.
[noise] as I mentioned earlier, the solid performance how far operations in Brazil.
Oh My goodness, we now open the line, which had rattling clean there to put weight after restarting operations second quarter.
Several men are important near instant facing some limited workforce availability, while you watch us I had I, but then well be able to begin to kick off.
Regarding cash cost in third quarter was 2020 mining cash cost averaged 33 cents per pound down 20% from Leslie primarily driven by.
Temporary Cleveland Kaslow <unk> as we did not incur in similar playful [laughter] falling lower production volumes and also due to redemption costs.
[noise] bottoming back off the Brazilian currency devaluation, causing.
Costs, and a higher byproduct credits, which were partially offset by higher Stifel and lower volumes.
In fact, the second quarter of 2020 mining cash cost ultimately.
Positively affected by higher volumes and by fraud brackets moving to the next slide.
On slide 12, who'll discuss the mining segment before I.
I just had a banker working hard to mining segment.
$7 million that $33 million a year ago.
When was primarily due to the decrease in operating cost as I explained in my previous flight path.
Possible back trying to bring Columbia depreciation against <unk> dollar and.
And in Queensland, byproducts contribution and the declines in their exploration and product development expenses.
Moving to this next slide.
On slide 13 will discuss how our mountain segment operational results.
Total production was 154000 pounds now, 1% financing quarter a year ago.
Patches second quarter production grew by 21%, primarily driven by how much it isn't out there which operated in the gifts and wait until May following the measure the choir by the Parisian gaufman to controlling the spread of nine.
Total sales on the 10th quarter, well here or 158000.
[noise] slightly up year over year, but 32% higher compared to the previous quarter.
Only driven by higher production and demand we can win in our home markets.
Regarding cash cost Nelson Qashqavi grew from 99 cents per pound Inc. third quarter 2019 to Kevin's nine cents per pound in this quarter.
8% decrease is explained by market related factors, such as lower aluminium prices higher seeking targets and everything currency devaluations and lower operating costs, partly affected by the new energy conference and decreasing cost definitely into how much will this now.
Moving on to the next slide.
As Nelson any that was $86 million in the quarter compared to $25 million a year ago.
This increase was mainly explained by higher treatment charges, the positive price effect related to changes in market prices in respect of probation period adjustments.
The Queen operation costs, partially offset by the negative impact up by profit frightening and lower sulphuric acid prices.
I will now turn over to cultivate jiggling, our CFO will provide more detailed information about our debt profile link please.
Thank you hope and good morning, and good afternoon, everyone.
I am now on slide 15.
As demonstrated in the upper left graph, our liquidity remains strong and we continue to report a healthy balance sheet with extend that profile.
By the end of the third quarter. Our current available liquidity was $1.3 billion, which includes our undrawn revolving credit facility of $300 million.
The debt breakdown I could say very encouraged TV show on the lower left side of this slide.
As of September Thirtyth, the average maturity of our total debt was 5.4 years.
Right side, we see net debt decreased with the previous quarter, reflecting the improvement results of our operations and cash generation.
Leverage measured by the net debt to adjusted EBITDA ratio.
Also decreased to three point 23 times as a result of higher adjusted EBITDA and improved cash generation.
Now moving on to slide 16.
On this slide we present next this free cash flow generation during.
During the quarter, we generated $190 million.
Describing its border and starting from our 152 million dollar adjusted EBITDA, We had a $52 million gain in working capital mainly as a result of increased average why its payment terms, partially offset by $30 million of sustaining capex and another 9 million.
Dollars of interest the impact.
He'll nexstar has generated $165 million of cash flow before expansion project during this quarter.
Sustaining capex, which includes mainly our expansion project 94 now.
Amounted to $49 million fine.
Finally during the quarter, we had a positive net impact from loans and financial investments of $71 million, partially offset by $28 million of other non operational expenses, resulting in a net final cash flow generation $159 million.
