Consolidated Earnings Release First Quarter 2018
This report analyzes the most important operating and financial results related to the development of Compañía Minera Milpo S.A.A. and its Subsidiaries (Nexa Resources Perú), based on accounting data included in the Individual and Consolidated Financial Statements for the First Quarter of 2018 ("1Q18"), according to International Financial Reporting Standards (IFRS). On Shareholder s Meeting held on December 18 th 2017, it was approved to change the name of the Company to Nexa Resources Perú S.A.A., change that is still on the process of being registered in the Peruvian Public Registry. Therefore, in the report we will refer to Milpo as the Company or Nexa Perú. Corporate Strategy Summary The operational and financial results obtained during the 1Q18 are a consequence of the execution of Nexa Resources (previously Votorantim Metais Holding) management strategy, which is mainly focused on achieving a sustainable and competitive growth in its operations, including those of Nexa Perú. The most important aspects of the strategy are based on three fundamental pillars: i) Growth, with a focus on zinc and copper mining guaranteeing the replacement of reserves and resources through sustainable, safe and efficient operations while leveraging on regional expertise; ii) Operational Excellence, to guarantee stability and promote ongoing costs and productivity improvements driven by technology and automation, through adequate risk management policies, logistics optimization and a financial structure that allows for proper project execution; and iii) Market Development, targeting local market leadership as well as a wider client network across international markets with the objective of building a solid global presence. 2
The Company updated information relating to mineral inventories of reserves and resources as of December 31 st, 2017, according to the mineral reserves and resources report presented by Nexa Resources S.A. using the National Instrument 43-101 standard: Mineral Inventories of Reserves - Nexa Perú (31.12.2017) Mining Unit Cerro Lindo El Porvenir Atacocha (Underground mine) Atacocha (San Gerardo open pit) Reserves Million tons (Mt) Zinc (%) Lead (%) Grades Copper (%) Silver (g/t) Proven 39.99 1.90 0.22 0.65 20.8 Probable 15.65 1.58 0.17 0.71 21.2 Total 55.64 1.81 0.21 0.67 20.9 Proven 9.50 3.06 0.96 0.18 54.5 Probable 12.64 3.34 0.93 0.21 51.1 Total 22.14 3.22 0.94 0.19 52.6 Proven 1.49 3.26 1.12 0.27 59.0 Probable 4.06 3.28 0.97 0.31 57.7 Total 5.56 3.27 1.01 0.30 58.1 Gold (g/t) Proven 6.87 0.94 1.10 35.6 0.29 Probable 7.48 0.95 1.16 36.0 0.12 Total 14.36 0.94 1.13 35.8 0.20 Mineral Inventories of Resources - Nexa Perú (31.12.2017) Mining Unit Cerro Lindo El Porvenir Atacocha (Underground mine) Atacocha (San Gerardo open pit) Resources Million tons (Mt) Zinc (%) Lead (%) Grades Copper (%) Silver (g/t) Gold (g/t) Measured 1.69 2.14 0.29 0.75 28.1 Indicated 2.06 1.48 0.20 0.61 23.7 Subtotal 3.75 1.78 0.24 0.67 25.7 Inferred 9.33 1.65 0.23 0.60 23.4 Measured 3.65 3.89 1.33 0.27 77.9 Indicated 4.10 3.70 1.00 0.32 59.6 Subtotal 7.75 3.79 1.16 0.30 68.2 Inferred 14.62 4.24 0.94 0.33 61.4 Measured 0.23 3.85 1.36 0.33 75.5 Indicated 0.84 3.60 1.13 0.32 59.7 Subtotal 1.07 3.66 1.18 0.32 63.1 Inferred 3.34 4.36 1.65 0.35 77.8 Measured 2.17 1.21 0.83 0.05 26.7 0.25 Indicated 6.84 1.20 0.84 0.06 29.9 0.09 Subtotal 9.00 1.21 0.84 0.06 29.2 0.12 Inferred 1.64 1.16 1.11 0.04 33.9 0.06 3
