Paranapanema is the largest Brazilian non-integrated copper producer, operating in primary copper smelting and refining and the semi-manufactured production of copper and its alloys. It generates more than 2,200 jobs and recorded a net revenue of R$ 3.5 billion in 2017.
Paranapanema shares are listed and traded at the highest level of corporate governance at B3 S.A. – Brasil, Bolsa, Balcão since 1971, and within the “Novo Mercado” segment since 2012 under the ticker PMAM3.
With an installed capacity of 285,000 tons, the company operates throughout the entire industrial chain, from the transformation of mineral copper into metallic copper (copper cathode or primary copper), an activity which is done only by our company in Brazil, up to the production and sale of products (rebar, drawn wire, rolled wire, bars, pipes, fittings etc.) and co-products (sulfuric acid and anodic sludge, for example), substances extracted from the production process.
The company has three industrial plants, one primary copper unit, located in the municipality of Dias D’Ávila (BA), and two plants for copper products and their alloys, one located in the municipality of Santo André (SP) and the other in the city of Serra (ES), as well as a distribution center in Itatiaia (RJ).
The sole industrial complex, which combines several technologies, allows high purity levels (99.99% copper) to be produced and the modern and superior fusion and refining process ensures quality and better product performance in various applications. Since 2012, the company has been investing in the industrial facilities, modernizing the areas of copper smelting and refining (electrolysis) at the Dias D’ávila plant (BA) and inaugurating the most modern Cast & Roll pipe factory in Brazil at the Utinga unit, in Santo André (SP).
Since 1989, the primary copper produced by Paranapanema has been registered at the London Metal Exchange (LME) under the brand CbM, which allows it to be sold on the international market as an international commodity. In February 2015, the company also obtained LME certification for another brand, CbM-P, which registered the copper produced using permanent cathode technology on the metal exchange.
History at a glance
Paranapanema S.A. (the “Company” or “Paranapanema”) started operations in 1961, with operations focused on heavy civil construction, and diversified its activities from 1965, when it entered into the mining area. The increase in activity in the mining sector was accentuated after the company went public and was listed on Bovespa (currently B3) in 1971 with investments in research and development of mining techniques, with the consequent establishment of Mineração Taboca S.A. (extraction of cassiterite) and Mamoré Mineração e Metalurgia Ltda. (metallurgy of tin and alloys).
In 1974, BNDES acquired control of Paranapanema, contributing significantly to the continuity of mining research.
Between 1978 and 1979, operations were verticalized, which ranged from cassiterite extraction to the manufacture and sale of the final product (metallic tin), which made cassiterite mining the Company’s core business. At the same time, the civil construction division was diversified, broadening its scope of operations with the provision of basic sanitation and related services.
After about a decade of growth and diversification, the Company showed signs of negative growth in the early 1990s, as a consequence of a reduction in public sector investments in construction work, the depression of tin prices on the international market and the appreciation of the real against the dollar, affecting exports.
In 1995, Paranapanema became controlled by a group of pension funds led by PREVI (Banco do Brasil Employee Pension Fund). This move paved the way for the acquisitions of Caraíba Metais S.A. and Eluma, both in the copper segment, and Paraibuna, which is in the zinc market. Also in the 1990s, Cibrafértil – Companhia Brasileira de Fertilizantes S.A. was formed to use sulfuric acid productively, a by-product of Caraíba Metais operations.
The group of investors led a process of management professionalization, and Paranapanema started focusing investments in the non-ferrous metal segment, ending construction operations in 1996.
Paranapanema started to become the holding company with no operational activities and the new shape of operations became: Tin (Mineração Taboca S.A. and Mamoré Mineração e Metalurgia Ltda.), Copper (Caraíba Metais S.A.), Zinc (Companhia Paraibuna de Metais) and Copper Products (Eluma S.A. Indústria e Comércio). The adoption of this model made it possible to centralize strategies, take advantage of management synergies, closely follow the implementation of measures aimed at restructuring several areas and procedures.
