As filed with the Securities and Exchange Commission on March 27, 2024.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended:
Commission file number:
(Exact name of Registrant as specified in its charter)
Grand Duchy of Luxembourg
(Jurisdiction of incorporation or organization)
Senior Vice President of Finance and Group Chief
Financial Officer
Phone: +
L-
Grand Duchy of Luxembourg
(Address of principal registered office)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
|
Title of Each Class |
Trading Symbol |
Name of Each Exchange on Which Registered |
Securities registered or to be registered pursuant to
Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
The number of outstanding shares of each class of stock of Nexa Resources S.A. as of December 31, 2023 was:
common shares, each with par value of US$1.00
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes o
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See definition of “accelerated filer,” “large accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer o | Non-accelerated filer o | Emerging growth company |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate
by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously
issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☐ International Financial Reporting Standards as issued by the International Accounting Standards Board þ Other ☐
| i |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 o Item 18 o
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o
No
| ii |
TABLE OF CONTENTS
Page
| Form 20-F cross reference guide | iv | ||
| Forward-looking statements | 1 | ||
| About the Company | 3 | ||
| Presentation of financial and other information | 4 | ||
| Risk factors | 6 |
| I. | Information on the Company | 29 |
| II. | Operating and financial review and prospects | 119 |
| Overview | 119 | ||
| Results of operations | 130 | ||
| Liquidity and capital resources | 142 | ||
| Critical accounting estimates | 148 | ||
| Risk management | 151 |
| III. | Share ownership and trading | 156 |
| Major shareholders | 156 | ||
| Related party transactions | 157 | ||
| Distributions | 159 | ||
| Trading markets | 161 | ||
| Purchases of equity securities by the issuer and affiliated purchasers | 162 |
| IV. | Corporate governance, management and employees | 163 |
| Corporate governance | 163 | ||
| Board of directors | 168 | ||
| Executive officers and Management committee | 178 | ||
| Executive and director compensation | 182 | ||
| Employees | 187 |
| V. | Additional information | 188 |
| iii |
Form 20-F Cross Reference Guide |
Form 20-F cross reference guide
| Item | Form 20-F caption | Location in this report | Page |
| 1 | Identity of directors, senior management and advisers | Not applicable | – |
| 2 | Offer statistics and expected timetable | Not applicable | – |
| 3 | Key information | ||
| 3A Reserved | Not applicable | – | |
| 3B Capitalization and indebtedness | Not applicable | – | |
| 3C Reasons for the offer and use of proceeds | Not applicable | – | |
| 3D Risk factors | Risk factors | 6 | |
| 4 | Information on the Company | ||
| 4A History and development of the Company | About the Company, Business overview, Capital expenditures | 3, 29, 102 | |
| 4B Business overview | Business overview, Mining operations, Smelting operations, Other operations, Mineral Reserves and Resources, Regulatory matters | 29, 35, 78, 82, 87, 112 | |
| 4C Organizational structure | Business overview, List of Subsidiaries | 29, Exhibit 8 | |
| 4D Property, plants and equipment | Mining operations, Smelting operations, Other operations, Capital expenditures, Regulatory matters | 35, 78, 82, 102, 112 | |
| 4A | Unresolved staff comments | None | – |
| 5 | Operating and financial review and prospects | ||
| 5A Operating results | Results of operations | 130 | |
| 5B Liquidity and capital resources | Liquidity and capital resources | 142 | |
| 5C Research and development, patents and licenses, etc. | Business overview | 29 | |
| 5D Trend information | Results of operations | 130 | |
| 5E Critical Accounting Estimates | Critical Accounting Estimates | 148 | |
| 6 | Directors, senior management and employees | ||
| 6A Directors and senior management | Board of directors, Executive officers and Management committee | 168, 178 | |
| 6B Compensation | Executive and director compensation | 182 | |
| 6C Board practices | Corporate governance, Board of directors | 163, 168 | |
| 6D Employees | Employees | 187 | |
| 6E Share ownership | Board of directors—Share ownership | 177 | |
| 6F Disclosure of a registrant’s action to recover erroneously awarded compensation | Not applicable | – | |
| 7 | Major shareholders and related party transactions | ||
| 7A Major shareholders | Major shareholders | 156 | |
| 7B Related party transactions | Related party transactions | 157 | |
| 7C Interests of experts and counsel | Not applicable | – | |
| 8 | Financial information | ||
| 8A Consolidated statements and other financial information | Nexa Resources S.A. Financial Statements, Distributions, Legal proceedings | 213, 159, 188 | |
| 8B Significant changes | Not applicable | – | |
| 9 | The offer and listing | ||
| 9A. Offer and listing details | Trading markets | 161 | |
| 9B Plan of distribution | Not applicable | – |
| iv |
Form 20-F Cross Reference Guide |
| 9C Markets | Trading markets | 161 | |
| 9D Selling shareholders | Not applicable | – | |
| 9E Dilution | Not applicable | – | |
| 9F Expenses of the issue | Not applicable | – | |
| 10 | Additional information | ||
| 10A Share capital | Not applicable | – | |
| 10B Memorandum and articles of association | Articles of association | 190 | |
| 10C Material contracts | Business overview, Results of operations, Related party transactions | 29, 130, 157 | |
| 10D Exchange controls | Exchange controls and other limitations affecting security holders | 203 | |
| 10E Taxation | Taxation | 194 | |
| 10F Dividends and paying agents | Not applicable | – | |
| 10G Statement by experts | Not applicable | – | |
| 10H Documents on display | Information filed with securities regulators | 207 | |
| 10I Subsidiary information | Not applicable | – | |
| 10J Annual Report to Security Holders | Not applicable | – | |
| 11 | Quantitative and qualitative disclosures about market risk | Risk management | 151 |
| 12 | Description of securities other than equity securities | Not applicable | – |
| 13 | Defaults, dividend arrearages and delinquencies | Not applicable | – |
| 14 | Material modifications to the rights of security holders and use of proceeds | Not applicable | – |
| 15 | Controls and procedures | Evaluation of disclosure controls and procedures, Internal control over financial reporting | 204, 205 |
| 16A | Audit committee financial expert | Board of directors—Committees of our Board of directors—Audit committee | 173 |
| 16B | Code of ethics | Corporate governance—Code of conduct | 163 |
| 16C | Principal accountant fees and services | Principal accountant fees and services | 206 |
| 16D | Exemptions from the listing standards for audit committees | Not applicable | – |
| 16E | Purchases of equity securities by the issuer and affiliated purchasers | Purchases of equity securities by the issuer and affiliated purchasers | 162 |
| 16F | Change in registrant’s certifying accountant | Not applicable | – |
| 16G | Corporate governance | Corporate governance | 163 |
| 16H | Mine safety disclosure | Not applicable | – |
| 16K | Cybersecurity | Risk management | 151 |
| 16J | Insider trading policies | Executive and Director Compensation | 182 |
| 17 | Financial statements | Not applicable | – |
| 18 | Financial statements | Nexa Resources S.A. Financial Statements | 213 |
| 19 | Exhibits | Exhibits | 211 |
| v |
Forward-Looking Statements |
Forward-looking statements
This annual report includes statements that constitute estimates and forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange Act, as amended, or Exchange Act. The words “believe,” “will,” “may,” “may have,” “would,” “estimate,” “continues,” “anticipates,” “intends,” “plans,” “expects,” “budget,” “scheduled,” “forecasts” and similar words are intended to identify estimates and forward-looking statements. Estimates and forward-looking statements refer only to the date when they were made, and we do not undertake any obligation to update or revise any estimate or forward-looking statement due to new information, future events or otherwise, except as required by law. Estimates and forward-looking statements involve risks and uncertainties and do not guarantee future performance, as actual results or developments may be substantially different from the expectations described in the forward-looking statements.
These statements appear in a number of places in this report and include statements regarding our intent, belief or current expectations, and those of our officers and employees, with respect to, among other things: (i) our future financial or operating performance; (ii) our growth strategy; (iii) future trends that may affect our business and results of operations; (iv) the impact of competition and applicable laws and regulations on our results; (v) planned capital investments; (vi) future of zinc or other metal prices; (vii) estimation of mineral reserves; (viii) mine life; and (ix) our financial liquidity.
Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results and developments may be substantially different from the expectations described in the forward-looking statements for several reasons, many of which are not under our control, among them the activities of our competition, the future global economic situation, weather conditions, market prices and conditions, exchange rates, and operational and financial risks. The unexpected occurrence of one or more of the abovementioned events may significantly change the results of our operations on which we have based our estimates and forward-looking statements. Our estimates and forward-looking statements may be influenced by the following factors, including, among others:
| · | the cyclical and volatile prices of commodities; |
| · | the changes in the expected level of supply and demand for commodities; |
| · | foreign exchange rates and inflation; |
| · | the risks and uncertainties relating to economic and political conditions in the countries in which we operate; |
| · | changes in global market conditions; |
| · | the impact of expanded regional or global conflict, including the conflicts between Russian and Ukraine and the Israel-Hamas conflict, and the resulting potential impacts on supply and demand for commodities, global security concerns, and market volatility; |
| · | outbreaks of contagious diseases or health crises impacting overall economic activity regionally or globally, such as the coronavirus (“COVID-19”) pandemic, and the potential impact thereof on commodity prices and exchange rate variations in the currencies to which we are exposed to, our business and operating sites, and the global economy; |
| · | increasing demand and evolving expectations from stakeholders with respect to our environmental, social and governance (“ESG”) practices, performance and disclosures, including the ability to meet energy requirements while complying with greenhouse gas emissions regulations and other energy transition policy changes and laws in the countries in which we operate; |
| · | the impact of climate change on our operations, workforce and value chain; |
| · | environmental, safety and engineering challenges and risks inherent to mining; |
| 1 |
| Forward-Looking Statements |
| · | severe natural disasters, such as storms and earthquakes, disrupting our operations; |
| · | operational risks, such as operator errors, mechanical failures and other accidents; |
| · | the availability of materials, supplies, insurance coverage, equipment, required permits or approvals and financing; |
| · | supply-chain and logistic related interruptions, including impacts to international freight and transportation networks; |
| · | the implementation of our growth strategy, the availability of capital and the risks associated with related capital expenditures; |
| · | failure to obtain financial assurance to meet closure and remediation obligations; |
| · | the possible material differences between our estimates of Mineral Reserves and Mineral Resources and the mineral quantities we actually recover; |
| · | the possibility that our concessions may be terminated or not renewed by governmental authorities in the countries in which we operate; |
| · | the impact of political and government changes in the countries in which we operate, and the effects of potential new legislation, including changes in taxation laws and any related agreements that Nexa has entered or may enter into with local governments; |
| · | legal and regulatory risks, including ongoing or future investigations by local authorities with respect to our business and operations, as well as the conduct of our customers, along with the impact to our financial statements regarding the resolution of any such matters; |
| · | labor disputes or disagreements with local communities or unions in the countries in which we operate; |
| · | loss of reputation due to unanticipated operational failures or significant occupational incidents; |
| · | failure or outage of our digital infrastructure or information and operating technology systems; |
| · | cyber events or attacks (including ransomware, state-sponsored and other cyberattacks) due to negligence or IT security failures; |
| · | the future impact of competition and changes in domestic and international governmental and regulatory policies that apply to our operations; and |
| · | other factors discussed under “Risk Factors.” |
Considering the risks and uncertainties described above, the events referred to in the estimates and forward-looking statements included in this report may or may not occur, and our business performance and results of operation may differ materially from those expressed in our estimates and forward-looking statements, due to factors that include but are not limited to those mentioned above.
These forward-looking statements are made as of the date of this annual report, and we assume no obligation to update them or revise them to reflect new events or circumstances. There can be no assurance that the forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements.
| 2 |
| About the Company |
About the Company
We are a large-scale, low-cost, integrated zinc producer with over 65 years of experience developing and operating mining and smelting assets in Latin America. We currently own and operate six long-life underground polymetallic mines – three located in the Central Andes of Peru, two located in the state of Minas Gerais in Brazil, and one in the state of Mato Grosso in Brazil, the Aripuanã mine, currently in the ramp-up phase as of the date of this annual report.
Nexa Resources S.A. is a public limited liability company (société anonyme) incorporated under the laws of Luxembourg on February 26, 2014. Our registered office is located at 37A, Avenue J.F. Kennedy, L-1855, Luxembourg, Grand Duchy of Luxembourg, and we are registered with the Luxembourg Trade and Companies Register under number B185489. Our telephone number at this address is +352 28 26 3727. Our main office outside of Luxembourg is located at Avenida Engenheiro Luís Carlos Berrini, n° 105, 6th floor, São Paulo, State of São Paulo, Brazil. Our website is www.nexaresources.com. None of the information available on our website is incorporated in this annual report and it should not be relied upon in deciding to invest in our common shares.
| 3 |
| Presentation of Financial and Other Information |
Presentation of financial and other information
Certain definitions
Unless otherwise indicated or the context otherwise requires, the terms below are defined in the following manner.
| · | “Nexa,” “we,” “us” and “our” or similar terms refer to Nexa Resources and, unless the context otherwise requires, its consolidated subsidiaries; |
| · | “Nexa Resources” refers to Nexa Resources S.A., a Luxembourg public limited liability company (société anonyme); |
| · | “Nexa CJM” refers to our subsidiary Nexa Resources Cajamarquilla S.A. (previously known as Votorantim Metais—Cajamarquilla S.A.), a corporation organized as a sociedad anónima under the laws of Peru; |
| · | “Nexa Brazil” refers to our subsidiary Nexa Recursos Minerais S.A. (previously known as Votorantim Metais Zinco S.A.), a corporation organized as a sociedade anônima under the laws of Brazil; |
| · | “Nexa Peru” refers to our subsidiary Nexa Resources Peru S.A.A. (previously known as Compañía Minera Milpo S.A.A.), a corporation organized as a sociedad anónima abierta under the laws of Peru and publicly traded on the Lima Stock Exchange; |
| · | “Pollarix” refers to our subsidiary Pollarix S.A., a corporation organized as a sociedade anônima under the laws of Brazil; |
| · | “VSA” refers to our controlling shareholder Votorantim S.A., a corporation organized as a sociedade anônima under the laws of Brazil; |
| · | the “Votorantim Group” refers to our controlling shareholder VSA and, unless the context otherwise requires, its consolidated subsidiaries; |
| · | the “real,” “reais” or “R$” refers to the Brazilian real, the official currency of Brazil; |
| · | “sol,” “soles” or “S/.” refers to the Peruvian sol, the official currency of Peru; and |
In addition, the meaning of other defined terms used in this report are set out in “Glossary.”
Financial information
Our consolidated financial statements as of December 31, 2023 and 2022 and for each of the three years ended December 31, 2023 are included in this annual report. Our consolidated financial statements are prepared in accordance with IFRS accounting standards and interpretations, as issued by the International Accounting Standards Board (“IASB”) and the IFRS Interpretations Committee (“IFRS Accounting Standards”). References in this report to “our consolidated financial statements” are to our consolidated financial statements as of December 31, 2023 and 2022 and for each of the three years ended December 31, 2023, and the related notes thereto included elsewhere in this report.
The financial information presented in this report should be read in conjunction with our consolidated financial statements, including the related notes, and the section of this report titled “Operating and financial review and prospects.”
The main consolidated companies included in our consolidated financial statements are:
| · | Nexa CJM – a Peruvian company that is 99.997% directly and indirectly owned by Nexa Resources and is mainly engaged in smelting zinc contained in concentrate. Nexa CJM’s functional currency is the U.S. dollar. |
| 4 |
| Forward-Looking Statements |
| · | Nexa Peru – a Peruvian company that is 83.48% directly and indirectly owned by Nexa Resources and is mainly engaged in exploring, extracting, producing and trading zinc, copper and lead concentrates, extracted from its own three mining sites. Nexa Peru’s functional currency is the U.S. dollar. Nexa Peru is a public company with its shares listed on the Lima Stock Exchange. |
| · | Nexa Brazil – a Brazilian company that is 100% owned by Nexa Resources and is mainly engaged in exploring, extracting and producing zinc, copper and lead concentrates, and smelting zinc contained in concentrate with operations in the states of Minas Gerais and Mato Grosso. Nexa Brazil’s functional currency is the real. |
Non-IFRS Accounting Standards measures
For a discussion of how our management uses non-IFRS Accounting Standards measures as an additional measure of operational performance of the Company’s business, including discussion of our Adjusted EBITDA, reconciliation with most comparable IFRS Accounting Standards figures and changes made in 2023, see “Operating and financial review and prospects—Results of Operations—Non-IFRS Accounting Standards measures and reconciliation.”