Consolidated inventories of reserves increased from 91.9 million tons, by June 2017, to 97.7 million tons by December 2017, which represents an increase of 5.8 million aggregate tons of zinc, lead, copper, silver and gold. The increase in Cerro Lindo of 3.3 million tons resulted from a successful exploration program combined with the improvement in operational conditions, such as mine recovery in Cerro Lindo. In the case of Atacocha, the reserves increase of 3.0 million tons resulted from the granting of permits in respect of our open pit operation (Tajo San Gerardo), which expanded the pit limits. Mining Operations and Brownfields: Meanwhile, both the Cerro Lindo and the Pasco Mining Complex continue to sustain measures to reinforce safety standards inside their underground mines, including an increase in the use of shotcrete. In the case of Cerro Lindo and El Porvenir, a new sustaining standard has been adopted, where cable bolting equipment is being implemented in intersections, chambers, and other locations inside the mine. The Pasco Mining Complex, which comprises El Porvenir and Atacocha units, continues with its operational integration process. In this way, after the first stage of the underground mines integration was completed in 2017, the next stages are being currently implemented. Additionally, labors for the deepening of the Winze shaft continue at El Porvenir. In addition, in order to ensure mineral resources in our mining units, more than 55.5 thousand meters of diamond drilling were carried out during the 1Q18. 4
Selected Operational, Economic and Financial Data Given that Compañia Minera Milpo s separated financial statements only include information regarding the Cerro Lindo Mining Unit and that of Lima s corporate office, this report contains data regarding Compañia Minera Milpo and its subsidiaries consolidated financial statements. The main highlights are as follows. Metal Unit 4Q17 1Q18 1Q17 Treated Ore ton 2,772,657 2,615,438 2,446,201 7% Zinc grade % 2.48 2.03 2.40-37 bp Lead grade % 0.60 0.52 0.52 0 bp Copper grade % 0.49 0.50 0.48 2 bp Silver grade (oz/t) 1.10 0.99 0.99 1 bp Gold grade (oz/t) 0.01 0.01 0.01 0 bp Zinc Production fmt 62,388 47,247 52,540-10% Lead Production fmt 13,470 10,906 10,064 8% Copper Production fmt 10,895 10,657 9,401 13% Silver Contents oz 2,187,871 1,808,854 1,632,075 11% Gold Contents (Pasco) oz 6,798 6,511 6,921-6% Zn Eq production * kton 154.1 134.0 135.2-1% Cash Cost US$/t 35.8 37.7 35.9 5% Revenues US$ MM 284.0 230.0 193.4 19% EBITDA US$ MM 141.5 108.4 77.9 39% Net Profit US$ MM 83.1 64.3 36.2 78% EBITDA Margin % 50% 47% 40% CAPEX US$ MM 8.7 7.2 5.9 22% FCF US$ MM (269.2) 8.6 (40.7) n.a. Net Debt / EBITDA x times (0.45) (0.43) (1.18) ** Comparison between grades refers to a difference in basic points, while others refer to a percentual variation. 1Q18 vs. 1Q17 ** * Production in kton of Zinc Equivalent calculated by converting copper, lead, silver and gold contents to a zinc equivalent grade at 1Q18 average benchmark prices (Zn: US$/t 3,421; Cu: US$/t 6,960; Pb: US$/t 2,523; Ag: US$/oz 16.77; and Au: US$/oz 1,331). Highlights 1Q18 Revenues of US$ 230.0 million and EBITDA of US$ 108.4 million, higher by +19% and +39%, respectively than those in the 1Q17, mainly because of the higher metal prices on the LME (London Metal Exchange) and the higher copper, lead and silver fine production, that helped offset the lower zinc production. EBITDA margin of 47% in the 1Q18, higher than the 40% margin in the 1Q17. Consolidated Net Income of US$ 64.3 million in the 1Q18, +78% higher than that registered in the 1Q17, due to the higher EBITDA. 5
During the 1Q18, in terms of zinc equivalent, 134.0 thousand tons were produced, -1% lower than those produced in the 1Q17, mainly due to the lower zinc production associated to the lower ore grades for this metal in Cerro Lindo. The lower levels of production for zinc were partially offset by an increase in fine production of copper and lead compared to that of the 1Q17 in +13% and +8% respectively, due to the higher ore grades and recovery levels of copper in Cerro Lindo, and higher recovery levels of lead in El Porvenir. Silver contents increased by +11%, mainly due to the higher lead concentrates production in the Pasco Complex with regards to the 1Q17, reaching 1.8 million ounces. Cash balance of US$ 530.3 million by the end of March 2018. In terms of leverage, the Net Debt / EBITDA ratio remained negative at -0.43x by the end of March 2018 (- 0.45x by the end of December 2017). 