Consolidated Earnings Release Fourth Quarter & Full Year 2017
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 Peru), based on accounting data included in the Individual and Consolidated Financial Statements for the Fourth Quarter ("4Q17") and Full Year of 2017, 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 2017 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 projects 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
According to this strategy, the most important operational aspects and main challenges of 2017 were as follows: Mining Operations and Brownfields: At the Cerro Lindo Mining Unit, the plant s processing capacity was stabilized at 20,000 tpd, however, 21,000 tpd were achieved, considering that the Peruvian law allows a 5% processing excess over its maximum authorized capacity. The Pasco Mining Complex, which comprises El Porvenir and Atacocha units, continues with its operational integration process, which culminated in November the first part of the underground integration having connected both mines at the 3,300 level. In this way, as part of the fourth and last stage, labors continue to deepen the shaft at El Porvenir and develop tunnels in both units. Meanwhile, both the Cerro Lindo and the Pasco Mining Complex continue to sustain measures to reinforce safety standards inside their underground mines. In addition, in order to ensure mineral resources growth, more than 234,000 meters of diamond drilling were carried out in 2017. Greenfield Projects: During 2017, perforation activities were prioritized for the Shalipayco project, where 36,000 meters of diamond drilling were carried out. Simultaneously, the preliminary economic study FEL1 was concluded for Magistral and Pukaqaqa projects, for a 30k tpd operation. 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 3Q17 4Q17 4Q16 4Q17 vs. 2017 vs. 2017 4Q16 Treated Ore ton 2,750,309 2,772,657 2,830,332-2% 10,638,962 10,986,742-3% Zinc Production fmt 50,388 62,388 62,866-1% 219,054 258,673-15% Copper Production fmt 11,869 10,895 10,899 0% 44,161 41,552 6% Lead Production fmt 10,934 13,470 11,481 17% 45,614 50,165-9% Silver Contents oz 1,835,369 2,187,871 1,989,586 10% 7,590,282 8,315,215-9% Gold Contents (Pasco) oz 6,345 6,798 6,774 0% 28,512 23,694 20% Zn Eq production * kton 98.3 112.7 110.4 2% 408.4 448.4-9% Cash Cost US$/t 35.1 35.8 33.3 8% 35.5 32.9 8% Revenues US$ MM 223.9 284.0 177.5 60% 911.7 714.7 28% EBITDA US$ MM 96.8 141.5 70.8 100% 405.4 283.4 43% Net Profit US$ MM 54.2 83.1 34.5 141% 224.5 141.9 58% EBITDA Margin % 43% 50% 40% 44% 40% CAPEX US$ MM 8.2 8.7 22.8-62% 33.7 79.1-57% FCF ** US$ MM 58.8-269.0 250.7 n.a. -213.5 330.8 n.a. Net Debt / EBITDA x times -1.36-0.45-1.43-0.45-1.43 * Production in kton of Zinc Equivalent calculated by converting copper, lead, silver and gold contents to a zinc equivalent grade at 2017 average benchmark prices (Zn: US$2,896/ton; Cu: US$6,166/ton; Pb: US$2,317/ton; Ag: US$17/oz; and Au: US$1,257/oz). ** 4Q and FY 2017 FCF include the payment of dividend N 142 for a total of US$ 335 MM. 3
Highlights 2017 Revenues of US$ 911.7 million and EBITDA of US$ 405.4 million, higher by 28% and 43%, respectively than those in, mainly because of the higher metal prices on the LME (London Metal Exchange) which compensated the lower zinc and lead fine production. Similarly, during 4Q17, revenues of US$ 284.0 million and EBITDA of US$ 141.5 million were attained, higher than those in 4Q16 by 60% and 100% respectively, due to a higher production of lead and silver fines, and higher mineral prices. Results show improvements compared to the 3Q17, primarily because of the recovery in the fine production of zinc at the Cerro Lindo Unit where a greater head grade was reported. EBITDA margin of 44% and 50% in 2017 and in 