All forward-looking non-IFRS Accounting Standards financial measures in this document, including cash cost guidance, are provided only on a non-IFRS Accounting Standards basis. This is due to the inherent difficulty of forecasting the timing or number of items that would be included in the most directly comparable forward-looking IFRS Accounting Standards financial measures. As a result, reconciliation of the forward-looking non-IFRS Accounting Standards financial measures to IFRS Accounting Standards financial measures is not available without unreasonable effort and we are unable to assess the probable significance of the unavailable information.
Country, market and industry information
This report contains and refers to information and statistics regarding the countries in which we operate and the markets for the metals we produce. This data is obtained from independent public sources, including publications and materials from participants in the industry, such as Wood Mackenzie and from governmental entities such as the Brazilian Central Bank, Bloomberg Finance L.P., London Metal Exchange (“LME”), London Bullion Market Association (“LBMA”), Brazilian Ministry of Economy (Ministério da Economia), Brazilian Ministry of Mines and Energy (Ministério de Minas e Energia, or “MME”), National Mining Agency (Agência Nacional de Mineração, or “ANM”), Brazilian Institute of Geography and Statistics (Instituto Brasileiro de Geografia e Estatística, or “IBGE”), the Getulio Vargas Foundation (Fundação Getúlio Vargas, or “FGV”), the Peruvian Stock Market Superintendency (Superintendencia del Mercado de Valores), the Peruvian Central Bank, the Peruvian Ministry of Economy and Finance (Ministerio de Economía y Finanzas) and the Peruvian National Institute of Statistics and Informatics (Instituto Nacional de Estadística e Informática). Some data is also based on our estimates, which are derived from our review of internal reports, as well as independent sources.
Volume information
All tonnage information in this report is expressed in metric tonnes, unless stated otherwise, and all references to ounces are to troy ounces, in each case, unless otherwise specified.
| 5 |
| Risk Factors |
Risk factors
Nexa and its operations are exposed to several inherent risks and uncertainties, including those described below. The risks described below are not the only ones that we face. Additional risks that we do not presently consider material, or of which we are not currently aware, may also affect us. Our business, results of operations, financial condition and cash flows could be materially and adversely affected if any of these risks materialize. You should carefully consider these risks with respect to an investment in Nexa. This section is divided in two sub-sections: the “Risk Factors Summary”, which provides a brief summary of our Risk Factors and “Detailed Risk Factors,” providing detailed information in relation to each Risk Factor identified.
Risk Factors Summary
The following summarizes the main risks to which we are subject. You should carefully consider all of the information discussed below in “Item 3—Key Information—Risk Factors—Detailed Risk Factors” in this annual report for a comprehensive description of these and other risks.
Business risks
| · | Our business is highly dependent on the international market prices of the metals we produce, which are both cyclical and volatile. |
| · | Changes in the demand for the metals we produce, including as a result of the cyclicality of global economic activity, could adversely affect our sales volume and revenues. |
| · | Adverse economic developments in China could have a negative impact on our revenues, cash flow and profitability. |
| · | The mining industry is highly competitive. |
Operational risks
| · | The mining business is subject to inherent risks, some of which are not insurable. |
| · | We may be materially adversely affected by challenges relating to slope and stability of underground openings. |
| · | Our projects are subject to operational risks that may result in increased costs or delays that prevent their successful implementation. |
| · | We may be adversely affected by the failure or unavailability of adequate infrastructure and skilled labor. |
| · | The failure of a tailings dam could negatively impact our business, reputation and results of operations, and the implementation of associated regulations and decommissioning processes may be expensive. |
| · | A disruption in zinc concentrate supply could have a material adverse effect on our production levels and financial results. |
| · | Inadequate supply of zinc secondary feed materials and zinc calcine could affect the results of our smelters. |
| · | Interruptions of energy supply or increases in energy costs may materially adversely affect our operations. |
| · | Shortages of water supply due to permitting, licensing, and other governmental regulations, explosives, critical spare parts, maintenance service and new equipment and machinery may materially adversely affect our operations and development projects. |
| · | There are unique risks inherent to the development of underground mines, which may have a material adverse impact on our cash flows. |
| · | We may be adversely affected by labor disputes, may be liable for certain payments to individuals employed by third-party contractors and may be subject to misconduct by our employees or third-party contractors. |
| · | The nature of our business includes risks related to litigation and administrative proceedings that could materially adversely affect our business and financial performance in the event of unfavorable rulings. |
Financial risks
| · | Our financial position and results of operations may be materially adversely affected by currency exchange rate fluctuations. |
| · | Fluctuations in interest rates could increase the cost of servicing our debt, affect returns on our financial investments and negatively affect our overall financial performance. |
| 6 |
| Risk Factors |
| · | We may engage in hedging activity that may not be successful and may result in losses to us. |
| · | Our business requires substantial capital expenditures and is subject to financing risks. |
| · | We are exposed to credit risk in relation to our contractual and trading counterparties as well as to hedging and derivative counterparty risk, and our results of operations may be negatively impacted by increases in expected credit losses. |
| · | Any acquisitions or divestitures we make may not be successful or achieve the expected benefits. |
| · | Changes in the assumptions underlying the carrying amount of certain assets could result in impairment charges. |
| · | We might not be able to pay the principal and interest amounts on our debt obligations in case they are accelerated as a result of the noncompliance with the restrictive covenants and clauses of our debt contracts. |
Risks related to our Mineral Reserves and Resources
| · | Our estimates of Mineral Reserves and Resources may be materially different from the total mineral quantities we actually recover, and changes in metal prices, operating and capital costs, and other assumptions used to calculate these estimates may render certain Mineral Reserves and Resources uneconomical to mine. |
| · | We depend on our ability to replenish our Mineral Reserves for our long-term viability. |
| · | Our mineral exploration efforts are highly speculative in nature and may be unsuccessful. |
Health, safety and environmental risks
| · | Health, safety and environmental laws and regulations, including regulations pertaining to climate change, may increase our costs of doing business, restrict our operations or result in the imposition of fines or revocation of permits. |
| · | ESG issues, including those related to climate change and sustainability, may have an adverse effect on our business, financial condition, and results of operations, could damage our reputation, and may increase costs. |
| · | Failure to meet environmental, social, and governance expectations or standards or achieve the Company’s environmental and social related goals could adversely affect its business, reputation, brand, results of operations, and/or financial condition. |
| · | Natural disasters and climate change could affect our business. |
| · | Global or regional health considerations, including the outbreak of a pandemic or contagious disease, such as the COVID-19 pandemic, have impacted and could continue to impact our business, financial condition and results of operations. |
Political, economic, social and regulatory risks
| · | Political, economic and social conditions in the countries in which we have operations or projects, or in which we do business, could adversely impact our business, financial condition results of operations and the trading price of our securities. |
| · | Recent and potential changes in commercial and mining laws, including trends like resource nationalism, may significantly impact our mining operations. |
| · | Our mineral rights may be terminated or not renewed by governmental authorities. |
| · | Our operations depend on our relations and agreements with local communities, and new projects require carrying out a prior consultation procedure. |
| · | Changes in tax laws, and any related tax agreements we have entered into or may enter into with local governments, may increase our tax burden and, as a result, could adversely affect our business, financial position and results of operations. |
| · | Our business, financial position and results of operations may be adversely affected by inflation. |
| · | We are subject to anti-corruption, anti-bribery and anti-money laundering laws and regulations in various jurisdictions. Any violations of any such laws or regulations could have a material adverse impact on our reputation and results of operations and financial position. |
| · | Political and social opposition to mining activities generally in the regions we operate could adversely impact our business and reputation. |
| 7 |
| Risk Factors |
| · | Differing interpretations of agency regulations or court rulings and the application of such laws and regulations could result in unintended non-compliance and may have a material effect on our business, results of operations, and financial position. |
| · | Regulation of other activities |
Risks relating to our corporate structure
| · | VSA has substantial control over us, which could limit our shareholders’ ability to influence the outcome of important corporate decisions. |
| · | Dividends or other distributions paid by us on our common shares will generally be subject to Luxembourg withholding tax. |
| · | The rights of our shareholders, and the responsibilities of VSA as our controlling shareholder, are governed by Luxembourg law and differ in some respects from the rights and responsibilities of shareholders under the laws of other jurisdictions, including the United States and Canada, and shareholders may have more difficulty protecting their interests than they would as shareholders of a U.S. corporation. |
| · | Our ability to pay dividends or other distributions and repurchase shares is subject to several factors and conditions. |
| · | It could be difficult for investors to enforce any judgment obtained outside Luxembourg against us or any of our associates. |
Detailed Risk Factors
Nexa and its operations are exposed to several inherent risks and uncertainties, including those described below.
Business risks
Our business is highly dependent on the international market prices of the metals we produce, which are both cyclical and volatile.
Our business and financial performance is significantly affected by market prices of the metals we produce, particularly the market prices of zinc, copper, silver, lead and, to a lesser extent, gold. Historically, prices of such metals have been subject to wide fluctuations and are affected by numerous factors beyond our control, including international economic and political conditions, the cyclicality of consumption, actual or perceived changes in levels of supply and demand, the availability and costs of substitutes, inventory levels maintained by users, actions of participants in the commodities markets and currency exchange rates. We cannot predict whether, and to what extent, metal prices will rise or fall in the future.
In 2023, international prices decreased for zinc, copper and lead, and increased for silver and gold as compared to their respective 2022 averages. Overall, there continued to be downward pressure on international market prices for the base metals we produce, mainly driven by the persistence of negative external factors including inflation and high interest rates, residual economic impacts on key sectors of the Chinese economy, especially civil construction and real estate market, and ongoing variable global macroeconomic conditions relating to conflicts between Russia and Ukraine and the Israel-Hamas conflict.
Mine supply also contributed to the volatility of zinc prices in 2023. The sharp drop in prices from the first to the second quarter, combined with higher levels of production costs around the world, caused a series of zinc mine closures during 2023, as some assets were operating on negative margins. None of Nexa’s mines closed or reduced production in 2023 because of the drop in prices. However, these other mine closures caused zinc prices to slightly rise, especially at the end of 2023, as well as caused the Chinese spot treatment charges to significantly drop throughout the year compared to the 2022 average. There are still assets that may have negative margins at current zinc prices, so further closures of other mines around the globe remains a possibility in 2024.
The ongoing conflict between Russia and Ukraine, and retaliatory measures by the global community have created global security concerns, including the possibility of expanded regional or global conflict, which have had, and may continue to have, adverse impacts around the globe. The fluctuating value of the US dollar, resulting in part from global conflicts, also directly impacts commodities prices.
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Also, on October 7, 2023, Hamas, a terrorist group in control of Gaza, carried out a surprise attack on Israeli cities and towns near the Gaza strip. Following this terrorist attack, Israel declared war on Hamas and other terrorist organizations in Gaza. The military conflict is ongoing, and its length and outcome are highly unpredictable. Further escalation of this conflict could lead to significant disruptions, which could have a material adverse effect on our business, financial position, results of operations and cash flows.
Continued ramifications of these global conflicts include disruption of the supply chain, which has led, and may continue to lead, to impacts on production, investment, and demand and prices for our products; higher and more volatile prices for commodities, including oil and gas; disruption of global financial markets, and further exacerbation of overall macroeconomic trends, including high inflation and rising interest rates. For more information see “Operating and Financial Review and Prospects—Overview”. As of the date of this report, the conflicts between Russia and Ukraine and in the Middle East have had no material impact on our business and operations. However, the conflicts are still ongoing, and we cannot predict the future impact they may have. We continue to monitor developments related to these conflicts as of the day of this report.
Future declines in metal prices, especially with respect to zinc, copper, silver and lead prices, could have an adverse impact on our results of operations and financial position, and we might consider curtailing or modifying certain operations, selling certain operations or not proceeding with our sustaining and/or growth strategy. In addition, we may not be able to adjust production volume in a timely or cost-efficient manner in response to changes in metal prices. Lower utilization of capacity during periods of weak prices may expose us to higher unit production costs since a significant portion of our cost structure is fixed in the short-term due to the high capital intensity of mining operations. Conversely, during periods of high prices, our ability to rapidly increase production capacity may be limited, which could prevent us from selling more products. Moreover, we may be unable to complete expansions and greenfield projects in time to take advantage of rising prices for zinc, copper, lead or other products.
Changes in the demand for the metals we produce, including as a result of the cyclicality of global economic activity, could adversely affect our sales volume and revenues.
Our revenues depend on the volume of metals we sell (and, to a lesser extent, the volume of metals produced by others that are smelted in our facilities), which in turn depend on the level of industrial and consumer demand for these metals. An increase in the production of zinc, copper, silver and lead worldwide, along with reduction in demand for these metals, due to changes in technology, industrial processes or consumer habits, including increased demand for substitute materials, economic slow-downs or other factors, may have the potential to impact these metal prices. In 2023, international prices decreased for zinc, copper and lead, and increased for silver and gold as compared to their respective 2022 averages. The impact of price decreases may also compromise the profitability of smelters, as we might consider reducing the volume of metals we sell and therefore materially adversely impact our operational results and financial position. Even if our volumes are not affected by reduced prices, this decrease can impact our revenues.
The mining industry has historically been highly volatile largely due to the cyclical nature of industrial production, which affects the demand for minerals and metals. Demand for minerals and metals thus generally correlates to macroeconomic fluctuations in the global economy. Changes in the demand for the metals we produce could adversely affect our sales volume and revenues.
Adverse economic developments in China could have a negative impact on our revenues, cash flow and profitability.
China has been the primary source of global demand for commodities over the last few years. According to Wood Mackenzie, in 2023, Chinese demand represented 51% of global demand for refined zinc and 56% of global demand for refined copper. Any slowdown in China’s economic growth that is not offset by increased demand or reduced supply from other regions could have an adverse effect on demand for our products or commodity prices and result in lower revenues, cash flow and profitability.
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The mining industry is highly competitive.
We face competition from other mining, processing, trading and industrial companies in Brazil, Peru and around the world. Competition principally involves the following factors: sales, supply and labor prices; contractual terms and conditions; attracting and retaining qualified personnel; and securing the services, supplies and technologies we need for our operations. Slower development in technology and innovation could impact costs, productivity and competitiveness. In addition, mines have limited lives and, as a result, we must seek to replace and expand our mineral reserves by acquiring new properties. Significant competition exists to acquire mining concessions, land and related assets. We cannot assure shareholders that competition will not adversely affect us in the future.
The international trade environment faces increasing uncertainty. Potential changes to international trade regulations and agreements, as well as other political and economic arrangements (including direct or indirect subsidies), may benefit competitors operating in countries other than where our mining operations are currently located. These changes could also adversely affect the prices we pay for the supplies we need and our export costs when we engage in international transactions. We cannot assure shareholders that we will be able to compete based on price or other factors with companies that in the future may benefit from favorable regulations, lower cost of capital, trading or other arrangements or that we will be able to maintain the cost of the supplies that we require as well as our export costs.
Operational risks
The mining business is subject to inherent risks, some of which are not insurable.
The business of mining zinc, copper, silver, lead and other minerals is generally subject to numerous risks and hazards. Hazards associated with underground mining operations include underground fires and explosions, including those caused by flammable gas, gas and coal outbursts, cave-ins or falls of ground, rock falls, openings collapse, lack of oxygen, air pollution, tailings dam failures or other discharges of tailings, hazardous substances and materials, gases and toxic chemicals, water ingress and flooding, sinkhole formation, ground subsidence, and other accidents and conditions resulting from underground mining activities, such as drilling, blasting, removing and processing material. In addition, we may encounter geotechnical challenges as we continue with and expand our mining activities, including the possibility of failure of underground openings.
