Nexa Resources S.A. Q4 FY2020 Earnings Call

Good morning, and welcome to Nexa Resources Fourth Quarter and Full Year 2020 Conference Call. The presenters on this call are Mr. Tito Martins, CEO of Nexa Resources; Mr. Rodrigo Menck, CFO of Nexa Resources; and Ms. Roberta Varella, Head of Investor Relations. Please note, this event is being recorded. I would now like to turn the conference over to Mr. Tito Martins. Please go ahead.

Thank you, and good morning, and good afternoon, everyone. Thanks for joining us in another Nexa's earnings conference call. I hope you and your loved ones remain safe and healthy. Today, we'll be talking about our results for the fourth quarter and full year of 2020. Please, let's move to Slide 3, where we will begin our presentation. In an unprecedented and challenging scenario, we have safely resumed our operations after the mandatory shutdown period. Our financial performance recovered strongly from the first half of the year, although we are still learning how to adapt ourselves to a new normal with COVID-19. We were able to rapidly implement additional health and safety protocols to mitigate the spread of the virus in our operations and projects. We estimate these additional protocols will remain at least in 2021, and part of our employees will continue working remotely. We maintain our efforts to build a differentiated, sustainable, and cost-efficient business model, generating value for all of our stakeholders. In 2020, production guidance was achieved. Sales were stronger-than-expected, operational performance and cost reduction resulted from our Nexa Way program. Besides, Nexa Way also has strengthened our inclusion and plurality programs. In this context, we reinforced our commitment to returning capital to the shareholders. Therefore, based on our expected future cash flow and balance sheet stability, we are pleased to announce a dividend payment of $35 million to be realized next March. Please turn to Slide 4. In 2020, we have continued to progress in our social and environmental programs. As mentioned before, we are prioritizing our plurality program. In 2020, Nexa signed a commitment letter with a woman in mind that aims to expand and strengthen the participation of women in the sector. We have created tailings dams websites to improve transparency on our tailings management and we have also continued to improve our energy maintenance. In terms of our social commitment, Nexa continued to collaborate in the economic development and quality of life of our host communities. Moving to the next slide, Slide 5. As you can see, Slide 5 shows the projects in our pipeline. Aripuanã is our project of development and I will discuss it in more detail ahead. Our projects are in different phases of maturity. Since the beginning of the COVID-19 outbreak, we have been very concerned and disciplined about our capital allocation. Because of that, our project portfolio and its timeline are subject to a continuous evaluation of COVID-19 back in our financials. Engineering studies at Magistral copper projects have continued to progress. And in 2021, we expect to advance further detailed engineering and optimization opportunities to mitigate the risk of execution before proceeding with its approval and execution. The prefeasibility study at Shalipayco and Puka remains on hold. Regarding Hilarion, exploration activities were resumed in the third quarter of '20 and were completed as planned. For 2021, drill programs will focus on testing the continuity of the mineralization towards the south of the area. In Brazil, we have resumed our exploration activities of the Bonsucesso project in the fourth quarter. And engineering studies have been resumed earlier this year. Bonsucesso is expected to extend the life of mine of Morro Agudo, reinforced integration of our mines and smelters in the curve. Turning now to Slide 6, please. Here, I will comment on Aripuanã development. Construction works continue to advance. Overall, physical progress reached 70% at the end of December. The operational readiness team is on-site and stopes development has started. Based on the current status of engineering, procurement, and construction, we believe we will continue to deliver according to the updated plan. Mechanical completion is expected in the fourth quarter of '21, and production should start right away. In 2020, we invested $187 million in the project, and we estimate a CapEx of $232 million alone this year. Aripuanã reinforces our mining smelting integration, decreasing our exposure to third-party concentrate by adding in our production, something around 120,000 tonnes of zinc equivalent. We estimate its cash cost to be in the beginning of the second quartile of the cash cost curve, which will reduce our average mining cash cost. The Aripuanã project is one of the few zinc projects underdeveloped in the world, and we believe it will be a long-life mining operation with competitive costs. Please move to the next slide. Since the approval of the project, we have continued to advance in our drilling campaigns, either with mining drilling and explorational drillings. In response to COVID-19, exploration activities were temporarily suspended but resumed in the third quarter of 2020. The new explorational target Babaçu Northwest was tested in the fourth quarter, confirming an extension of the mineralization. In 2020, 4,000 meters of exploratory drilling was completed, and for 2021, we plan to continue the extension drilling in the Babaçu Northwest. Based on currently impaired mineral resources and considering our track record of conversion, we believe life of mine could easily be extended beyond 20 years. Now I would like to pass to Roberta Varella, our Head of Investor Relations, who will comment on our results. Roberta, please.