1. General Aspects Market Overview Zinc The average LME 1 price for zinc during the 1Q18 was of US$3,421/ton, +23% higher than the average price in the same quarter of 2017. The price by the end of March 2018 was US$3,332/ton, +0.7% higher when compared to US$3,309/ton by the end of the 4Q17. Source: Bloomberg In March of this year, President Trump announced tariffs on US imports of aluminum (+10%), steel (+25%) and Chinese goods (+25%), thus creating speculation over a potential trade war. This decision served to strengthen the massive sell-off in zinc, which was already underway, due to the fear of further price decline. Also in March, 77 Kton of unexpected 1 The London Metal Exchange (LME) publishes a set of daily reference prices that are used by industrial and financial participants for referencing, hedging, physical settlement, contract negotiations, margining and portfolio evaluations. As they are based on some of the most liquid trading sessions of the day, we believe LME prices are good indicators of where the market is at any point in time. Source: LME. 6
metallic zinc entered LME stocks; according to market analysts, this also helped push down prices due to worries over a faster than expected rise in stocks. However, despite the fact that forecasts show an increase in concentrates production for 1H18, these shouldn t be enough to replace the reduction in concentrate and metal LME stocks seen in recent years. With regards to demand, China maintains good perspectives for 2018, while in the US, trade tariffs over imports bring a big question mark for the American market, as it s hard to set how zinc will be affected in this new dynamics. Copper The average LME price for copper during the 1Q18 was of US$6,960/ton, up +19% when compared to the same quarter of 2017. The price by the end of March 2018 was of US$6,685/ton, down by -6.6% when compared to US$7,157/ton by the end of the 4Q17. Source: Bloomberg The potential supply cuts given by the expectation of possible strikes, appear to be easing with new labor contracts being now agreed. Chilean labor talks, for instance, are progressing well, so the likelihood of significant tonnage disruption is diminishing, depressing prices further. At the same time, Chinese refined copper production rose by +10% YoY in the first two months of the year, reflecting fewer copper smelter maintenances so far in 2018. Consequently, since the start of the year, total LME stocks have risen significantly, by +93%. Another factor to consider is President Trump s announcement of across-the-board tariffs, which shrink expectations of solid global economic growth with the prospect of a wider trade war between China and the US that hits investor confidence. Nevertheless, during the 1Q18 the better-than-expected Chinese macro data lent support to LME prices. Industrial output recorded a faster-than-expected +7% increase compared to the same period a year earlier, partially offsetting the negative effects over LME prices. 7
Lead The average LME price for lead during the 1Q18 was of US$2,523/ton, +11% higher when compared to the same quarter of 2017. The price by the end of March 2018 was of US$2,411/ton, down by -3.4% when compared to US$2,495/ton by the end of the 4Q17. Source: Bloomberg The concerns over additional Chinese mine and smelter shutdowns due to further environmental inspections seem to be diminishing as Chinese mines are reopening after winter season, and other countries mining forecasts show production increases, therefore diminishing prices. However, during the 1Q18, LME stocks have shown a reduction of -9% since the start of the year, which helps partially offset negative effects over prices. Moreover, the better-than-expected Chinese industrial performance adds on to the positive effects and helps offset import tariffs imposed by the US president. Metal Prices Metal * Unit 4Q17 1Q18 1Q17 1Q18 vs. 1Q17 Zinc (US$ / t) 3,236 3,421 2,781 23% Copper (US$ / t) 6,808 6,960 5,834 19% Lead (US$ / t) 2,492 2,523 2,279 11% Silver (US$ / oz) 16.7 16.8 17.4-4% Gold (US$ / oz) 1,275 1,331 1,219 9% * Average LME (London Metal Exchange) prices - Settlement price 8