Such occurrences could result in damage to, or destruction of, our properties or production facilities, third-party property, human exposure to pollution, personal injury or death, environmental and natural resource damage or contamination, delays in mining, monetary losses and legal liability. In addition, any such occurrences could adversely affect our reputation. Damages to our reputation could result in additional environmental and health and safety legal oversight, and authorities could impose more stringent conditions in connection with the licensing process of our projects and operations. In addition, our customers may be less willing to buy metals from us if we have been subject to significant adverse publicity. We maintain insurance typical in the mining industry, and in amounts that we believe to be adequate, but which may not provide complete coverage in certain circumstances. Insurance against certain risks (including certain liabilities for environmental contamination, tailings dam failures and other hazards as a result of exploration, production or extreme weather) may not be generally available or is uneconomical to afford. If we incur significant liability for which we are not fully insured, we may not be able to finance the uninsured liability amount on acceptable terms to us or at all, and we could be required to divert a significant portion of our cash flow from normal business operations. This could have a material impact on our financial position.
We could also incur additional expenses due to failures in our industrial drainage system or other environmental control equipment. Any such failures could also have adverse impacts on the environment, which could lead to adverse climate changes and further impact our reputation if we are found to contribute, or there is a perception that we have contributed, to adverse environmental impacts in the areas in which we operate.
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We may be materially adversely affected by challenges relating to slope and stability of underground openings.
Our underground mines get deeper, and our waste and tailings deposits increase in size as we continue with and expand our mining activities. This presents certain geotechnical challenges, including the possibility of failure of underground openings. If we are required to further reinforce such openings or take additional actions to prevent such a failure, we could incur additional costs and expenses, and our operations and stated mineral reserves could be negatively affected. We have taken actions we consider appropriate to maintain the stability of underground openings, but additional actions may be required in the future. Unexpected failures or additional requirements to prevent such failures may materially adversely affect our costs and expose us to health, safety and other liabilities in the event of an accident, as well as adversely impact our reputation. These developments may in turn materially adversely affect the results of our operations and financial position, as well as potentially diminish our stated mineral reserves.
Our projects are subject to operational risks that may result in increased costs or delays that prevent their successful implementation.
We invest in sustaining and increasing our mine and metal production capacity and developing new operations. Our projects are subject to several risks that may materially adversely affect our growth prospects and profitability, including the following:
| · | we may encounter delays or higher than expected costs in completing technical and engineering studies and obtaining the necessary equipment, machinery, materials, supplies, labor or services, in project execution by third-party contractors and in implementing new technologies to develop and operate a project; |
| · | we may experience delays in commencing and/or ramping up the operations of a new project or the expansion of an existing operation to its design capacity; |
| · | our efforts to develop projects according to schedule may be hampered by a lack of infrastructure, including a reliable power supply; |
| · | we may fail to obtain or renew, or experience delays or higher than expected costs in obtaining or renewing, the required agreements, authorizations, licenses, approvals and permits to develop a project, including the prior consultation procedure and agreements with local communities; |
| · | changes in market conditions or regulations may make a project less profitable than expected at the time we initiated work on it; |
| · | accidents, natural disasters, labor disputes, equipment failures, water shortages, logistical issues, interruption of energy supply and increase in energy costs; |
| · | adverse mining conditions may delay and hamper our ability to produce the expected quantities and qualities of minerals upon which the project was budgeted; |
| · | mineral reserves and resources are estimates based on the interpretation of limited sampling data and test work that may not be representative of the deposits as a whole, or the technical and economic assumptions used in the estimates may prove to be materially different when the deposits are mined, that could result in materially different economic outcomes; and |
| · | conflicts with local communities, unions and/or strikes or other labor disputes may delay the implementation or the development of projects. |
We may be adversely affected by the failure or unavailability of adequate infrastructure and skilled labor.
Our mining, smelting, processing, development and exploration activities depend to a large degree on adequate infrastructure. The regions where certain of our current operations, projects and prospects are located are sparsely populated and difficult to access. We require reliable roads, bridges, power sources and water supplies to access and properly conduct our operations. As a result, the availability and cost of this infrastructure affects capital and operating costs and our ability to maintain expected levels of production and sales. We could also experience an increase in transit-related accidents due to the need to transport employees to remote areas. Unusual weather, such as excessive rains and flooding, or other natural phenomena, sabotage, government or external interference (including protest activities from local communities that may lead to temporary suspensions of our projects) in the maintenance or provision of such infrastructure could impact the development of a project, reduce mining volumes, increase mining or exploration costs or delay the transportation of raw materials to the mines and projects or concentrates to the customers. See “Risk factors—Health, safety and environmental risks—Natural disasters and climate change could affect our business.”
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In addition, the mining industry is labor intensive, and our success depends to a significant extent on our ability and our contractors’ ability to attract, hire, train and retain qualified employees, including our ability and our contractors’ ability to attract employees with the necessary skills in the regions in which we operate. We could experience increases in our recruiting and training costs and decreases in our operating efficiency, productivity and profit margins if we are unable to attract, hire and retain a sufficient number of skilled employees to support our operations.
The failure of a tailings dam could negatively impact our business, reputation and results of operations, and the implementation of associated regulations and decommissioning processes may be expensive.
Mining companies face inherent risks in their operations of tailings dams—structures built for the containment of the mining or industrial waste, known as tailings—that exposes us to certain risks. Our tailings dams include, in some cases, materials that could increase the hazard potential in the event of unexpected failure. If any such risks were to occur, this could lead to negative environmental effects and materially adversely affect our reputation and our ability to conduct our operations and could make us subject to liability and, as a result, have a material adverse effect on our business, financial position and results of operations.
In addition, the changes in regulation that occurred as a result of recent dam failures, like those that have occurred in Brazil, could increase the time and costs to build, operate, inspect, maintain and decommission tailings dams, obtain new licenses or renew existing licenses to build or expand tailings dams, or require the use of new technologies. Brazilian laws include a requirement for obtaining an environmental license for new dams or for the raising of existing dams. As part of the process, companies must present a proposal for an environmental bond with the purpose of guaranteeing the socio-environmental recovery in the event of an accident or the deactivation of the dam.
In December 2023, the State of Minas Gerais published State Decree No. 48,747/2023, regulating the environmental recovery policies that companies are required to have in place in the event of an accident or deactivation of a dam, pursuant to a prior state law passed in 2019. Under State Decree No. 48,747/2023, any dams that meet the requirements established under the 2019 Dam Safety Policy law must have an environmental guarantee policy in place. Nexa estimates that it will require US$27.3 million to cover the applicable dams under this policy. The guarantee can be made by one of the following methods: (i) cash deposit; (ii) bank deposit certificate – (“CDB”); (iii) bank guarantee; or (iv) guarantee insurance. The Company has until March 29, 2024 to submit an environmental recovery proposal and must contract for 50% of the policy by December 31, 2024, 25% by December 31, 2025 and 25% by December 31, 2026. For more information on State Decree No. 48,747/2023 and its impact on Nexa, see “Information on the Company—Mining operations—Tailings disposal” and Notes 27 and 32(b) of our consolidated financial statements.
The Company has been conducting engineering studies to confirm the construction method of old inactive industrial waste containment structures that have been closed for more than 20 years. None of them contain mining tailings, water or liquid waste. Based on results of the conceptual engineering studies, Nexa recognized a provision for dams obligations in the amount of US$7.0 million in its financial statements for the year ended December 31, 2023 and the Company may reserve additional amounts related to estimated costs of anticipated additional obligations in relation to these closed dams, which could have a material impact on the Company’s financial position.
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Certain regulations, such as those enacted by ANM between 2020 and 2023, may also impose more restrictive requirements that may exceed our current standards, including mandated compliance with emergency plans and increased insurance requirements and premiums, or require us to pay additional fees or royalties to operate tailings dams. We may also be required to facilitate the relocation of communities and facilities impacted by tailings dam failures. Moreover, insurance coverage for damages resulting from tailings dams’ failure may not be available. For more information see “Information on the Company—Mining operations—Tailings disposal.”
A disruption in zinc concentrate supply could have a material adverse effect on our production levels and financial results.
A portion of the zinc concentrate processed in our smelters is obtained from third parties, and we may be adversely affected if we are not able to source adequate supplies of zinc for such operations. In 2023, 49.6% of the zinc concentrate processed in our smelters was obtained from third parties, with the remainder supplied by our own mining operations. The availability and price of zinc concentrate used by our smelters may be negatively affected by several factors largely beyond our control, including interruptions in production in our mines or by our suppliers, decisions by suppliers to allocate supplies of concentrate to other purchasers, price fluctuations and increasing transport cost.
In addition, the efficiency of a smelter’s production over time is affected by the mix of the zinc concentrate qualities and grades it processes. In circumstances where we cannot source adequate supplies of the zinc concentrate qualities and grades that comprise the most efficient mix for our smelters, alternative types of concentrate may be available, but the use thereof may increase our costs of production or reduce the productivity of our smelters and adversely affect our business, results of operations and financial position.
Inadequate supply of zinc secondary feed materials and zinc calcine could affect the results of our smelters.
Zinc sourced from suppliers of secondary feed materials represented approximately 16.5% of the zinc content used by our Juiz de Fora smelter in 2023. The use of zinc secondary feed material is a competitive advantage in relation to the use of zinc concentrate, mainly due to lower acquisition costs and, to a lesser extent, operational gains. In addition, since 2021 we have incorporated zinc calcine processed by third parties into our operations to increase the production in our smelters. Our smelters then use this zinc calcine processed by third parties to produce additional refined zinc products that they would not produce were they to rely solely on other inputs. To the extent we are unable to obtain adequate supplies of zinc secondary feeds or zinc calcine, or if we must pay higher than anticipated prices of these inputs, our business, results of operations and financial position may be adversely affected. In 2021, our calcine supplier in Peru shut down its facilities, impacting our smelter production. In 2021, 2022 and 2023, we were able to partially offset the reduction in calcine availability through the development and consumption of new sources of raw material, such as third party waelz oxide, however, we cannot assure shareholders that we will be able to have secure access to the raw materials required for our operations in the future. For more information, see “Information on the Company—Smelting Operations—Smelter sales.”
Interruptions of energy supply or increases in energy costs may materially adversely affect our operations.
Energy is an important component of our production costs. In Peru, we obtain almost all electric power for our operations from third parties through energy supply contracts. Although we are party to a long-term power purchase agreement with Electroperú S.A., we cannot ensure that we will have secure access to energy sources in Peru at the same prices and conditions in the event of any interruption or failure of our sources of energy, failures or congestion in any part of the Sistema Eléctrico Interconectado Nacional (“SEIN”), any failure to renew or extend our other existing energy supply contracts, or due to any regulatory changes that may impact energy rates. Between May and September 2023, there was an increase in spot prices, mainly explained by the lack of rain in central Peru, given the most energy consumption in the country comes from hydroelectric plants. In addition, the shutdown of certain Peruvian natural gas processing plants due to maintenance occurred in July 2023, led to increase in energy costs reaching US$180/MWh, which was the highest rate in fifteen years. This increase in energy prices in part resulted from inefficient energy generation in the SEIN, which currently lacks renewable energy projects (i.e., hydroelectric, wind and solar). These types of renewable projects are expected to lower the prices that energy generators are able to offer to large industrial users.
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In Brazil, we obtain electric power for our operations from hydroelectric plants grouped into several legal entities—which are directly or indirectly jointly owned by us, our controlling shareholder and its affiliates—pursuant to long-term power purchase agreements. In 2023, self-production plants represented 86.8% of energy supply, in terms of energy acquired via energy purchase and sale contracts. Furthermore, our energy costs under these agreements could increase in the event of differences in the hydrology forecast due to these hydroelectric plants share of the hydrological risk, in addition to payment of higher energy taxes. For more information, see “Information on the Company—Other operations—Power and energy supply.”
Prices and availability of energy resources for our operations may be subject to changes or curtailment due to, among other things, new laws or regulations, the imposition of new taxes or tariffs, supply interruptions, equipment damage, volatility and increase in worldwide price levels for energy and related components, market conditions and any inability to renew our existing supply contracts. Disruptions in energy supply or increases in costs of energy resources could increase our production costs and have a material adverse effect on our financial position and results of operations.
Shortages of water supply due to permitting, licensing, and other governmental regulations, explosives, critical spare parts, maintenance service and new equipment and machinery may materially adversely affect our operations and development projects.
Our mining and smelting operations require the use of significant quantities of water for extraction activities, processing and related auxiliary facilities. Water usage, including extraction, containment, and recycling requires appropriate permits, which are granted by regulatory authorities in Brazil and Peru. The available water supply may be adversely affected by shortages or changes in governmental regulations. We cannot assure shareholders that water will be available in sufficient quantities to meet our future production needs or will prove sufficient to meet our water supply needs. In addition, we cannot assure shareholders that we will maintain our existing licenses related to water rights, particularly if political changes lead to additional regulatory requirements or review of existing licenses. A reduction in our water supply could materially adversely affect our business, results of operations and financial position. In addition, if we are unable to obtain the necessary licenses with respect to water use, we may be prevented from pursuing some of our planned expansion projects.
In addition to water, our mining operations require intensive use of equipment and machinery as well as explosives. To be able to acquire and use explosives, we must first obtain the corresponding authorizations, which are granted by the relevant regulatory authorities in Brazil and Peru. A shortage in the supply of key spare parts, adequate maintenance service, new equipment and machinery to replace old ones and cover expansion requirements, or explosives, including due to the inability to deliver such water, energy, supplies, critical spare parts, explosives, or equipment and machinery to our operations, or regulatory change impacting our ability to obtain authorization for the acquisition of such materials, could materially adversely affect our operations and development projects.
There are unique risks inherent to the development of underground mines, which may have a material adverse impact on our cash flows.
The development of underground mines is subject to other unique risks including, but not limited to, underground floods, issues relating to ventilating harmful gases, fall-of-ground accidents, and seismic activity resulting from unexpected or difficult geological conditions. While we anticipate taking all measures to safely operate, there is no assurance that the effect of these risks will not cause schedule delays, revised mine plans, injuries to persons and property, and/or increased capital costs, any of which may have a material adverse impact on our cash flows.
We may be adversely affected by labor disputes.
Mining is a labor-intensive industry. We depend on more than 14,000 workers, including employees and contractors, to carry out our operations. A portion of our employees are unionized. We cannot assure that we will not experience work slowdowns, work stoppages, strikes or other labor disputes in the future, particularly in the context of the annual renegotiation of our collective bargaining agreements.
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We may also be affected by labor-related disputes that broadly develop in the countries in which we operate. Strikes and other labor disruptions at any of our operations could have a material adverse effect on our business, financial position and results of operations.
We may be liable for certain payments to individuals employed by third-party contractors.
Under Peruvian law, we may become responsible under certain circumstances to pay mandatory labor benefits or other obligations to personnel employed by our third-party contracts or sub-contractors. Although we believe that we are in substantial compliance with Peruvian labor laws, we cannot assure shareholders that any proceedings initiated by outsourced employees will be resolved in our favor and that we will not be liable for any mandatory labor benefits or for-profit sharing benefits. In the beginning of 2022, a new law was published in Peru prohibiting companies from outsourcing core operational activities. More than 70% of our Peruvian workforce is employed by third party contractors. In July 2023, the law was deemed to be unconstitutional because it was determined to be an unenforceable bureaucratic barrier by the National Institute for the Defense of Competition and the Protection of Intellectual Property (“INDECOPI”), and therefore is not expected to have any material impact on Nexa. In addition, a lawsuit was initiated by Nexa which is seeking to declare the unconstitutionality of the aforementioned law. However, any future laws or regulations that would make Nexa responsible under Peruvian law for paying mandatory labor benefits or for-profit sharing benefits for individuals employed by third-party contractors could have an adverse impact on our business, financial position and results of operations. For more information, see “Information on the Company—Regulatory matters—Peruvian regulatory framework—Regulation of other activities.”
