As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 8/14/17  Nexa Resources S.A.               DRS¶        9/21/17    1:17M                                    Merrill Corp FA/JMSii/FA

Document/Exhibit                   Description                      Pages   Size 

 1: DRS         Draft Registration Statement by an Emerging Growth  HTML   7.52M 
                Company or a Foreign Private Issuer                              

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As confidentially submitted to the Securities and Exchange Commission on August 14, 2017

 

Registration No. 333-

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM F-1

 

REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933

 

 

VM Holding S.A.

(Exact name of Registrant as specified in its charter)

 

Not Applicable

(Translation of Registrant’s name into English)

 

 

26-28 rue Edward Steichen
L-2540, Luxembourg
Grand Duchy of Luxembourg
+352 26 00 53 43

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

 

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act or Rule 12b-2 of the Securities Exchange Act of 1934. Emerging growth company o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Securities Exchange Act of 1934. o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

 

 

CALCULATION OF REGISTRATION FEE

 

 

(1)         Includes common shares that the underwriters have the option to purchase to cover over-allotments, if any. The common shares are not being registered for purposes of sales outside the United States. Also includes common shares initially offered and sold outside the United States either as part of their distribution or within 40 days after the later of the effective date of this registration statement and the date the common shares are first bona fide offered to the public.

 

(2)         Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended.

 

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

Table of Contents

 

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state or jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED          , 2017

 

PROSPECTUS

 

 

 

 

VM Holding S.A.

 

Common Shares

 

This is the initial public offering of our common shares, par value US$1.00 per share. We are offering    common shares and the selling shareholder named in this prospectus is offering     common shares. We estimate that the initial public offering price per common share will be between US$    and US$    .

 

No public market currently exists for our common shares. After the pricing of this offering, we expect that our common shares will trade on the New York Stock Exchange in the United States (NYSE), and closing of the offering is conditional on the common shares being approved for listing on the Toronto Stock Exchange in Canada (TSX) under the symbol “        .”

 

Investing in our common shares involves risks. See “Risk Factors” beginning on page 24 of this prospectus.

 

		Per Common Share			Total
Public offering price		US$			US$
Underwriting discounts and commissions		US$			US$
Proceeds to us, before expenses		US$			US$
Proceeds to the selling shareholder, before expenses		US$			US$

 

The underwriters may also exercise their option to purchase up to an additional          common shares from us and the selling shareholder at the public offering price, less the underwriting discount, for           days after the date of this prospectus to cover over-allotments, if any.

 

Neither the U.S. Securities and Exchange Commission (SEC) nor any state securities commission or any other regulatory body has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

Our common shares will be ready for delivery on our about             , 2017.

 

 

The date of this prospectus is                 , 2017.

 

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Table of Contents

 

	Page
Presentation of Financial and Other Information	iii
Summary	7
Risk Factors	24
Forward-Looking Statements	55
Use of Proceeds	58
Dividend Policy	59
Capitalization	60
Dilution	61
Selected Financial Data	62
Selected Operating, Production and Sales Data	72
Management’s Discussion and Analysis of Financial Condition and Results of Operations	75
Business	111
Regulatory Framework	174
Management	196
Executive and Director Compensation	207
Environment and Community	211
Principal Shareholders and Selling Shareholder	213
Related Party Transactions	214
Description of Share Capital	218
Taxation	226
Underwriting	234
Expenses of the Offering	245
Legal Matters	246
Experts	247
Where You Can Find More Information	248
Glossary of Certain Technical Terms	249
Enforcement of Civil Liabilities	253
Index to Financial Statements	F-1
Appendix – Summary of Mineral Properties	A-1

 

 

We have not authorized anyone to provide any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we may have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We, the selling shareholder, the underwriters or any of our or their affiliates have not authorized anyone to provide you with information different or additional information. We, the selling shareholder, the underwriters or any of our or their affiliates are not making an offer to sell, or seeking an offer to buy, our common shares in any jurisdiction where the offer or sale is not permitted. The information contained in this prospectus is accurate only as of the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common shares. Our business, financial condition, results of operations and prospects may have changed since the date on the front cover of this prospectus.

 

 

This prospectus has been prepared by us solely for use in connection with the proposed offering of common shares in the United States and elsewhere outside the United States, other than in Canada.             ,              and             , will act as underwriters with respect to the offering of the common shares.

 

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We are also offering common shares in Canada by way of a separate Canadian prospectus. The Canadian prospectus, which will be filed with all of the provincial and territorial securities regulators in Canada for approval, has the same date as this prospectus and contains substantially the same information but has a different format and is not considered part of this prospectus. The offering being made in the United States is being made solely on the basis of the information contained in this prospectus. Investors should take this into account when making investment decisions.

 

NOTICE TO PROSPECTIVE INVESTORS IN THE EUROPEAN ECONOMIC AREA

 

This prospectus is not a “prospectus” for the purposes of Directive 2003/71/EC Directive 2003/71/EC (as amended, including by Directive 2010/73/EU) (the Prospective Directive) and has not been approved as such by a competent authority in any Member State (as defined below).

 

In relation to each Member State of the EEA, no offer has been made and no offer will be made to the public of the common shares contemplated by this prospectus in that member state prior to the publication of a prospectus in relation to the common shares that has been approved by the competent authority in that Member State or, where appropriate, approved in another Member State and notified to the competent authority in that Member State, all in accordance with the Prospectus Directive, except that an offer of the common shares may be made to the public in a Member State at any time under the following exemptions under the Prospectus Directive:

 

(a)         to any legal entity which is a qualified investor as defined in the Prospectus Directive;

 

(b)         fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) in any relevant member state subject to obtaining the prior consent of the issuer; or

 

(c)          in any other circumstances falling within Article 3(2) of the Prospectus Directive,

 

provided that no such offer of common shares shall result in a requirement for the publication by the issuer or any initial purchaser of a prospectus pursuant to Article 3 of the Prospectus Directive or a supplement to the prospectus in accordance with Article 16 of the Prospectus Directive.

 

For the purposes of this provision, the expression “offer of common shares to the public” in relation to any common shares in any relevant member state means the communication in any form and by any means of sufficient information on the terms of the offer and the common shares to be offered so as to enable an investor to decide to purchase or subscribe for the common shares, as such expression may be varied in the relevant member state by any measure implementing the Prospectus Directive in that relevant member state.

 

NOTICE TO PROSPECTIVE INVESTORS IN LUXEMBOURG

 

The offering of the common shares should not be considered a public offering of securities in Luxembourg. This prospectus may not be reproduced or used for any other purpose than the offering of the common shares nor provided to any person other than the recipient thereof.

 

The common shares may not be offered or sold to the public within the territory of the Luxembourg unless: (a) a prospectus has been duly approved by the Commission de surveillance du secteur financier of Luxembourg, or the CSSF, pursuant to Part II of the Luxembourg law dated July 10, 2005 (the Luxembourg Prospectus Law) implementing the Prospectus Directive, as amended including through Directive 2010/73/EU of the European Parliament and of the Council of November 24, 2010 or (b) the offer of the common shares benefits from an exemption from or constitutes a transaction not subject to, the requirement to publish a prospectus pursuant to the Luxembourg Prospectus Law.

 

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PRESENTATION OF FINANCIAL AND OTHER INFORMATION

 

Certain Definitions

 

Unless otherwise indicated or the context otherwise requires, the terms below are defined in the following manner.

