We have a clear growth strategy, focused on zinc and copper mineral exploitation in the Americas, to ensure the creation of long-term value. We direct our investments both to boost annual production capacity and to extend the life of the mines we currently operate and develop new projects. We also look at new zinc and copper business opportunities to facilitate the execution of our projects, either organically or inorganically.
The budget for mineral exploitation basically remained stable in 2018, investing US$ 83 million in these projects. In addition, during the year we evolved in terms of project management and governance structures, continuing the previous year’s review of committees, procedures and management models.
Our projects are developed in an intelligent manner; that is, lower costs, more agility, minimum deviations from the plan and maximized returns. The following projects are in different stages of FEL (Front-End Loading) feasibility evaluation: Magistral, Shalipayco and Pukaqaqa (Peru), and, in addition to Aripuanã, which is in the construction phase, Bonsucesso and Caçapava do Sul (Brazil). All projects under development have gone forward according to plan, strengthening our portfolio.
Greenfield projects under development
It is our most advanced project. Project initiation was approved in October by the Board of Directors and in December it received an installation license from the environmental agency of the state of Mato Grosso, Brazil (details on Aripuanã construction begins).
Located in the Ancash region of Peru, this open-pit copper project has a mineral processing unit. In 2018, the soundings for metallurgical samples, bench tests and pre-feasibility studies (FEL2) were started, which are 55% complete. It is estimated that Magistral will produce an annual average of 40 thousand tonnes of copper contained in concentrate, 3 thousand tonnes of molybdenum and 600 thousand ounces of silver (17 tonnes) over the 16 years of its useful life.
The project is located in the Junín region in the central Andes of Peru, an area with underground zinc, lead and silver mines. During the year, a conceptual study was completed and the project in 2019 is entering the pre-feasibility study phase (FEL2). As a result of the study and to maximize the project›s internal rate of return and net present value, the plan included additional drilling to reclassify its mineral resources and prepare the engineering concept for a processing plant. As a result, another 10 months were added to the main project timeline.
It is located in the Huancavelica region, about 400 kilometers south of Lima (Peru), and includes the development of an open pit copper, molybdenum, silver and gold mine. The pre-feasibility study (FEL2) progressed 22% in 2018 and we are maintaining the goal of identifying possible operational synergies between this project and similar assets in the region.
Caçapava do Sul
A polymetallic project involving copper, lead and zinc located in the state of Rio Grande do Sul, about 245 kilometers from the Port of Rio Grande. The resources can be exploited through both open pit mining and underground processes concomitantly. The research program in 2018 was slower due to the redirection of budget funds to priority projects. In 2019, some 13 thousand meters will be sounded in a survey.
Aripuanã construction begins
Aripuanã, a polymetallic mine located in the state of Mato Grosso, is considered one of the world’s ten largest zinc projects. This integrated underground mine’s expected production is 2.3 million tonnes of crude ore per year (especially zinc, lead and copper) – with output of 120 thousand tonnes of zinc equivalent. The expected useful life is at least 13 years, considering just the known reserves, with the possibility of extension for another six years.
The expected average annual production of the Aripuanã zinc concentrate is 28% of the volume we purchased externally in 2017, which will contribute to higher integration between mines and smelters.
Aripuanã is fundamental to the evolution of our strategy of continuing to grow our zinc and copper mining and smelting operations in the Americas. Besides contributing to the development of the mineral industry in Mato Grosso, it strengthens our position as one of the world’s five largest zinc producers, and the leading producer of the ore in Latin America.
We seek to incorporate the most modern technology and operational excellence practices into the Aripuanã Project, as well as a sustainability vision in all its processes. Some examples are the goal of 100% water reutilization, the construction of a dry tailings deposit and the focus on co-creating a legacy for the community.
Aripuanã in numbers
TECHNOLOGY AND OPERATIONAL EXCELLENCE
■ Dry tailings disposal – Focusing on the safety and sustainability of neighboring communities, the undertaking was projected from the start so as not use conventional tailings containment structures. A new process was developed involving filtering, drying, handling and disposal of dry tailings in piles protected by layers of geomembranes, reducing risks and environmental impacts.
■ Use of constructed wetlands – passive treatment of rainwater runoff on ore piles (ROM – Run of mine), sterile waste piles, tailings piles, industrial and administrative areas and mine drainage systems. With this system, we will return the treated water to the receiving bodies in a controlled manner while also treating effluent water from the processing plant. Hence, 100% of the treated water will be recirculated back to the process and there will be no disposal into the environment.