Under Brazilian law, outsourcing is also permitted if certain requirements are met. In addition, Brazilian law provides that the contractor will be held liable on a secondary basis if the outsourced or subcontracted companies do not fulfill their labor obligations. In cases where the outsourced or subcontracted companies do not pay the workers the labor sums they are entitled to, the contractor is responsible for those payments. These payments may have an adverse effect on our results of operation and financial position.
We may be subject to misconduct by our employees or third-party contractors.
We may be subject to misconduct by our employees or third-party contractors, such as theft, bribery, sabotage, fraud, insider trading, violation of laws, slander or other illegal actions. Any such misconduct may lead to fines or other penalties, slow-downs in production, increased costs, lost revenues, increased liabilities to third parties, impairment of assets or harmed reputation, any of which may have a material adverse effect on our business, results of operations or financial position.
The nature of our business includes risks related to litigation and administrative proceedings that could materially adversely affect our business and financial performance in the event of unfavorable rulings.
The nature of our business exposes us to various litigation matters, including civil liability claims, environmental matters, health and safety matters, regulatory and administrative proceedings, governmental investigations, tort claims, contract disputes, labor matters and tax matters, among others. We cannot assure shareholders that these or other legal proceedings will not have a material adverse effect on our ability to conduct our business or on our financial position and results of operations, through distraction of our management team, diversion of resources or otherwise. In addition, although we establish provisions as we deem necessary in accordance with IFRS Accounting Standards, the level of provisions that we record could vary significantly from any amounts we actually pay, due to the inherent uncertainties in the estimation process.
Any tax-related investigations carried out by state or local governments may result in a material impact on our business, results of operations and financial condition.
In 2023, Nexa cooperated with the investigation carried out by the Fiscal Office of the State of Minas Gerais and the Public Ministry of Minas Gerais (the “MG Authorities”) of the practices of certain of our former customers with respect to commercial and value added tax (“VAT”), as well as our relationship with such former customers, that could result in liabilities for all parties involved in the commercial relationship. In the third quarter of 2023 and the first quarter of 2024, Nexa and the MG Authorities reached a resolution pursuant to which Nexa, without admitting primary responsibility for the resolved claims, agreed to make certain tax payments, including interest and penalties, to the State of Minas Gerais on behalf of certain former customers that allegedly failed to properly comply with their tax obligations. This resolution concluded the MG Authorities' investigation with respect to the Company, and the Company does not expect any further developments or provisions with respect to these matters. For more information about this investigation and its resolution, see “Additional Information—Legal Proceedings—Other legal proceedings.” For information on the financial effects of the resolution, see Note 9(iv) to our consolidated financial statements. The effects of any future tax-related investigations may have a material impact on our business and financial condition.
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We could be harmed by a failure or interruption of our information technology systems or automated machinery, including system security breaches or other cybersecurity attacks, and we may expend significant resources to modify and improve our cybersecurity measures.
We rely on internal and external information technology systems and automated machinery to effectively manage our production processes and operate our business. Any failure of our or third parties’ information technology systems and automated machinery to perform as we anticipate could disrupt our business and result in production errors, processing inefficiencies and the loss of sales and customers, which in turn could result in decreased revenue, increased overhead costs and excess or out-of-stock inventory levels resulting in a material adverse effect on our business results.
In recent years, there has been an increase in the number of cyberattacks in industrial and corporate environments. The tactics and techniques used by cybercriminals to gain access to and exploit sensitive information by breaching mission critical systems of large organizations have evolved in sophistication. We are dependent on internal information systems, and we are vulnerable to failure of these systems, including through system security breaches, data protection breaches or other cybersecurity attacks. We may be exposed to cyberattacks stemming from unauthorized access to our internal systems, vulnerabilities in critical systems, malware, espionage and sabotage. If these events occur, including a cyberattack causing a loss of critical data, unscheduled downtime/degradation of operations, or the disclosure or use of confidential information, these events could have a material adverse effect on our reputation and market value, which could adversely impact our results of operations. Additionally, we may incur additional costs and expend significant resources in continuing to modify and improve cybersecurity measures and investigate and remediate any weaknesses in our information technology systems.
In addition, privacy, data protection and cybersecurity are subject to frequently changing rules and regulations. The European Union’s General Data Protection Regulation (“GDPR”) took effect in 2018 and introduced increased regulations relating to personal data security. The GDPR requires companies to satisfy new requirements regarding the handling of personal and sensitive data, including its use, protection and the ability of persons whose data is stored to correct or delete such data about themselves. In 2011, Peru enacted the Law for Personal Data Protection No. 29,733, the Ley de Protección de Datos Personales (“LPDP”) and in 2018, the Brazilian president signed Law No. 13,709, the Lei Geral de Proteção de Dados (“LGPD”). Both the LGPD and LPDP represent comprehensive data protection laws, establishing detailed rules for the collection, use, processing and storage of personal data and affecting all economic sectors, including the relationship between customers and suppliers of goods and services, employees and employers and other relationships in which personal data is collected, whether in a digital or physical environment.
In July 2023, the SEC adopted new cybersecurity disclosure rules for public companies that require disclosure regarding cybersecurity risk management (including the corporate board’s role in overseeing cybersecurity risks, management’s role and expertise in assessing and managing cybersecurity risks, and processes for assessing, identifying and managing cybersecurity risks) in annual reports. These new cybersecurity disclosure rules also require the disclosure of material cybersecurity incidents in a Form 6-K promptly after the incident is disclosed or otherwise publicized in a foreign jurisdiction, any stock exchange, or to security holders. Such scrutiny from the SEC increases the risk of investigations into the cybersecurity practices, and related disclosures, of companies within its jurisdiction, which at a minimum can result in an increase in administrative costs, distraction of management and diversion of resources for targeted businesses. Any noncompliance with the GDPR, the LGPD, the LPDP, the SEC cybersecurity rules, or any other privacy, data protection and cybersecurity regulations could result in proceedings or actions against us by governmental entities, the imposition of fines or penalties and damage to our reputation, which could have an adverse effect on us and our business, reputation and results of operations.
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Financial risks
Our financial position and results of operations may be materially adversely affected by currency exchange rate fluctuations.
Our revenues are primarily denominated in U.S. dollars, and certain portions of our operating costs, principally labor costs, are denominated in reais and soles. Accordingly, when inflation in Brazil and Peru increases without a corresponding devaluation of the real or sol, our financial position, results of operations and cash flows could be materially adversely affected. See “Operating and Financial Review and Prospects—Key factors affecting our business and results of operations—Macroeconomic conditions of the countries and regions where we operate” for a discussion of inflation in 2023.
Given the structure of our operations, a decrease in the value of the U.S. dollar relative to the foreign currencies in which we incur costs generally could have a negative impact on our results of operations or financial position. Our foreign currency exposures increase the risk of volatility in our financial position, results of operations and cash flows. We cannot assure shareholders that currency fluctuations, or costs associated with our hedging activities (including fluctuations in exchange rates contrary to our expectations), will not have an impact on our financial position and results of operations.
Fluctuations in interest rates could increase the cost of servicing our debt, affect returns on our financial investments and negatively affect our overall financial performance.
Some of our indebtedness bears interest based on variable interest rates, including the Secured Overnight Financing Rate, or SOFR. As of December 31, 2023, 29.7% of our debt was variable rate debt. Such variable rates have fluctuated in response to changes in economic growth, monetary policy and governmental regulation. A significant increase in underlying interest rates, particularly in SOFR, could have a material adverse effect on our financial expenses and materially adversely affect our overall financial performance. In July 2017, the Financial Conduct Authority (“FCA”) announced its intention to phase out LIBOR by the end of 2021. However, on March 5, 2021, the FCA announced that most tenors of U.S. Dollar LIBOR would continue to be published through June 30, 2023, extending the previously announced deadline of December 2021. For more information, see “Operating and Financial Review and Prospects—Liquidity and Capital Resources—Debt”.
We may engage in hedging activity that may not be successful and may result in losses to us.
We may use foreign exchange and metal commodity non-deliverable forwards to reduce the risk associated with currency and metal price volatility. However, our hedging activities could cause us to lose the benefit of an increase in the prices of the metals we produce if they increase over the price level of hedge positions, or the benefit of an increase in the currency price. The cash flows and the mark-to-market values of our production hedges can be affected by factors such as the volatility of currency and the market price of metals, which are not under our control.
Our hedging agreements contain events of default and termination events that could lead to early close-outs of our hedges such as failure to pay, breach of the agreement, misrepresentation, default under our loans or other hedging agreements and bankruptcy. In the event of an early termination of our hedging agreements, the relevant hedge positions would be required to be settled at that time. In that event, there could be a lump sum payment to be made either to or by us. The magnitude and direction of such a payment would depend upon, among other things, the characteristics of the particular hedge instruments that were terminated and the relevant market prices at the time of termination. Any of the factors described above could have a material adverse effect on our financial position, results of operations or cash flows. See “Operating and financial review and prospects—Risk management—Financial risk—Metal price sensitivity.”
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| Risk Factors |
Our business requires substantial capital expenditures and is subject to financing risks.
Our business is capital intensive. Exploration for and exploitation of mineral deposits, maintenance of machinery and equipment and compliance with applicable laws and regulations require substantial capital expenditures. We must continue to invest capital to maintain and potentially expand our existing brownfield operations, develop our greenfield projects pipeline in order to sustain and grow production, in addition to carrying out investments in sustaining, health, safety and environment. In 2023, we invested US$309.0 million in capital expenditures, US$292.8 million of which was in relation to sustaining investments. We depend partially on our operating cash flows to support our capital expenditures. See “Information on the Company—Capital expenditures.”
No assurance can be given that we will be able to maintain our production levels or generate sufficient cash flow, or have access to sufficient investments, loans or other financing alternatives to finance our capital and other projects expenditure program at a level necessary to sustain and grow our current exploration and exploitation activities. Any equity or debt financing, if available, may not be on terms that are favorable to us. If our access to external financing is limited, we may not be able to execute our strategy, which could adversely affect our business, financial position and results of operations.
We are exposed to credit risk in relation to our contractual and trading counterparties as well as to hedging and derivative counterparty risk, and our results of operations may be negatively impacted by increases in expected credit losses.
We are subject to the risk that the counterparties with whom we conduct our business (in particular our customers) and who are required to make payments to us are unable to make such payment in a timely manner or at all. Credit risk is present in our hedging operations, customer operations and cash management operations. If amounts that are due to us are not paid or not paid in a timely manner, this may impact not only our current trading and cash-flow position but also our financial and business position. In addition, our derivatives, metals hedging, and foreign currency and energy risk management activities expose us to the risk of default by the counterparties to such arrangements. Any such default could have a material adverse effect on our business, financial position and results of operations.
We hold a significant balance of accounts receivable and, therefore, provide an allowance to cover the portion of this amount that may not be received due to customer default. We record expected credit losses at an amount considered sufficient to cover estimated losses in the realization of receivables, taking into account our historical losses and internal risk classification of our customers, although we cannot guarantee that these amounts are sufficient to cover any losses. Additionally, delays in payment cycles from significant customers may adversely affect our liquidity and our ability to obtain financing for working capital, such as receivables sales.
Any acquisitions or divestitures we make may not be successful or achieve the expected benefits.
We regularly consider and evaluate opportunities to acquire assets, companies and operations, as well as constantly review our portfolio of projects and assets in operation. There can be no assurance that we will be able to successfully integrate any acquired assets, companies or operations, nor guarantee success in connection with any divestment or sale of an operational or non-operational project or asset. In addition, any additional debt we incur to finance an acquisition may materially adversely affect our financial position and results of operations. If future acquisitions are significant, they could change the scale of our business and expose us to new geographic, political, operating and financial risks. Similarly, any divestitures we make may not have the anticipated positive impacts and could lead to an impairment charge or other material adverse effects on our business, financial position, and results of operations.
Changes in the assumptions underlying the carrying amount of certain assets could result in impairment charges.
We periodically test whether our tangible and intangible assets have suffered any impairment, in accordance with the accounting policy stated in our consolidated financial statements. If our estimates of the recoverable amount of an asset change or are inaccurate, we may determine that impairment charges are necessary. While impairment does not affect reported cash flows, the decrease in the recoverable amount determined could have a material adverse effect on our results of operations. Assurances cannot be given as to the absence of significant impairment charges in future periods, particularly if market conditions deteriorate.
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| Risk Factors |
We might not be able to pay the principal and interest amounts on our debt obligations in case they are accelerated as a result of the noncompliance with the restrictive covenants and clauses of our debt contracts.
Any default on the contracts governing our debts that is not remedied or waived by loan creditors or noteholders could result in the acceleration of the obligation to pay outstanding amounts owed to holders of such debts. If we are unable to generate sufficient cash flow from our operations and, therefore, unable to obtain the necessary resources to make the principal and interest payments on our debts as a result of such acceleration, our business, financial position and results of operations could be materially and adversely affected. For more information on restrictive covenants in our debt contracts, see “Operating and financial review and prospects—Liquidity and Capital Resources—Debt.”
Risks related to our Mineral Reserves and Resources
Our estimates of Mineral Reserves and Resources may be materially different from the total mineral quantities we actually recover, and changes in metal prices, operating and capital costs, and other assumptions used to calculate these estimates may render certain Mineral Reserves and Resources uneconomical to mine.
There is a degree of uncertainty attributable to the estimation of Mineral Reserves and Resources. Until Mineral Reserves and Resources are actually mined and processed, the quantity of metal and grades must be considered as estimates only and no assurance can be given that the indicated levels of metals will be produced. In making determinations about whether to advance any of our projects to development, we must rely upon estimated calculations for the Mineral Reserves and Mineral Resources and grades of mineralization on our properties.
The estimation of Mineral Reserves and Resources is a subjective process that is partially dependent upon the judgment of the Qualified Persons preparing such estimates. The process relies on the quantity and quality of available data and is based on knowledge, mining experience, statistical analysis of drilling results and industry practices. Valid estimates made at a given time may significantly change when new information becomes available.
Our estimates of Mineral Reserves and Resources are based on geological interpretation and statistical inferences or assumptions drawn from drilling and sampling analysis made as of the date of such estimates. We periodically update our Mineral Reserves and Resources estimates based on the conclusions of the relevant Qualified Persons with respect to new data from exploratory and infill drilling, results from technical studies and the experience acquired during the operation of the mine and metallurgical processing, as well as changes to the assumptions used to calculate these estimates.
Several of the assumptions used to calculate these estimates, including the market prices of commodities and foreign exchange rates, operating and capital costs and mining and metallurgical recovery rates, among others, can greatly fluctuate, which may result in significant changes to our current estimates. These changes may also render some or all of our proven and probable Mineral Reserves and Measured and Indicated Mineral Resources uneconomic to exploit and may ultimately result in a reduction of Mineral Reserves and Resources.
In addition, Inferred Mineral Resources have a massive amount of uncertainty as to their existence and their economic and legal feasibility. You should not assume that any part of an Inferred Mineral Resource will be upgraded to a higher category or that any of the Mineral Resources not already classified as Mineral Reserves will be reclassified as Mineral Reserves.
We depend on our ability to replenish our Mineral Reserves for our long-term viability.
Mineral Reserves data is only indicative of future results of operations at the time the estimates are prepared and are depleted over time as we conduct our mining operations. We use several strategies to replenish and increase our Mineral Reserves that are depleted, including exploration activities and the acquisition of mining concessions. If we are unable to replenish our Mineral Reserves or develop our Mineral Resources, our business, results of operations and prospects would be materially adversely affected.
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| Risk Factors |
Our mineral exploration efforts are highly speculative in nature and may be unsuccessful.
Mineral exploration is highly speculative in nature, involves many uncertainties and risks and may be unsuccessful. It is performed to demonstrate the dimensions, position and mineral characteristics of mineral deposits, estimate Mineral Reserves and Resources, assess amenability of the deposit to mining and processing scenarios and estimate potential deposit value.
Substantial expenditures are required to establish proven and probable Mineral Reserves, to determine processes to extract the metals and, if required, to construct mining and processing facilities and obtain permits to carry on mining activities. Therefore, once the mineralization is discovered, it may take several years from the initial exploration phases and Mineral Resources determination before production is possible, if at all, during which time the project’s feasibility may change adversely.