 

·                  “Votorantim Metais,” “the Company,” “we,” “us” and “our” or similar terms refer to VMH and its consolidated subsidiaries;

 

·                  “VMH” and the “issuer” refer to VM Holding S.A., a Luxembourg public limited liability company (société anonyme);

 

·                  “CJM” refers to our subsidiary Votorantim Metais - Cajamarquilla S.A., a corporation organized and existing as a sociedad anónima under the laws of Peru;

 

·                  “VMZ” refers to our subsidiary Votorantim Metais Zinco S.A., a corporation organized and existing as a sociedade anônima under the laws of Brazil;

 

·                  “Milpo” refers to our subsidiary Compañía Minera Milpo S.A.A., a corporation organized and existing as a sociedad anónima abierta under the laws of Peru;

 

·                  “VGmbH” refers to our subsidiary Votorantim GmbH (formerly Votorantim Metals GmbH), a corporation organized and existing under the laws of Austria;

 

·                  “VSA” refers to our shareholder Votorantim S.A., a corporation organized and existing as a sociedade por ações under the laws of Brazil;

 

·                  the “Votorantim Group” refers to VSA and its subsidiaries;

 

·                  “Brazil” refers to the Federative Republic of Brazil;

 

·                  “Luxembourg” refers to the Grand Duchy of Luxembourg;

 

·                  “Peru” refers to the Republic of Peru;

 

·                  “EU” refers to the European Union;

 

·                  the “Brazilian Central Bank” refers to the Central Bank of Brazil (Banco Central do Brasil);

 

·                  the “Peruvian Central Bank” refers to the Central Reserve Bank of Peru (Banco Central de Reserva del Perú);

 

·                  “U.S. dollars,” “dollars” or “US$” refer to United States dollars, and “US¢” refers to cents of United States dollars;

 

·                  the “real,” “reais” or “R$” refers to the Brazilian real, the official currency of Brazil; and

 

·                  “sol,” “soles” or “S/.” refers to the Peruvian sol, the official currency of Peru.

 

In addition, the meaning of other defined terms used in this prospectus are set out in the Glossary of Certain Technical Terms.

 

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Financial Information

 

Our audited combined consolidated financial statements as of December 31, 2016 and 2015 and for each of the years ended December 31, 2016, 2015 and 2014 are included in this prospectus. Our audited combined consolidated financial statements were prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or the IASB, and audited in accordance with the standards established by Public Company Accounting Oversight Board, or PCAOB. References in this prospectus to “our audited combined consolidated financial statements” are to our audited combined consolidated financial statements as of December 31, 2016 and 2015 and for each of the years ended December 31, 2016, 2015 and 2014, and the related notes thereto included elsewhere in this prospectus.

 

The financial information presented in this prospectus should be read in conjunction with our audited combined consolidated financial statements, including the related notes and the section of this prospectus titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

The main consolidated companies included in our financial statements are:

 

·                  CJM. CJM is a Peruvian company mainly engaged in smelting zinc contained in concentrate. CJM’s functional currency is the U.S. dollar.

 

·                  Milpo. Milpo is a Peruvian company mainly engaged in exploring, extracting, producing and trading zinc, copper and lead concentrates, extracted from its own three mining sites. Milpo’s functional currency is the U.S. dollar. Milpo is a publicly listed company on the Lima Stock Exchange.

 

·                  VMZ. VMZ is a Brazilian company mainly engaged in exploring, extracting and producing zinc, copper and lead concentrates, and smelting zinc contained in concentrate with operations in the state of Minas Gerais. VMZ’s functional currency is the real. In connection with a series of transactions regarding our energy assets, which includes the Enercan, Picada, Amador Aguiar I, Amador Aguiar II and Igarapava electric power plants, VSA is transferring its entire participation in VMZ (11.44%) to us. See “Related Party Transactions—Certain Transactions with Our Shareholders and Their Affiliates.”

 

·                  VGmbH. VGmbH is an Austrian company operating as our trading company, through which VMZ and CJM export metallic zinc and zinc oxide. VGmbH’s functional currency is the U.S. dollar.

 

Functional Currency

 

Items included in the audited combined consolidated financial statements of each of our subsidiaries are measured using the currency of the primary economic environment in which the entity operates, referred to as the functional currency. Our audited combined consolidated financial statements are presented in U.S. dollars, which is our functional and reporting currency.

 

The results and financial position of our subsidiaries that have a functional currency different from the U.S. dollar are converted into U.S. dollars as follows:

 

·                  assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

 

·                  income and expenses for each statement of operations, are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and

 

·                  all resulting exchange differences are recognized in other comprehensive income.

 

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Rounding

 

Certain figures and some percentages included in this prospectus have been subject to rounding adjustments. Accordingly, the totals included in certain tables contained in this prospectus may not correspond to the arithmetic aggregation of the figures or percentages that precede them.

 

Country, Market and Industry Information

 

This prospectus contains and refers to information and statistics regarding Brazil, Peru and the markets for the metals we produce. This data is obtained from independent public sources, including publications and materials from participants in the industry, such as Wood Mackenzie and GFMS Limited, or GFMS, and from governmental entities such as the Brazilian Central Bank, Brazilian Ministry of Treasury (Ministério da Fazenda), Brazilian Ministry of Mines and Energy (Ministério de Minas e Energia), or MME, (Center of Custody and Financial Settlement of Securities CETIP S.A. – Mercados Organizados), or CETIP, Brazilian Institute of Geography and Statistics (Instituto Brasileiro de Geografia e Estatística), or IBGE, the Getulio Vargas Foundation (Fundação Getúlio Vargas), or FGV, the Peruvian Insurance and Private Pension Funds Supervision Authority (Superintendencia de Banca, Seguros y Administradoras de Fondos de Pensiones – AFP), the Peruvian Central Bank, the Peruvian Ministry of Economy and Finance (Ministerio de Economía y Finanzas), the Peruvian Ministry of Energy and Mines (Ministerio de Energía y Minas), or MINEM, and the Peruvian National Institute of Statistics and Information Processing (Instituto Nacional de Estadística e Informática), or INEI. Some data is also based on our estimates, which are derived from our review of internal reports, as well as independent sources.

 

Volume Information

 

All tonnage information in this prospectus is expressed in metric tonnes, and all references to ounces are to troy ounces, in each case, unless otherwise specified.

 

Concurrent Canadian Prospectus Offering

 

We have filed a prospectus with the securities regulatory authorities in each province and territory of Canada in connection with our initial public offering in Canada and closing of the offering is conditional on the common shares being approved for listing on the Toronto Stock Exchange. As part of the filing process, we were required to prepare and file with Canadian securities regulators a technical report on each of our material properties prepared in accordance with National Instrument 43-101 – Standards of Disclosure for Mineral Projects, or NI 43-101, which is an instrument developed by the Canadian Securities Administrators and administered by the provincial and territorial securities commissions that governs how issuers in Canada disclose scientific and technical information about their mineral projects to the public.

 

Disclosure of Mineral Reserves and Mineral Resources

 

This prospectus contains certain disclosure that has been prepared in accordance with the requirements of Canadian securities laws. Unless otherwise indicated, all reserve and resource estimates included in this prospectus have been prepared in accordance with NI 43-101 and the Canadian Institute of Mining, Metallurgy and Petroleum (or CIM) classification system.

 

Canadian requirements, including NI 43-101, differ significantly from the requirements under Industry Guide 7 promulgated by the SEC. In particular, and without limiting the generality of the foregoing, the term “resource” does not equate to the term “reserve” under Industry Guide 7. Under Industry Guide 7, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. Under Industry Guide 7, a “final” or “bankable” feasibility study is required to report reserves; the three-year historical average price, to the extent possible, is used in any reserve or cash flow analysis to designate reserves; and the primary environmental analysis or report must be filed with the appropriate governmental authority. One consequence of these differences is that “reserves” calculated in accordance with Canadian requirements may not be “reserves” under Industry Guide 7.

