Nexa Resources S.A. Q4 FY2022 Earnings Call

Good morning everyone and welcome to Nexa Resources Fourth Quarter and Full-year 2022 Conference Call. All participants will be in listen-only mode. This event is being recorded and 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. 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 Ms. Roberta Varella, Head of Investor Relations, for opening remarks. Please go ahead.

Good day and good afternoon, everyone, and welcome to Nexa Resources fourth quarter and full-year 2022 earnings conference call. Thanks 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 2, as we will be making forward-looking statements about our business, and we just ask that you refer to the disclaimer and the conditions surrounding those statements. It is now my pleasure to introduce our speakers. Joining us today is Ignacio Rosado, our CEO; Jose Carlos del Valle, our CFO; and Leonardo Coelho, our Senior Vice President of Mining. So now I will turn the call over to Ignacio for his comments. Ignacio, please go ahead.

Thank you, Roberta, and thanks to everyone for joining us this morning. Please let’s move now to Slide number 3, where we will begin our presentation. Let me begin by saying that despite a very challenging environment with significant volatility in commodity prices and ongoing inflationary cost pressures, we are pleased with our fourth quarter and full-year operational performance. I’m closing my first year as CEO of Nexa and I’m very proud of the important work we have done throughout 2022. I would like to reflect on some of the key accomplishments of the year. We deployed a set of initiatives and new ways of working, better streamline our corporate structure, and supported our strategic priorities. We achieved our operational guidance in all metrics. Mining production was close to the upper range, while metal sales were at the high-end, exceeding the guidance range. Mining cash cost was in line with guidance, and smelting cash cost was slightly below guidance. Aripuanã's ramp-up has continued to progress, and the fourth quarter marked Aripuanã’s first revenue. We are also pleased to inform that we processed zinc in concentrate from Aripuanã at our smelter in Brazil. The average capacity of the plant at the beginning of February is above 60%, and our exploratory drilling activities in this mine also indicated a potential increase in mineral reserves and resources. Another important milestone here is the adjusted EBITDA achieved by our operations, which was $120 million in the fourth quarter and a record high of $760 million for the year. Cash flow generated from operations in 2022 before expansion was $285 million. And I would also like to emphasize our strong balance sheet with a solid cash position, almost $820 million and a net debt-to-EBITDA ratio of 1.5 times. All these achievements reaffirm our commitment to disciplined capital allocation and positive cash flow generation. Now moving to Slide Number 4. In Slide Number 4, regarding the operating performance of the Mining segment, you can see that zinc production in the fourth quarter decreased to 75,000 tons, down 8% year-over-year and 2% quarter-over-quarter. This decrease was mainly explained by the consolidated lower zinc head grade in our mines. In 2022, zinc production totaled 296,000 tons, 7% lower than in 2021, due to lower ore throughput in Cerro Lindo that was impacted by COVID at the beginning of the year, and also lower throughput in our Vazante mine impacted by heavy rainfall levels also at the beginning of the year. In relation to cash costs, mining cash costs in the fourth quarter of 2022 decreased to $0.20 per pound compared to $0.25 per pound in the fourth quarter of 2021 and $0.57 per pound in the third quarter of 2022. In both cases, the decrease is mainly explained by higher by-products' contribution. For 2022, cash costs achieved guidance increased to $0.28 per pound compared to $0.21 per pound in 2021. And this was mainly driven by lower zinc volumes and higher TCs, which were partially offset by higher by-product grades. Now moving to Slide Number 5. In Slide number 5, regarding the operating performance of the smelting segment, metal sales totaled 167,000 tons in the fourth quarter of 2022, up 6% from the fourth quarter of 2021 and up 3% from the third quarter of 2022. This increase was mainly driven by higher production volumes and solid demand in our markets. In 2022, metal sales totaled 616,000 tons, down 0.4% compared to 2021. With respect to cash cost in the fourth quarter of 2022, smelting cash costs decreased to $1.20 per pound, compared to the $1.28 per pound in the fourth quarter of 2021. This decrease was mainly driven by lower LME prices, higher TCs, and higher by-product contributions. When we compare the fourth quarter of 2022 with the third quarter of 2022, cash costs decreased by $0.16 per pound, due to lower LME prices. The full-year cash cost in 2022 was $1.34 per pound, compared to the $1.13 per pound in 2021. This increase was due to higher LME prices, which affected our raw material costs and higher operating costs explained by inflation and negative FX in Brazil. And these two factors were partially offset by higher by-products' contribution. For 2022, cash costs were below our annual guidance of $1.37 per pound. Now please let’s move to Slide Number 6. Ramp-up activities at Aripuanã mine are progressing and we have continued to focus on increasing the plant throughput rate, increasing asset reliability, and improving concentrate grades. The meeting capacity utilization reached 53% in December of 2022, compared to 32% at the end of the third quarter of the same year. At the end of December, there were approximately 600,000 tons of ore available in stockpiles, which will help with the ramp-up activities. Underground activities continue to focus on developing and preparing new areas for mining operations. In March 2023, you should see an increase in reserves and resources where we will publish our new inventory. In relation to CapEx during the last quarter of 2022, we invested $6 million in Aripuanã, totaling $66 million in CapEx in 2022 for a cumulative CapEx of $632 million since the beginning of the project. It is worth mentioning that in 2022, FX had a negative impact of $5.5 million. Now, moving to the next slide. In Slide Number 7, we are pleased to inform you that at Aripuanã we started to sell concentrates within market specifications, and we achieved our first revenue at the end of the fourth quarter of 2022 with an increase in sales plan for the first quarter of 2023. In addition, zinc in concentrate from Aripuanã has been processed at our Juiz de Fora smelter in Brazil. The capacity utilization rate at the beginning of February is over 60%, and we expect to achieve full capacity in the second half of 2023. Now moving to Slide Number 8. In 2022, we executed over 115,000 meters of exploratory drilling in all of our mines and projects, and over 140,000 meters in operational infill drilling. At Cerro Lindo, the Puka Saya mineralized body continued to be extended to the southeast with good results. At Vazante, the Brownfield exploration focused on expanding existing mineralized zones in a northern extension of the mine. At Aripuanã, we achieved outstanding results in our Brownfield program with infill drilling confirming thick and high grade mineralization, which is supporting the increase in mineral reserves and resources. Regarding the Pasco complex, the results of the Porvenir mine and the Puka Saya mine confirmed the continuity of mineralization, which has the potential to extend the life of both mines. The drilling campaigns in our Greenfield projects Ilario and Namibia also presented solid results. Now, I would like to turn over the call to Jose Carlos del Valle, our CFO, who will present our financial results. Jose, please go ahead.