Thank you, Tito. Good morning, everyone. Please, let's move to Slide 9. Beginning with the first chart on your left, consolidated net revenue in the fourth quarter '20 was $635 million, up 80% from the same period a year ago, mainly driven by higher zinc and copper prices. Adjusted EBITDA stood at $167 million compared with $65 million in the fourth quarter of 2019. The main factors that contributed to this performance were lower operating costs and expenses, the positive net price effect related to higher zinc prices and increasing by-product contribution. The U.S. dollar appreciation against the Brazilian real had a positive impact of $13 million. In 2020, net revenue was approximately $2 billion, down 16% compared to 2019, mainly driven by lower zinc and lead prices and lower volumes due to COVID-19-related measures. Adjusted EBITDA, however, increased by 15% year-over-year. The solid performance of our operations in the second half of the year, lower costs, and the decrease in mineral exploration and project evaluation expenses were the main drivers. The U.S. dollar appreciation against the Brazilian real also had a positive impact. On the next slide, we will discuss in further details our segment's performance. On Slides 10 and 11, we will comment on our mining segment operational results. In the fourth quarter '20, adjusted EBITDA stood at $87 million, strongly recovering from the fourth quarter of 2019, mainly explained by the increase in net revenue due to higher production and better metal prices, lower operating and corporate costs, and a decrease in mineral exploration and project evaluation expenses. In 2020, adjusted EBITDA totaled $140 million compared with $173 million in 2019. Net revenue was $748 million, down 25% year-over-year, mainly affected by lower average zinc and lead prices and the decrease in volume due to the temporary suspension of our operations in Peru, which was partially offset by the solid performance of our mines in Brazil. As you can see on Slide 11, the decrease in volume had a negative variation effect of $113 million, followed by market-related factors, such as lower prices and higher TCs, with an impact of $92 million. These factors were partially offset by the positive impact from the Brazilian real depreciation against the U.S. dollar, lower operating and corporate costs, and the decrease in mineral exploration and project evaluation expenses. In terms of cash costs, consolidated mining cash costs in 2020 decreased by 10% to $0.39 per pound, positively affected by lower operating costs. Moving to the next slide. On this slide, we will comment on our 3-year production guidance. At the midpoint of the guidance range, zinc equivalent metal production is forecasted to increase 7% on average, mostly driven by the start-up of Aripuanã in 2022. For 2021, zinc production is estimated to increase by 8% from 2020 and for 2022, after the Aripuanã ramp-up, there will be an addition of 7% over 2021. For 2023, zinc production is estimated to decrease, primarily driven by a decrease during the forecasted zinc head grade in Cerro Lindo mine. Exploration activities in Cerro Lindo were resumed in the second half of 2020 and we maintain our efforts to replace and increase mineral reserves and resources. In terms of cash cost, we estimate mining average cash cost of $0.33 per pound in 2021, as we forecast, higher by-product credits driven by better volumes and higher prices compared to 2020 and lower benchmark TCs, which should offset the normalization of mine development and infrastructure costs in Peru after the temporary shutdown restrictions. Cost reduction initiatives also remain in place. Turning to the next slide. On Slides 13 and 14, we discuss our smelting segment operational results. In the fourth quarter '20, adjusted EBITDA stood at $83 million, up 47% from the fourth quarter of 2019, mainly explained by higher TCs, lower corporate expenses, and the depreciation of the Brazilian currency. In 2020, adjusted EBITDA stood at $264 million, up 50% from 2019. Our total net revenue went down, affected by the pandemic, especially in the second quarter of 2020. As you can see on Slide 14, adjusted EBITDA improvement was mainly driven by higher treatment charges, which were partially offset by changes in market prices in respect to quotation period price adjustments, lower operating costs due to the decrease in energy prices and higher silicate mix and the decrease in corporate expenses. In terms of cash costs, consolidated smelting cash cost in 2020 decreased by 20% to $0.81 per pound, positively affected by higher TCs and lower operating costs. Turning to Slide 15. On this slide, we will comment on our smelting segment for year guidance. Metal sales volume in 2021, at the midpoint of the guidance range, is estimated to increase 7% from 2020. In 2021, we expect our smelters will continue to benefit from improved operational performance and will run at normal utilization rates. For 2022, metal sales volumes are estimated to increase by 3,000 tonnes over 2021 and to remain stable in 2023 over 2022. In terms of cash costs, we estimate smelting average cash cost of $0.95 per pound in 2021 as we forecast lower benchmark TCs compared to 2020 and higher metal prices, increasing raw material costs, which should be partially offset by cost reduction initiatives. I will now turn over the call to Rodrigo Menck, our CFO, who will provide more detailed information about our balance sheet. Menck, please.