 

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Investors should understand that “inferred mineral resources” are subject to great uncertainty as to their existence and as to their economic and legal feasibility. It cannot be assumed that all or any part of an “inferred mineral resource” will ever be converted into mineral reserves. Descriptions in this prospectus of our mineral deposits prepared in accordance with NI 43-101 may not be comparable to similar information prepared in accordance with Industry Guide 7 that is presented elsewhere in this prospectus. It may also not be comparable to similar information provided by other issuers in accordance with Industry Guide 7.

 

For a table summarizing the mineral reserves and resources estimates prepared in accordance with NI 43-101 for our mines and projects, see “Business—Summary of Information Concerning Reserves and Estimates.” For additional information regarding our mines and projects, including estimates of mineral deposits prepared in accordance with each of NI 43-101 and Industry Guide 7 for our mines and prepared in accordance with NI 43-101 for our projects, see “Appendix – Summary of Mineral Properties.” For the meanings of certain technical terms used in this prospectus, see “Glossary of Certain Technical Terms.”

 

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SUMMARY

 

This summary highlights information contained elsewhere in this prospectus. This summary may not contain all the information that may be important to you, and we urge you to read this entire prospectus carefully, including the “Risk Factors,” “Forward-Looking Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited combined consolidated financial statements and notes to those statements, included elsewhere in this prospectus, before deciding to invest in our common shares.

 

Overview

 

We are a large scale, low cost integrated zinc producer with over 60 years of experience developing and operating mining assets in Latin America. We own and operate five long life underground mines, three located in the Central Andes of Peru and two located in the state of Minas Gerais in Brazil. Our operations are large scale, modern, mechanized underground and open pit mines. Two of our mines, Cerro Lindo in Peru and Vazante in Brazil, are among the twelve largest zinc mines in the world, and, combined with our other mining operations, place us among the top five producers of mined zinc globally in 2016, according to Wood Mackenzie. In addition to zinc, which accounted for 64.0% of our mined metal production in 2016 measured on a zinc equivalent basis, we produce substantial amounts of copper, lead, silver and gold as byproducts, which reduce our overall cost to produce mined zinc. According to Wood Mackenzie in 2016, on a standalone basis, the overall C1 cash cost of our mining operations was in the second quartile of the global cost curve for mined zinc.

 

In 2016, our mining operations produced 416,869 tonnes of zinc contained in concentrates, 41,551 tonnes of copper contained in concentrates, 59,181 tonnes of lead contained in concentrates, 8,315,215 ounces of silver and 27,893 ounces of gold, for a total of 650,890 tonnes of metal on a zinc equivalent basis.

 

The following charts set forth our mine production by metal and mine unit for the period ended on December 31, 2016.

 

 

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We own a zinc smelter in Peru (Cajamarquilla) and two zinc smelters in Brazil (Três Marias and Juiz de Fora), which produce metallic zinc, zinc oxide and byproducts. We are among the top five producers of refined zinc globally in 2016, according to Wood Mackenzie. Our smelters are the only zinc smelting units in Latin America (excluding Mexico). Cajamarquilla is the only operating zinc smelter in Peru, and the sixth largest globally in 2016 by production volume, according to Wood Mackenzie. Peru is the second largest producer of mined zinc in the world, assuring long-term supply of zinc concentrate to Cajamarquilla. Our smelters produced 607,585 tonnes of refined zinc in different formats and sizes during 2016, along with byproducts, including sulfuric acid, silver concentrate, copper cement and copper sulfate. Our smelters process zinc concentrate, 62.0% of which was sourced from our mines during 2016, and 38.0% purchased from third parties. Approximately 92.2% of the total volume of the zinc concentrates produced by our mines was processed by our own smelters in 2016, with the remainder, and all of our copper and lead concentrates sold to third parties. Our smelters are located close to our mines and to third party owned mines, resulting in substantial savings in transportation and sourcing of concentrates not available to our regional competitors. Furthermore, our smelters are strategically positioned within our core markets in Latin America, providing us further savings on transportation and marketing of metal relative to competing zinc smelting businesses. The strategic benefit of our smelting business is evidenced by our historically strong realized prices, our comparatively low operating costs and our profitability. We market our products in Latin America and globally, through our commercial offices in Luxembourg, the United States, Brazil and Peru.

 

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Certain operational details of our mining and smelting operations are provided in the tables below. Our exploration activities aim to replace the reserves that we mine each year, while increasing our production capacity.

 

Mining Operations

 

Mining Unit		Location		Type of Mine		Treatment Plant Capacity		Zinc Equivalent Production in 2016(2)		Total Reserves(3)		Estimated Life of Mine(4)
						(tonnes of ore per day)		(in tonnes of zinc equivalent metal contained in concentrate)		(tonnes of ore)		(years)
Cerro Lindo(1)		Peru		Underground / Polymetallic		21,000		314,234		52,377,518		8
El Porvenir		Peru		Underground / Polymetallic		5,600		107,001		22,594,715		10
Atacocha		Peru		Underground and Open Pit/ Polymetallic		4,400		63,403		16,932,631		11
Vazante		Brazil		Underground and Open Pit / Polymetallic		3,777		136,296		15,021,685		10
Morro Agudo		Brazil		Underground and Open Pit/ Polymetallic		3,014		29,956		N/A		11
Total						36,791		650,890		106,926,549		10

 

(1) The Cerro Lindo unit has an authorized capacity of 20,000 tonnes of ore per day, but Peruvian law allows units to operate at a capacity 5.0% higher than authorized capacity.

(2) We used the following prices to calculate the zinc equivalent production: US$2,094.75 per tonne (US¢95.02 per pound) for zinc, US$4,862.59 per tonne (US¢220.56 per pound) for copper, US$1,871.58 per tonne (US¢84.89 per pound) for lead, US$17.14 per ounce for silver and US$1,250.80 per ounce for gold.

(3) Total reserves include proven and probable reserves.

(4) Life of mine is presented as of 2018 onwards. For Morro Agudo, the life of mine is based on mineable quantities as of June 30, 2017. Mineable quantities consider all mineral resources (including inferred resources) with all applicable modifying factors. The total represents the average life of mine of the five mines listed in the table above.

 

Smelting Operations

 

Smelting Unit		Location		Smelting Process		Principal Refined Zinc Products		Zinc Production in 2016		Other Products
								(in tonnes of refined metal)
Cajamarquilla		Peru		RLE		Metallic zinc (SHG and alloys) in the form of jumbo and ingots		334,261		Sulfuric acid, silver concentrate, copper cement and cadmium sticks
Três Marias		Brazil		RLE		Metallic zinc (SHG, alloys, special alloys and Zamac) in the form of jumbo and ingots and zinc oxide		186,708		Cadmium briquettes
Juiz de Fora		Brazil		Waelz Furnace and RLE		Metallic zinc (SHG, alloys, special alloys and Zamac) in the form of ingots		86,616		Sulfuric acid, sulfur dioxide, silver concentrate, copper sulfate, cadmium briquettes and zinc ashes
Total								607,585

 

During 2016, we generated US$117.7 million of profit for the year, US$403.9 million of Adjusted EBITDA and US$585.0 million of cash flow from operations, including US$250 million of upfront proceeds from our silver streaming agreement with Triple Flag Mining Finance Bermuda Ltd. We continually invest in maintaining the performance and reserve base of our operations. In 2016, we invested US$132.9 million into our business, of which US$129.0 million was classified as sustaining capital expenditures, modernization capital expenditures and health, safety and environment capital expenditures. Our significant free cash flow generation is a result of:

 

·                  our low cost mines;

 

·                  integrated operations and the benefits of our smelters’ proximity to our mines and our markets; and

 

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·                  the low ongoing sustaining capital expenditure required to maintain our production, mine life and cost position.

