Nexa Resources (NEXA.N): Nexa Acknowledges Ongoing Discussions Between Boliden and Votorantim

Research evidence excerpt

Nexa Resources (NEXA.N): Nexa Acknowledges Ongoing Discussions Between Boliden and Votorantim

the long-term normalised value for the stock, EV/EBITDA multiple helps better reflect the latest

investor perception towards Boliden’s earnings outlook, in our view. We arrive at a DCF-based valuation for the mining and

smelting business (using a WACC of 10.0%, terminal growth of 1%). From that value arrived, we reduce pension liabilities, net

debt and minorities to arrive at an NPV. We apply a multiple of 6.5x on our forecast EBITDA, slightly ahead of its long-term

average to reflect Citi’s positive houseviews for copper, nickel and zinc over the medium-term.

Risks

Apart from broader market and commodity/currency risks, we consider the following specific risks to our target price and

forecasts:

Stimulus Packages – Stimulus packages from governments, more specifically in China, could boost metal demand beyond what

we currently expect, which could then result in much higher commodity prices. This could not only boost earnings but also

investor sentiment towards commodity-exposed stocks.

Project/Operational Risk – Delay in the execution of ongoing projects or inability to achieve the desired operating level (e.g. due

to Aitik crusher issues) would mean lower-than-expected future volumes and this could lead to negative investor sentiment.

Environmental Risk – Any environmental challenges/violations on existing operations and/or future projects including any

collapse of tailings dams could significantly influence performance and production.

Change in zinc TC market structure including change in price participation/payability etc. could materially change smelting

earnings though there’s a partial offset in the mining side with ~65% integration.