The end of the 1990s was a challenging period for Paranapanema, with the impact in the deterioration of the global macroeconomic scenario. The Company’s focus was on restructuring debt in the midst of the Asian crisis (1997), the troubles in Eastern Europe (mid-1998), and the devaluation of the currency in 1999. At the beginning of 2002, Paranapanema’s entire stake in Companhia Paraibuna de Metais was sold, and the proceeds from this sale were used to adjust the Company’s capital structure.
In December 2003, operations at Mamoré Mineração e Metalurgia Ltda. were stopped and efforts concentrated on the sale of its equipment. In 2004, tin operations were concentrated into a single company through the establishment of subsidiary Mineração Taboca S.A. in São Paulo, which took over the industrial and metallurgical operations of the subsidiary Mamoré Mineração e Metalurgia Ltda.
As of the end of 2006, a new corporate, operational, administrative and financial restructuring process was implemented, which prioritized balancing the debt and the suitability of the Company’s capital structure, in addition to listing as Level 1 Corporate Governance at B3. The restructuring culminated in the settlement of a non-operating debt with creditors/shareholders, with net cash being shown and a capital structure suitable for its business at the end of 2008.
Also in 2008, mining and tin metallurgy assets were sold, with the sale of Mineração Taboca S.A. and subsidiary to the Peruvian group Minsur, which significantly contributed increasing the Company’s cash and cash equivalents.
At the end of 2009, a new stage of corporate restructuring started with the aim of simplifying the organizational structure and adjusting the Company’s strategic management in order to enable growth with profitability, adding value to its products and shareholders, improving its margins and competitiveness, with economies of scale and cost savings. The merger and dissolution of Caraíba Metais SA (founded in 1969 and copper production operations since 1982) was approved by Paranapanema.
In 2010, the Company ceased mining activities, fully assigning its mining rights to third parties.
Also in 2010, all the preferred shares issued by Paranapanema were converted into common shares, under the code PMAM3, in preparation for the Company’s migration to be listed on the Novo Mercado segment of B3. In the same year, Eluma was merged into Paranapanema with the aim of consolidating investments and unifying operations carried out by distinct legal entities, strengthening the equity, operational and organizational structure. This merger represented a material stage in the Company’s integration, simplification and consolidation process.
In the same year, Paranapanema informed its shareholders that it was aware of a Material Fact disclosed by Vale S.A. (“Vale”), through which the market was informed of a voluntary Tender Offer (“OPA”) for the acquisition of 100% of common shares issued by Paranapanema, at a price of R$ 6.30 per common share, dependent on the effectiveness of the OPA to acquire at least 50% plus one common share. The Public Notice was published by Vale on August 2, 2010 and the public tender took place on September 1, 2010 at 3:00 pm on B3. As a result of the public tender, Vale did not meet the conditions for an effective offer (acquisition of at least 50% plus 1 share with voting rights issued by Paranapanema).
At the beginning of 2011, following the completion of financial, tax and corporate restructuring, the Board of Directors approved an Investment Plan of R$ 702 million for the period 2011 to 2013, to expand the installed capacity and upgrade the technological for both refined copper and semi-finished copper and its alloys.
At the beginning of 2012, the Company’s shares began to be traded in the Novo Mercado segment of B3, the highest level of Corporate Governance, bringing a commitment to greater transparency for investors and the capital market.
In the same year, Paranapanema sold 100% of its shares in Cibrafértil – Companhia Brasileira de Fertilizantes S.A., to OFD HOLDING INC., the Parent company of the Colombian fertilizer company Abocol Abonos Colombianos S.A.
Thus, the operational focus of Paranapanema became the smelting and refining of primary copper and semi-manufactured copper and its alloys, with operations distributed among four industrial units, divided into two lines of business:
– Primary Copper Unit, located in the municipality of Dias d’Ávila (BA) operating in the smelting and refining of electrolytic copper under the brand name Caraíba and in the metallurgy of copper semi-finished products;
– Copper Products Unit, working in the metallurgy of copper and its alloys in Utinga and Capuava, located in Santo André (SP) and Serra (ES), under the brand name Eluma.