 

We have a long history of operating in Brazil and Peru and delivering production growth through greenfield developments, brownfield expansions and complimentary acquisitions. We have mined zinc in Latin America for over six decades, since the start-up of our El Porvenir mine in Peru in 1949. Our operations are large scale, modern, mechanized underground and open pit mines. We have a consistent track record of replacing the reserves that we mine each year and maintaining our overall reserve life above 10 years, while increasing our production capacity. Given the success we have had in delineating additional reserves, we have been able to invest in expanding our production capacity. At our Cerro Lindo mine, we have increased processing capacity by 320.0% over the last 10 years while maintaining an average nine-year reserve life over the same period. We expect to maintain mining production at our Vazante mine at 135 thousand tonnes of zinc per year and to extend its mine life from 10 to 13 years of reserve life through the Vazante Mine Life Extension Project.

 

Growth Projects

 

We are constantly monitoring market conditions and evaluating potential project development (both greenfield and brownfield) and acquisition opportunities. Currently, we have seven growth projects in various phases of development. Our significant cash balance, low net leverage, and free cash flow generation will allow us to internally fund our near term growth initiatives.

 

In the near term, in addition to brownfield growth initiatives, we plan to develop our Aripuanã project in Brazil. We are also evaluating development of our Shalipayco mineralized body located in close proximity to our Pasco mining complex. In the longer term, we are also evaluating development of our Magistral project. Our other projects, Pukaqaqa, Hilarión, Caçapava do Sul and Florida Canyon Zinc, provide us optionality on further growth opportunities. See “Business—Growth Projects.”

 

Aripuanã is an underground polymetallic project located in the State of Mato Grosso, Brazil, exhibiting characteristics of a Volcanogenic Massive Sulfide, or VMS, deposit similar to those found at Cerro Lindo. During 2016 and 2017, we engaged the Worley Parsons Company to develop a conceptual engineering study on development of an operation with 5.0 thousand tonnes per day (or tpd) ore mining and processing capacity. The environmental impact study (or EIA) for this project has been submitted to the Secretary of State for the Environment of Mato Grosso (or SEMA/MT) and is expected to be in its approval phase by the second quarter of 2018. We currently estimate that the Aripuanã project, if and when it is fully developed and begins operation, could produce an annual average of 51.0 thousand tonnes of zinc in concentrate, 20.0 thousand tonnes of lead in concentrate, 4.0 thousand tonnes of copper in concentrate, 1.0 million ounces of silver and 25.0 thousand ounces of gold over a 24-year life of mine.

 

The Shalipayco project is an underground polymetallic project located in the Central Andes of Peru with a mine plan that includes a 3.0 thousand tpd, or 1.08 million tonnes per year production scenario. We believe that this project could be integrated with the Pasco mining complex, reducing the initial investment that would be required to install a processing plant and tailings dam. We currently estimate that the Shalipayco project, if and when it is fully developed and begins operation, could produce an annual average of 43.0 thousand tonnes of zinc in concentrate, 3.0 thousand tonnes of lead in concentrate and 0.7 million ounces of silver in over a 15-year life of mine.

 

The Magistral mining project is located in the Ancash department in Peru and is intended to be an open pit copper project. We currently estimate that the Magistral project, if and when it is fully developed and begins operation, could produce approximately 40.0 thousand tonnes of copper in concentrate and 3.0 thousand tonnes of molybdenum per year, starting in 2022. In 2016, the Private Investment Promotion Agency of Peru (or ProInversión) approved our feasibility study for this project, which set forth production rates starting at 10.0 thousand tonnes per day. Also in 2016, MINEM approved this project’s EIA, which allows us to expand our treatment capacity to up to 30.0 thousand tonnes per day. In addition, in December 2016, we entered into an agreement with Activos Mineros S.A.C. and ProInversión for the transfer of mining concessions corresponding to the Magistral project to Milpo.

 

Ownership

 

We are part of the Votorantim Group, a Brazilian conglomerate that operates in a number of sectors, including mining, cement, long steel, energy, pulp and orange juice, with a presence in 23 countries. The Votorantim Group has been in the mining business for over 60 years. In 2016, we contributed 31.0% to the Votorantim Group’s consolidated Adjusted EBITDA.

 

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Competitive Strengths

 

We believe the following competitive strengths differentiate us from our competitors and will contribute to our continued success:

 

Leading Zinc-Focused Base Metals Producer. In addition to scale, we provide unparalleled exposure to zinc. We were the fifth largest producer of mined zinc globally in 2016 according to Wood Mackenzie and during 2016, zinc accounted for approximately 64.0% of our mine production of metal measured on a zinc equivalent basis. We have five zinc mines in Brazil and Peru, including two of the top twelve zinc mines by production volume globally, Cerro Lindo and Vazante. Our unique combination of scale and focus in the zinc market provides us with industry-leading exposure to the positive underlying supply and demand fundamentals that we expect to support zinc prices in the future. Over the last six decades, we have become one of Latin America’s leading mining companies through a combination of organic growth and several key acquisitions, such as Morro Agudo in 1984, Juiz de Fora in 2002, Cajamarquilla in 2004 and Milpo in 2005, among others. We have established strong technical expertise in the mining of various types of zinc and polymetallic ore bodies and processing various types of zinc mineralization. This technical expertise allows us to maximize production and mine life while minimizing costs across our portfolio of mines.

 

Low-Cost Mining Operations. The polymetallic nature, quality and grade of our ore deposits, combined with the efficiency of our operations and our economies of scale, have positioned us as a low cost producer of mined zinc. Our mines and projects in Peru and Brazil are closely located, providing us significant economies of scale in terms of infrastructure (energy, roads, camps). According to Wood Mackenzie, our mining consolidated cash cost was in the second quartile of the global cost curve in 2016, at approximately the 30% percentile. Ongoing initiatives, such as the integration of El Porvenir and Atacocha (Pasco mining complex), life of mine extensions in Cerro Lindo, Morro Agudo and Vazante, multiple debottlenecking projects described in “Business—Growth Projects—Brownfield and Integration Projects”, and adoption of best practices are expected to maintain the Company’s cash cost position in the long term. See “Industry Overview—Wood Mackenzie’s Cash Cost Methodology.”

 

Strategically Integrated Low Cost Smelters Supporting a Robust Commercial Marketing Practice. We own and operate three high quality smelters located close to our mines and also to the mines of our competitors. Approximately 62.0% of the concentrate that was processed by our smelters in 2016 was produced by our own mines. The zinc concentrate processed by our smelter accounted for approximately 92.2% of the zinc concentrates produced by our mines, with the remainder sold to third parties. The location of our smelters provides for significant economic benefits in the sourcing of concentrate and the distribution and marketing of refined products in our core end market of Latin America. In addition, we have stable and competitive power contracts. According to Wood Mackenzie, our smelting operations were in the second-quartile of the zinc smelting Cash Operating Cost curve in 2016. See “Industry Overview—Wood Mackenzie’s Cash Cost Methodology.”

 

Our scale of refined zinc production and proven ability to deliver significant volumes consistently make us an attractive supplier to our customers, both globally and locally, providing leverage to negotiate beneficial terms for our products. Our position as both a seller and buyer of zinc concentrates provides us with unique market insights which we leverage to improve the performance of our business. This is evidenced by our historical strong realized price premiums above London Metal Exchange (LME) quoted prices. Our commercial strategy is divided into two components: (i) to maintain our strong and leading position in key metal markets and (ii) to develop new markets through an increase in the product portfolio and key geographies. See “Business—Sales and Marketing.”