■ High degree of automation – better safety levels, operational stability, cost savings and increased
■ 2017 – presentation of the environmental impact study and review of the global minimum cost study
■ April/18 – Obtaining the Preliminary Environmental License
■ Oct/18 – FEL3 completion
■ Dec/18 – Obtaining the Installation License (IL) granted by the Mato Grosso State Environmental Department
■ 1st quarter/19 – forecast for signing the main packages such as comminution, flotation and mine equipment, as well as main services (such as EPCM, the company for civil construction and electromechanical assembly and mine development); and start project construction
■ 2021 – estimate for startup of operations.
Nexa Recursos Minerais S.A.
Nexa Resources Peru S.A.A.
Mineração Rio Aripuanã Ltda.
(a Karmin Exploration Inc. subsidiary)
The three types of ore concentrate will be brought out in part by truck to Rondonópolis, where they will be transferred to railroad cars and sent to the Port of Santos, for subsequent shipment abroad. The supply of zinc smelters from Juiz de Fora and Três Marias will be by road transportation.
The Aripuanã Project’s Integrated Socio-economic Plan (PIS) was prepared from a socio-economic diagnosis that sought to enhance understanding of the territorial, social, economic and socio-organizational context of the locality where the unit will be built. The plan is aligned with the topics contained in the Sustainable Development Goals (SDGs), as is the concept of sector unification, designed to help achieve shared goals and minimize impacts, promoting positive developmental actions in the region.
In line with the company’s social strategy and the challenges identified and prioritized in the PIS, the plan defined five topic groups to facilitate the construction of more creative solutions to fit each reality:
In addition to the five groups, the topics of Social Participation and Monitoring of Socioeconomic Indicators also took into account cross-cutting themes with all the others, and likewise were discussed. The PIS proposes to operate within each topical group following Nexa’s four strategic social performance axes: Local Economic Development; Socioenvironmental; Public Management and Social Participation; Childhood and Youth. These guidelines guided the definition of the social programs and projects being developed in Aripuanã.
Some projects were initiated in 2018, such as the program to strengthen the network to protect child and teen rights, as well as the training of community agents to prevent violations of the rights of young people and women. Other programs already under way reinforce the quality of public and technical education in Aripuanã, supporting both the possibility of local hiring and the improvement of education in the region. In 2019, we will continue the projects that were started in previous years and expand our social activities pursuant to the PIS.
In addition, we have established that all our suppliers for social projects must commit to conduct their activities in accordance with our social responsibility requirements. These include commitments to human rights, support for local development, promotion of safety and a healthy workplace, compliance with the Social Golden Rules and the 15 Community Relationship Protocol rules.
We permanently strive to develop a pipeline of brownfield projects aligned with the full potential of our assets, seeking to extend the capacity and lifetimes of our mines and taking advantage of favorable market conditions. Our goal is to ensure a minimum of 12 years of reserve-based life by defining new exploitation targets.
In 2018, all our operations received funding, planned and phased according to the maturity level of each unit. Our most significant projects in the period were:
We have a ten-year project, begun in 2013 and with an estimated total investment of US$ 184.3 million, which seeks to extend the useful life of the mine. Initially, the goal was to achieve a five-year gain, from 2022 to 2027. Based on resources and reserves, however, we have surpassed this goal and we have reached 2034, that is, another 12 years. With the deepening of the mine, the expectation is to maintain its production at 140 thousand tonnes of zinc per year. As part of this project, the pumping station and the excavation of the well were delivered in 2018, in addition to construction of the floodgate. Production at the deepest levels represented 73% of the contained zinc production of Vazante during the year.
In order to enable the expected surge in the unit’s production, which should reach maximum capacity in 2020, we increased the hours worked in the unit by approximately 30%, including the addition of a fourth work shift.
We drilled a total of 57 kilometers, starting activities in the region of Orcocobre, north of the Topara River. We have three drill rigs already in operation and we plan to drill more than 20 kilometers on a 570-hectare area in the region by the end of 2019. In 2018, mine development increased by 33%, which makes it possible to continue boosting its output.