Health, safety and environmental risks
Health, safety and environmental laws and regulations, including regulations pertaining to climate change, may increase our costs of doing business, restrict our operations or result in the imposition of fines or revocation of permits.
Our mining activities are subject to Brazilian and Peruvian laws and regulations, including health, safety and environmental matters. In March 2022, the Securities and Exchange Commission (“SEC”) proposed a new set of rules regarding disclosure and reporting requirements related to climate change. We will continue to monitor developments related to the new rules, which were adopted by the SEC on March 6, 2024, and subsequently temporarily halted by an administrative stay granted by the Fifth Circuit U.S. Court of Appeals on March 15, 2024. In January 2023, the Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 (the “Directive”) entered into force. The Directive modernizes and strengthens the rules concerning certain social and environmental information that the Company has to report, ensuring that investors and other stakeholders can accurately assess the Company’s social and environmental impact. European Union Member States, including Luxembourg, have until July 2024 to adopt the provisions of the Directive into their national law, as resulting obligations will be applied on a staggered basis. The Company will be required to comply with the Directive obligations starting in 2026 with respect to the accounts for the fiscal year ending on December 31, 2025. Additional matters subject to legislation include, but are not limited to, transportation, mineral storage, water use and discharge, use of explosives, hazardous and other non-hazardous waste, and reclamation and remediation measures. Our operations are subject to periodic inspections and special inspections in certain circumstances by governmental authorities and consultation with local communities. In Peru, the Congress began a revision process of a law to prohibit economic activities in the headwaters of basins, which are currently considered vulnerable areas that require protection and mitigation measures. However, the revision process lost momentum and has shown no sign of progress to date. If adopted, this law could have a material impact on our business and projects in case any new projects were to occur in headwaters of basins. For more information about these Peruvian environmental regulations, see “Information on the Company—Regulatory matters—Peruvian regulatory framework—Environmental regulations”. Compliance with these laws and regulations and new or existing regulations that may be applicable to us in the future could increase our operating costs and adversely affect our financial results of operations and cash flows.
Regulatory and industry response to climate change or other controls on greenhouse gas emissions, including limits on emissions from the combustion of carbon-based fuels, controls on effluents and restrictions on the use of certain materials, could significantly increase our operating costs and affect our customers and suppliers. Ongoing international efforts to address greenhouse gas emissions consist of controlling activities that may increase the atmospheric concentration of greenhouse gases. International agreements, like the Paris Agreement, Kyoto Protocol and COP26, are in different stages of negotiation and implementation. The measures included in such agreements may result in an increase of costs related to the implementation of new controls aimed at reducing greenhouse gas emissions, the purchase of credits or licenses for atmospheric emissions and the monitoring and registration of greenhouse gas emissions generated by our operations. These measures could adversely affect our business, financial position and results of operations. In addition, the Brazilian government has initiatives to grant environmental licenses in connection with the license holder’s commitment to reducing greenhouse gases, especially in the state of Minas Gerais. As health, safety, and environmental regulations, requirements, best practices and industry standards are evolving and becoming stricter in Brazil, we may incur increased expenditures for compliance with these increasingly demanding requirements.
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| Risk Factors |
Pursuant to applicable environmental regulations and laws, we could be found liable for all or substantially all the damages caused by mining activities at our current or former facilities or those of our predecessors at disposal sites. We could also be found liable for all incidental damages due to the exposure of individuals to hazardous substances or other environmental damage, all of which could significantly and negatively affect our reputation. We cannot assure shareholders that our costs of complying with current and future environmental and health and safety laws and regulations, including decommissioning and remediation requirements, and any liabilities arising from past or future releases of, or exposure to, hazardous substances will not materially adversely affect our business, financial position and results of operations.
ESG issues, including those related to climate change and sustainability, may have an adverse effect on our business, financial condition, and results of operations, could damage our reputation, and may increase costs.
There is an increasing focus from certain investors, customers, consumers, employees and other stakeholders concerning ESG matters. Additionally, public interest and legislative pressure related to public companies’ ESG practices continue to grow and change, and may continue to shift based on political conditions in the countries in which we operate and do business. If our ESG practices fail to meet regulatory requirements, our medium- and long-term ESG commitments, or investor, customer, consumer, employee or other stakeholders’ evolving expectations and standards for responsible corporate citizenship in areas including environmental stewardship, support for local communities, Board of directors and employee diversity, human capital management, employee health and safety practices, product quality, corporate governance and transparency, our reputation, brand and employee retention may be negatively impacted. Additionally, our customers and suppliers may be unwilling to continue to do business or partner with us.
Customers, consumers, investors and other stakeholders are increasingly focusing on environmental issues, including climate change, dams, energy and water use, and other sustainability concerns. Concern over climate change, in particular, may result in new or increased legal and regulatory requirements to reduce or mitigate impacts to the environment.
If we do not adapt to or comply with new regulations, or if we fail to comply with disclosure requirements and consequently fail to meet evolving regulatory, investor, industry or stakeholder expectations and concerns regarding ESG issues, investors may reconsider their capital investment in Nexa, and customers and consumers may choose to stop purchasing our products, which could have a material adverse effect on our reputation, business or financial condition.
In addition, our ESG practices and initiatives may result in increased operational costs, including monitoring and reporting costs, equipment costs, energy costs, and other costs to comply with our developing practices and initiatives. These additional costs could have a material impact on our business, results of operations and financial condition.
Failure to meet environmental, social, and governance expectations or standards or achieve the Company’s environmental and social related goals could adversely affect its business, reputation, brand, results of operations, and/or financial condition.
Nexa discloses information about its environmental, social and governance goals and initiatives in its annual sustainability report, other non-financial reports, information provided on its website, press statements, and other communications. This disclosure includes voluntary commitments made by the Company regarding greenhouse gas (GHG) emission reductions, water consumption, safety, and diversity.
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| Risk Factors |
Execution and achievement of Nexa’s ESG and GHG goals within the currently estimated costs and expected timeline is subject to risks and uncertainties which include, but are not limited to, availability, development, and affordability of technology needed to keep our commitments; unplanned issues with design, operations, and technology; inability to obtain required permits or licenses; lack of necessary materials and parts; changing products to meet customer needs and their acceptance of environmentally sustainable supply chain solutions; shifts in public opinion and political leadership; our ability to follow new rules, taxes, orders, or regulations related to climate matters.
The Company maintains and will use its best efforts to continue to maintain standards aligned with stakeholder expectations for best practices, and comply with new environmental, social, and governance regulations and expectations, aiming to minimize potential harm to the Company’s reputation, minimize adverse impacts on its ability to attract and retain customers and talents, and minimize exposure to legal and regulatory proceedings.
Natural disasters and climate change could affect our business.
Natural disasters could significantly damage our mining and production facilities and infrastructure and may cause a contraction in sales to countries adversely affected due to, among other factors, power outages and the destruction of industrial facilities and infrastructure. In particular, the Central Andean region, where two of our mines are located, is prone to mudslides and earthquakes of varying magnitudes. Due to the El Niño weather phenomenon, Peru typically experiences extreme weather events that lead to flooding and mudslides, and which could adversely affect our operations. In the past, extreme flooding and mudslides in Peru have interrupted the supply of metal concentrates from our mines and the supply of zinc products to our plants. The physical impact of climate change on our business remains uncertain, but we are likely to experience changes in rainfall patterns, increased temperatures, water shortages, rising sea and river levels, lower water levels in rivers due to natural or operational conditions, increased storm frequency and intensity as a result of climate change, which may adversely affect our operations. For example, in March 2023 production at the Cerro Lindo mine was suspended for approximately two weeks due to unusually heavy rainfall levels and overflowing rivers caused by Cyclone Yaku, which affected the region, as well as other parts of the country. Operations resumed at full capacity in April 2023. For additional information, see “Information on the Company—Mining Operations—Cerro Lindo.” Although we have insurance covering damages caused by natural disasters, extensive damage to our facilities and staff casualties due to natural disasters may not be covered by our insurer and/or could materially adversely affect our ability to conduct our operations and, as a result, reduce our future operating results.
In addition, the potential physical impact of climate change on our operations is highly uncertain and would be particular to the geographic circumstances of our facilities and operations. It may include changes in rainfall patterns, water shortages, rising sea and river levels, changing storm patterns and intensities and changing temperatures. These effects may materially adversely impact the cost, production and financial performance of our operations.
Global or regional health considerations, including the outbreak of a pandemic or contagious disease, such as the COVID-19 pandemic, have impacted and could continue to impact our business, financial condition and results of operations.
The global economy has faced a number of challenges since the outbreak of the COVID-19 pandemic, including disruption to financial markets, rising inflation, and increased volatility due to market expectations for a global recession. The emergence of new variants of COVID-19, the outbreak of another contagious disease, or future pandemics and public crises could present risks to our operations (including the ability of employees to be physically present at work), employee health and safety, mandatory operational closures and general macroeconomic activity, including international market prices for the metals we produce, as well as have a severe impact to our business, customers, or supply chain. This impact could continue for an extended period of time or impact our financial condition and results of operations and continued weak or worsening economic conditions could negatively impact demand for our products.
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| Risk Factors |
Political, economic, social and regulatory risks
Political, economic and social conditions in the countries in which we have operations or projects, or in which we do business, could adversely impact our business, financial condition results of operations and the trading price of our securities.
Political, economic and social conditions in the countries in which we have operations or projects, or in which we do business, may negatively affect our financial performance. Our business, financial position and results of operations may be affected by the general conditions of the Peruvian, Brazilian and other national political conditions, economies, economic recessions, price instability, exchange rate volatility, inflation, interest rates, and domestic regulatory and taxation policies. There can be no assurance that the countries in which we operate or do business will not face political, economic or social problems in the future or that these problems will not increase the volatility of the price of securities of issuers with operations in those countries, like us, or interfere with our ability to operate and service our indebtedness. For additional information, see “Operating and Financial Review and Prospects—Overview—Key factors affecting our business and results of operations.”
In all these countries, we are exposed to various additional risks over which we have no control, such as social unrest, bribery, cyberattacks, extortion, corruption, robbery, sabotage, kidnapping, civil strife, terrorism, acts of war and guerilla activities. These issues may adversely affect the economic and other conditions under which we operate in ways that could have a materially negative effect on our business.
Recent and potential changes in commercial and mining laws, including trends like resource nationalism, may significantly impact our mining operations.
Changes to the Brazilian and Peruvian regulatory framework that could be enacted in the future may result in an increase in our expenses, particularly mining royalties and tax-related expenses, among others. Any changes in the interpretation of Brazilian or Peruvian mining laws and regulations, including changes to our concession agreement and changes in commercial rules and protections, may increase our compliance, operational or other costs. In December 2022, a new tax on mining operations was approved in the state of Mato Grosso, where the Aripuanã project is located. The Brazilian Supreme Court declared the tax unconstitutional, however in December 2023, a new tax replacing the previous tax was approved by the state of Mato Grosso.
In addition, there is a risk that resource nationalism in Brazil or Peru may result in operational limitations, local content requirements, and even expropriations and nationalizations. For additional information, see “Information on the Company—Regulatory matters—Brazilian regulatory framework—Mining rights and regulation of mining activities.”
Our mineral rights may be terminated or not renewed by governmental authorities.
Our business is subject to extensive regulation in Brazil and Peru, including with respect to acquiring and renewing the required authorizations, permits, concessions and/or licenses from the relevant governmental regulatory bodies. We have obtained, or are in the process of obtaining, all material authorizations, permits, concessions and licenses required to conduct our mining and mining related operations.
In Brazil, we may need to renew exploration authorizations related to our Brazilian mining operations 60 days prior to their expiration date if we determine that we continue to have an economic or business interest in the area. If we fail to demonstrate the existence of technical and economically viable mineral deposits in an area covered by an exploration authorization, we may be required to return it to the federal government. The federal government may then grant exploration authorizations to other parties that may conduct other mineral prospecting activities at said area. With respect to mining concessions, there is no renewal requirement once we have obtained such concession. However, we must continue to assess the mineral potential of each mining concession to determine if the costs of maintaining the related exploration authorizations and mining concessions are justified by the results of operations to date. If such costs are not justified and we abandon the mine or suspend the mining activities without the formal consent of the regulatory authority for a period more than six months, we may lose the respective mining concessions. Alternatively, we may elect to withdraw or assign some of our exploration authorizations or mining concessions.
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| Risk Factors |
In Peru, once mineral concessions are granted, they may not be revoked if the titleholder complies with two obligations, (1) payment of an annual fee and (2) either achievement of the minimum annual production target or expenditure of the equivalent amount in exploration or investments before the statutory deadline. If the production, expenditure or investment targets are not met, a statutory penalty must be paid. Accordingly, mineral concessions will lapse automatically if any of these obligations are not met within the statutory period. Mining concessions in Peru may be terminated if the concessionaire does not comply with its obligations.
These authorizations, permits, concessions and environmental licenses are subject to our compliance with conditions imposed and regulations promulgated by the relevant governmental authorities. While we anticipate that all required authorizations, permits, concessions and environmental licenses or their renewals will be granted as and when sought, there is no assurance that these items will be granted as a matter of course, and there is no assurance that new conditions will not be imposed in connection with such renewals. If we were to violate any of the foregoing laws and regulations or the conditions of our concessions, authorizations, and environmental licenses, including the failure to remove all residents who are within the self-rescue zone, we may be subjected to substantial fines or criminal sanctions, revocations of operating permits or licenses and possible closings of certain of our facilities.
Our operations depend on our relations and agreements with local communities, and new projects require carrying out a prior consultation procedure.
There are several local communities that surround our operations in Brazil and Peru, most of which we have entered into agreements with that provide for the use of their land for our operations. We also interact with regional and local governments and depend on our close relations with local communities and such governments to carry out our operations. From time to time, we may experience disputes with local communities and if our relations with the local communities and such governments were to deteriorate, or the local communities do not comply with the existing agreements or renew them upon expiration, it could have a material adverse effect on our business, reputation, properties, operating results, financial position or prospects. In addition, a disruption in the relations between the local communities, governments and other parties may affect us indirectly. For additional information, see “Mining Operations—Atacocha—Production.”
We also may face certain risks in relation to artisanal mining near the areas in which we operate. The increase of artisanal mining activity or the failure of these artisanal miners to abide with our existent agreement may have an adverse effect on the development of our operations. For example, see “Mining Operations—Aripuanã—History.”
Furthermore, to develop new projects in the countries in which we operate on land owned by, or in the possession of, third parties, we need to reach an agreement with such third parties to use that land. Any delay or failure to reach such agreements or obtain governmental approvals for our new projects could result in a material adverse effect on our business, properties, operating results, financial position or prospects.
Changes in tax laws, and any related tax agreements we have entered into or may enter into with local governments, may increase our tax burden and, as a result, could adversely affect our business, financial position and results of operations.
The Brazilian, Peruvian and Luxembourg governments from time to time implement changes to tax laws and regulations. Any such changes, as well as changes in the interpretation of such laws and regulations, or changes to former precedents on tax decisions by authorities or courts, may result in increases to our overall tax burden, which would negatively affect our profitability. Moreover, some tax laws may be subject to controversial interpretation by tax authorities, including, but not limited to, the regulation applicable to corporate restructurings. In the event an interpretation different than the one on which we based our transactions prevails, we may be adversely affected.
In addition, as a result of the VAT tax benefit adopted by Minas Gerais State on the commercialization of several products, including metallic zinc, there has been increased scrutiny by the tax authorities of companies incorporated in this State. For more information about the VAT tax benefit, see “Information on the Company—Regulatory Matters—Brazilian regulatory framework—Royalties and other taxes on mining activities.” See also “Additional Information—Legal Proceedings” for information about the investigation by the Fiscal Office of the State of Minas Gerais and the Public Ministry of Minas Gerais relating to the VAT-related practices of certain of Nexa’s former customers, as well as Nexa’s relationship with such former customers.