 

Long Mine Lives Supported by a Track Record of Reserves Replenishment. Our mines are located in geologically prospective areas where zinc mining has been conducted for many decades. We have a unique understanding of our ore bodies and technical expertise in brownfield exploration at these sites. Our proven and probable mineral reserves (and, with respect to Morro Agudo, our mineral resources) as of January 2018 (and, with respect to Morro Agudo, as of June 30, 2017) represented an average mine life of 8 years in our Cerro Lindo mine (which accounted for approximately 48.0% of our zinc equivalent production in 2016), 10 years in our El Porvenir mine, 11 years in our Atacocha mine, 10 years in our Vazante mine and 11 years in our Morro Agudo mine. Our minesite exploration and mine planning teams work together to ensure we have a sufficiently long defined reserve life for effective planning while maximizing the efficiency of our drilling and mine development expenditures to improve our cash flow stability. See “Business—Our Mining Operations.”

 

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Strong Cash Flow Generation and Conservative Balance Sheet. The combination of the low cost position of our mines, the benefits of our integration with our local smelters and the ongoing sustaining capital expenditure requirements of our business allow us to generate robust cash flow. We have a rigorous and conservative approach to balance sheet management with a target maximum net debt to Adjusted EBITDA of 2.0x through commodity price cycles. Our robust cash flow from operations, low sustaining capital expenditures and conservative balance sheet provide us flexibility to finance our operations and projects throughout commodity price cycles. For the year ended December 31, 2016, our profit for the year totaled US$117.7 million, our Adjusted EBITDA totaled US$403.9 million and our net debt at year-end totaled US$128.6 million. See “—Summary Financial and Operating Data—Non-IFRS Measures” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Indebtedness.”

 

Track Record of Project Development and Portfolio of Attractive Growth Projects. We have a strong track record of mine development in Peru and Brazil and have completed several successful projects. We have operated our El Porvenir mine in Peru since 1949 and our Vazante mine in Brazil since 1969 and have completed multiple successful capacity expansion and mine life extension projects. In 2012, we completed a gradual expansion of El Porvenir’s capacity from 4,000 tpd in 2011 to 5,600 tpd, following an 18-month construction process and investment of US$110.0 million. Over the last 10 years, we have increased the capacity of Cerro Lindo through a series of modular expansions and investments in an aggregate amount of approximately US$414.0 million (including the initial US$110.0 million investment), without disrupting existing operations. We doubled the original capacity to 10,000 tpd with a US$100.0 million investment, and later tripled the original capacity to 15,000 tpd with an investment of US$165.0 million. In 2014, we again expanded Cerro Lindo’s capacity to 18,000 tpd with an investment of US$19.0 million, and more recently increased the capacity to 21,000 tpd with a US$20.0 million investment. In addition, we increased our zinc equivalent production from 634.5 thousand tonnes in 2014 to 650.9 thousand tonnes in 2016. See “Business—History,” “Business—Our Mining Operations” and “Selected Operating, Production and Sales Data.” We have a robust brownfield and greenfield project pipeline with an extensive exploration portfolio. This portfolio will allow us to expand our operations in jurisdictions, where we have an important skill set in project development and operation. We anticipate developing our Aripuanã zinc project in Brazil and are evaluating development of our Shalipayco mineralized body located in close proximity to our Pasco mining complex. In the longer term, we are also considering development of our Magistral project. In addition, our Shalipayco, Pukaqaqa, Hilarión, Caçapava do Sul and Florida Canyon Zinc projects provide us optionality to deliver long-term consistent growth.

 

Best Practices in Safety, Community Relations and Environmental Management. We are committed to the safety of our employees, and operate using global best practices and standards, such as OSHAS 18001, in workplace safety. We emphasize with all employees, from executive management to miners, the importance of safety as an integral part of our businesses success. We are committed to international oversight and world class environmental standards and certifications, such as ISO 9001 and 14001. For decommissioning matters, including our strategic framework for mine closure and community consultation and involvement, we apply guidelines issued by the Australian and New Zealand Minerals and Energy Council, Minerals Council of Australia, Australia Environmental Protection Agency and Canadian Standards Association (Association Canadienne de Normalisation). For tailings dam management, we apply guidelines from the International Commission on Large Dams. As an example of our leading environmental practices, Cerro Lindo, the Company’s largest mine, was one of the first mines in Peru to use a seawater desalination plant in its operations, and dry stack tailings disposal techniques that minimize environmental impact. We have been improving the quality of life in the communities surrounding our operations, whose members we regularly employ. We foster strong community relationships by hiring and promoting local personnel. We regularly invest in projects and actions focused on local development and social responsibility. In 2016, we completed a study of the communities in Brazil and Peru where we operate and where we intend to develop projects, which provided an important perspective of the social environment. We remain committed to being a strategic ally to the development of local communities surrounding our Peruvian mining operations and projects. We are focused on implementing innovative alternatives that could positively impact the quality of life of these communities, such as the concept of empresa comunal, a legal entity formed exclusively by community members in order to include the community in the productive chain of mining operations. To this end, we have conducted soft skills and corporate management trainings with the empresas comunales located in San Juan de Milpo and San Francisco de Asís de Yarusyacán. We also supported the creation of the empresa comunal of Comunidad Campesina de Chavín and has initiated the process to create the empresa comunal of Comunidad Campesina de Conchucos. In 2016, we, through our subsidiary Milpo, were awarded the good practices prize by the Ministry of Labor and Employment of Peru, as well as the sustainable development prize Empresa Socialmente Responsable, awarded by

 

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“Peru 2021,” the leading non-profit organization that promotes corporate social responsibility in Peru. In addition, Brazilian Exame magazine’s Sustainability Guide recognized us in 2013, 2015 and 2016 as the most sustainable mining company in Brazil. See “Environment and Community.”

 

Experienced Senior Management Team and Strong Corporate Governance. Our senior management team has many years of experience in the mining industry with a strong focus on financial performance and operating efficiencies. See “Management—Global Senior Management.” We have established leading corporate governance practices consistent with comparable public companies in North America. Our corporate governance model is aimed at facilitating the flow of information between our officers and other key decision-makers in our management, the board of directors and advisory committees. Our corporate governance model ensures that the appropriate principles are continuously applied within our organization.

 

Business Strategy

 

We seek to deliver consistent returns to our shareholders through cash flow generation and growth of our mining operations in Latin America. Below are the highlights of our strategy.

 

Grow our mining business focused on zinc and copper production in South America. We seek to grow our mined metal production while maintaining a conservative balance sheet. Our portfolio of growth projects contains both brownfield and greenfield opportunities. We have had significant success with brownfield initiatives, such as the expansion of our Cerro Lindo mine, conducted in phases, from 5,000 tpd processing capacity to 21,000 tpd. For Milpo, this expansion has resulted in early start-ups, increased EBITDA, reduced payback and minor deviations from budget and construction objectives. Brownfield opportunities that we are pursuing or evaluating include: (i) integrating our Atacocha and El Porvenir operations into the Pasco mining complex; (ii) developing the Shalipayco mineralized body and extracting synergies with the Pasco mining complex; (iii) extending the mine life of Vazante, for which we expect the largest investments to be in construction and equipment installation; and (iv) developing the Ambrosia project at Morro Agudo, for which we expect to ensure an additional supply of 45,400 tonnes of zinc concentrate to our Três Marias smelter. We will also pursue responsible development of greenfield projects in our portfolio, provided that the risk adjusted returns meet our criteria. We will focus initially on the Aripuanã zinc project in Brazil and the Magistral copper project in Peru. We will complete a pre-feasibility study for the Aripuanã project in the third quarter of 2017, and are targeting completion of a feasibility study for Aripuanã in the second quarter of 2018 and by the end of 2020 for Magistral. In addition, our other projects, Shalipayco, Pukaqaqa, Hilarión, Caçapava do Sul and Florida Canyon, provide us optionality on further growth opportunities. We will also consider external growth opportunities on an opportunistic basis.