4Q17, respectively. Consolidated Net Income of US$ 224.5 million in 2017, 58% higher than that registered in, due to the higher EBITDA. Likewise, in 4Q17 a Consolidated Net Income of US$ 83.1 was obtained, 141% higher than that of the same period of. During the year, in terms of zinc equivalent, 408.4 thousand tons were produced, -9% lower than those of. The main reasons for this decrease were: (i) unusually severe rains in Peru in the first quarter of 2017; (ii) lower amount of treated ore due to the revision of processes in order to assure higher safety standards in the underground mines; and (iii) lower zinc grades. In terms of fine contents produced during the year, copper production increased 6% compared to that of due to higher head grades and recovery levels in the Cerro Lindo Unit. However, fine production for zinc (-15%) and lead (-9%) fell because of the reasons mentioned above. In 2017, in comparison to, gold contents grew by 20% in the Pasco Complex, reaching 28.5 thousand ounces, mainly because of a higher head grade in the treated ore in Atacocha. Cash balance of US$ 527.6 million at year end 2017. In terms of leverage, the Net Debt / EBITDA ratio remained negative at -0.45x in December, vs. -1.43x in the same period last year. It is important to mention that in October 2017, according to the Board s approval, the company paid a cash dividend of US$ 335 million 1. General Aspects MARKET CONTEXT During 2017, the upward trend of the international base metal prices continued due to the uncertainty about supply, a weaker dollar and a global economic growth above expectations mainly from China, which gives the market clear signs of a higher demand for these metals in the coming years thus increasing concerns about supplies. 4
Zinc In the 4Q17, the average price reached US$/t 3,236 on the London Metal Exchange (LME), 29% higher than that of 4Q16 due to lower market stocks which indicated a production deficit as a consequence of operational shutdowns. This generated a reduction in the concentrate stocks, as well as speculation over the fact that future operational reactivation wouldn t be enough to cover the demand for this metal in the coming years. The price for zinc at the end of December was US$/t 3,309. Copper Throughout 4Q17, the average price increased by 29% regarding 4Q16 (reaching US$/t 6,808) as a result of a weaker dollar and the uncertainty over copper supply because of undergoing negotiations during 2018. Furthermore, prices were affected positively in the first months due to supply shortages following strikes in Chile and Indonesia; together with stronger demand than anticipated as a result of the continued strength of global economic and manufacturing activity (primarily China s +7% economic growth) and greater electric vehicle production that has driven up the production of intermediate copper products in the past months. The price for copper at the end of December was US$/t 7,157. Lead In the last quarter, the price was driven by a limited global supply associated to lower production levels in mines and refineries across China due to major environmental inspections in the course of the winter season when demand for lead batteries tends to boost. The average price in 4Q17 grew in comparison to 4Q16 by 16%, reaching US$/t 2,492. The price for lead at the end of December was US$/t 2,495. In relation to precious metals, the average price of gold increased during the 4Q17 with regards to 3Q16 because of positive global economic data and a weaker dollar. In the same period, the average price of silver decreased in a smaller degree. Metal Prices Metal * Unit 3Q17 4Q17 4Q16 4Q17 vs. 4Q16 2017 2017 vs. Zinc (US$ / t) 2,963 3,236 2,517 29% 2,896 2,095 38% Copper (US$ / t) 6,349 6,808 5,277 29% 6,166 4,863 27% Lead (US$ / t) 2,334 2,492 2,149 16% 2,317 1,872 24% Silver (US$ / oz) 16.8 16.7 17.2-3% 17.0 17.1-1% Gold (US$ / oz) 1,278 1,275 1,222 4% 1,257 1,251 1% * Average LME (London Metal Exchange) prices - Settlement price MACROECONOMIC FACTORS Exchange Rate The average exchange rate during 2017 was S/ 3.26 per US$, which represents a 3.2% appreciation of the Peruvian Sol from the average S/ 3.37 rate in (Source: BCRP). It is worth mentioning that the Company maintains a low exposure to exchange rate fluctuations since its functional currency is the US$ Dollar. Additionally, much of its 5