MACROECONOMIC FACTORS Exchange Rate The average exchange rate during the 1Q18 was S/ 3.24 per US$, which represents a 1.5% appreciation of the Peruvian Sol since the average S/ 3.29 per US$ rate in the 1Q17. The average rate for 2017 was S/ 3.26 per US$, showing a 0.6% appreciation regarding 1Q18. (Source: Bloomberg). It is worth mentioning that the Company maintains a low exposure to exchange rate fluctuations since its functional currency is the US$ Dollar. Additionally, much of its production costs and revenues are denominated in that currency, maintaining a proper fit with currencies in the balance sheet, income statement and cash flow. Inflation Inflation decreased to 1.18% as of February 2018, lower than registered at year end 2017, where it reached 2.24%. (Source: BCRP). Oil Brent oil price was situated at 70.3 US$/barrel at the end of the 1Q18, higher than the 66.4 US$/barrel registered towards the end of 2017. (Source: Bloomberg). 9
2. Consolidated Financial Performance Consolidated Income Statement US$ Million 4Q17 1Q18 1Q17 1Q18 vs. 1Q17 Revenues 284.0 230.0 193.4 19% Cost of Sales (115.3) (101.9) (101.4) 0% Depreciation (16.1) (16.5) (18.3) -10% Amortization (0.9) (0.8) (0.8) 1% Gross Profit 151.6 110.8 72.9 52% Selling Expenses (4.9) (0.1) (0.2) -26% Administrative Expenses (4.8) (8.8) (7.7) 15% Greenfields exploration (6.7) (2.8) (0.3) n.a. Other Operating Results, net (10.9) (7.9) (5.9) 35% Operational Profit 124.4 91.1 58.8 55% Financial Expenses, net (4.8) (4.2) (6.6) -36% Income Tax¹ (36.5) (22.6) (16.0) 41% Net Profit 83.1 64.3 36.2 78% EBITDA 141.5 108.4 77.9 39% EBITDA Margin (%) 50% 47% 40% (1) Includes all the mining taxes. (2) The 1Q18 shows reclassifications from Selling Expenses to Cost of Sales, as well as a reclassification of Worker's Participations from Cost of Sales to Administrative Expenses, which have been also done for the 1Q17 for comparative matters. REVENUES During the 1Q18, revenues increased to US$ 230.0 million, +19% higher than those in the 1Q17 mainly associated to the higher LMEs and the higher lead and copper fine production, which compensated for lower production volumes of zinc fines due to lower ore grades of this metal in Cerro Lindo. During the first quarter, zinc represented 53% of total sales, followed by copper with 26%, silver with 9%, lead with 9%, and gold with 3%. On the other hand, as for the mining unit s sales breakdown, Cerro Lindo represented 64% of consolidated sales, followed by El Porvenir with 24% and Atacocha with 12%. Regarding commercial matters, Nexa Peru s main customer for zinc concentrates is Nexa Resources Cajamarquilla S.A. (formerly Votorantim Metais Cajamarquilla S.A.). As for the copper and lead production, the main customers are Glencore, Trafigura and Louis Dreyfus. Furthermore, all sales regarding zinc concentrates to Nexa Cajamarquilla zinc refinery are set upon regular market conditions, as in the case of transactions with other related parties. These transactions are subject to evaluation through transfer price studies regularly commissioned to external professional audits. 10