 

Replace mineral reserves and extend mine life of our existing operations. We continually seek to increase the life of our current mine operations and ensuring an appropriate amount of reported mineral reserves and resources for future operations, without inefficient expenditure on drilling and mining development. We will seek to employ our geological expertise and proprietary knowledge of our ore bodies to identify and delineate new ore reserves and mineral resources. In order to define new reserves at our underground mines, we must undertake substantial underground development. In order to deliver more stable cash flows, we undertake a continuous exploration and development program to replace the reserves that we mine and maintain a sufficient reserve base to support our mine planning. In particular, our medium-term strategy for the Cerro Lindo mine is to continue to identify mineral reserves within the concessions and explore the potential for further increasing the mine’s treatment capacity. We have a well-demonstrated track record and, on average, have grown our total reserve base at all of our operating units, despite ongoing operation since 1956.

 

Ensure operational stability, continuous cost and productivity improvements and effective capital allocation. We will seek to maintain a competitive cost structure at our operations, improving the position of our mining and smelting business to the top quartiles of the industry’s cash cost curve. To achieve this objective we will focus on: (a) mine development and increase of treated ore volume at our mines; (b) zinc recovery improvements and production debottlenecking at our smelters; (c) productivity increases; (d) fixed cost management; and (e) operational stability through adequate and well-planned predictive maintenance and automation initiatives. In particular, we intend to continue implementing automation initiatives for operations at Cerro Lindo in order to improve the productivity of our mine.

 

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Maintain market position in Latin America while expanding our global sales profile. We intend to maintain our leadership position in markets where we already have significant market share and develop new products that are exposed to global growth trends. Our business development team continues to pursue sales opportunities to expand our commercial reach globally and improve overall profitability.

 

Maintain our strong balance sheet and financial flexibility. Preserving our strong balance sheet and low net leverage is an important priority. We will maintain financial flexibility to pursue our business plan through the metal price cycle, and take advantage of opportunities that may arise during market cycles while exercising prudence in deploying capital.

 

Recent Financings

 

On May 4, 2017, we issued an aggregate principal amount of US$700.0 million in bonds maturing in 2027 and bearing interest at 5.375% per year, receiving net proceeds of US$691.2 million. The bonds are listed on the Singapore Exchange Securities Trading Limited. The proceeds from this offering were used to repay a portion of our existing consolidated debt with banks, thereby extending the maturity of our outstanding debt. These securities are guaranteed by our subsidiaries VMZ, Milpo and CJM.

 

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Corporate Structure

 

The following organizational chart sets forth our simplified corporate structure as of the date of this prospectus:

 

 

(1)         As of the date of this prospectus, we own an 88.56% equity interest in VMZ. The remaining 11.44% of VMZ’s shares are owned by VSA. However, as a result of the transactions described under “Related Party Transactions—Certain Transactions with Our Shareholders and Their Affiliates,” for accounting purposes, we hold 100.00% of the share capital of VMZ.

(2)         VMH holds directly a 0.17% equity interest in Milpo and indirectly an 80.06% equity interest through CJM.

 

Corporate Information

 

We are a public limited liability company (société anonyme) organized under the laws of Luxembourg on February 26, 2014. Our registered office is located at 26-28 rue Edward Steichen, L-2540 Luxembourg, Grand Duchy of Luxembourg, and we are registered with the Luxembourg Trade and Companies Register under number B185489. Our telephone number at this address is +352 26 00 53 43. Our main office outside of Luxembourg is located at Avenida Engenheiro Luís Carlos Berrini, nº 105, 6º floor, São Paulo, State of São Paulo, Brazil. Our website is www.vmetais.com.br. None of the information available on our website is incorporated in this prospectus and it should not be relied upon in making a decision to invest in our common shares.

 

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THE OFFERING

 

The following is a brief summary of the terms of this offering and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. For a more complete description of our common shares, see “Description of Share Capital.”

 

Issuer		VM Holding S.A.
Selling Shareholder		Votorantim S.A.
Offering Price		We estimate that the initial public offering price per common share will be between US$         and US$         .
Securities Offered		We are offering            common shares (assuming no exercise of the underwriters’ over-allotment option). The selling shareholder is offering           common shares (assuming no exercise of the underwriters’ over-allotment option).
Over-allotment Option		We and the selling shareholder have granted the underwriters the right to purchase an additional            common shares within 30 days from the date of this prospectus to cover over-allotments, if any.
Common Shares Issued and Outstanding Immediately Prior to and Following the Offering		Immediately prior to this offering, we had 841,416,065 common shares issued and outstanding.   Immediately after giving effect to this offering, we will have common shares issued and outstanding (assuming no exercise of the underwriters’ over-allotment option). If the underwriters exercise their over-allotment option in full, we will have common shares issued and outstanding.
Lock-Up		We and                      , as of the date of this prospectus, have entered into lock-up agreements with the underwriters. Under these agreements, we and each of these persons may not, without the prior written approval of                    , offer, sell, contract to sell, pledge, or otherwise dispose of, directly or indirectly, or hedge our common shares or securities convertible into or exchangeable or exercisable for our common shares. These restrictions will be in effect for a period of      days after the date of this prospectus.

 

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Use of Proceeds		We expect to receive net proceeds of approximately US$         million from our sale of common shares (or US$         million if the underwriters fully exercise their over—allotment option), assuming an initial public offering price of US$         per common share (the midpoint of the price range set forth on the cover page of this prospectus) and after deducting estimated underwriting discounts, commissions and expenses payable by us. We currently intend to use the net proceeds that we receive from the offering to support the development of our mining operations and growth projects, including brownfield and greenfield opportunities. Any remaining net proceeds will be used for other general corporate purposes. See “Use of Proceeds.” The net proceeds to the selling shareholder (after deducting estimated underwriting fees) are expected to be approximately US$         million. We will not receive any proceeds from the sale of common shares by the selling shareholder.
Dividend Policy		Following the offering, we intend to pay dividends on our common shares annually in amounts equivalent to at least 2.0% of market capitalization, subject to the requirements under Luxembourg law. In accordance with Luxembourg law, each year, at least 5.0% of the net profits must be allocated to the creation of a legal reserve that is not available for distribution. This allocation ceases to be compulsory when the reserve has reached an amount equal to 10.0% of the share capital, but becomes compulsory again if the reserve falls below such 10.0%. See “Dividend Policy” and “Description of Share Capital.”
Voting Rights		Each common share entitles the holder to one vote at any general meeting of our shareholders. See “Description of Share Capital—Voting Rights.”
Controlled Company		Upon completion of this offering, VSA will continue to own a controlling interest in us. Accordingly, we currently intend to rely on the “controlled company” exemptions under certain of the NYSE corporate governance rules.
Listing		After the pricing of this offering, we expect that our common shares will trade on the New York Stock Exchange (NYSE) in the United States, and closing of the offering is conditional on the common shares being approved for listing on the Toronto Stock Exchange (TSX) in Canada, under the symbol “ .”
Risk Factors		See “Risk Factors” beginning on page 24 and the other information included in this prospectus for a discussion of factors you should consider before deciding to invest in our common shares.

 

Unless we indicate otherwise, all information in this prospectus assumes that the underwriters do not exercise their option to purchase from us and the selling shareholder up to        common shares to cover over-allotments, if any.