In 2013, the Primary Copper plant was upgraded and expanded, which included the upgrade of the electrolysis process, which increased the annual installed capacity of cathode copper from 230,000 tons to 280,000 tons. In the same year, a new factory making Cast & Roll copper pipes was opened at Utinga’s Copper Product unit, increasing the annual installed capacity to 36,000 tons of thinner-walled copper pipe.
In 2015, in looking for greater operational efficiency and a reduction of costs and expenses, operations at the Capuava plant were closed, and its production processes were transferred to Utinga.
Also in 2015, “Trefila IV” was opened at the Dias d’Ávila (BA) plant, a machine that models rebar to transform it into copper wire, adding more value to the final product. The investment of approximately R$ 12 million allowed the Company to increase its wire production capacity by 60%, from 50,000 to around 80,000 tons per year.
Thus, the Company became the only non-integrated Brazilian producer of refined copper, and one of the country’s market leaders in the copper product segment, such as rolled wire, rebar, pipes, fittings and copper alloys.
In 2016, the Company was heavily affected by the credit crisis in Brazil, and on May 31, 2016 issued a Material Fact informing its shareholders and the market about hiring of a financial advisor to help the Company implement measures that aimed at strengthening and adjusting its capital structure, liquidity and its debt profile, in order to ensure the full development of its activities and to adjust its financial capacity to the short, medium and long-term prospects, with the main objective of financial and operational capacity (“Restructuring”).
On April 20, 2017, through a Material Fact, Paranapanema informed the market that a document known as the “Non-binding Memorandum of Understanding for the Renegotiation of Company Debts” (the “Memorandum” or “MoU”) signed with its principal financial creditors (“Consenting Creditors”), successively introduced, through which the Consenting Creditors have undertaken not to take measures relating to the collection of their credit, including abstaining from early maturity of obligations to pay the principal or interest, execute guarantees, or make voluntary notes in the registries of the credit protection bodies as a result of the financial instruments and/or bank debt listed in the Standstill Agreement, for the term of the MoU in force.
Under the aforementioned Memorandum, the Company and the Consenting Creditors made progress with negotiating the terms and conditions of the debt renegotiation process representing 84% of the Company’s debt to the Consenting Creditors, according to the information provided in item 6.6 of this Reference Form.
On July 21, 2017, pursuant to the Material Fact published on this date, the Company entered into an investment agreement with Glencore International Investments Ltd. (“Glencore”), in which it undertook to contribute R$ 66 million to the Company’s capital in a capitalization transaction made through the issue of shares, in addition to complying with suspensive clauses common in this type of transaction.
In September 2017, the Company completed the process of strengthening the capital structure and restructuring its debt, with the termination of the Standstill Agreement. Among the measures carried out there was a public offering with restricted efforts of the primary distribution of shares, fully capitalized and paid-in, and a public offering with restricted debenture placement efforts.
Of the total 360,003,818 debentures, 255,358,478 were converted into shares (249,402,021 on October 10, 2017 and 5,956,455 on March 6, 2018), with the remaining balance of 104,645,348 pending conversion.
In line with the business plan, on May 1, 2018, the Company completed the Scheduled Maintenance at the Dias d’Ávila industrial complex in Bahia, which began on March 26, 2018, with the main objective of recovering the efficiency of the copper smelter plant, ensuring the perfect fulfillment of production planning over the coming years and in addition to better compliance with regulatory standards. This maintenance has also brought greater safety and adherence to environmental demands in the unit’s operations.
Group Entities – “Subsidiaries”
The Company holds the following shareholding in its direct subsidiaries:
Claudio Sá – 11 99945-7005
Paulo Florêncio – 11 98564-3218
Bruno Cirillo – 11 97441-0025