Now moving on to slide 17.
On this slide we will comment on our updated mining segment.
But before discussing guidance I would like to comment on the assumptions behind the scenario.
As previously disclosed our guidance is subject to continuous evaluation of several factors, including the impact of who was 19 on our operations supply chain and demand for our products.
After our year to date, the operational performance the nine months, which reflected the temporary suspension of production at the Peruvian mines. The Jacoby 19, they are gradual ramp up in the third quarter, we maintain our 2020 production guidance, forcing led while slightly decreasing copper production range.
By 4000 thoughts.
No efforts to continuously improve our disclosure have updated our production guidance for 2021, and 2022, which were trained temporarily suspended in response to Cobiz nineteens uncertainties.
For 2021 zinc production is estimated to increase 6% over 2020, and afford or 10% and 2022 over 2021 after d. I'd point out on rent though.
We also have revised our 2020 mining cash cost.
To the gradual ramp up of our mining operation the battle in our estimates for Q4, we have updated our mining average cash cost to 45 cents.
Or pounds of seeing so down from 59 cents per pound.
Now moving to slide 18.
On this slide we will comment on our profit as mountain segment guidance now.
Our sales guidance for 2020 remains unchanged as always smelters are estimated to continue operating at higher utilization rates.
No sales are estimated to be between 140.
580000 tons and 20.
Despite the decrease in demand year over year due to cope with 19 demand hasn't recovered from second quarter levels to this upward trend and is expected to continue in the fourth quarter.
Similar to our mining segment, we have updated sales guidance for 2021 and 2020.
Or 2021 metal sales volumes guest.
$65000 over 2020.
At the midpoint of guidance range and look forward to 2.5 thousand tonnes in 2022 over 21.
Our smelting average cash costs has been revised slightly up to 78 cents per pound of things. So due to the higher metal prices I will now handle the call back to Jim.
If you please.
Thank you Matt.
You will make some comments about the markets fundamentals during the quarter zinc prices continue to recover reaching prefunding levels novels, Matt.
Metal demand has shown some recovery in China, although not the country's infrastructures are taking longer to normalize.
In terms of our home market Latin America, zinc demand trended upwards revision by civil construction infrastructure energy every business and to a circumstance Delta segment.
In terms of copper prices have shown a significant appreciation during the quarter.
Living primary by a weak any much smaller and the decline on inventories throughout the year.
Similar to see them.
Man has improved in China as sectors, such as construction infrastructure and transportation responded positively to different on seamless.
The short term ultimately for zinc and base metals should remain will assign the spreads should continue to be influenced by the U.S. dollar body.
In terms of fundamentals zinc concentrate supply is expected to function as.
As the Chinese mining out may not default as the market expects potentially.
D C level style and price is up.
Moving to our last flights.
As I said earlier in such a challenging scenario, we have delivered strong results.
Third quarter performance demonstrates the resilience of our business. The contribution up next to lead program and the commission off or are you with operational excellence and good performance.
We remain convinced that with every goal up to now and we are preparing ourselves to generate long term value creation for all the stakeholders always keeping financial discipline and a strong balance sheet.
Thank you all for your time and lets move to the queue in the session.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at.
At this time, we will pause momentarily to assemble our roster.
And the first question will be from gens spies with Morgan Stanley. Please go ahead.
Yes, Hello, Thank you for taking my questions.
Just wanted to ask what are the main drivers behind the decrease in your 2021 to 22.
Guidance versus do it original guidance you had published.
Published before and also I noticed that the smelting the.
Smoking sales guidance didn't change much at that was wondering and why did niche and go down because you are no longer doing the genotype project right. So didnt that has an impact on on your guidance for those years.
Hi, James Thank you very much for your question, Peter speaking well, let's move on to the production guidance.
To see during the call. The first half we have postponed some more development no mines. So.
So we were not able actually to have people working there so because of the goods.
That wasn't that no.