 

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SUMMARY FINANCIAL AND OPERATING DATA

 

The following tables present our summary consolidated financial and operating data for each of the periods and the dates indicated below. The summary consolidated financial data as of December 31, 2016 and 2015 and for the years ended December 31, 2016, 2015 and 2014 should be read in conjunction with the audited combined consolidated financial statements included elsewhere in this prospectus. Our audited combined consolidated financial statements have been prepared in accordance with IFRS, as issued by the IASB. We also present in the tables below certain non-IFRS and other operating metrics used by our management to evaluate, monitor and manage our business. None of these terms are measures of financial performance under IFRS, as issued by the IASB, and therefore they should not be considered to be alternatives to our IFRS results.

 

The results of operations presented in this prospectus are not necessarily indicative of any future results of operations or performance. The information summarized below should be read in conjunction with “Presentation of Financial and Other Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited combined consolidated financial statements, including the notes thereto, included elsewhere in this prospectus.

 

		For the Year Ended December 31,
		2016		2015		2014
		(in millions of US$, unless otherwise indicated)
Combined Consolidated Statement of Operations Information:
Continuing operations
Net revenue from products sold		1,912.8		1,824.8		2,118.3
Cost of products sold		(1,387.1	)	(1,422.9	)	(1,594.9	)
Gross profit		525.7		401.9		523.4
Operating expenses
Selling expenses		(90.6	)	(84.6	)	(93.1	)
General and administrative expenses		(127.3	)	(106.3	)	(149.8	)
Other operating income (expenses), net		(177.8	)	(47.1	)	(108.3	)
Total operating expenses		(395.7	)	(238.0	)	(351.2	)
Operating profit before net financial results and loss from results of associates		130.0		163.9		172.2
Financial income		25.0		19.3		13.7
Financial expenses		(70.4	)	(61.6	)	(73.5	)
Foreign exchange gains (losses), net		135.4		(299.6	)	(107.3	)
Net financial results		90.0		(341.9	)	(167.1	)
Loss from results of associates		(0.2	)	(0.3	)	—
Profit (loss) before taxation		219.8		(178.3	)	5.1
Current income tax		(75.3	)	(62.8	)	(81.3	)
Deferred income tax		(26.8	)	101.5		53.9
Profit (loss) for the year from operating operations		117.7		(139.6	)	(22.3	)
Discontinued operations				(0.3	)	(4.8	)
Profit (loss) for the year		117.7		(139.9	)	(27.1	)
Profit (loss) attributable to:
Owners of the parent		100.4		(129.5	)	(33.8	)
Non-controlling interests		17.3		(10.4	)	6.7
Average number of shares (in millions)		1,009.5		930.5		930.4
Basic and diluted earnings (loss) per share (in US$)		0.12		(0.15	)	(0.03	)

 

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		As of December 31,
		2016		2015		2014
		(in millions of US$)
Combined Consolidated Balance Sheet Information:
Assets
Cash and cash equivalents		915.6		621.4		750.7
Financial investments		117.0		57.9		22.6
Inventory		291.8		230.6		285.9
Total current assets (1)		1,591.9		1,143.8		1,344.6
Property, plant and equipment		1,978.5		1,883.4		2,227.0
Total non-current assets		4,568.5		4,488.0		4,987.1
Total assets		6,160.7		5,657.2		6,331.7
Liabilities
Loans and financing (current)		62.6		41.4		102.6
Trade payables		282.2		259.7		243.8
Total current liabilities		876.0		532.0		585.5
Loans and financing (non-current)		1,081.8		1,014.8		1,252.2
Total non-current liabilities		1,960.4		1,578.1		1,869.8
Total liabilities		2,836.4		2,128.7		2,455.3
Shareholders’ equity
Total equity attributable to owners of the parent		2,848.0		2,585.4		2,654.1
Non-controlling interests		476.3		943.1		1,222.3
Total shareholders’ equity		3,324.3		3,528.5		3,876.4
Total liabilities and shareholders’ equity		6,160.7		5,657.2		6,331.7

 

(1) Includes assets held for sale.

 

		For the Year Ended December 31,
		2016		2015		2014
		(in millions of US$)
Combined Consolidated Statement of Cash Flows Information
Net cash provided by (used in):
Operating activities		585.0		414.5		392.3
Investing activities		(201.4	)	(156.7	)	(432.1	)
Financing activities		(92.2	)	(385.8	)	200.3
Effects of exchange rates on cash and cash equivalents		2.8		(1.3	)	—
Increase (decrease) in cash and cash equivalents		294.2		(129.3	)	160.5
Cash and cash equivalents at the beginning of the year		621.4		750.7		590.2
Cash and cash equivalents at the end of the year		915.6		621.4		750.7

 

		For the Year Ended December 31,
		2016		2015		2014
		(in millions of US$)
Capital Expenditures
Expansion		41.2		35.8		28.0
Modernization		19.6		15.3		17.0
Sustaining		62.0		49.0		84.5
Health, safety and environment		50.9		72.9		27.3
Other		2.8		4.1		0.9
Subtotal		176.5		177.1		157.7
Reconciliation to Financial Statements (1)		6.5		10.0		(3.7	)
Total		183.0		187.1		154.0

 

(1) We manage capital expenditures on a cash basis. The amounts under “Reconciliation to Financial Statements” are related to capitalization of interest net of advanced payments.

 

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		As of and For the Year Ended December 31,
		2016		2015		2014
		(in millions of US$, except financial ratios)
Other Financial Information
Depreciation, amortization and depletion		275.0		295.3		319.0
Interest paid on loans and financing		(35.7)		(36.7)		(42.9)
Working capital (deficit) (1)		27.4		(71.8)		39.9
Adjusted EBITDA (1)		403.9		467.8		528.1
Adjusted EBITDA by region (1):
Brazil		59.8		180.3		147.1
Peru		348.5		295.5		388.2
Other (2)		(4.4)		(8.0)		(7.2)
Total		403.9		467.8		528.1
Adjusted EBITDA by segment (1):
Mining		336.8		221.8		328.5
Smelting		70.5		259.8		225.9
Other (2)		(3.4)		(13.8)		(26.3)
Total		403.9		467.8		528.1
Net debt (period-end) (1)		128.6		366.8		583.9
Net debt to Adjusted EBITDA ratio (1)		0.32		0.78		1.11

 

(1) See “—Non-IFRS Measures” below.

(2) The line item “Other” represents the residual component of Adjusted EBITDA either not pertaining to the mining or smelting segments, or, represents items that, because of their nature, are not being allocated to a specific segment. See “Non-IFRS Measures and Reconciliation.”

 

Non-IFRS Measures

 

Adjusted EBITDA and Related Measures

 

Our management uses non-IFRS measures such as Adjusted EBITDA, among other measures, for internal planning and performance measurement purposes. We believe these measures provide useful information about the financial performance of our operations that facilitates period-to-period comparisons on a consistent basis. Management uses Adjusted EBITDA internally to evaluate our underlying operating performance for the reporting periods presented and to assist with the planning and forecasting of future operating results. Management believes that Adjusted EBITDA is a useful measure of our performance because it reflects our cash generation potential from our operational activities excluding exceptional items of the period. These measures should not be considered in isolation or as a substitute for profit (loss) or operating profit, as indicators of operating performance, or as alternatives to cash flow as measures of liquidity. Additionally, our calculation of Adjusted EBITDA may be different from the calculation used by other companies, including our competitors in the mining industry, so our measures may not be comparable to those of other companies.

 

In this prospectus, we present Adjusted EBITDA, which we define as (i) profit (loss) for the year, plus (ii) profit (loss) from results of associates, plus (iii) depreciation, amortization and depletion, plus/less (iv) net financial results, plus/less (v) income tax, less (vi) gain on sale of investment (loss), plus; (vii) impairment of other assets, plus/less (viii) (reversion) impairment – property, plant, equipment. In addition, management may exclude non-cash items considered exceptional from the measurement of Adjusted EBITDA.

