Performance

Economic and Financial

Zinc LME Price (US$/t, Average)

Copper LME Price (US$/t, Average)

Lead LME Price (US$/t, Average)

Operating Results

In 2017, our production of zinc, copper and lead concentrates, measured on the basis of metal content equivalent, totaled 472.3 thousand tonnes, the highlight being 375.3 thousand tonnes of zinc.

The heavy rains and floods recorded in the first quarter in Peru, mainly in the El Porvenir mine area had a negative influence on the production reported.

Production of Concentrates (thousand tonnes)

The sales of zinc products processed in our smelters totaled 593.9 thousand tonnes in 2017, representing a decrease of 2.7% in relation to the previous year, also marked by heavy rains in Peru in the first half of 2017. The result was partially offset by a high performance on the second semester.

Smelter Products Sales (thousand tonnes)

Financial Results GRI 201-1

In 2017, our operations recorded net revenues of US$ 2,449 million, 24.7% higher than the amount registered in 2016 (US$ 1,965 million). Revenue growth was influenced by the increase in the prices of metals and limited by the reductions in the volume of production.

The products sold had a total cost of US$ 1,681 million, 16.8% more than in 2016 (US$ 1,439 million). The higher price of concentrate in the market contributed to this performance, affecting our smelter operations. Revisions of processes to improve the safety of our Peruvian mines also impacted costs by 2017.

For the year, our adjusted EBITDA was
US$ 668 million

Sales, general and administrative expenses increased by 9% in 2017, reflecting the restructuring of our business units and the corresponding transfer of corporate employees to Nexa Recursos Minerais S.A. (formerly Votorantim Metais Zinco S.A.).

Expenses from other operating income decreased to US$ 129 million, down 27.3% from 2016, mainly due to specific provision reported in 2016.

For the year, our adjusted EBITDA was US$ 667.5 million, 65% higher than in 2016 (US$ 403.9 million). In the year, adjusted EBITDA margin was 27.3%.

Financial Results12

Note 12: Adjusted data published in 2016 for changes resulting from new Company agreements including the effects of Energy Assets transferred to Nexa on June 30, 2017. For more information, check page About this Report GRI 102-48
Note 13: Amounts from gains on the sale of investments and depreciation of assets are considered by Management to be exceptional and excluded from adjusted EBITDA

Liquidity and Indebtedness

We closed 2017 with gross debt of US$ 1.4 billion, with 14% of the amount held by international banks and 72% referring to US$ 700 million in debt security bonds issued in May 2017, maturing in 2027, bearing interest of 5.375%/year. The amount was used to repay a portion of the existing consolidated debt with the banks, thus extending the average maturity of the company’s debt to seven years. These bonds are guaranteed by our subsidiaries Nexa Recursos Minerais S.A., Nexa Resources Peru SSA and Nexa Resources – Cajamarquilla S.A. (formerly, Votorantim Metais Zinco S.A., Compañía Minera Milpo S.A. and Votorantim Metais – Cajamarquilla S.A.).

Debt Profile
(US$ million)

Debt Maturity Profile
(US$ million)

In December 2017, we reported net debt of US$ 225 million, resulting in a net debt/adjusted EBITDA ratio of 0.34x, (0.31x at the end of the previous year).

Net Debt/Adjusted EBITDA
(ratio)

Net Debt
(US$ million)

We closed 2017 with low leverage ratio:
0.34x
net debt / Adjusted EBITDA

Cash Flow

The net cash from operating activities totaled US$ 379 million in 2017, a decrease of 35.2% over the previous year (US$ 585 million).

These changes are due to the effects of the silver streaming agreement signed in 2016 through the Nexa UK (formerly Milpo UK Limited) subsidiary, with Triple Flag Mining Finance with reference to the 65% share of production of silver from Cerro Lindo. That percentage will drop to 25% after the delivery of 19.5 million ounces of silver to Triple Flag, which should happen within 10 years. In this transaction, we received a US$250 million payment in advance and, in addition, we will be entitled to 10% of the silver price to be set at the time each ounce of silver is delivered to Triple Flag during the term of the agreement.

The changes in cash and cash equivalents of US$ 103.5 in 2017 were due to the strong generation of cash and various activities during 2017, such as the bond issue in 2027, repayment of debt, payments of share premiums, asset- and energy-related transactions and the IPO.

Changes in Cash During the Year
(US$ million)

Note 14: Amount adjusted for results of new agreements of the Company.

Investments

In 2017, investments to meet our strategic guidelines totaled US$ 198 million, 8% more than in 2016 (US$ 183 million). Of this amount, US$ 48.8 million (or 24.7%) was earmarked for expansion in projects to develop new reserves and extend the working life of mines in operation.

In line with the strategic objective of growth in mining, the largest volume of total investments was directed to these activities: US$ 107.1 million, or 54.2%, with the Vazante mine accounting for 28.0% of the total. Smelting activities took US$ 81.0 million (41.0%), 22.0% of which was for the Três Marias facility.

We made investments in our health, safety and environmental programs totaling US$ 62.1 million, an increase of 6.2% compared to the previous year.

Investments

Capital Markets

On October 27, 2017, together with our parent company, Votorantim S.A., we made a public offering of 35,650,000 on the New York Stock Exchange (NYSE) in the United States and the Toronto Stock Exchange (TSX) In Canada. The nominal value of each share on that date was US$ 16.00. At the end of 2017, the shares were listed at a unit value of US$ 19.61.

Between the date of the initial offering and December 31, 2017, our shares appreciated approximately 23% on the NYSE and TSX exchanges.

The IPO is described in detail in the Governance chapter.

Evolution NYSE
(US$)

Evolution TSX
(CAD)