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| Risk Factors |
On January 1, 2024, new transfer pricing regulations came into effect in Brazil, which adopted an arm’s length principle to transfer pricing similar to that of the Organization for Economic Co-operation and Development (OECD). Additionally, a substantial VAT tax reform for indirect and consumption taxes that eliminates existing federal, state and municipal indirect taxes and creates three classes of taxes was approved in Brazil in December 2023 and will begin as of 2026. The reform’s goals are simplification, competitiveness and uniformization of legislation, and a long and gradual transition period is expected from 2026 to 2033. The Company is currently assessing the impacts of the reform on its operations and there can be no assurance that these new regulations will not increase taxes for Nexa.
Additionally, the OECD’s Pillar Two tax reform, which establishes a global minimum effective tax rate of 15%, became effective in Luxembourg on January 1, 2024. See “Taxation—Luxembourg tax considerations” for more information about this tax regime and its potential impact on Nexa. Peru and Brazil have not yet enacted the Pillar Two legislation, however adopting this regime in either country could have a potential impact on our business, financial position and results of operations.
Further, we are engaged in ongoing tax-related matters with the Peruvian tax authorities (“SUNAT”) related to the stability agreement of Cerro Lindo’s operations. The Peruvian tax authority issued unfavorable tax decisions against the Company for the years-ended December 31, 2014, 2015, 2016 and 2017. As of the date of this annual report, SUNAT is now auditing the years-ended December 31, 2018 and 2019. Discussions with SUNAT are expected to evolve in 2024, including potential audits of the years-ended December 31, 2020 and 2021, which is the last fiscal year covered by the stability agreement. The Company continues to conclude that there are legal grounds to obtain a favorable outcome in these matters, however, the Company may have to pay the disputed amounts under discussion to continue the legal process either in the judicial or international arbitration levels which may impact Nexa’s results, cash flow and liquidity. For more information, see “Additional Information—Legal Proceedings” and Note 11(d) to our consolidated financial statements.
The Brazilian, Peruvian or Luxembourg governments may implement additional changes to tax regulations in the future, which could adversely affect our business, financial position, and results of operations.
Our business, financial position and results of operations may be adversely affected by inflation.
Certain countries in which we operate are still experiencing or have experienced high levels of inflation in the past and may continue to experience high levels of inflation in the future, which may impact the cost of operation and domestic demand for our products. Inflationary pressures somewhat decreased globally during 2023 compared to 2022 and may moderate further in 2024, but still remain at high levels. This has impacted our operating margins and may impact our ability to access international financial markets. Further, government policies may be implemented that could materially adversely affect the overall performance of the national economy of the countries in which we operate, which in turn may materially adversely affect Nexa. Furthermore, as we follow international market prices, we may not be able to adjust the prices we charge our customers to offset potential effects of inflation on our cost structure. In addition, although the functional currency for our Peruvian operations is the U.S. dollar, high rates of inflation could increase our operating costs and may further adversely impact our operating margins if we are not able to pass the increased costs on to consumers.
We are subject to anti-corruption, anti-bribery and anti-money laundering laws and regulations in various jurisdictions. Any violations of any such laws or regulations could have a material adverse impact on our reputation and results of operations and financial position.
We are subject to anti-corruption, anti-bribery, anti-money laundering and other international laws and regulations and are required to comply with the applicable laws and regulations of Brazil, Peru, Luxembourg, Canada and the United States, among others. In addition, we are subject to economic sanctions regulations that restrict our dealings with certain sanctioned countries, individuals and entities. Our governance and compliance processes may not timely identify or prevent future breaches of legal, accounting or governance standards. We may be subject to instances of fraudulent behavior, corrupt practices and dishonesty by our affiliates, employees, directors, officers, partners, agents and service providers. Any violations by us of anti-bribery and anti-corruption laws, sanctions regulations or other standards could have a material adverse effect on our business, reputation, results of operations and financial position.
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| Risk Factors |
Political and social opposition to mining activities generally in the regions we operate could adversely impact our business and reputation.
Disputes with communities where we operate may arise from time to time. In some instances, our operations and mineral reserves are located on or near lands owned or used by indigenous people or other groups of stakeholders. Some of our mining and other operations are in territories where title may be subject to disputes or uncertainties, or in areas claimed for agriculture or land reform purposes, which may lead to disagreements with organized social movements, local communities and the government. Further social or political changes, particularly in Peru and Brazil, may lead to a potential increase in these claims. We may be required to consult and negotiate with these groups as part of the process to obtain licenses required to operate, to mitigate impact on our operations or to obtain access to their lands. Disagreements or disputes with local groups, including indigenous groups, organized social movements and local communities could cause delays or interruptions to our operations, adversely affect our reputation or otherwise hamper our ability to develop our reserves and conduct our operations. Protesters have taken actions to disrupt our operations and projects, and they may continue to do so in the future, which may harm our operations and could adversely affect our business. In recent years, Peru has experienced protests against mining projects in several regions. On several occasions, local communities have opposed these operations and accused them of polluting the environment and hurting agricultural and other traditional economic activities. For example, production at the Atacocha mine was temporarily suspended in January and June 2023, as well as in February 2024, due to blockades by local communities. For additional information, see “Mining Operations—Atacocha—Operations and infrastructure” Social demands and conflicts could have a material adverse effect on our business and results of operations and the economy in general of the countries in which we operate.
Differing interpretations of agency regulations or court rulings and the application of such laws and regulations could result in unintended non-compliance and may have a material effect on our business, results of operations, and financial position.
The courts in some of the jurisdictions in which we operate may offer less certainty as to the judicial outcome of legal proceedings or a more protracted judicial process than is the case in more established economies. Businesses can become involved in lengthy court cases over simple issues when rulings are not clearly defined, and the poor drafting of laws and excessive delays in the legal process for resolving issues or disputes compound such problems. In addition, there may be limited or no relevant case law providing guidance on how courts would interpret such laws and the application of such laws to our contracts, joint ventures, licenses, license applications or other legal arrangements. Accordingly, there can be no assurance that contracts, joint ventures, licenses, license applications, tax agreements, or other legal arrangements will not be adversely affected by the actions of government authorities and the effectiveness of and enforcement of such arrangements in these jurisdictions. Moreover, the commitment of local businesses, government officials and agencies and the judicial system in these jurisdictions to abide by legal requirements and negotiated agreements may be more uncertain and may be susceptible to revision or cancellation, and legal redress may be uncertain or delayed. These uncertainties and delays could have a material adverse effect on our business and results of operations. Finally, certain interpretations of regulations and laws may lead to increasing governmental fines and sanctions, even for non-material violations of these rules and regulations. If Nexa is deemed to be in violation of agency regulations or court rulings, and is required to make payments in connection with the alleged violations, this may have a material impact on our business, results of operations and financial position.
Regulation of other activities.
We are subject to mining and environmental regulation related to, among other activities, the use of explosives, fuel storage, controlled substances, discharges, telecommunications, archeological remains and energy concessions. We are also subject to more general legislation on data privacy, labor, occupational health and safety, and peasant and indigenous communities, among others, that may adversely affect our business. See “Information on the Company—Regulatory matters—Brazilian regulatory framework” and “Information on the Company—Regulatory matters—Peruvian regulatory framework.
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| Risk Factors |
Risks relating to our corporate structure
VSA has substantial control over us, which could limit our shareholders’ ability to influence the outcome of important corporate decisions.
As of March 27, 2024, VSA owns 64.68% of our issued and outstanding common shares. As a result, VSA can influence or control matters requiring approval by our shareholders, including the election of directors, the allocation of profits, the appointment of external auditors and the approval of mergers, acquisitions or other extraordinary transactions. VSA may also have interests that differ from our other investors and may vote in a way with which our other shareholders disagree, and which may be adverse to the interests of our other investors. Additionally, we may experience a lack of trading liquidity associated with VSA’s control over us.
In addition, we have entered into several shared services contracts and similar agreements with other entities in the Votorantim Group in order to achieve operational economies of scale. Since we rely on the Votorantim Group for negotiation, renewal and extension of these agreements, there can be no assurances that we will always have access to the services procured pursuant to these agreements at the same prices and conditions. See “Share ownership and trading—Related Party Transactions.”
Dividends or other distributions paid by us on our common shares will generally be subject to Luxembourg withholding tax.
Any dividends or other distributions paid by us on our common shares will be subject to a Luxembourg withholding tax at a rate of 15.0% unless an exemption or reduction in rate applies. The withholding tax must be withheld from the gross distribution and paid to the Luxembourg tax authorities. Under certain circumstances, distributions as share capital reductions or share premium reimbursements may not be subject to withholding tax, but there are no assurances that we will be able to make such distributions in the future. See “Additional Information—Taxation—Luxembourg tax considerations—Shareholders.”
The rights of our shareholders, and the responsibilities of VSA as our controlling shareholder, are governed by Luxembourg law and differ in some respects from the rights and responsibilities of shareholders under the laws of other jurisdictions, including the United States and Canada, and shareholders may have more difficulty protecting their interests than they would as shareholders of a U.S. corporation.
Our corporate affairs are governed by our articles of association and by the laws governing limited liability companies organized under the laws of Luxembourg, as well as such other applicable local law, rules and regulations. The rights of our shareholders and the responsibilities of VSA as our controlling shareholder and of our directors and officers under Luxembourg law are different from those applicable to a corporation incorporated in the United States or Canada. There may be less publicly available information about us than is regularly published by or about U.S. or Canadian issuers. Also, Luxembourg regulations governing the securities of Luxembourg companies may not be as extensive as those in effect in the United States or Canada, and Luxembourg law and regulations in respect of corporate governance matters may not be as protective of non-controlling shareholders as corporation laws in the United States or Canada. Therefore, shareholders may have more difficulty protecting their interests in connection with actions taken by us, our directors and officers or our principal shareholders than they would as shareholders of a corporation incorporated in the United States or Canada.
Our ability to pay dividends or other distributions and repurchase shares is subject to several factors and conditions.
The determination to pay dividends and the payment of dividends or other distributions (including reimbursements of share premium) will be subject to the approval of our Board of directors and/or our shareholders, as applicable, and will depend on a number of factors, including, but not limited to, our cash balance, cash flow, earnings, capital investment plans, expected future cash flows from operations, our strategic plans and cash dividend distributions from our subsidiaries, as well as restrictions imposed by applicable law and contractual restrictions (although as of the date of this annual report there are no contractual restrictions on our ability to pay dividends or other distributions to our shareholders), LME metal prices and other factors our Board of directors may deem relevant at the time. Luxembourg law also imposes certain requirements regarding distributions. For additional information, see “Share ownership and trading—Distributions.”
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| Risk Factors |
We are a holding company and have no material assets other than our ownership of shares in our subsidiaries. When we pay a dividend or other distribution on our common shares, we generally cause our operating subsidiaries, including subsidiaries that are not wholly-owned by Nexa, to make distributions to the parent company in an amount sufficient to fund any such dividends or distributions to Nexa’s shareholders. Although as of December 31, 2023, there are no material contractual restrictions on our subsidiaries’ ability to make distributions, their ability to do so is subject to, among other things, their capacity to generate sufficient earnings and cash flow and may also be affected by statutory accounting and tax rules in Brazil and Peru.
The determination to repurchase shares of our common stock is discretionary. Our ability to repurchase shares will depend on a number of factors, including, but not limited to, metal prices, restrictions imposed by applicable law, contractual restrictions, and other factors our Board of directors may deem relevant at the time. Our decision to repurchase shares could have a negative effect on the Company’s free cash flow and/or the liquidity of our common stock.
It could be difficult for investors to enforce any judgment obtained outside Luxembourg against us or any of our associates.
We are organized under the laws of Luxembourg. Furthermore, certain of our directors and officers reside outside the United States and Canada and most of their assets are located outside the United States and Canada. Most of our assets are located outside the United States or Canada. As a result, it may not be possible for investors to effect service of process upon us or our directors and officers within the United States, Canada, or other jurisdictions outside Luxembourg or to enforce against us or our directors and officers, judgments obtained in the United States, Canada or other jurisdictions outside Luxembourg. Because judgments of United States or Canadian courts for civil liabilities based upon the U.S. federal securities laws or Canadian securities laws may only be enforced in Luxembourg if certain requirements are met, investors may face greater difficulties in protecting their interest in actions against us or our directors and officers than would investors in a corporation incorporated in a state or other jurisdiction of the United States or Canada.
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| Business Overview |
| I. | Information on the Company |
Business overview
Overview
We are a leading large-scale, low-cost integrated zinc producer with over 65 years of experience developing and operating mining and smelting assets in Latin America.
We operate and own six long life polymetallic mines, three located in the Central Andes of Peru, two located in the state of Minas Gerais in Brazil and one located in the state of Mato Grosso in Brazil.
Our operations are large-scale, modern, mechanized underground and open pit mines. Our mines are proximately located to one another, which creates efficiencies. Two of our mines, Cerro Lindo in Peru and Vazante in Brazil, are among the top 40 largest zinc-producing mines in the world and, combined with our other mining operations, placed us among the top five producers of mined zinc globally in 2023, according to Wood Mackenzie. In addition to zinc, which accounted for 54.5% of our mined metal production in 2023 measured on a zinc equivalent basis, we produce substantial amounts of copper, lead, silver and gold as by-products, which reduce our overall costs to produce mined zinc.
We also own a zinc smelter in Peru (Cajamarquilla) and two zinc smelters in Brazil (Três Marias and Juiz de Fora), which produce metallic zinc, zinc oxide and several by-products. We were the fifth largest producer of refined zinc globally in 2023, according to Wood Mackenzie. Our smelters are the only units in Latin America (excluding Mexico), resulting in benefits from higher premiums. Cajamarquilla is the only operating zinc smelter in Peru and was the fifth largest globally in 2023 by production volume, according to Wood Mackenzie. Peru is the second largest producer of mined zinc in the world, assuring long-term supply of zinc concentrates to Cajamarquilla. Given our proximity to concentrate producers (our own mines and third-party producers), we also benefit from freight parity.
In 2023, we achieved our guidance despite a challenging global macroeconomic environment and Aripuanã, whose production was behind our initial plan. The persistence of high inflation and high interest rates, ongoing global conflicts, including the Russia-Ukraine war and the conflict in the Middle East, and uncertainties about the performance of key sectors of the Chinese economy, significantly increased commodity price volatility, contributing to a slowdown in global growth, and intensifying inflationary pressures throughout the year. Production of our existing mines were at the high end, or above guidance range, and metal sales were in the middle of the guidance range, while mining and smelting cash costs were slightly above and in line with our guidance, respectively.
Mining production increased in 2023 as compared to 2022, this increase in the mining segment was mainly explained by better performance in the El Porvenir, Vazante, Morro Agudo and Aripuanã mines largely due to higher treated ore, despite lower production in the Atacocha and Cerro Lindo mines. Production in the smelting segment decreased from 2022, due to operational instabilities across our smelters as well as a slowdown in domestic demand.
In January 2023, protest activities by the Machcan community temporarily suspended operations at the Atacocha San Gerardo open pit mine for approximately one week. In June 2023, protest activities by the Machcan community again blocked access to the Atacocha San Gerardo open pit mine, temporarily suspending production for approximately one month. Finally, in February 2024 protests by the Joraoniyoc community temporarily suspended production at the Atacocha San Gerardo open pit mine for approximately three days. During the protests, mining activities were limited to critical operations with a minimal workforce to ensure appropriate maintenance, safety, and security. Even though production was temporally suspended during these periods, we were able to operate at high levels of capacity utilization rates throughout the year.
In March 2023, production at the Cerro Lindo mine was suspended for approximately two weeks due to unusually heavy rainfall levels and overflowing rivers caused by Cyclone Yaku, which affected the region, and other parts of the country. Nonetheless, following the successful underground mine dewatering process, operations resumed at full capacity in April 2023.
In 2023, zinc production increased by 12.4% compared to 2022, mainly due to the increase in production at Aripuanã and Vazante. Our mining operations produced 333.2 thousand tonnes of zinc contained in concentrates, 33.4 thousand tonnes of copper contained in concentrates, 65.2 thousand tonnes of lead contained in concentrates, 10,300.7 thousand ounces of silver and 27.6 thousand ounces of gold, for a total of 611.1 thousand tonnes of metal on a zinc equivalent basis.