We move foward with the integration between the underground operations at the Atacocha and El Porvenir mines in 2018, forming the Pasco mining complex. The objectives were to maximize investments, achieve cost savings and reduce the environmental footprint through the synergies shared by the two mines due to their proximity and operational similarities. The project it is being developed in four stages: administrative integration of the mines (2014); merging of the tailings disposal systems (2015), construction of a new power transmission line that supplies both mines (2016) and strategic evaluation of the integration of the underground operations and facilities (2018).
After the integration process, the mines will use just a single lifting system. This will bring benefits to Atacocha such as lower operating costs in transporting ore from lower levels, in addition to avoiding larger capital investments.
Also in 2018, 11 kilometers of drilling were completed along the integration area between El Porvenir and Atacocha, with a focus on identifying new ore bodies, and 16 kilometers of drilling for conversion and updating of mineral resources.
Through the investment to develop the two underground mines, Pasco returned to growth levels higher than those recorded in 2017. Atacocha raised the volume of materials from the underground mines by approximately 300%, due to the high ore content, which led to a 7% increase in Cerro Pasco’s overall production.
Morro Agudo/Bonsucesso Project
The project, which belongs to the Morro Agudo complex, aims at extending the useful life of this complex (Ambrosia Trend) by at least 11 years. In 2018, we initiated a pre-feasibility study (FEL2) regarding converting more mineral resources (indicated and measured) with the goal of increasing the project’s mineral reserves. In addition, in November 2018, we filed an application for Preliminary and Installation Licenses for underground mining activities with the appropriate authorities.
We expect to begin construction in 2020, after the approval of the necessary environmental licenses, with the start-up of the mine scheduled for 2021.
We develop projects from the initial exploration phase through to the definition of funding, designed to maintain a live and optimized portfolio of organic and inorganic options, improving and expanding the project pipeline. Within these assumptions, we currently have ten zinc, three zinc and copper and six copper projects under study – located in Peru, Brazil and Namibia.
Among the projects still being prospected, we are finishing up supplemental work to extend the mineral resources in Hilarión (Ancash region, 230 kilometers from Lima, Peru), for which we are using directional survey technology for the first time. According to the studies conducted to date, this is expected to become Nexa’s third largest zinc mine.
In November 2018, we resumed the drill program at the Florida Canyon project, which consists of 16 contiguous mining concessions covering approximately 12,600 hectares in the Amazon region of Peru. Our plan for 2019 calls for conducting another 14,700 meters of soundings.
In 2018, we also recorded a number of positive results regarding the definition of copper and gold mineralization in the Goiás Magmatic Arc Project. Furthermore, we progressed mapping areas in the Tapajós region, which is the new frontier for mineral exploration in Brazil, giving us an advantageous position over most of our competitors. In Namibia, we expanded exploration of areas that present high zinc and copper potential.
Resources and reserves
We make an annual declaration of our proven and probable mineral resources and reserves, pursuant to statement of Resources and Reserves follows the Definition Standards CIM 2014 (Definition Standards for Mineral Resources and Mineral Reserves) and incorporated by reference in National Instrument 43-101 (NI 43-101) covering all mines and projects. The operating units Cerro Lindo, El Porvenir and Vazante also have mineral reserves declared pursuant to the SEC (Securities and Exchange Commission) Industrial Guide 07 (IG07) of the United States. These are available in the annual report Nexa 20-F, which can be accessed at https://ir.nexaresources.com/regulatoryfilings. As at NI 43-101 of the CIM (Canadian Institute of Metallurgy and Petroleum), at December 31, 2018, the total metal contained in our reserves were 4,449 thousand tonnes of zinc, 440.2 thousand tonnes of copper, 788.7 thousand tonnes of lead, 117,211 ounces of silver and 294.9 thousand ounces of gold, representing an increase of 4% of reserve total.
Resources and reserves 3
Observation: The estimate of reserves and mineral resources involves assumptions about future commodity prices and technical mining issues. The presented Statement of Resources and Reserves follows the Definition Standards CIM 2014 (Definition Standards for Mineral Resources and Mineral Reserves).
3 The amounts shown in this table have not been adjusted to reflect our proprietary interests. The information presented in this table includes 100% of the estimates of reserves and mineral resources of our consolidated subsidiaries and our joint ventures, calculated on the basis of NI 43-101 of the CIM definitions standards CIM 2014, incorporated in NI 43-101, some of which are not wholly owned, as set forth in this share column available in the 6-k mining report that can be accessed at https://ir.nexaresources.com/regulatoryfilings.
4 Mineral resources are reported exclusive from mineral reserves and have the effective dates described in the 6-K mining report.