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 Annualized inflation at year end 2017 was 2.24%, lower than that obtained in the same period of, where levels of 3.13% were reached (Source: BCRP). Oil Brent oil price was situated at 66.4 US$/barrel towards the end of 2017, higher than the 55.2 US$/barrel price recorded at the end of (Source: Thomson Reuters). 2. Consolidated Financial Performance Consolidated Income Statement US$ Million 3Q17 4Q17 4Q16 4Q17 vs. 4Q16 2017 Revenues 223.9 284.0 177.5 60% 911.7 714.7 28% Cost of Sales (102.5) (115.3) (81.3) 42% (420.0) (363.8) 15% Depreciation (16.5) (16.1) (19.1) -16% (68.9) (72.9) -5% Amortization (0.9) (0.9) (0.8) 5% (3.4) (3.3) 3% Gross Profit 104.0 151.6 76.1 99% 419.5 274.6 53% Selling Expenses (4.4) (4.9) (5.1) -5% (18.5) (20.2) -8% Administrative Expenses (5.6) (4.8) (10.7) -55% (21.3) (30.0) -29% Other Operating Results, net (14.6) (17.6) (9.4) 87% (46.6) (17.1) 173% Operational Profit 79.5 124.4 50.9 144% 333.1 207.3 61% Financial Expenses, net (3.5) (4.8) (3.1) 57% (18.9) (17.7) 7% Income Tax 1 (21.8) (36.5) (13.4) 171% (89.7) (47.7) 88% Net Profit 54.2 83.1 34.4 141% 224.5 141.9 58% EBITDA 96.8 141.5 70.8 100% 405.4 283.4 43% EBITDA Margin (%) 43% 50% 40% 44% 40% (1) Includes all the mining taxes. 2017 vs. REVENUES During 2017, revenues increased to US$ 911.7 million, 28% higher than those of. This increase was mainly associated to higher base metal prices which compensated for lower production volumes of zinc and lead fines in the three mining units (mainly due to unusually severe rains in Peru in the 1Q17, the lower amount of treated ore due to the revision of processes in order to assure higher safety standards in the underground mines, and lower zinc grades. During the 4Q17, revenues ascended to US$ 284.0 million, higher than the results obtained in the 4Q16 due to higher metal prices and also higher consolidated volumes of production of lead and silver. In relation to the 3Q17, sales were also higher mainly due to the increase in the zinc production of Cerro Lindo and also the higher metal prices. During 2017, zinc represented 48% of the sales, followed by copper with 27%, silver with 12%, lead with 9%, and gold with 4%. On the other hand, as for the mining unit s sales 6
breakdown, Cerro Lindo represented 70% of consolidated sales, followed by El Porvenir with 18% and Atacocha with 12%. In the commercial aspect, Nexa Peru s main customer for its zinc concentrates is Votorantim Metais Cajamarquilla S.A.; while as for the copper and lead production, the main customers are Glencore, Trafigura and Louis Dreyfus. Furthermore, all sales respecting zinc concentrates to the Cajamarquilla zinc refinery are set upon regular market conditions, as in the case of other transactions with related parties. These transactions are subject to evaluation through transfer price studies regularly commissioned to external professional audits. Revenues Breakdown 2017 REVENUES PER METAL REVENUES PER MINING UNIT Copper 27% Atacocha 12% Zinc 48% Gold 4% Silver 12% Lead 9% El Porvenir 18% Cerro Lindo 70% Consolidated Sales by Metal (FMT) Metal Unit 3Q17 4Q17 4Q16 4Q17 vs. 2017 vs. 2017 4Q16 Zinc fmt 49,877 62,412 61,946 1% 218,636 257,668-15% Copper fmt 