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| Business Overview |
Total production (zinc metal + oxide) in 2023 decreased 3.2% compared to 2022. Our smelters produced 587.5 thousand tonnes of zinc metal and oxide available for sale in different formats and sizes during 2023, along with by-products, including sulfuric acid, silver concentrate, copper cement and copper sulfate.
Our smelters process mostly zinc concentrate, 47.9% of which was sourced from our mines during 2023, and 52.1% purchased from third parties or obtained as secondary raw material (excluding oxide). Approximately 94.5% of the total volume of the contained zinc in concentrates produced by our mines was processed by our own smelters in 2023, with the remainder and all our copper and lead concentrates sold to third parties. We market our products in Latin America and globally, through our commercial offices in Luxembourg, the United States, Brazil and Peru. We also own energy assets (hydroelectric power plants) in both Brazil and Peru, which provide access to a reliable and competitive power supply.
The Aripuanã ramp-up activities started in July 2022. In January and February 2023, the plant operated at approximately 57% of nameplate capacity. However, in March 2023, we decided to temporarily halt operations at the plant to clear some bottlenecks, related primarily to pumping and piping systems, and to improve the drainage configuration that presented some limitations after the rainy season, which occurred from December 2022 to March 2023. At the beginning of 3Q23, the plant performance was averaging 75% of nameplate capacity. We then observed design limitations in the capacity of the flotation pumping system, identified during the detection of bottlenecks in March 2023, which required resizing and upgrade along with certain plant processing facilities and systems, as well as the clean-up and upgrading of water treatment facilities. As a result, we reduced plant throughput and the plant performed at an average of 56% in 3Q23. Despite the reduction, we continue to prioritize metal recovery and concentrate quality and grades, aiming to achieve a stable operation. With this revised plan, we achieved an average of 61% capacity utilization level in 4Q23 and expect to reach nameplate capacity in mid-2024.
In 2023, Nexa continued to demonstrate its commitment to ESG as well as its commitment to promoting safe and inclusive workplaces. For example, in April 2023, we committed to reducing CO2 emissions by using natural gas to replace diesel fuel in transport vehicles at mining sites in Peru. We also obtained authorization from the Regional Superintendence for the Environment of the State of Minas Gerais to use biofuel to replace fossil fuels in zinc oxide furnaces at the Três Marias smelter and expand the use of this biofuel to the remaining furnaces at this site over the years. In August 2023, in line with our ESG commitments targeting net-zero greenhouse gas emissions by 2050, we implemented the ON GRID solar system at our Cajamarquilla smelter, providing electric power from solar energy, resulting in a reduced footprint carbon emissions and promoting clean energy production. Further, in October 2023, Nexa announced the successful closing of a US$320 million sustainability-linked revolving credit facility, which replaced Nexa’s 2019 US$300 million revolving credit facility that was set to mature in October 2024. This new revolving credit facility has a term of five years, remains undrawn and amounts drawn are subject to an initial interest rate of 1.60% plus Term SOFR. The applicable margin is subject to compliance with carbon reduction key performance indicators, reflecting the Company’s unwavering commitment to reducing its carbon footprint.
History
We commenced operating in 1956 under the name “Companhia Mineira de Metais”, in the state of Minas Gerais, Brazil. After a series of restructurings in the subsequent fifty-eight years, in 2014, a new corporate governance model was implemented by our controlling shareholder VSA in the corporate group. The main consequence of this new corporate model was that the new governance structure demanded a higher level of empowerment and accountability of senior management, and the establishment of a Board of directors at each company. In addition, in connection with the implementation of the new corporate governance model, VSA’s equity participations in Nexa CJM (formerly Votorantim Metais – Cajamarquilla S.A.) and Nexa Brazil (formerly Votorantim Metais Zinco S.A.) were transferred to Nexa Resources on June 18, 2014 and July 1, 2014, respectively.
In October 2017, we completed our initial public offering and listed our common shares on the New York Stock Exchange (“NYSE”) and on the Toronto Stock Exchange (“TSX”) under the ticker symbol NEXA. In connection with becoming a public company, VM Holding S.A. changed its corporate name to Nexa Resources S.A. and our subsidiaries Votorantim Metais—Cajamarquilla S.A., Votorantim Metais Zinco S.A. and Compañía Minera Milpo S.A.A. changed their corporate names to Nexa CJM, Nexa Brazil and Nexa Peru, respectively.
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| Business Overview |
Following receipt of approval for a voluntary delisting of our common shares from the TSX in Canada, the last trading of our common shares on the TSX took place on November 30, 2021. Nexa received approval for the delisting following an internal assessment of the relative advantages and disadvantages associated with the listing of our common shares on the TSX. Nexa continues to be a reporting issuer in each of the provinces and territories of Canada following the delisting and continues to file in Canada and disseminate to Canadian resident holders of the common shares its continuous and periodic disclosure documents until such time as it ceases to be obligated to do so. Nexa intends to apply to cease to be a reporting issuer in Canada under Canadian securities laws upon being in a position to satisfy or obtain relief from applicable regulatory requirements.
Corporate structure and principal subsidiaries
Nexa CJM
Currently, Nexa Resources is the beneficial owner of 99.916% of the outstanding shares of Nexa CJM, and the remaining outstanding shares are owned by Nexa Recursos Minerais S.A. with 0.081% and by other minority shareholders holding 0.003% in aggregate.
Nexa Peru
Currently, Nexa Peru’s share capital consists of 1,257,754,353 common shares. In addition to common shares, Nexa Peru has issued investment shares that represent a participation in its net worth (patrimonio). Although the investment shares do not represent a participation in the capital of Nexa nor grant any voting rights, they grant their holders the right, among others, to participate in any dividend distributions and liquidation proceeds, pro rata to the percentage they represent in the total net worth of Nexa Peru; as well as to participate in any capital increases (in order to maintain the participation they represent in the total net worth) and the right to have their shares redeemed in certain circumstances. As of December 31, 2023, approximately 67.02% of the investment shares are free float and 32.98% are treasury shares.
Both the common shares and the investment shares of Nexa Peru are registered with the Peruvian Public Registry of Securities (Registro Público del Mercado de Valores) and listed on the Lima Stock Exchange. As a result, Nexa Peru is required to comply with certain disclosure obligations such as filing quarterly and annual financial statements, reporting on material events (hechos de importancia) and disclosing information regarding the economic group to which it belongs.
The following table sets forth information concerning the ownership of the capital stock of Nexa Peru, excluding the investment shares.
|
Shareholder |
Number |
Share Capital (%) |
| Nexa CJM | 1,048,621,896 | 83.37% |
| Nexa Resources | 2,277,601 | 0.18% |
| Public float |
206,854,856 |
16.45% |
| Total |
1,257,754,353 |
100.0% |
Nexa Brazil
On May 1, 2023, Nexa Brazil, which is 100% owned by Nexa Resources, merged its wholly-owned subsidiary Mineração Dardanelos Ltda., which owns 100% of the Aripuanã Mine, into itself.
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| Business Overview |
Producing mines and smelters
Our mines are:
| · | Cerro Lindo. Our Cerro Lindo mine is an underground mine located in Peru wholly-owned by Nexa Peru, which is 83.48% directly and indirectly owned by Nexa Resources. Operations began in 2007 and, in 2023, the Cerro Lindo mine produced approximately 78.2 thousand tonnes of zinc contained in concentrates, 28.6 thousand tonnes of copper contained in concentrates, 13.0 thousand tonnes of lead contained in concentrates, 3,541.0 thousand ounces of silver contained in concentrates and 3.4 thousand ounces of gold contained in concentrates. The ore is treated at a concentrate plant that has a processing capacity of 21.0 thousand tonnes of ore per day. |
| · | Vazante. Our Vazante mine is an underground and open pit mine located in Brazil wholly-owned by Nexa Brazil, which is 100% owned by Nexa Resources. Operations began in 1969 and, in 2023, the Vazante mine produced approximately 145.7 thousand tonnes of zinc contained in concentrates, 1.4 thousand tonnes of lead contained in concentrates and 575.6 thousand ounces of silver contained in concentrates. The ore is treated at a concentrate plant that has a processing capacity of 5.0 thousand tonnes of ore per day. |
| · | El Porvenir. Our El Porvenir mine is an underground mine located in Peru (part of the Cerro Pasco Complex) wholly-owned by Nexa Resources El Porvenir S.A.C., which is 83.48% directly and indirectly owned by Nexa Resources. Operations began in 1949 and, in 2023, the El Porvenir mine produced approximately 55.8 thousand tonnes of zinc contained in concentrates, 0.4 thousand tonnes of copper contained in concentrates, 24.9 thousand tonnes of lead contained in concentrates, 4,270.5 thousand ounces of silver contained in concentrates and 8.7 thousand ounces of gold contained in concentrates. The ore is treated at a concentrate plant that has a processing capacity of 6.5 thousand tonnes of ore per day. |
| · | Atacocha. Our Atacocha mine is an underground and open pit mine located in Peru (part of the Cerro Pasco Complex) wholly-owned by Nexa Resources Atacocha S.A.A. (formerly Compañía Minera Atacocha), which is 75.96% directly and indirectly owned by Nexa Resources. Operations began in 1938 and, in 2023, the Atacocha mine produced approximately 8.2 thousand tonnes of zinc contained in concentrates, 11.1 thousand tonnes of lead contained in concentrates, 1,399.7 thousand ounces of silver contained in concentrates and 7.6 thousand ounces of gold contained in concentrates. The ore is treated at a concentrate plant that has a processing capacity of 4.4 thousand tonnes of ore per day. In 2020, the mine was placed under a mandatory temporary suspension period in response to COVID-19. Due to the effects of COVID-19, the uncertain macroeconomic scenario and our efforts to reduce costs and improve operational efficiency, we decided not to resume the Atacocha underground mine after the mandatory temporary suspension of our operations in Peru and we placed it under care and maintenance, which it remains to date. |
| · | Aripuanã. Our Aripuanã mine is an underground mine located in Brazil wholly-owned by Nexa Brazil, which is 100% owned by Nexa Resources. Ramp-up activities at the Aripuanã mine began in July 2022, and the mine is currently in the ramp-up phase as of the date of this annual report. In 2023, the Aripuanã mine produced approximately 22.1 thousand tonnes of zinc contained in concentrates, 4.4 thousand tonnes of copper contained in concentrates, 6.3 thousand tonnes of lead contained in concentrates, 513.9 thousand ounces of silver contained in concentrates and 8.0 thousand ounces of gold contained in concentrates. The ore is treated at a concentrate plant that has a processing capacity of 6.3 thousand tonnes of ore per day. |
| · | Morro Agudo. Our Morro Agudo mine is an underground mine located in Brazil wholly-owned by Nexa Brazil, which is 100% owned by Nexa Resources. Operations began in 1988 and, in 2023, the Morro Agudo mine produced approximately 23.2 thousand tonnes of zinc contained in concentrates and 8.3 thousand tonnes of lead contained in concentrates. The ore mill feed material is treated at a concentrate plant that has a processing capacity of 3.4 thousand tonnes per day. On March 19, 2024, Nexa announced the suspension of its mining operations in the Morro Agudo Complex effective May 1, 2024 until further notice. The suspension is part of Nexa’s portfolio optimization process to improve free cash flow in line with the Company’s disciplined capital allocation framework, along with its long-term strategy to maximize value for the Company and its shareholders. |
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| Business Overview |
Our smelters are:
| · | Cajamarquilla. Our Cajamarquilla smelter, which is wholly-owned by Nexa CJM, which is 99.997% directly and indirectly owned by Nexa Resources, is located in Peru and began operating in 1981. It is currently the largest zinc smelter in Latin America and was the fifth largest zinc smelter in the world in 2023, according to Wood Mackenzie. Cajamarquilla uses Roast-Leach-Electrowinning technology. With a nominal production capacity of 344.4 thousand tonnes of contained zinc per year, Cajamarquilla produced 323.1 thousand tonnes of zinc metal available for sales in 2023 and 332.8 thousand tonnes in 2022. In 2023, 27.2% of the zinc contained in raw material used by Cajamarquilla was sourced from our mines in Peru and 72.8% was purchased from third parties or obtained from secondary feed materials. |
| · | Três Marias. Our Três Marias smelter, which is wholly-owned by Nexa Brazil, which is 100% owned by Nexa Resources, is located in Brazil and began operating in 1969. Três Marias processes zinc silicate concentrate from our Vazante mine and zinc sulfide concentrate from our Morro Agudo and Aripuanã mines and uses Roast-Leach-Electrowinning technology. With a nominal production capacity of 192.2 thousand tonnes of refined metal per year, Três Marias produced 182.3 thousand tonnes of zinc metal and oxide in 2023 and 189.9 thousand tonnes in 2022. In 2023, 87.3% of the zinc contained in raw materials used by Três Marias was sourced from our mining operations in Brazil and Peru and 12.7% was purchased from third parties or obtained from secondary feed materials. |
| · | Juiz de Fora. Our Juiz de Fora smelter, which is wholly-owned by Nexa Brazil, which is 100% owned by Nexa Resources, is located in Brazil and began operating in 1980. This smelter uses Roast-Leach-Electrowinning and Waelz Furnace technologies. With a nominal production capacity of 96.9 thousand tonnes per year, Juiz de Fora produced 82.1 thousand tonnes of zinc metal in 2023 and 84.2 thousand tonnes in 2022. In 2023, 41.7% the zinc raw material used in Juiz de Fora was zinc concentrate sourced from our mining operations, 41.8% was purchased from third parties and 16.5% was obtained from secondary feed materials from electric arc furnace (“EAF”) and brass oxide. |
Growth Projects
In addition to Nexa’s operating mines and smelters, a component of our business focuses on growth and exploration, which are activities associated with ascertaining the existence, location, extent or quality of a mineral deposit. Our growth and exploration activities encompass brownfield and greenfield projects. Brownfield projects are exploration or development projects near or within our existing operations, which can share infrastructure and management of our existing operations. Greenfield projects are exploration or development projects that are located outside the area of influence of our existing mine operations and/or infrastructure, which will be independently developed and managed from our existing operations. Most of our brownfield and greenfield projects are in the pre-feasibility or feasibility stages.
The evolution of a greenfield project until it reaches full/normal capacity can take decades. The steps that a project typically follows to reach full/normal capacity are: exploration (for mining projects), pre-feasibility, feasibility study, construction/execution, commissioning, ramp-up, and full/normal capacity. Aripuanã is the only greenfield project that Nexa has built in recent decades and was in the ramp-up stage throughout the entirety of 2023. We expect to reach nameplate capacity in mid-2024.
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| Business Overview |
In addition to our operating mines and smelters, we have interests in three greenfield projects in Peru (Magistral, Hilarión and Florida Canyon Zinc) and one in Namibia, as well as a number of prospects in Peru, Brazil and Namibia. For more information about the projects, please see “Information on the Company—Mining operations—Growth projects.” Nexa also owns 18.2% of the issued and outstanding shares of Tinka Resources Limited, which in turn owns 100% of the Ayawilca zinc-silver development project located 40 kilometers northwest of Cerro de Pasco in Central Peru.
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| Mining Operations |
Mining operations
Map 1. Mines, Projects and Prospects in Peru
Source: Nexa Resources.
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| Mining Operations |
Map 2. Mines, Projects and Prospects in Brazil
Source: Nexa Resources.
The following table summarizes our concentrate production, metal contained in concentrate production in each metal and zinc equivalent production in each of our operating mines.