Thank you, Roberta. Good morning, and good afternoon, everyone. I am now on Slide 16. Before we discuss our financial performance, I would like to present our historical EBITDA and EBITDA margin for the smelting segment. As you can see, despite the changes in zinc prices, smelter margins in 2018 and '19 were relatively stable, which means smelter margins are mainly affected by changes in treatment charges and operational costs. As you may know, we applied the benchmark TC for our integrated mining and smelting operations. Also, our purchases for our zinc concentrate from third-party suppliers are mainly based on the 3-year average benchmark TC, which has not changed much in 2018 and '19. Analyzing the year of 2020, TCs increased from 2019 and despite the volatility in metal price, we delivered two-digit margin. This strong performance not only reflects higher TC but also our ongoing efforts on reducing fixed costs. We wanted to bring this analysis to reinforce the strategic importance of being integrated and having smelters in our portfolio. Turning to the next slide. On Slide 17, as demonstrated in the upper left graph, our liquidity remains strong, and we continue to report a healthy balance sheet with an extended debt profile. By the end of 2020, our current available liquidity was $1.4 billion, which includes our undrawn revolving credit facility of $300 million. We have overcome the challenges we faced in the beginning of the pandemic. As we recall, we proactively managed our liquidity position by raising additional debt during the first half of 2020. We added about $300 million to our cash balance through export credit notes in March and April. Then we drew down our revolving credit facility, which was repaid with the proceeds of the $500 million bond issued in June. Finally, we partially drew down approximately $90 million in the fourth quarter of 2020 from the BNDES loan agreement from a total available amount of $140 million. The debt breakdown by category and currency is shown on the lower left side of the slide. As of December 31, the average maturity of our total debt was 5.4 years. On the right side, we see net debt decrease compared with the previous quarter, reflecting the improved results of our operations and cash generation. Our leverage measured by the net debt to adjusted EBITDA ratio also decreased to 2.29x as a result of higher adjusted EBITDA and lower net debt. Now moving on to Slide 18. In response to the COVID-19 outbreak and our focus on preserving cash, we decreased our investments in 2020, we invested $354 million in CapEx, and we have accrued $18 million in tax credits with respect to our ongoing investment. Consequently, total CapEx in 2020 amounted to $336 million. The Aripuanã project amounted to $187 million, which is 55% of total CapEx. Sustaining investment, including HSE's expenses, amounted to $115 million, below our historical levels as we maintain only the essential investments to operate safely. For 2021, we expect CapEx of $450 million. We estimate to invest $232 million to continue developing Aripuanã, and we expect to resume our sustaining and HSE investment similar to pre-pandemic levels in order to continue building a sustainable long-term business. In terms of mineral exploration and project evaluation in 2020, we invested $54 million. For 2021, we will resume our mineral exploration and project evaluation investments as we will continue our efforts to replace and increase mineral reserves and resources, supporting our business growth. We estimate here a total investment of $71 million. In addition, we expect to invest $9 million in technology and contribute $10 million to our host communities. We invest in education, training, and we try to employ and contract local services, supporting their social and economic development. Turning now to the next slide, Slide 19. On this slide, we present Nexa's free cash flow generation. During the quarter, we generated $132 million. Describing it further and starting from our $167 million adjusted EBITDA, we had an $89 million gain in working capital, which similar to the last quarter, was mainly as a result of increased average supplier payment terms and income tax payable, partially offset by sustaining CapEx, interest paid and taxes. Still, Nexa has generated $187 million of cash flow before expansion projects during the fourth quarter. Nonsustaining CapEx, which includes mainly our expansion projects in Aripuanã, amounted to $58 million. Finally, during the quarter, we had a positive net impact from the loans and financial investments of $66 million, partially offset by $53 million of other non-operational expenses, resulting in the final cash flow generation of $132 million. Now moving on to Slide 20. On this slide, we present Nexa's free cash flow generation for the full year. In 2020, we generated $388 million, starting from $403 million EBITDA, we generated $92 million from working capital gains, partially offset by $123 million of sustaining CapEx and another $71 million of interest paid in taxes. Still, Nexa has generated $280 million of cash flow before expansion projects, with nonsustaining CapEx, which includes mainly our expansion projects in Aripuanã, amounting to $201 million. Finally, during the year, as I mentioned earlier, we proactively managed our liquidity position by raising additional debt, which combined with the healthy cash flow generation from our operations, resulted in the final $388 million cash generated for the full year. I will now hand the call back to Tito. Tito, please.