11,570 11,069 10,645 4% 44,165 41,186 7% Lead fmt 10,943 13,215 11,797 12% 45,078 49,596-9% Total Milpo fmt 72,390 86,696 84,388 3% 307,879 348,450-12% OPERATING COSTS During 2017, the cost of sales rose obtaining a consolidated cash cost of US$/t 35.5, 8% higher than that obtained in. The main reasons for this higher unit cash cost were associated to the lower treated ore and to an increase in sustainment costs for a higher shotcrete use for safety purposes in the three mining units. It is important to mention that since the end of a new policy was implemented to reinforce all the sustainment activities inside the three underground mines, through the intensive use of shotcrete, anchor bolts and metallic meshes, in order to increase safety inside the mines. These activities will continue in the following months and other actions are being implemented to offset these cost increases. 7
OPERATING EXPENSES In 2017, operational expenses increased significantly compared to those of as a result of higher expenses destined to Brownfield project exploration that were partially compensated with lower sales and administrative expenses. During the 4Q17, we observed a similar situation. Along these lines, sales expenses were reduced by 8% and 5%, compared to those of and 4Q16, respectively, mainly due to the lower ground transport costs at Cerro Lindo and the lower sales volume. Meanwhile, administrative expenses were reduced by 29% and 55%, compared to those of and 4Q16, respectively, as a result of the cost optimization plan in the corporate office. PROFITABILITY During 2017 and 4Q17, an EBITDA of US$ 405.4 million and US$ 141.5 million was obtained, 43% and 100% higher than those in and 4Q16, respectively. These results were due to greater revenues as a result of the increase in base metal prices and, in the case of 4Q17, a higher consolidated production of lead and silver. Additionally, 4Q17 results came on top of those for 3Q17 because of the higher zinc, lead and silver production volumes and the higher registered metal prices. In consolidated terms, during 2017, a net income of US$ 224.5 million was obtained, 58% higher than that of, mainly due to the higher EBITDA. Regarding the quarter results, there was also a significant increase in relation to the previous quarter and the same period of. INVESTMENTS During 2017, investments totaled US$ 33.7 million, 57% less than the amount invested in, because the latter included an increase in Nexa Peru s participation over the Shalipayco zinc project. 2017 investments were associated to the Pasco Complex operational integration process, which comprises the enlargement of the tailing deposit and the modification of the primary crushing station at El Porvenir, to machinery acquisition, and to improvements to the infrastructure at the Glory Hole San Gerardo. CAPEX 8 US$ Million 3Q17 4Q17 4Q16 4Q17 vs. 4Q16 2017 2017 vs. Expansion 0.3-6.7 n.a. 0.3 23.4-99% Sustaining and Others 8.0 8.7 16.1-46% 33.4 55.8-40% Total Milpo 8.2 8.7 22.8-62% 33.7 79.1-57%
LIQUIDITY AND CONSOLIDATED INDEBTEDNESS As of December 2017, the Company closed with a cash balance of US$ 527.6 million. In 2017, the free cash flow before dividends was positive at US$ 121 million due to the higher EBITDA that compensated the investment on working capital. This investment was associated with an increase in accounts receivable due to higher metal prices. It s also important to mention that on October 16th 2017, according to the Board s approval, the company paid a cash dividend of US$ 335 million. Free Cash Flow Bridge 2017-214 At year-end 2017, the net cash level was positive and reached US$ 182 million, maintaining a solid financial position. In terms of leverage, the Net Debt/EBITDA ratio remained negative at -0.45x as of December 2017 (-1.43x at