Revenues Breakdown 1Q18 REVENUES BY METAL REVENUES BY MINING UNIT Copper 9% Atacocha 12% Zinc 53% Gold 3% Silver 9% Lead 26% El Porvenir 24% Cerro Lindo 64% Consolidated Sales by Metal (FMT) Metal Unit 4Q17 1Q18 1Q17 1Q18 vs. 1Q17 Zinc fmt 62,412 46,754 53,352-12% Lead fmt 13,215 9,777 8,664 13% Copper fmt 11,069 10,641 9,429 13% Total Nexa Perú fmt 86,696 67,172 71,446-6% OPERATING COSTS During the 1Q18, the cost of sales rose obtaining a consolidated cash cost of US$/t 37.7, +5% higher than that obtained in the 1Q17 (US$/t 35.9). This increase was mainly associated with higher sustainment costs in El Porvenir, and chimney constructions in Cerro Lindo and Atacocha. Higher use of cement related to new sustaining standards and higher energy costs in Cerro Lindo, also impacted a consolidated cash cost. OPERATING EXPENSES During the 1Q18, operational expenses increased compared to those of the 1Q17 mainly as a result of higher investments destined to Greenfields exploration. At the same time, a higher Brownfield investment was registered, aligned to the reclassification of resources and exploration of new ore bodies to ensure our operation s sustainability. 11
PROFITABILITY During the 1Q18, an EBITDA of US$ 108.4 million was obtained, +39% higher than 1Q17, as a result of the increase in base metal prices. In consolidated terms, a net income of US$ 64.3 million was obtained, +78% higher than registered on the same period of last year, mainly because of the higher EBITDA. INVESTMENTS Throughout the first quarter of 2018, investments totaled US$ 7.2 million, +22% higher than those in the 1Q17. Main investments include: (i) the expansion of the waste dam at Atacocha (US$ 1.8 MM), (ii) tunnel development related to the underground operational integration between El Porvenir and Atacocha (US$ 1.6 MM), (iii) the tailing dam elevation at El Porvenir (US$ 0.9 MM), and (iv) the deepening of the shaft at El Porvenir (US$ 0.7 MM). CAPEX US$ Million 4Q17 1Q18 1Q17 1Q18 vs. 1Q17 Expansion - - 0.3 n.a. Sustaining and Others 8.7 7.2 5.7 27% Total Nexa Perú 8.7 7.2 5.9 22% LIQUIDITY AND CONSOLIDATED INDEBTEDNESS As of March 2018, the cash balance for the Company closed at US$ 530.3 million. During the 1Q18, the free cash flow was positive at US$ 8.6 million due to the higher EBITDA that compensated for the investment on working capital. This investment was associated with an increase in accounts receivable due to higher metal prices and higher credit periods for the sales of zinc concentrates. Free Cash Flow Bridge 1Q18 12
At the end of the 1Q18, positive net cash was obtained, reaching US$ 189 million, maintaining a solid financial position. In terms of leverage, the Net Debt/EBITDA ratio remained negative at -0.43x as of March 2018 (-1.18x as of March 2017 and -0.45x as of December 2017), and the average maturity term of the financial debt was set at 5.1 years, having no relevant debt maturities in the short term. Regarding risk ratings, the Company sustained a credit risk rating of BBB- with stable outlook by Fitch Ratings, and BB+ with stable outlook granted by Standard & Poor s. Nexa Peru's credit rating is aligned to that of Nexa Resources S.A. (formerly Votorantim Metais Holding) and Votorantim S.A., which in turn reflect the Brazilian sovereign debt s rating. Both agencies highlight the Company s robust financial and liquidity position, which allow the Company to develop its future plans and adequately address the volatile environment of the metal prices. Liquidity and Indebtedness Position US$ Million March 2018 December 2017 Cash 530.3 527.6 Financial Debt 341.6 345.5-100 0-200 -300-400 -500-600 -700 Net Debt/EBITDA (US$ million) 1Q17 2Q17 3Q17 4Q17 1Q18 2.50-182 -189 1.50 0.50-362 -397-454 (0.50) -0.45x -0.43x (1.50) -1.18x -1.20x -1.36x 13
3. Operational Performance Analysis by Unit CERRO LINDO MINING UNIT Production by Metal and Cash Cost Metal Unit 4Q17 1Q18 1Q17 Treated Ore ton 1,875,567 1,712,451 1,712,603 0% Zinc grade % 2.57 1.79 2.51-72 bp Lead grade % 0.32 0.21 0.29-8 bp Copper grade % 0.67 0.69 0.64 5 bp Silver grade (oz/t) 0.73 0.63 0.70-7 bp Zinc fmt 44,612 27,760 39,266-29% Lead fmt 4,756 2,683 3,801-29% Copper fmt 10,785 10,478 9,218 14% Silver Contents oz 1,023,898 769,760 802,602-4% Zn Eq production * kton 77.9 57.1 67.1-15% Cash Cost US$/t 28.9 30.9 29.2 6% Revenues US$ MM 203.1 149.7 134.4 11% EBITDA US$ MM 126.3 84.4 74.6 13% Net Profit US$ MM 88.6 58.7 49.7 18% EBITDA Margin % 62% 56% 56% ** Comparison between grades refers to a difference in basic points, while others refer to a percentual variation. 