Thank you, Menck. Please move to Slide 22. Here, we will make some comments about the market fundamentals. During the quarter, zinc prices were up by 10% compared to the fourth quarter of 2019, down 13% from the third quarter of 2020. This increase was mostly driven by strong economic activity in China, whose investments in infrastructure continue to contribute to zinc demand, and due to a weaker U.S. dollar. In terms of market fundamentals, most mines in China and Latin America have resumed activities in the second quarter of 2020. But concentrate supply has not been sufficient to meet the improved demand from the smelters, particularly in Asia. We can see it clearly by the current level of the spot TCs. In terms of our home market, Latin America, zinc metal demand recovered after the decrease in the second quarter of 2020. Demand has been recovering, mostly driven by a mix of pent-up demand, stock replenishment, and fiscal stimulus, particularly in Brazil. In addition, the updated long-term balance between supply and demand shows that the previously estimated increase in supply should be lower than forecasted, meaning market balance should remain tight. So in our view, metal prices have the fundamentals to remain at higher levels. Moving to Slide 23. On this slide, we present the performance of other metals, lead, copper, and silver had a strong performance in the fourth quarter of 2020. Similar to the zinc price, the increase in metal prices from the third quarter levels was driven by a weaker U.S. dollar and a positive outlook for global growth. For 2021, the outlook is positive, given how economies have responded to the barriers and economic stimulus packages. The U.S. dollar performance should also continue to impact base metal prices. Obviously, COVID-19 remains a risk factor in this scenario, and we will continue to evaluate its development and the measures adopted to mitigate the virus spread, including worldwide vaccination. Moving now to our last slide. We have delivered a strong operational result, overcoming the challenges and restrictions imposed by the COVID-19 global outbreak. The performance in the second half of the year demonstrates the resilience of our business, the contribution of the Nexa Way program, and the commitment of our team to operational excellence and their enthusiasm to transform. As I mentioned in my previous slide, COVID-19 remains a risk factor, and we will continue to evaluate the impact on our value chain. The Peruvian government recently announced a new quarantine period in the country that should last until mid-February. Different from last year, mining and smelting operations were not suspended. We remain confident that the demand for our products will continue to recover. Next, we will maintain our priority on capital discipline and cost control. We believe we have an attractive pipeline of projects, and we have been preparing ourselves to generate long-term value, building the mine of the future. Thank you all for your time, and let's move on to the Q&A session.