the end of December and -1.36x at the end of September 2017), and the average maturity term of the financial debt was set at 5.2 years, having no relevant debt maturities in the short term. Regarding risk ratings, the Company sustained a credit risk rating of BBB- with a negative outlook by Fitch Ratings and BB+ with a stable outlook granted by Standard & Poor s. Nexa Peru's rating is aligned with that of Nexa Resources S.A. s (formerly Votorantim Metais Holding) and Votorantim S.A. s credit risk rating, which in turn reflect the Brazilian sovereign debt s credit risk 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 metal prices environment. 9
Liquidity and Indebtedness Position US$ Million December 2017 December Total Cash 527.6 751.1 Financial Debt 345.5 345.5-100 0-200 -300-400 -500-600 -700 Net Debt/EBITDA (US$ million) 4Q16 1Q17 2Q17 3Q17 4Q17 2.50 2.00 1.50-182 1.00 0.50-406 -362-397 - -454 (0.50) (1.00) -0.45x (1.50) -1.43x -1.18x -1.20x -1.36x 3. Operational Performance Analysis by Unit CERRO LINDO MINING UNIT Production by Metal and Cash Cost Metal Unit 3Q17 4Q17 4Q16 4Q17 vs. 2017 vs. 2017 4Q16 Treated Ore ton 1,924,260 1,875,567 1,911,665-2% 7,297,624 7,345,201-1% Zinc fmt 35,024 44,612 43,639 2% 155,950 173,808-10% Copper fmt 11,780 10,785 10,721 1% 43,568 40,636 7% Lead fmt 3,070 4,756 3,538 34% 14,837 15,834-6% Silver Contents oz 839,563 1,023,898 908,631 13% 3,545,824 3,598,294-1% Zn Eq production * kton 67.8 77.9 75.2 4% 283.2 296.0-4% Cash Cost US$/t 28.8 28.9 28.2 3% 29.1 27.8 5% Revenues US$ MM 154.5 203.1 134.2 51% 629.3 481.9 31% EBITDA US$ MM 88.4 126.3 69.4 82% 362.5 241.9 50% EBITDA Margin % 57% 62% 52% 58% 50% * Production in kton of Zinc Equivalent calculated by converting copper, lead, silver and gold contents to a zinc equivalent grade at 2017 average benchmark prices (Zn: US$2,896/ton; Cu: US$6,166/ton; Pb: US$2,317/ton; Ag: US$17/oz; and Au: US$1,257/oz). During 2017, a lower production of zinc (-10%) and lead (-6%) fines was registered in comparison to that of the previous year because of the unusually severe rains in Peru in the beginning of the year, the lower treated ore levels due to safety measures carried out inside the mine and lower head grades for zinc and lead. This was partially offset by a +7% increase in fine copper production due to higher head grades. In terms of zinc equivalent, 283.2 thousand tons were produced, -4% lower than that of, considering that the increase in copper partially offset the decrease in zinc production. On the other hand, however, when comparing 4Q17 vs. 4Q16, higher head grades allowed an increase in zinc and lead fines production by +2% and +34%, respectively, and by +27% and +55% against 3Q17. Cash cost in 2017 reached US$/t 29.1, higher by +5% than that of, and mainly associated with higher safety sustainment costs like shotcrete application, chimney construction and other underground labors. Cash cost during 4Q17 (US$/t 28.9) climbed by +3% with respect to that of 4Q16, but remained aligned to the last quarters. Revenues increased to US$ 629.3 million and EBITDA to US$ 362.5 million during 2017, higher by +31% and +50%, respectively, compared to those of. Revenue growth is 10
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 58% and 62% on average for 2017 and 4Q17 respectively, way above the 50% and 52% margins registered for the same periods of. Regarding strategic exploration activities, 93,699 meters of diamond drilling were performed during the year, focusing primarily on the identification of new Ore Bodies (OB s), and secondarily on the re-categorization and validation of mineral resources found in, as well as for geo-metallurgical purposes. PASCO MINING COMPLEX EL PORVENIR MINING UNIT Production by Metal and Cash Cost Metal Unit 3Q17 4Q17 4Q16 4Q17 vs. 