 

We calculate Adjusted EBITDA by region on the same basis as Adjusted EBITDA using information from the financial statements of VMZ and Enercan (for Brazil) and Milpo and CJM (for Peru), plus the allocation of VGmbH’s revenues and costs pertaining to Brazil and Peru, as applicable, less the elimination of inter-segment operations between our subsidiaries. Selling, general and administrative expenses and the depreciation and amortization of VGmbH are allocated to Brazil and Peru based on their respective participation in our total cost of product sold. The line item “Other” represents the residual component of Adjusted EBITDA either not pertaining to the Brazil or Peru regions, or, represents items that, because of their nature, are not allocated to a specific region.

 

We define Adjusted EBITDA by segment as (i) profit (loss) for the year, plus (ii) profit (loss) from results of associates, plus (iii) depreciation, amortization and depletion, plus/less (iv) net financial results, plus/less (v) income tax, plus/less (vi) components of Adjusted EBITDA by segment either not pertaining to the mining or smelting segment, or, represents items that, because of their

 

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nature, are not being allocated to specific segment. See Note 35 to the audited combined consolidated financial statements.

 

We also present herein our net debt, which we define as (i) loans and financing less (ii) cash and cash equivalents, less (iii) financial investments, plus or less (iv) the fair value of derivative financial instruments. Our management believes that net debt is an important figure because it indicates our ability to repay outstanding debts that become due simultaneously using available cash and highly liquid assets.

 

We define net debt to Adjusted EBITDA ratio as net debt divided by Adjusted EBITDA.

 

We define Adjusted EBITDA margin as Adjusted EBITDA divided by net revenue from products sold.

 

We calculate working capital as (i) trade accounts receivable plus (ii) inventory less (iii) trade accounts payable less (iv) confirming payable. Our management believes that working capital is an important figure because it provides a relevant metric for the efficiency and liquidity of our operating activities.

 

Cash Cost and Related Measures

 

In this prospectus, we also present measures of costs that are widely used by similar companies operating in the mining and smelting industries. These performance measures are not IFRS measures, and they do not have a standard meaning and therefore may not be comparable to similar data presented by other mining and smelting companies. They should not be considered as a substitute for costs of sales, costs of selling and administrative expenses, or as an indicator of costs. Similar measures are also calculated by Wood Mackenzie for many market participants, but Wood Mackenzie’s methodology differs from the methodology we use below. See “Industry Overview.”

 

Our management uses cash cost and related measures, among other measures, for internal planning and performance measurement purposes. We believe these measures provide useful information about the operational performance of our operations that facilitates period-to-period comparisons on a consistent basis.

 

In calculating cash cost, we account for transactions between our mining operations and our smelting operations using the same methodology we use to evaluate the performance of our mining and smelting segments.  See Note 35 to our audited combined consolidated financial statements. We prepare an internal calculation based on transfer-pricing adjustments made on an arm’s length principle basis. All information disclosed for cash cost is consistent with this methodology.

 

Mining Operations

 

Cash cost: For our mining operations, cash cost includes all direct cash cost of mining, including costs associated with mining, concentrating, leaching, solvent extraction and electrowinning, on-site administration and general expenses, any off-site services essential to the operation, concentrate freight costs, marketing costs and property and severance taxes paid to state or federal agencies that are not profit related. Treatment and refining charges on metal sales, which are typically recognized as a deduction component of sales revenues, are added to cash cost. Cash cost is calculated on a byproduct basis, in which byproducts sales are deducted from total cash cost directly attributable to mining operations.

 

Sustaining cash cost: Sustaining cash cost is defined as the cash cost plus sustaining capital expenditure.

 

All-in sustaining cost: All-in sustaining cost (or AISC) is defined as sustaining cash cost plus corporate general and administrative expenses, royalties and workers’ participation.

 

Smelting Operations

 

Cash cost. For our smelting operations, cash cost includes all the costs of smelting, including costs associated with labor, net energy, maintenance materials, consumables and other on-site costs, as well as raw material costs. Byproduct sales are deducted from total cash cost directly attributable to smelting operations

 

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Sustaining cash cost: Sustaining cash cost is defined as the cash cost plus sustaining capital expenditure.

 

All-in sustaining cost: All-in sustaining cost is defined as sustaining cash cost added to general and administrative expenses and workers’ participation.

 

For a reconciliation of these measures to the most directly comparable IFRS measures, see “Selected Financial Data—Non-IFRS Measures and Reconciliation.”

 

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Other Operational Information

 

		For the Year Ended December 31,
		2016		2015		2014
Mining Production
Zinc concentrates (in tonnes)		860,399		866,679		883,346
Copper concentrates (in tonnes)		158,503		154,998		157,653
Lead concentrates (in tonnes)		104,408		94,875		89,925
Mining Production — Metal Contained in Concentrate
Zinc contained in concentrates (in tonnes)		416,869		425,883		428,796
Copper contained in concentrates (in tonnes)		41,551		40,375		41,521
Lead contained in concentrates (in tonnes)		59,181		54,611		51,374
Silver contained in concentrates (in oz.)		8,315,215		7,643,741		6,777,540
Gold contained in concentrates (in oz.)		27,893		17,934		13,318
External Mining Sales (1)
Zinc concentrates (in tonnes)		88,976		95,479		110,141
Copper concentrates (in tonnes)		157,054		154,337		157,627
Lead concentrates (in tonnes)		103,017		94,510		89,212
External Mining Sales — Metal Contained in Concentrate (1)
Zinc contained in concentrates (in tonnes)		49,004		54,319		59,934
Copper contained in concentrates (in tonnes)		41,186		40,195		41,499
Lead contained in concentrates (in tonnes)		58,538		54,433		51,151
Smelting Production — Zinc Product Production
Cajamarquilla (in tonnes)		334,261		330,113		327,287
Três Marias (in tonnes)		186,708		177,956		171,724
Juiz de Fora (in tonnes)		86,616		81,487		74,410
Total zinc product production (in tonnes)		607,585		589,556		573,421
Smelting Sales — Product Volumes
Metallic zinc (in tonnes)		573,105		560,279		536,759
Zinc oxide (in tonnes)		37,386		34,804		43,247
Smelting Sales — Zinc Contained in Product Volumes (2)
Metallic zinc (in tonnes)		571,319		558,578		534,723
Zinc oxide (in tonnes)		29,909		27,843		34,598
Total zinc contained in product volumes (in tonnes)		601,228		586,421		569,321

 

(1) Excluding sales pursuant to intercompany transactions.

(2) Based on standard zinc contents in metallic zinc products and zinc oxide. For more details, see “Business—Our Smelting Operations—Zinc Contained in Smelting Products Sold.”

 

		For the Year Ended December 31,
		2016				2015				2014
		US$/tonne		US¢/lb.		US$/tonne		US¢/lb.		US$/tonne		US¢/lb.
Average Market Prices of Base Metals
Zinc (LME)		2,094.75		95.02		1,928.30		87.47		2,164.46		98.18
Copper (LME)		4,862.59		220.56		5,494.50		249.23		6,862.0		311.26
Lead (LME)		1,871.58		84.89		1,783.57		80.90		2,095.98		95.07

 

		For the Year Ended December 31,
		2016		2015		2014
		(in US$/oz.)
Average Market Prices of Precious Metals
Silver (LBMA)		17.14		15.68		19.08
Gold (Fix)		1,250.80		1,160.06		1,266.40

 

		For the Year Ended December 31,
		2016				2015				2014
		US$/tonne		US¢/lb.		US$/tonne		US¢/lb.		US$/tonne		US¢/lb.
VMH Consolidated Cash Cost
Mining		613.7		27.8		810.8		36.8		717.1		32.5
Smelting		1,789.2		81.2		1,668.7		75.7		1,887.5		85.6

 

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