Our first question is from Carlos De Alba from Morgan Stanley.

The question I have, Tito, is if you can clarify a bit about the Nexa Way. It seems you believe that EBITDA was positively affected by almost $100 million in 2020. You project a $100 million to $120 million annualized benefit by the end of 2021. Is this incremental, meaning an additional $20 million in 2021, or does this represent the full $120 million benefit throughout 2021? Furthermore, regarding the additional measures or initiatives identified after COVID-19, which you estimate will provide a $60 million benefit in 2021, is this in addition to the previously mentioned $120 million benefit by the end of 2021, or is it included within that figure?

Thank you for your question, Carlos. It's a very good question. The Nexa Way needs to be explained and aligned with our previous disclosures, which is why we have this breakdown. From the $120 million forecast we provided mid-year, we have already captured $98 million. This amount relates to fees we paid back in 2019. We are on track with the $120 million. After the program officially ended, which we communicated in our second-quarter call, we identified additional initiatives that could add roughly $3 million to $10 million in G&A, resulting in increased EBITDA. These new initiatives could generate up to $60 million. To answer your question, yes, the $120 million target is set for the end of 2021, and of that, $98 million is already reflected in our results for 2020. Thus, it's included in our presented EBITDA. Additionally, alongside the $20 million, we anticipate another $22 million, and we expect to create an additional $60 million. You are correct in your understanding, and I hope I have answered your question.

Yes. This is very good. And this SG&A, the $3 million to $13 million temporary increase in SG&A. Will it happen mostly in the first quarter? Or how should we allocate this in the first half of the year?

The amount will depend on the performance of the initiatives, which are expected to take place in the first half of the year.

Let me add something here, Carlos, thanks for your question. I think it's important to know that the Nexa Way's ongoing programs are about creating initiatives. This means we can generate more productivity and cost reductions or enhance our performance. Naturally, this could lead to higher expenses. If that occurs, we will have an opportunity to communicate with the market and provide guidance on the situation.

All right. Understood. And then just my final question is if you can comment on your expectation for TCs in 2021?

It's a trillion-dollar question. We've got nobody.

What I have you.

In 2019, I attended a conference where everyone was inquiring about the TCs, and I made a prediction that turned out to be correct. This year, the situation is different. Currently, TCs remain very low, under $100 in Asia. At one point last year, they nearly reached zero in some cases. We estimate that the benchmark might rise to around $150, but it's hard to be exact. We have observed a significant decrease from $300 to $150, but being precise is quite challenging.

The next question is from Timna Tanners from Bank of America.

I wanted to follow up on two points. First, regarding the dividend payment of $35 million for March, which is down from $50 million the previous year. I'd like to hear your thoughts on how that amount is determined, especially since the market conditions appear to be improving and you’ve mentioned having a stronger balance sheet. The second question is about capital allocation. Can you provide more insight into how you evaluate the projects currently in your pipeline? It seems there are several on hold, so what factors influence your decisions to restart them?

Thank you for your question. The dividend payment of $35 million reflects a current dividend yield of a bit above 2.7%. Last year, the $50 million dividend represented 4.5% at that time. When we approved our dividend last year, we had a positive outlook, although COVID was starting to have an impact. This year, we have consistently paid dividends and have a minimum target yield of 2% according to our policy. Despite the challenges last year, we successfully managed our costs and achieved profitability by year-end. We anticipate a strong year ahead, as our operations are performing well, we are keeping costs under control, and our revised project at Aripuanã is progressing. Thus, we believe this dividend level is sustainable.

Okay. Great.

Is it clear?

Yes. And then on the projects, if you wouldn't mind, yes, that's clear.