2017 vs. 2017 4Q16 Treated Ore ton 440,684 515,509 526,538-2% 1,834,511 2,154,151-15% Zinc fmt 10,688 13,867 14,248-3% 46,154 62,534-26% Copper fmt 63 90 132-32% 493 653-25% Lead fmt 3,803 4,298 4,031 7% 14,818 17,164-14% Silver Contents oz 568,019 670,887 639,431 5% 2,357,442 2,715,143-13% Zn Eq production * kton 18.0 22.5 22.4 0% 76.6 97.6-22% Cash Cost US$/t 56.3 54.7 43.1 27% 54.7 40.9 34% Revenues US$ MM 40.9 51.0 40.2 27% 164.9 154.5 7% EBITDA US$ MM 10.1 16.9 14.4 17% 47.4 57.3-17% EBITDA Margin % 25% 33% 36% 29% 37% * Production in kton of Zinc Equivalent calculated by converting copper, lead, silver and gold contents to a zinc equivalent grade at 2017 average benchmark prices (Zn: US$2,896/ton; Cu: US$6,166/ton; Pb: US$2,317/ton; Ag: US$17/oz; and Au: US$1,257/oz). During 2017, fine zinc and lead production decreased compared to that of by -26% and -14% respectively, mainly due to the lower treated ore which is linked to the safety measures being undertaken inside the mine, as well as the lower head grades with respect to zinc. In terms of zinc equivalent, 76.6 thousand tons were produced, -22% lower than those produced in. Cash cost was US$/t 54.7 in 2017 as well as in 4Q17, increasing +34% and +27% regarding and 4Q16, respectively. This cost increase is associated with the lower treated ore volumes and the higher costs incurred in the shotcrete sustainment activities carried out to improve the mine s safety. However, the cash cost decreased since 3Q17 by -3% because of the higher treated ore. Revenues still increased by +7% compared to, reaching US$ 164.9 million in sales and an EBITDA of US$ 47.4 million because of the higher metal prices which compensated for the lower production just mentioned. At the same time, the EBITDA margin resulted in 29%. Regarding strategic exploration activities, and continuing with those carried out in, 71,764 meters of diamond drilling were carried out during the year, 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. 11
ATACOCHA MINING UNIT Production by Metal and Cash Cost Metal Unit 3Q17 4Q17 4Q16 4Q17 vs. 2017 vs. 2017 4Q16 Treated Ore ton 385,365 381,581 392,130-3% 1,506,826 1,487,390 1% Zinc fmt 4,675 3,908 4,979-22% 16,950 22,330-24% Copper fmt 26 20 47-58% 99 262-62% Lead fmt 4,061 4,416 3,912 13% 15,958 17,167-7% Silver Contents oz 427,787 493,085 441,524 12% 1,687,016 2,001,778-16% Gold Contents oz 4,612 4,418 4,641-5% 20,105 14,651 37% Zn Eq production * kton 12.5 12.3 12.8-4% 48.6 54.8-11% Cash Cost US$ / t 42.3 44.2 44.8-1% 42.8 46.7-8% Revenues US$ MM 30.2 30.3 21.7 40% 112.0 96.9 16% EBITDA US$ MM 8.9 8.5-1.3 n.a. 29.3 11.8 149% EBITDA Margin % 29% 28% -6% 26% 12% * Production in kton of Zinc Equivalent calculated by converting copper, lead, silver and gold contents to a zinc equivalent grade at 2017 average benchmark prices (Zn: US$2,896/ton; Cu: US$6,166/ton; Pb: US$2,317/ton; Ag: US$17/oz; and Au: US$1,257/oz). During 2017, treated ore volumes increased at the Atacocha Mining Unit, which allowed for the offset of the lower head grades that affected fine zinc (-24%) and lead (-7%) production. Meanwhile, gold contents in the lead concentrates rose significantly due to greater contributions from Glory Hole San Gerardo. In terms of zinc equivalent, 48.6 thousand tons were produced, -11% lower than that of because of higher gold contents which allowed to offset lower production of the other metals as mentioned before. In terms of the unit s cost, a reduction of -8% was observed compared to (US$/t 42.8 vs US$/t 46.7) due to the higher ore treatment from the Glory Hole San Gerardo and its lower operating costs. Regarding results attained, sales revenues reached US$ 112.0 million and EBITDA US$ 29.3 million, +16% and +149% higher, respectively, than those of. These changes come primarily from the higher metal prices and the higher payable value for lead and copper because of the higher gold contents. Regarding strategic exploration activities, around 68,775 meters of diamond drilling were performed during the year with the main objective of finding, reclassifying and increasing certainty over the mineral resources found at level 3,300. 