Thank you, Ignacio. Good morning and good afternoon to everyone. I will continue on Slide 9. I’m pleased to report solid financial results for the full-year 2022. As you can see, beginning with a chart on your upper left, total consolidated net revenue for the fourth quarter increased by 15% year-over-year, due mainly to higher metal sales. Compared to the third quarter of 2022, net revenues increased by 11%, mainly driven by the mining sector. Looking at the full-year in 2022, consolidated net revenues reached $3 billion versus $2.6 billion in the same period last year, an increase of 16% primarily due to higher prices. In terms of adjusted EBITDA, consolidated adjusted EBIT in the fourth quarter of 2022 was $120 million, compared to $153 million in the fourth quarter of 2021 and $121 million in the third quarter of 2022. For the full-year, consolidated adjusted EBITDA increased by 2% to $760 million, the highest annual adjusted EBITDA ever achieved by Nexa. In relation to these figures, it is important to mention that in December 2022, Nexa revised its adjusted EBITDA definition aiming to provide a better understanding of its operational and financial performance. Prior period comparatives have also been adjusted based on the updated definition. We now move to Slide 10, where I will explain our results in further detail. In the mining segment, net revenues for the fourth quarter of 2022 totaled $350 million, down 3% versus the same period of last year. This is explained mainly by higher TCs and lower LME base metal prices. These negative effects were partially offset by higher copper, lead, and silver volumes. For 2022 as a whole, net revenue for the mining segment totaled $1.25 billion compared to $1.16 billion a year ago, mainly due to higher zinc LME prices and the increase in copper, lead, and silver volumes. Regarding adjusted EBITDA on your upper right, fourth quarter adjusted EBITDA for the mining segment was $78 million, a reduction of 36% year-over-year mainly driven by lower prices and higher TCs. We also started recording the sales of Aripuanã in our results, which still have a higher unit cost. This resulted in a negative impact of $14 million. Compared to the third quarter of 2022, adjusted EBITDA increased by 22%, mainly driven by higher prices and higher by-product contributions. Finally, adjusted EBITDA for the mining segment in 2022 was $440 million compared to $477 million last year, mainly due to increases in operational cost and also the Aripuanã effect. Switching over to the Smelting segment, net revenues in the fourth quarter totaled $606 million, an increase of 19% versus the fourth quarter of 2021. This improvement is due mainly to higher sales volumes. Compared to the third quarter of 2022, net revenues decreased 1%, mainly due to lower metal prices. Now for the full-year 2022, net revenue for the Smelting segment totaled $2.5 billion compared to $2 billion in the same period of last year, mainly due to the increase in zinc metal prices. When we look at adjusted EBITDA for the fourth quarter of 2022, we see that the Smelting segment reported $46 million, up 44% from the fourth quarter of 2021. This is explained mainly by higher decrease and an increase in by-product contribution of $19 million. Compared to the third quarter, adjusted EBITDA for the Smelting segment decreased by 21%, mainly explained by a non-cash impact of $40 million related to the update of environmental liabilities and related provisions in Brazil. Finally, the Smelting segment’s adjusted EBITDA for the full-year 2022 totaled $326 million, compared to $271 million a year ago. This is an increase of 20%. Now let’s move on to Slide Number 11. For 2022, starting from our $760 million of adjusted EBITDA without Aripuanã expenses and investments, we can see that cash flow provided by operations before working capital changes was $806 million. We then paid $229 million related to interest and taxes and $234 million in sustaining CapEx for our current operations. We also paid dividends of $75 million, including the amount distributed by our subsidiary Pollarix. Additionally, we invested $41 million in non-sustaining CapEx. In relation to Aripuanã, we invested approximately $226 million, including CapEx, pre-operating expenses, and working capital. It is important to mention that in 2022, we had a negative net effect of $70 million, due to the early redemption of our 2023 notes, which was partially offset by a new export-grade facility. Foreign exchange effects on cash and cash equivalents were a positive $60 million. Finally, there was a working capital variation of $136 million, mainly due to higher LME prices on inventories and lower outstanding amounts of accounts payable. With all the effects presented in this slide, 2022 free cash flow was negative $246 million. Now for 2023, we are confident with the completion of Aripuanã’s ramp-up and a number of cash innovation initiatives, we will make a strong contribution to the company’s free cash flow generation. Now let’s move to Slide 12. In this slide, you can see that our liquidity remains strong and that we continue to report a healthy balance sheet with an extended debt profile. By the end of 2022, our current available liquidity was approximately $816 million, including our undrawn revolving credit facility of $300 million. It is important to mention that as of December 31st, the average maturity of our total debt was 4.6 years, with a 5.3% average cost of debt. Finally, our leverage measured by the net debt to adjusted EBITDA ratio was 1.5 times compared to 1.4 times at the end of the third quarter and to 1.3 times a year ago. Now moving to Slide 13 to discuss market fundamentals. As you all know, we had high volatility in base metal prices during the year due to a number of macroeconomic factors. Despite this during 2022, zinc was one of the most resilient metals, registering a price increase of 16% compared to 2021. Although we expect zinc prices to remain relatively high in 2023, we expect that prices will be lower compared to 2022, as they continue to be driven by investments in the infrastructure and construction sectors. Regarding copper prices in 2022, they decreased by 6% compared to 2021, partly affected by the expectation of a potential slowdown in global economic growth and of a higher supply in the short term. Going forward, electric vehicle production and renewable energy projects are the main drivers for copper demand. Overall, the outlook for zinc and copper in the mid to long term remains positive and is supported by solid market fundamentals.