Yes, Timna, it's Tito here. Our plans for the year include completing Aripuanã. If everything proceeds as expected, we should commence production between the last quarter of this year and the first quarter of 2022. Following Aripuanã, we are focused on Magistral, where we will conclude the feasibility study, FEL3, in 2021. As we've mentioned before, we will not initiate a new project until we finish the one we are currently developing, which is Aripuanã. Magistral will be developed afterward, and we anticipate a good return after completing Aripuanã. We will have time in 2021 to finish it properly and continue working on the project to mitigate risks before deciding whether to move forward, likely starting in 2022. We are also drilling Hilarion and are confident it will be a strong zinc asset for future production, potentially replacing Hilarion down the line. Regarding the other two projects, Puka and Shalipayco, we halted development last year due to market conditions and the lockdown situation in Peru. I believe we should revisit these projects once we see more market stability. We have taken a conservative approach to avoid investing further in new projects until we confirm that our cash generation is stable, which seems to be returning now. So, optimistically, we should see progress on those projects between 2021 and 2022.

Yes. The copper price has shown stability. It seems like you might be referring to the ability to operate in your regions or COVID-19.

Not on the copper. Zinc as well. Not copper only, but zinc as well.

Right. Right. So the price is there, but you're looking for other factors, I guess?

I'm sorry, say again.

I was saying the price has been accommodating, right? The price of the commodity is positive. So it looks like you just want more evidence or more evidence of the ability to operate given COVID-19.

We are currently operating at normal levels everywhere. COVID has no longer impacted us, but there remains uncertainty regarding external factors, such as government-imposed lockdowns and potential contamination of contractors and employees. We need to see a return to a more normal life, which would be beneficial.

The next question is from Daniel McConvey from Rossport Investments.

I have a question about COVID, which has three parts. First, regarding your forecast for 2021, did you experience any lingering effects from 2020? Specifically, how much did maintenance and stripping catch-ups influence your forecast for 2021? Second, what challenges are you currently facing in your operations, both in smelting and mining, due to COVID? This includes difficulties in obtaining the right resources, technical skills, and personnel, especially across borders in Brazil and Peru. Lastly, as a result of the crisis, are there any changes you're making that are leading to productivity increases?

Thank you for your questions. Menck, do you want to answer the first one about the guidance? The catch-up?

Yes, yes, please. Daniel, thank you for your questions. About this cost hangover, as you called it, actually, for the estimate we have for the year is pretty much covering the continuous protocols that we have in place, considering that these health protocols will be maintained throughout the year for the whole year. So we are not considering under any circumstance the reduction of those protocols due, for example, to broad vaccination. So these are the additional costs. In terms of the costs on the operational side, I believe, once we had the ramp-up in the middle of the year, we came back to the normal course of business.

I would like to add that we have some CapEx from 2020 that we had to delay due to the issues we faced during COVID. We are planning to carry out some of the sustaining CapEx this year. Regarding the difficulties, my main concern in our operations in Brazil and Peru is the well-being of our employees and contractors. We have established various protocols depending on our operational locations, and we need to adhere to these. A significant concern is related to our operation sites, where we ship every 14 days. Employees stay home for 7 days, and we test them when they return. A major issue we faced last year during our ramp-up was the availability of personnel. For instance, in early August, we needed to bring 1,200 people to the site, but only 700 were able to come as the other 500 tested positive. This illustrates our primary operational concern and the ongoing impact of COVID. As for changes we are implementing, we are still working from home and have decided against bringing everyone back to the office post-pandemic. Previously, some of the team could work from home but not regularly; now it will be a standard practice. This will help us save on real estate expenses. We are also looking at travel improvements to minimize trips. Although we do not yet have specific numbers on savings since we are still operating within the pandemic, our goal is to adopt what we have learned during this time.

I guess it's kind of surprising that with all the constraints of last year that getting 700 employees to site versus 1,300, whatever the number was, some things weren't dropped, it had kind of a catch-up this year, but it's pretty impressive if things are recovering that smoothly.

The next question is a follow-up from Carlos de Alba from Morgan Stanley.

Tito and Rodrigo, so given where copper prices are and obviously, fiber and lead alone. If your cash flow generation is strong, would you consider paying a special dividend or another dividend throughout the year?