4. Final Comments The company continued consolidating its operations during 2017, maintaining a robust financial position through adequate cash generation, high liquidity and low indebtedness, as well as taking advantage of the international zinc and copper price recovery in recent months, 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, February 15, 2018 12
About Milpo (now Nexa Resources Peru) Compañía Minera Milpo S.A.A. (Milpo) 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. (TSX: NEXA, NYSE: NEXA) 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 in the world. 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 13
Exhibit I: Compañía Minera Milpo and Subsidiaries (now Nexa Resources Perú) Consolidated Income Statement (Amounts expressed in thousands of US dollars) 14
Exhibit II: Compañía Minera Milpo and Subsidiaries (now Nexa Resources Perú) Consolidated Statement of Financial Position (Amounts expressed in thousands of US dollars) 15
Exhibit III: Compañía Minera Milpo and Subsidiaries (now Nexa Resources Perú) Consolidated Statement of Cash Flows (Amounts expressed in thousands of US dollars) Note 2017 OPERATING ACTIVITIES Profit before income taxes 314,172 189,561 Less, income and mining taxes (89,692) (47,700) Adjustments: Depreciation 13 68,868 72,860 Amortization 14 3,440 3,287 Deferred income tax (1,339) (11,167) Interest expense 30 15,866 15,948 Profit from investment sale (4,588) - Profit from the sale of intangibles - (400) Disposal of fixed assets 13 941 1,495 Disposal of investments 9 - (Profit) loss from the sale of fixed assets 29 (1,865) 622 Provision for impairment of spare parts and supplies 10 6,899 3,838 Provisions 2,700 23,366 Increase (decrease) in the flow of operations due to changes in assets and liabilities: Trade receivables 9 (151,993) (53,536) Other receivables current and non-current portion (6,311) (2,682) Inventories 10 1,868 3,942 Derivative financial instruments (3,393) 30,054 Other non-financial assets 3,917 5,060 Trade payables 16 (4,411) (2,197) Other payables 20 93,783 8,310 Deferred income (28,115) 250,000 Payment of provisions in the year (4,565) (2,282) Payment of income tax (69,020) (27,501) Net cash generated from operating activities 147,171 460,878 INVESTING ACTIVITIES Sale of intangible assets - 7,000 Sale of property, plant and equipment 9,016 543 Sale of investments 2.2 (i) 6,218 - Purchase of treasury shares - (31,252) Purchase of interest of subsidiaries of non-controlling shareholders 33 - (3,260) Purchase of property, plant and equipment 13 (34,338) (53,832) Purchase of intangible assets 14 (267) (29,913) Net cash applied to investing activities (19,371) (110,714) FINANCING ACTIVITIES Amortization or payment of loans 15 (c) (296) (6,824) Interests paid 15 (c) (15,867) (15,980) Dividends paid 23 (b.vi) (335,001) (16,750) Net cash applied to financing activities (351,164) (39,554) Net (decrease) increase in cash and cash equivalents (223,364) 310,610 Cash and cash equivalents at the beginning of the year 751,067 440,204 Effects of exchange rate changes on cash ans cash equivalents (118) 253 Cash and cash equivalents at the end of the year 527,585 751,067 16 Transactions that do not represent cash flows: (Increase) decrease in property, plant and equipment due to mine closure (43) 1,677 Transfer between property, plant and equipment and intangible assets 2,590 - Increase in intangible assets by purchase of projects - (5,400)