The development of a second half so affected directly production for next year.
So besides.
Besides that we have to prioritize.
The production lines.
Also affects the.
In some cases the type of the award and the Gong to often gene called corporate may be affected.
Thats, why we decided to be more conservative James.
Production for Glenn do well.
In terms of is melting production doesn't change much.
It does.
We are not never affected.
Comes off what we indicated Brazil were better effect at all.
Local is melting Jamie.
Production was affected for some time, but came back very easily.
And the supply of concentrate that has been very stable. So we are not expected to change.
Genesight is suspended we.
We have not.
Above the media and I don't think we would.
We do plan to come back to the project as the lower the bar conditions.
Q1 was stable situation, but surprisingly weak globally E. How lucky that has improved the last two years. So we believe that begin Keith.
Having that be globally between 44, 45%.
Even before general site.
Yeah, we can come up with the built within that there is some sort of like.
Thank you.
Okay, great. Thank you.
And the next question will be from Orest Wowkodaw now with Scotia Bank. Please go ahead.
Hi, good morning.
Tito I'm curious your comments that you there's enough demand to run the smelters at full capacity I'm. Just curious is that being is that domestic demand or are you exporting.
A good chunk of the refined zinc I would.
Outside of Latin America.
Oh, Hi, autos good to hear from you.
I'm going to try to describe what's going on but I don't get it Bobby actually Kim can say that.
We were not expecting to see such a strong demand you are seeing scenes.
Lets in July.
Oh really left some of our home markets by Hallmark that mean lepto, okay, not only Brazil, so what happened years since July.
It looks like there was lower the.
Restocking.
Most helpful or goal of the countries.
And that we thought maybe against the strong demand.
<unk>.
We on the fourth quarter, but I can tell you you're still seeing that same strong demands.
Actually we are starting to believe that this situation can be made in the first part of next year.
So do with a lot of puts and steel makers in the first half big cuts production.
Some of the ultimate make us the most of Delta ligand all circuit protection.
In summary, everybody getting back to a.
Almost normal situation.
Looking back so it seems that there is a huge imbalance in supply of green materials, most basic materials and needs.
Actually helping us to sell more.
Adjusted given example, we stop we reduced production division for the smelter.
You know that the first half I've shown you that you could actually have a gut feeling even that never happened.
If I have learned that the available today I'll be able to sell.
And thank.
Thank you are you. So it's not all about time demand, it's not a it's not like you're selling to traders.
That's shipping not at all not at all.
Okay actually we have to get.
Good. So we had as we always have so it's a small portion off or savings that we need to do so in the spot market and if it's not possible to believe we have agreements with long term agreements with trading comes where we can sell to now we have actually to reduce those little sales.
Who supply to the whole market.
Because of the strong demand.
But nothing call notes this action movie due to June to Asia for example.
Yes, very helpful to bring.
ER natural down the Hewlett who will kill Brazil or Argentina.
We have to do it.
Because of the demand.
That's great to hear thank you yeah. Thank.
Thank you.
Again, if you have a question. Please press Star then one.
The next question will be from Hernan Kisladag with Metlife. Please go ahead.
Hello. Good morning. Thank you for taking my question and congratulations on the very good results.
So my questions are on cost we have seen a stabilization in mining cash cost in the last two quarters at lower levels than we have seen in the past, but nevertheless, the guidance for the year seems to point to an increasing in there for Q.
So first question could you. Please confirm is that for you it's going to have a cash cost of 58 cents I just want to check my math here and the second one thinking about the longer term.
How sustainable do you think that the cost that were seeing now.
Our into future must be thinking to 2021 way to deal with from a production in our minds and you know in your presence.
Hello, and Doug how are you I'm, sorry, I was.
Yes, I was on mute here and speaking I think this is common now do independent.
Thank you very much for your question I believe the that it's it's good to clarify first of all our costs. They have been really impacted by the price of by products right. So our by products really have benefiting being benefiting us so to that extent, even though we have been.