1Q18 vs. 1Q17 ** * Production in kton of Zinc Equivalent calculated by converting copper, lead, silver and gold contents to a zinc equivalen grade at 1Q18 average benchmark prices (Zn: US$/t 3,421; Cu: US$/t 6,960; Pb: US$/t 2,523; Ag: US$/oz 16.77; and Au US$/oz 1,331). During the 1Q18, a lower production of zinc (-29%) and lead (-29%) fines was registered in comparison to that of 1Q17, mainly due to lower ore grades for these two metals, but was partially offset by a +14% increase in fine copper production associated to higher ore grades. In terms of zinc equivalent, 57.1 thousand tons were produced, -15% lower than those produced in the 1Q17, considering that the increase in copper partially offset the decrease in zinc production. The mining plan for Cerro Lindo already indicated a reduction in zinc grades, but it was intensified by a delay in reaching some higher grades areas that were planned to operate during 1Q18. The cash cost for the 1Q18 reached US$/t 30.9, higher by +6% than that of 1Q17 (US$/t 29.2), because of a higher use of cement for paste filling in the underground pits. Revenues and EBITDA reached US$ 149.7 million and US$ 84.4 million each during the 1Q18, higher by +11% and +13%, accordingly, compared to those of 1Q17. Revenue growth is related to the higher metal prices, especially zinc and copper, which compensated for the lower production volumes mentioned before. Additionally, the EBITDA margin for the Cerro Lindo unit stood at 56% for the 1Q18, aligned with that of 1Q17. Regarding strategic exploration activities, 11,984 meters of diamond drilling were executed during the first quarter, focusing primarily on the identification of new Ore Bodies (OB s), 14
and secondarily on the reclassification and validation of mineral resources found in 2017, as well as for geo-metallurgical purposes. Cerro Lindo s estimated mineral reserves represent a life of mine of approximately eight years,, calculated according to the most recent mineral reserves and resources report as of December 31 st, 2017, using the National Instrument 43-101 standard. In comparison with the last study, as of June 2017, mineral reserves were increased by 3.3 million aggregate tons, from 52.4 million tons to 55.6 million tons, mainly as a result of a successful exploration program combined with the improvement in operational conditions. PASCO MINING COMPLEX EL PORVENIR MINING UNIT Production by Metal and Cash Cost Metal Unit 4Q17 1Q18 1Q17 Treated Ore ton 515,509 535,211 380,916 41% Zinc grade % 3.04 3.20 2.86 33 bp Lead grade % 1.07 0.96 0.98-1 bp Copper grade % 0.13 0.16 0.14 1 bp Silver grade (oz/t) 2.08 1.82 1.98-16 bp Zinc fmt 13,867 15,428 9,512 62% Lead fmt 4,298 4,149 2,814 47% Copper fmt 90 160 160 0% Silver Contents oz 670,887 614,269 475,047 29% Zn Eq production * kton 22.5 23.8 15.7 51% Cash Cost US$/t 54.7 53.4 58.7-9% Revenues US$ MM 51.0 55.2 29.7 86% EBITDA US$ MM 16.9 22.6 8.6 163% Net Profit US$ MM 8.0 12.5 2.0 n.a. EBITDA Margin % 33% 41% 29% ** Comparison between grades refers to a difference in basic points, while others refer to a percentual variation. 1Q18 vs. 1Q17 ** * Production in kton of Zinc Equivalent calculated by converting copper, lead, silver and gold contents to a zinc equivalent grade at 1Q18 average benchmark prices (Zn: US$/t 3,421; Cu: US$/t 6,960; Pb: US$/t 2,523; Ag: US$/oz 16.77; and Au: US$/oz 1,331). During the 1Q18, fine zinc and lead production increased compared to that of the 1Q17 by +62% and +47% respectively, mainly due to the higher treated ore (+41%), as well as higher head grades for the zinc. Regarding silver contents, these increased by +29% associated to a higher production of lead concentrates. In terms of zinc equivalent, 23.8 thousand tons were produced, +51% higher than those produced in the 1Q17 because of the higher zinc ore grades mentioned before. Cash cost placed at US$/t 53.4 for the 1Q18, decreasing by -9% with respect to the 1Q17 (US$/t 58.7), as a result of the higher treated ore. In the 1Q18, sales revenues and EBITDA reached US$ 55.2 million and US$ 22.6 million, increasing by +86% and +163%, respectively, in comparison to the same period of last year. 15
