Nexa Resources S.A.

Good morning and welcome to NEXA Resources third quarter 2024 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. This event is being recorded and is also being broadcast via webcast and may be accessed through NEXA's Investor Relations website, where the presentation is also available. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and one on your telephone keypad. To withdraw your question, please press star then two. Remember that the participants of the webcast will be able to register via website questions. Simply type your question in the box and click send and that will be answered soon. I would now like to turn the conference over to Mr. Rodrigo Camisano, Head of Investor Relations, for opening remarks. Please go ahead.

Good morning, everyone, and welcome to Nexa Resources' third quarter 2024 earnings conference call. Thank you for joining us today. During the call, we will be discussing the company's performance as per the earnings release that we issued yesterday. we encourage you to follow along with this on-screen presentation through the webcast. Before we begin, I would like to draw your attention to slide number two, where we'll be making forward-looking statements about our business, and we ask you to refer to the disclaimer and the conditions surrounding those statements. It is now my pleasure to introduce our speakers. Joining us today is our CEO, Ignacio Rosado, our CFO, José Carlos Del Valle, and our Senior Vice President of Mining Operations, Leonardo Coelho. So now I will turn the call over to Ignacio for his comments. Ignacio, please go ahead.

Thank you Rodrigo and good morning to everyone. Thanks for joining us today to go over our third quarter results for 2024. Let's move to slide number three where we will begin our presentation with the main highlights of the quarter. We are pleased with our third quarter and year-to-date results. We have delivered consistent operational performance and maintained financial discipline. Our commitment to cash flow generation initiatives has been a key driver, supported by positive momentum in metal prices, especially zinc, which reinforces industry resilience and strengthen market fundamentals. With nine months behind us, we are on track to meet our full year outlook. Zinc metal and oxide metals rose by 3% quarter over quarter, supported by improved demand in our home markets. In mining production, zinc was relatively flat compared to last quarter, while lead and silver increased by 2% each, driven by higher treated ore volumes and grades. Proper production decreased by 4% due to lower grade areas in that period. Our financial results were strong. total consolidated net revenues for the third quarter reached $709 million up by 9% year over year, largely due to higher average LME prices. Adjusted EBITDA was $183 million, 111% higher than the $87 million reported in the same quarter last year. with adjusted EBITDA margin of around 26%, expanding by 12 basis points. This performance was mainly driven by higher by-product contribution, higher zinc prices, and lower mineral exploration and project evaluation expenses. Our net leverage ratio improved to 2.2 times, down from 2.7 times in the second quarter of this year, and 3.1 times in the third quarter of last year. Regarding Aripuana, I would like to provide further details later, but here are some key points. Aripuana generated positive operating cash flow and marked its third consecutive quarter of EBITDA growth. Treated ore volumes rose significantly due to improved plant performance and stability. Notably, we reduced plant downtime and corrective maintenance, boosting operational efficiency. However, seam production experienced a minor dip in the third quarter of this year compared to the second quarter, primarily due to lower grades and increases in talc levels in the flotation circuit. On the Cerro Pasco integration project, I am pleased to share that the tailings pumping system, a key step in phase one, is currently undergoing the internal approval process. I will provide more details in the upcoming slides. Additionally, as previously disclosed, we announced the sale of the Pucacaca Greenfield project and the non-operational Peruvian subsidiary Minera Pampa de Cobre the owner of the Chappie mine. These sales align with our portfolio optimization strategy, prioritizing efficient capital allocation to high return assets. Now let's move to slide number four to discuss our operating performance. Regarding the operating performance of the segment, zinc production reached 83,000 tons in the third quarter of this year, down by 5% year over year. This decline was primarily due to the absence of contributions from Morro Agudo, along with lower zinc average grades, particularly at Basante and El Porveni. Compared to the second quarter of this year, zinc production remained relatively stable, supported by higher volumes from Basante, El Porvenir and Atacoche. This was partially offset by the absence of contributions from Morro Agudo and slightly lower volumes from Cerro Lindo and Aripuana. In terms of cash costs in the third quarter of this year, the cash cost decreased to minus 1 cents per pound compared to 34 cents per pound in the third quarter of last year. This decrease was mainly attributed to lower treatment charges and higher by-product contribution in the period. Compared to the second quarter of this year, mining cash costs also decreased by 4 cents per pound, driven by lower operating costs and slightly higher sink volumes. The cash costs for the first nine months of the year has performed within our updated guidance range for the year. It is worth mentioning that last week we issued a press release informing the market of the reduction in our cash cost guidance for 2024, which reflects a 64% decrease from the previous guidance issued last February. This adjustment is supported by higher LME metal prices, year-to-date performance, increased by-products contribution, and a slightly lower thesis. The cost per