Really reviewing or or our cost structure this or it's it's volatile to the extent that the external factors can also impacted in the in the coming quarters right, but we have been seeing part of our our cost efficiency from our next away program as well.
And you can consider that.
It's a successful program that helped us to become our operations more efficient then looks like <unk> well Youre Youre your question.
This is what we have been seeing here.
Yeah.
Okay. So before by products or would you say that the cash costs that were seeing do they see it's going to be repeated moral linking to 2021.
Yes, we are we are but coming back to normality with with our our adjudication rates at higher levels. So it's beckie recommend that it's yes.
So I would expect a the same level that we're seeing now.
Okay. Thank you very much.
Thank you.
And the next question will come from Isabella that's can sell us well, but that's going to be a please go ahead.
Hi, Thank you for the question.
Yes, what I was saying congratulations on the result, I just have one question actually if you could provide a little bit more color on that.
What are the next steps.
And new opportunities identified for the next so we project.
Program, and if you could give us a little bit of timing in terms of execution operating you. That's a new opportunity that you guys are indentified.
That would be helpful. Thank you.
Hello Hello.
Thank you for your question I Hope, you're well Mexico is a continuous program. It's it hasn't that expire many niches and all in all levels of the company, both operationally and incorporates and when we see new initiatives, we implemented a right away. This is it's all related to.
[noise] procedures to to a good.
Let's start with utilization recovery ratio. So all of that goes towards what we have been disclosing to the market, which is an expectation of up to $220 million that we'd be down in fact every year on a recurring basis right. So with this.
We mentioned specifically this quarter, it's mostly because when we had our British suspended.
As much of our.
Initiatives are related to two two production somewhat somewhat was this program, but somewhat oh indirect you know way, but now we are back to the pool rhythm of production and then its initiatives can be seen as we have shown this a again they'll both were record of $24 million.
In the quarter at 67 in the year on top of what was already deployed last year. So this is what we are trying to convey.
And that takes you to you.
Great. Thank you.
Thank you to them.
Ladies and gentlemen, this concludes our question and answer session now I'll hand, the call back to Tito for his final remarks Mr. Martins. Please go ahead.
Thank you.
Huh.
Before we finish I would like to see that you were very glad to see.
Outperforms the two working and we remain very often used about we may not be as I said before demand is strong with back in full production.
Optus.
So many difficulties mostly caused by the locked down too.
That's the way I guess, maybe just explain help deluxe.
Doing that been damaged because in some ways, we are not forecasting that but yeah.
Implementation of the global reach and stuff, but can you help us not only.
So with that as a a continuous improvement program, but also changing the culture organization.
Yeah, no you're confident that you can actually help more didnt shorten lead you in jail.
Oh speculations a huge in terms of keeping up with what we've done so far.
On the books looks towards the prices of Seacon Gulf War.
Oh last Thursday he.
Just keep condition caused by a second wave of cookies and should give me a very stable.
Hi, Im stable level.
So, which you implied that the shoes.
Hopefully better results to show you the future.
In terms of the I think one of the projects I've said before we are often used to be we don't want to reassure you that you get back on track and actually we have high expectations above the project.
Yeah on the yeah, Yeah, we believe that the beginning of production at the end of two into one will be in a time when demand will be strong and now we have it today I mean, and once I wont be more stable and the awareness. We are also seeing that supply may suffer.
So we have not seen new mining projects being developed.
I'm good clearly the supply of concentrates in China actually is falling when you compare with the previous years so use melted.
Actual new names as strong as it is in Asia with the lack of concentration we should see actually.
In what plus seat market for us.
And finally I'd like to thank our IR team for that we'll be happy to walk and say that the available for us are the questions like finding any doubts you may have.
Thank you very much for being here with us or stay healthy and have a nice weekend bye.
Thank you Sir the conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Thank you very much.
Yeah.
[music].