To calculate the zinc equivalent production for the years ended December 31, 2023, 2022, and 2021, we convert the relevant metal contained in concentrate production used in the zinc equivalent grade based on the average benchmark prices for 2023, namely, US$2,649.04 per tonne (US$1.20 per pound) for zinc, US$8,483.40 per tonne (US$3.85 per pound) for copper, US$2,137.18 per tonne (US$0.97 per pound) for lead, US$23.39 per ounce for silver and US$1,942.74 per ounce for gold.
| 36 |
| Mining Operations |
|
For the Year Ended December 31, | |||
|
2023 |
2022 |
2021 | |
| Treated Ore (in tonnes) | 13,846,530 | 12,343,018 | 12,330,469 |
| Mining Production—Metal Contained in Concentrate | |||
| Zinc (in tonnes) | 333,154 | 296,403 | 319,950 |
| Copper (in tonnes) | 33,385 | 33,219 | 29,607 |
| Lead (in tonnes) | 65,194 | 57,448 | 45,565 |
| Silver (in oz) | 10,300,672 | 9,974,462 | 8,808,291 |
| Gold (in oz) | 27,627 | 27,216 | 25,501 |
| Mining Production—Zinc Equivalent Production | |||
| Cerro Lindo (in tonnes of zinc equivalent) | 214,068 | 241,438 | 243,069 |
| Vazante (in tonnes of zinc equivalent) | 151,911 | 136,643 | 146,222 |
| El Porvenir (in tonnes of zinc equivalent) | 121,164 | 114,921 | 104,283 |
| Atacocha (in tonnes of zinc equivalent) | 35,068 | 38,767 | 33,382 |
| Aripuanã (in tonnes of zinc equivalent) | 51,815 | 1,676 | - |
| Morro Agudo (in tonnes of zinc equivalent) | 37,049 | 31,218 | 30,110 |
| Total | 611,075 | 564,663 | 557,066 |
The following table summarizes the average ore grade for the periods indicated.
|
For the Year Ended December 31, | |||
|
2023 |
2022 |
2021 | |
| Average Ore Grade | |||
| Zinc (%) | 2.89 | 2.78 | 2.98 |
| Copper (%) | 0.34 | 0.34 | 0.31 |
| Lead (%) | 0.66 | 0.62 | 0.51 |
| Silver (in ounces per tonne) | 1.02 | 1.07 | 0.95 |
| Gold (in ounces per tonne) | 0.005 | 0.005 | 0.005 |
Each mine consists of one mine, one treatment plant and related infrastructure. We summarize below information as of December 31, 2023 for each of our six mines, including Aripuanã. For an overview of our reserves and resources, see “Mineral Reserves and Resources—Disclosure of Mineral Reserves and Resources”, “Mineral Reserves and Resources—Mineral Reserves” and “Mineral Reserves and Resources—Mineral Resources.”
Cerro Lindo
Location and means of access
The Cerro Lindo mine is an underground, polymetallic mine located in the Chavín District, Chincha Province, Peru, approximately 268 km southeast of Lima and 60 km from the coast. Access from Lima is available via the paved Pan American Highway south to Chincha, and then via an unpaved road up the Topará River valley to the mine site. Internal roadways connect the various mine site components. The approximate coordinates of the mine are 392,780m East and 8,554,165m North, using the Universal Transverse Mercator WGS84 datum and the mine site is located at an average elevation of 2,000 meters above sea level.
History
Several companies have held interests in the Cerro Lindo mine area, including BTX, Phelps Dodge, and Nexa Peru. Exploration work completed to date includes geological mapping, rock chip and soil sampling, trenching, ground geophysical surveys, and exploration, definition and underground operational core drilling. Feasibility studies were completed in 2002 and 2005, with mine construction commencing in 2006. Formal production started in 2007, and the mine has been operational since that date.
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Title, leases and options
All mineral concessions are held in the name of Nexa Peru. The tenure consists of 68 mining concessions totaling approximately 43,827.8 hectares and one beneficiation concession, covering an area of 518.8 hectares.
Nexa Peru currently holds surface rights or easements for the following infrastructure at Cerro Lindo: mine site, access roads, power transmission line and water pipeline for the mine, old and new power transmission lines to Cerro Lindo, desalination plant, water process plant, and the water pipeline from the desalination plant to the mine site. There is sufficient suitable land available within the mineral tenure held by Nexa Peru for tailings disposal, mine waste disposal and installations such as the process plant and related mine infrastructure.
Cerro Lindo is currently subject to payment of royalties. The tax stability agreement expired on December 31, 2021, and the historical applicability thereof is subject to certain disputes with tax authorities. For more information, see “Additional Information—Legal Proceedings—Other legal proceedings.” As of January 2022, Nexa Peru is required to pay royalties and special mining tax to the Peruvian government. For more information, see “Information on the Company—Regulatory matters—Peruvian regulatory framework.” As of December 31, 2023, Nexa Peru had a total of six water licenses, one for use of seawater, and the remaining five for ground water extraction.
Cerro Lindo holds a number of permits in support of the current operations. The permits are Directorial Resolutions issued by the Peruvian authorities upon approval of mining environmental impact assessments filed by the mining companies. Nexa Peru maintains an up-to-date record of the legal permits obtained to date.
Mineralization
Cerro Lindo is classified as a volcanogenic massive sulfide (“VMS”) deposit. The Cerro Lindo deposit is 1,500 meters long, 1,000 meters wide, and has a current vertical development of 470 meters below the surface. Mineralization consists of at least 10 discrete mineralized zones. The Cerro Lindo deposit comprises lens-shaped massive bodies, composed of pyrite (50.0% to 90.0%), yellow sphalerite, brown sphalerite, chalcopyrite, and minor galena. Significant barite is present mainly in the upper portions of the deposit. A secondary-enrichment zone, composed of chalcocite and covellite, has formed near the surface where massive sulfides have oxidized. Silver-rich powdery barite remains at the surface as a relic of sulfide oxidation and leaching.
In 2023, mineral exploration in Cerro Lindo focused on extensions of known ore bodies to the southeast of Cerro Lindo and on the Pucasalla target, as well as starting drilling tests at the Patahuasi Millay target, located 500 meters to the northwest of Cerro Lindo mine. Underground activities in 2023 included drilling at OB-8 and OB-9 to extend the known mineralized bodies near the mine, at geophysical anomaly zones in Patahuasi Millay, as well as Pucasalla to find new mineralized zones through surface drilling.
During 2023, we completed approximately 27.5 km of diamond drilling in 29 drill holes, divided between surface and underground exploration drillings. By the end of 2023, the drill holes from surface in Pucasalla target and its extensions confirmed evidence of sulfide mineralization with lens of sphalerite, galena and chalcopyrite in a dacite host rock with gangue of barite. In underground, the focus was to confirm the continuity of the mineralization in orebody OB-8 and OB-9.
During 2024, we expect to complete a total of 23.1 km of exploratory drilling. Our goals are to continue the exploratory drilling program to identify new mineralized zones supported by new access and platforms construction in Patahuasi Millay, Pucasalla and extensions, and continue extending the known orebodies such as OB-8 and OB-9.
In 2023, we spent US$6.8 million in exploration expenses for Cerro Lindo, primarily associated with diamond drilling, geochemistry analysis and geological research works. We have budgeted US$7.8 million for 2024 to continue our exploration program, as data interpretations, geochemistry, geophysical and exploratory drilling campaign.
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Operations and infrastructure
The Cerro Lindo mine is substantially mechanized, using rubber-tired equipment for all development and production operations. There is no shaft; all access is through 15 portals servicing adits, drifts and declines. Ore is extracted from nine separate ore bodies and delivered to the process plant via a series of conveyors. All ore is commingled during transport to the concentrator stockpile; ore from different ore bodies is not segregated.
We have completed construction of all key infrastructure required for mining and processing operations, including the underground mine, access roads, power lines, water pipelines, the desalination plant, offices and warehouses, accommodations, the process plant/concentrator, conveyor systems, waste rock facilities, temporary ore stockpiles, the paste-fill plant and the dry-stack tailings storage facilities. A new freshwater pipeline from the desalination plant on the coast to the mine was completed in February 2020 and is operational. The national grid supplies electrical power for the mine site.
In 2023, we spent US$37.7 million on sustaining capital expenditures for Cerro Lindo, primarily associated with mine development, equipment replacement and other major infrastructure projects.
In March 2023, production at the Cerro Lindo mine was suspended due to heavy rainfall levels and overflowing rivers caused by cyclone Yaku, resulting in the partial flooding of some lower levels of the mine. In April 2023, Cerro Lindo resumed operations at full capacity. During the temporary suspension, Nexa remained focused on the security and reparation of the mine and took all measures to ensure the safety and well-being of its employees, contractors and host communities. The temporary suspension of the mine resulted in lower production in 2023 compared to 2022.
Production
The Cerro Lindo mine is in the production stage and has a treatment plant capacity of 21,000 tonnes of ore per day. The Cerro Lindo unit has an authorized capacity of 20,000 tonnes of ore per day, but Peruvian law allows units to operate at a capacity 5.0% higher than their authorized capacity. The table below summarizes the Cerro Lindo mine’s concentrate production, metal contained in concentrates produced and average grades for the periods indicated. Production in 2023 was lower than 2022 primarily as a result of a two-week production suspension in March due to unusual heavy rainfall levels and lower grades.
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For the Year Ended December 31, | |||
|
2023 |
2022 |
2021 | |
| Treatment ore (in tonnes) | 5,991,156 | 6,236,058 | 6,369,044 |
| Average ore grade | |||
| Zinc (%) | 1.51 | 1.55 | 1.79 |
| Copper (%) | 0.57 | 0.61 | 0.54 |
| Lead (%) | 0.31 | 0.33 | 0.28 |
| Silver (ounces per tonne) | 0.80 | 0.89 | 0.79 |
| Gold (ounces per tonne) | 0.002 | 0.002 | 0.002 |
| Metal contained in concentrates production | |||
| Zinc (in tonnes) | 78,209 | 84,392 | 102,275 |
| Copper (in tonnes) | 28,588 | 32,758 | 29,102 |
| Lead (in tonnes) | 13,042 | 15,641 | 12,849 |
| Silver (in oz) | 3,540,975 | 4,129,736 | 3,813,731 |
| Gold (in oz) | 3,418 | 4,146 | 4,829 |
| Cash Cost, net of by-product credits (in US$/t) | (138.6) | (561.4) | (530.1) |
| Cash Cost, net of by-product credits (in US$/lb) | (0.06) | (0.25) | (0.24) |
| Non-Expansion Capital Expenditures (in millions of US$) | 43.3 | 42.5 | 40.5 |
Mineral Reserves and Mineral Resources
The Cerro Lindo Mineral Reserves estimates are based on the definitions for Mineral Reserves in SK-1300 and the tables below are based on costs and modifying factors from the Cerro Lindo mine.
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Cerro Lindo – Year End Mineral Reserves as of December 31, 2023 (on an 83.48% Nexa attributable ownership basis) (1)
| Grade | Contained Metal | ||||||||||
| Class | Tonnage (2) | Zinc | Copper | Silver | Lead | Gold | Zinc | Copper | Silver | Lead | Gold |
| (Mt) | (%) | (%) | (g/t) | (%) | (g/t) | (kt) | (kt) | (koz) | (kt) | (koz) | |
| Proven | 21.83 | 1.68 | 0.61 | 21.2 | 0.20 | - | 367.1 | 132.6 | 14,863 | 44.1 | - |
| Probable | 12.52 | 1.15 | 0.45 | 25.2 | 0.24 | - | 144.3 | 56.8 | 10,154 | 29.9 | - |
| Total | 34.36 | 1.49 | 0.55 | 22.6 | 0.22 | - | 511.4 | 189.4 | 25,017 | 74.1 | - |
Notes:
| 1. | Subpart 1300 of Regulation S-K definitions were followed for Mineral Reserves, which also are consistent with the CIM (2014) definitions. |
| 2. | Mineral Reserves data presented in this table are reported on 83.48% Nexa attributable ownership. |
| 3. | The Qualified Person for the Mineral Reserves estimate is Cristovao Teofilo dos Santos, B.Eng., FAusIMM, a Nexa employee. |
| 4. | Numbers may not add due to rounding. |
| 5. | The point of reference for Mineral Reserves in this table is mill feed materials. |
Cerro Lindo – Year End Mineral Reserves as of December 31, 2023 (on a 100% ownership basis) (1)
| Grade | Contained Metal | ||||||||||
| Class | Tonnage (2) | Zinc | Copper | Silver | Lead | Gold | Zinc | Copper | Silver | Lead | Gold |
| (Mt) | (%) | (%) | (g/t) | (%) | (g/t) | (kt) | (kt) | (koz) | (kt) | (koz) | |
| Proven | 26.15 | 1.68 | 0.61 | 21.2 | 0.20 | - | 439.7 | 158.8 | 17,803 | 52.8 | - |
| Probable | 15.00 | 1.15 | 0.45 | 25.2 | 0.24 | - | 172.9 | 68.1 | 12,163 | 35.9 | - |
| Total | 41.15 | 1.49 | 0.55 | 22.6 | 0.22 | - | 612.6 | 226.9 | 29,966 | 88.7 | - |
Notes:
| 1. | Subpart 1300 of Regulation S-K definitions were followed for Mineral Reserves, which also are consistent with the CIM (2014) definitions. |
| 2. | Mineral Reserves data presented in this table represents 100% of the Mineral Reserves estimates for the property. Nexa owns 83.48% |
| 3. | The Qualified Person for the Mineral Reserves estimate is Cristovao Teofilo dos Santos, B.Eng., FAusIMM, a Nexa employee. |
| 4. | Numbers may not add due to rounding. |
| 5. | The point of reference for Mineral Reserves in this table is mill feed materials. |
The Cerro Lindo Mineral Reserves are estimated at an NSR cut-off value of US$40.86/t processed. A number of incremental material (with values between US$32.99/t and US$40.86/t) was included. A minimum mining width of 5.0 m was used, inclusive of extraction factors and dilution are applied based on stope type and location. The net smelter return (“NSR”) cut-off value is determined using the mineral reserve metal prices, metal recoveries, concentrate transport, treatment and refining costs, as well as mine operating costs. Metal prices used for Mineral Reserves are based on consensus, long term forecasts from banks, financial institutions and other sources. Mineral Reserves estimates are based on average long-term metal prices of: zinc: US$2,799.04/t (US$1.27/lb); copper: US$7,669.61/t (US$3.48/lb); lead: US$2,000.29/t (US$0.91/lb); and silver: US$21.17/oz. Metallurgical recoveries are accounted for in NSR calculations based on historical processing data and are variable as a function of head grade. Recoveries at Life of Mine average head grades are 88.36% for Zn, 85.23% for Cu, 66.53% for Pb, and 68.78% for Ag. The current life of mine (“LOM”) plan continues to 2030.
Cerro Lindo – Net Difference in Mineral Reserves between December 31, 2023 versus December 31, 2022 (on an 83.48% Nexa attributable ownership basis)
| Contained Metal | ||||||||||||
| Class | Tonnage | Zinc | Copper | Silver | Lead | Gold | ||||||
| (Mt) | % | (kt) | % | (kt) | % | (koz) | % | (kt) | % | (koz) | % | |
| Proven | (0.21) | (0.9) | (18.8) | (4.9) | (9.3) | (6.5) | (33) | (0.2) | (2.6) | (5.7) | - | - |
| Probable | (0.03) | (0.2) | (13.2) | (8.4) | (5.5) | (8.8) | 16 | 0.2 | 0.7 | 2.5 | - | - |
| Total | (0.23) | (0.7) | (32.0) | (5.9) | (14.8) | (7.2) | (18) | (0.1) | (1.9) | (2.5) | - | - |
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Cerro Lindo – Net Difference in Mineral Reserves between December 31, 2023 versus December 31, 2022 (on a 100% ownership basis)
| Contained Metal | ||||||||||||
| Class | Tonnage | Zinc | Copper | Silver | Lead | Gold | ||||||
| (Mt) | % | (kt) | % | (kt) | % | (koz) | % | (kt) | % | (koz) | % | |
| Proven | (0.25) | (0.9) | (22.5) | (4.9) | (11.1) | (6.5) | (40) | (0.2) | (3.2) | (5.7) | - | - |
| Probable | (0.03) | (0.2) | (15.8) | (8.4) | (6.6) | (8.8) | 19 | 0.2 | 0.9 | 2.5 | - | - |
| Total | (0.28) | (0.7) | (38.3) | (5.9) | (17.7) | (7.2) | (21) | (0.1) | (2.3) | (2.5) | ||