run of mine for the quarter was $46 per ton up 6% year-over-year due to lower treated volumes resulting from the cessation of mining operations at Moragudo. This was partially offset by lower operating costs related to third-party services, personnel and energy. The cost per run of mine in the first nine months of the year performed within our unchanged guidance range for the year. Now moving to slide number five. Regarding the operating performance of the smelting segment, metal sales total 153,000 tons in the third quarter, down 1% from the third quarter of last year. Compared to the second quarter of this year, metal sales increased by 3%, driven by higher production volumes at Cajamarquilla and Tres Marias, along with constructive demand in our domestic market. Consolidated smelting cash cost in the quarter was $1.16 per pound, up from $1.01 per pound in the third quarter of last year. This increase is mainly attributed to higher raw material costs resulting from increased sink prices and lower TCs, as well as higher operating costs, which was partially offset by byproduct contributions. When compared to the second quarter of this year, cash costs decreased by 3%, mainly explained by lower TCs, which was partially offset by the impact of lower zinc prices on our concentrate purchases and increased by product contribution. Our conversion cost was 32 cents per pound compared to the 29 cents per pound in the third quarter of last year, mainly due to higher operational costs related to maintenance expenses. This was partially offset by the positive impact of foreign exchange variations in that period. Compared to the second quarter of this year, conversion costs increased by 6%, driven by higher variable and one-off energy costs in Cajamarquilla, which were partially offset by a decrease in maintenance expenses. I want to highlight that both cash costs and conversion costs in the first nine months of 2024 performed within our unchanged guidance range for the year. Now moving to slide number six, where we will start talking about ARIPUANA. The third quarter of 24 was another important quarter for ARIPUANA. We achieved positive adjusted EBITDA for the third consecutive quarter and recorded our first full quarter of positive operating cash flow. This improved financial performance was driven by our ongoing efforts to enhance operational efficiency alongside a strong zinc price environment. In terms of production, as I mentioned in the first slide, we noted a significant improvement in treated ore volumes by 12% in September compared to the second quarter of this year and a remarkable 27% increase compared to the first quarter of this year. However, the performance of our tailings filters is currently limiting our capacity to exceed 90%. Throughout the year, we have been actively working to enhance tailings filter performance. However, due to operational limitations of the existing filters, we have decided to acquire a fourth filter, which is expected to be delivered in 2025. This addition will significantly boost our filtering performance and support further production increase. We also made meaningful progress in reducing plant downtime, achieving our lowest levels to date, with a 33% decrease compared to the second quarter of this year and 40% compared to the first quarter of this year. Moreover, we maintain stable concentrate quality within commercial specifications. It is important to note that during this quarter, average recoveries for zinc and lead were impacted by lower average grades and increased talc levels in the flotation circuits. In terms of metal production, we experienced flat zinc output, an increase in copper production and a decrease in lead. Looking ahead, we anticipate further increases in treated ore and throughput rates, higher metal recoveries and cost reductions all aim at improving our results. Now moving to slide number seven, where we will talk about the advancements of the Cerro de Pasco integration project. In this slide, I would like to highlight our progress with the Cerro de Pasco integration project. As discussed in our previous calls, this project has the potential to unlock significant value for NEXT. In the third quarter of this year, we made important strides across various work fronts, including the start of the approval process for the tailings pumping system. The execution involves the construction of a tailings treatment plant in El Porvenir and a six kilometer tailings pipeline connecting the El Porvenir plant to the tailings storage facilities in Atacocha. In addition to the tailings pumping system, phase one includes investments to raise the El Porvenir tailings dam, which is already underway as part of El Porvenir's regular sustaining CAPEX. It also considers future investments to elevate Atacocha's tailings facility. The goal phase is to significantly extend the operational capacity of the tailings storage facilities at the Pasco complex, prolonging the operations. In the next slide, I will provide further details on the tailings pumping system. Now moving to slide number eight. As said before, the key benefit of this investment is a substantial increase in tailings storage capacity at the PASCO complex, allowing us to operate for over 10 years. The estimated execution period for this project is two years, from 2025 to 2026, with an expected operational start in the first half of 2027. The total investment for this initiative is estimated to be between $85 and $90 million, distributed over two years of execution. Key components of the system include the thickener area, water clarification and reagent system in El Porvenir, as well as the tailings pumping and transportation system, along with the necessary electrical infrastructure. We are confident in the potential this investment brings to our operations, the subsequent phases of the project, and the sustainability of the PASCO complex. I will turn the call over to José Carlos del Valle, our CFO, who will present our financial results. José, please go ahead.