Now moving to Slide 15, we are going to talk about the mining segment. As we show here for 2023, zinc production at the mid-range of the guidance is estimated to increase by 11% from 2022, mainly driven by additional production from Aripuanã. In general, zinc production is expected to increase in all of our mines except for Cerro Lindo due to lower head grades. For 2024, zinc production is estimated to increase by 6% with a further 2% in 2025 over 2024. In 2023, corporate production at the midpoint of the guidance range is forecasted to increase by 1% on average compared to 2022, also mostly driven by Aripuanã. Before decreasing in 2024 as we expect to access lower grade copper areas. This is in line with a mine plan. Lead production follows a similar upward trend and is expected to increase by 10% in 2023 versus 2022, with further increases of 10% and 8% in 2024 and 2025, respectively. Consolidated 2023 run-of-mine mining costs at the mid-range of the guidance are estimated to increase by 2% year-over-year, primarily driven by Vazante due to scheduled trunnion maintenance, in addition to expected higher energy prices and inflationary pressures on costs. In terms of cash cost, which does not include Aripuanã, we estimate mining cash flows between $0.49 per pound and $0.54 per pound in 2023, compared to $0.28 per pound in 2022. The main reasons for these are, on one hand, ongoing inflationary cost pressures, and on the other factors like higher TCs, lower by-product credits as we assume lower base metal prices compared to 2022, and also a decrease in zinc volumes from our current operations without Aripuanã. Turning now to Slide 16 to discuss three-year guidance for the smelting segment. For 2023, it is important to mention that metal sales at the midpoint of the guidance range are estimated to decrease by 4% compared to 2022. As these estimates do not assume the resale of material from third parties, for the forecasted periods, the smelters are expected to operate at normal levels, and sales are expected to be similar to production levels. In terms of conversion costs, we estimate smelting consolidated conversion costs to increase slightly, mainly due to inflationary cost pressures and higher energy costs in Brazil. On the other hand, consolidated smelting cash costs in 2023 are expected to decrease year-over-year, primarily due to an estimated decrease in zinc prices and higher TCs, which should be partially offset by lower by-product rates. Next, before moving forward, I would like to discuss energy in some more detail. As most of you are aware, we consolidate our Pollarix subsidiary in our results. Pollarix is responsible to supply energy for our operations, and it has an equity interest in several power plants in Brazil, one of them being Enercan. In November, Enercan's capital structure changed, and as a result, we lost the joint control we had in the past. Consequently, we have stopped recognizing Enercan’s proportional results in our numbers; we will still receive dues, so this will have no impact on our final result, but it will have an impact on our mining and smelting costs, which will increase in comparison to 2022. Finally, turning over to my last slide on investment guidance. For 2023, we expect CapEx of $310 million, sustaining investments are expected to total $268 million, with mining accounting for $194 million, including $52 million from Aripuanã, and smelting accounting for $64 million. In the mining segment, the majority of sustaining capital expenditures, around $79 million, are for underground mine development, and $54 million for the tailings storage facility. In terms of mineral exploration in 2023, we estimate a total investment of $55 million, also down compared to 2022. Finally, project evaluation investments are estimated at $55 million, mainly driven by the Tres Marias facility project of $20 million and $28 million related to corporate IT, potential growth projects, and various other projects across our business units. I will now hand the call back to Ignacio for his final remarks. Thank you, Jose Carlos. I would like to close this presentation by briefly reinforcing our priorities. This year, we have been able to consistently perform and deliver strong results with operational flexibility and a rigorous discipline in costs and investments. Nonetheless, we are aware that uncertainty in today’s economic landscape is likely to extend into the entirety of 2023 affecting the demand for our products as well as putting pressure on our costs. In Nexa, we will remain focused on optimizing costs OpEx and CapEx to properly navigate the current environment. With respect to Peru, despite the current political instability, we believe we have strong relationships with our host communities, which will continue to support our operational objectives. We also go into 2023 with a strong balance sheet. We will keep delivering based on our purpose, executing on our ESG strategy, and advancing the many initiatives we have underway throughout 2023. Finally, I would like to emphasize that we remain confident that our long-term dynamics of our industry are promising, as the fundamental value for zinc and other base metals is robust. Thank you all for attending the presentation. With that, we will be happy to take your questions.