This was related to the higher metal prices and the increase in production mentioned before, as well the higher sales tonnage given that in the 1Q17 some of the production was kept as stocks due to the transportation difficulties caused by the heavy rains in the 1Q17. At the same time, the EBITDA margin resulted in 41%. Regarding strategic exploration activities, 20,823 meters of diamond drilling were executed during the first quarter, focusing primarily on the identification of new Ore Bodies and the reclassification of resources mainly toward the north with the objective of defining mineralization in the integration area between El Porvenir and Atacocha. Estimated mineral reserves in El Porvenir represent 22.1 million tons and a life of mine of approximately ten years, calculated according to the most recent mineral reserves and resources report as of December 31 st, 2017, using the National Instrument 43-101 standard. ATACOCHA MINING UNIT Production by Metal and Cash Cost Metal Unit 4Q17 1Q18 1Q17 Treated Ore ton 381,581 367,776 352,681 4% Zinc grade % 1.32 1.42 1.37 5 bp Lead grade % 1.32 1.28 1.14 14 bp Copper grade % 0.10 0.10 0.07 2 bp Silver grade (oz/t) 1.60 1.49 1.32 17 bp Gold grade (oz/t) 0.02 0.02 0.02 0 bp Zinc fmt 3,908 4,058 3,763 8% Lead fmt 4,416 4,074 3,449 18% Copper fmt 20 19 23-18% Silver Contents oz 493,085 424,826 354,427 20% Gold Contents oz 4,418 4,096 5,107-20% Zn Eq production * kton 12.3 11.6 10.9 7% Cash Cost US$ / t 44.2 46.6 43.6 7% Revenues US$ MM 30.3 28.1 20.8 35% EBITDA US$ MM 8.5 7.8 3.7 114% Utilidad Neta US$ MM 3.0 2.3-0.2 n.a. EBITDA Margin % 28% 28% 18% ** Comparison between grades refers to a difference in basic points, while others refer to a percentual variation. 1Q18 vs. 1Q17 ** * Production in kton of Zinc Equivalent calculated by converting copper, lead, silver and gold contents to a zinc equivalent grade at 1Q18 average benchmark prices (Zn: US$/t 3,421; Cu: US$/t 6,960; Pb: US$/t 2,523; Ag: US$/oz 16.77; and Au: US$/oz 1,331). During the 1Q18, treated ore volumes increased by +4% with regards to the 1Q17, along with zinc (+8%) and lead (+18%) fines production, because of the higher ore grades for these two metals. Meanwhile, silver contents in the lead concentrates rose by +20% due to the higher production of lead concentrates and the higher silver ore grades. In terms of zinc equivalent, 11.6 thousand tons were produced, +7% higher than those produced in the 1Q17 due to the higher ore grades mentioned before. 16
In terms of the unit s cash cost, an increase of +7% was observed compared to 1Q17 (US$/t 46.6 vs US$/t 43.6) due to higher reagents, explosives and maintenance costs. Regarding obtained results, sales revenues reached US$ 28.1 million and EBITDA US$ 7.8 million, +35% and +114% higher, respectively, than those in the 1Q17. These increases come primarily from the higher metal prices, greater production, and higher payable value for lead and copper because of the higher silver contents. Regarding strategic exploration activities, 22,710 meters of diamond drilling were executed during the first quarter, focusing primarily on the identification of new Ore Bodies, the reclassification and validation of mineral resources found at level 3,300. Atacocha s estimated mineral reserves, considering both the underground mine and the open pit (Tajo San Gerardo), represent a life of mine of approximately twelve years, calculated according to the most recent mineral reserves and resources report as of December 31 st, 2017, using the National Instrument 43-101 standard. In comparison with the last study, as of June 2017, mineral reserves were increased by 3.0 million aggregate tons, from 16.9 million tons to 19.9 million tons, mainly from the granting of permits in respect of our open pit operation, which expanded the pit limits. 