Good question, good question.

It's a great question, but our dividend policy currently states that we pay once a year. So we do not forecast at this point in time to pay anything in addition to the payment that we are announcing now.

All right. Well, hopefully, you guys deliver on the top end of your guidance and you saw practice with a dividend later in the year.

We believe that if prices stay elevated throughout the year and we can meet our production goals, we will generate additional cash. However, we still need to address the debt we incurred last year due to those prices. Our aim is to return to our previous level of indebtedness, so managing that debt will be a priority.

In conversion, the levels of leverage that we have before the investment.

The next question is from Orest Wowkodaw from Scotiabank.

I wanted to ask you about Cerro Lindo. In my view, it's your biggest and most important asset in the portfolio. Based on kind of 2019 reserves, I think that mine looks like it's going to deplete around 2027, '28. I'm just wondering if there's going to be a focus on trying to grow those reserves to extend that mine life. And sort of what kind of focus is that going to have over the next couple of years?

Thank you for your question, Orest. You are correct that Cerro Lindo is our primary asset. Over the past few years, we have experienced a decline in grades, which has made production more challenging because we need to increase throughput to maintain previous production levels. Simultaneously, we have been investing a significant amount of money in drilling to expand the resources and reserves available. Looking back three or four years, we had a similar price profile, and the life of mine was forecasted to be between 7 and 9 years. Today, as you noted, we are forecasting an 8-year life of mine. Our efforts to increase resource availability have been successful, as we are producing and creating opportunities to enhance the potential life of the mine.

Do you see a significant upside to the current life of mine? Or should we consider the possibility of extending it by a few more years? Or do you believe it is actually stable here?

The challenges we face are related to the drilling being conducted all around the site. It's essential to develop the mine further to gain better insight into the resources available. We have implemented two types of drilling: one that follows the growth of the mine along its path, and external drilling, which limits our ability to identify additional resources. I believe that Cerro Lindo will have a longer lifespan than anticipated because it is rich in resources. However, we will encounter significant challenges in 5 to 10 years regarding our ability to generate more run of mine to maintain current production levels due to a decline in grade.

There are no more questions in the queue. This concludes our question-and-answer session. Now we will hand over to Tito for his final remarks. Mr. Martin, please go ahead.

Thank you. I would like to thank...

Sir?

Just 1 second. I would say, as we didn't have a specific question, I'll take the opportunity to clarify something on the smelting segment cash costs. One about the quarter and one about the year impact. And although the year cash cost is mildly above the guidance that we gave for the year, it was 4% above. It increased much less than proportionally to the zinc price increase, which is the factor that impacts the most of cash cost, which was 17% higher against our initial estimate. So we were estimating $0.99 per pound, and the zinc price at the end was $1.16 per pound. So the difference was pretty much the operational cost efficiency that we have been disclosing and existing that we are focusing on. The second comment is on a quarterly price basis, although the yearly basis price effects tend to be neutral as we try to show on Slide 16 of our presentation. On a quarterly price basis, the price volatility might cause the kind of cash cost variation you saw between the third quarter and the fourth quarter, due mainly to mark-to-market and QP setting effects as we have opened invoices, both on the side of concentrate purchase and the metal sales. So sometimes, when you see this type of variation, it's not only that the costs have jumped, but also this price effect. It's good to have it in mind when we are talking about the quarterly evolution. Thank you for the opportunity. And Tito, please, back to you.

Thank you, Menck. I appreciate everyone being here. I want to highlight that our views differ from some analysts. We found 2020 to be a surprising year for us. Despite the challenges we faced in the first half of the year due to the lockdown in Peru, the year concluded on a very positive note, surpassing 2019. This improvement was largely driven by price increases in the second half of 2020, along with cost reductions and enhanced productivity. The Nexa Way is proving effective and yielding positive results, and we are pleased to see this progress. Despite ongoing COVID impacts, we remain optimistic for a more stable and efficient year in 2021. Thank you for joining us, and I wish everyone good health and safety. Let's aim for a better 2021. Thank you. Goodbye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.