4. Final Comments The Company starts the year with positive results along with higher production levels in the Pasco Complex, which helped compensate for the lower production in Cerro Lindo, mainly due to the higher treated ore and higher ore grades in El Porvenir and Atacocha when compared to the 1Q17. Simultaneously, it maintains an adequate financial position through its cash generation, high liquidity and low indebtedness, as well as taking advantage of the international price recovery in recent months, especially zinc and copper, supported by market fundamentals, and in turn setting a positive scenario for the development of its operations and projects. The Pasco Complex operational integration process and the stabilization of operations at Cerro Lindo continue, taking into account the strategic decision of reinforcing safety in the underground mines. These activities will be carried out all over 2018 with the objective of achieving a competitive growth through sustainable operations. San Borja, April 30th, 2018 17
About Milpo (now Nexa Resources Peru) Compañía Minera Milpo S.A.A. (Nexa Peru) is a Peruvian mining company of regional scale dedicated to the exploration, extraction, processing and commercialization of zinc, copper and lead concentrates with contents of silver and gold, and is currently one of the main polymetallic producers in Peru. Nexa Peru develops its operations with a clear commitment to social and environmental responsibility. The Company belongs to Nexa Resources S.A. (formerly Votorantim Metais Holding), the metals and mining division of Votorantim S.A., a strong, private and diversified conglomerate that has over 100 years of history and a global presence in key sectors of the economy in more than 23 countries. Nexa Peru currently holds three underground polymetallic mining units in operation: Cerro Lindo (Ica), El Porvenir (Pasco) and Atacocha (Pasco). It also features a portfolio of polymetallic and copper Greenfield projects with advanced exploration. On December 2017, it was approved to change the name of the Company to Nexa Resources Perú S.A.A., change that is still on the process of being registered in the Peruvian Public Registry. For further information: Visit our website: www.milpo.com or ri.milpo.com or email us: milpoir@nexaresources.com About Nexa Resources S.A. Nexa Resources S.A. (NYSE: NEXA, TSX: NEXA) (formerly VM Holding S.A.) is a large scale company with zinc and copper integrated operations and more than 60 years of experience in the exploration, mining and refining business in Latin America. It currently holds 5 underground mines: 3 are located in Peru and 2 in Brazil. Two of them, Cerro Lindo in Peru and Vazante in Brazil, stand as part of the top 12 zinc mines in the world, in terms of production. Moreover, considering all of Nexa s operations, the Company stands in the top 5 zinc producers globally in 2017. Simultaneously, Nexa operates three refining units, two in Minas Gerais, Brazil, and one in Cajamarquilla, Peru. Nexa is born from the integration of Compañía Minera Milpo and Votorantim Metais, leading mining companies in Peru and Brazil. The new brand "Nexa" symbolizes the moment of expansion and integration of both companies, preserving both their legacy and good practices. Nexa holds the DNA, values and beliefs that have forged the identity of Milpo and Votorantim Metais. It was born as a zinc leader in Latin America and is ready to be one of the biggest competitors in the global market. We transform resources into value, managing sustainable mining with the best technology. For further information: Visit our website: www.nexaresources.com 18
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