Thank you all for attending the presentation. We will keep delivering based on our purpose, executing our ESG strategy, and advancing the many initiatives we have underway throughout 2023. I would like to emphasize that we are confident in the long-term dynamics of our industry, as the fundamental value for zinc and other base metals remains strong. We are now happy to take your questions.

So we have one question here from the web: When is the commercial production of Aripuanã expected to begin?

Okay. Thank you, Roberta. This is Ignacio Rosado. As we said in the presentation, Aripuanã reached a 53% capacity in December, 60% capacity in January, and more than 60% in February, and we started transporting commercial concentrate from Aripuanã in January. So officially, Aripuanã has been in commercial production since January. We are expecting, as we said in the call, that in the second half of this year, we will be at full capacity and we can comment more during the coming months.

So the next question from the web is from Hernan Kisluki from MetLife. The cost guidance for 2023 includes a 2% increase in ROM but an 84% increase in cash costs. Is the difference contributed to lower by-product prices or are there other factors?

Thank you, Roberta. In relation to this question, I would first say that our focus is to control costs in all the aspects that are under our control, and that is reflected in the 2% increase in the mining cost of ROM, which is what we can control. In terms of the mining cash cost, it is mainly related to our assumptions regarding by-product contributions, the trades, and slightly lower production in zinc, noting to Aripuanã from the existing mines. So the focus continues to be on controlling our costs, the ones that we can control. The others are based on assumptions.

A continuum from the web. What is the expected contribution to EBITDA for Aripuanã in 2023 and 2024?

Yes. So again, the Aripuanã ramp-up is going really well. However, as you may know, during the ramp-up period, things move forward, and it is difficult for us to predict what is going to be the EBITDA for the rest of this year and 2024. As I said, Aripuanã will be at full capacity in the second half of this year. So in the coming months, we can give you more guidance on the progress of Aripuanã. But today, I would say it is early to project an EBITDA for this year and the following one.

And everyone, we do have a question from the audio side from Jens Spiess from Morgan Stanley. Please go ahead with your question.

Hello. Thanks for taking my question. I guess, along those lines, I just wanted to ask, why didn’t you include Aripuanã in your cash cost guidance and run-of-mine cost guidance for 2023, considering that you will have considerable volumes coming from that mine? And secondly, looking at your cash flow statement, you had around $18 million of accruals and impairment. Could you maybe elaborate on what those are related to? And how much are accruals and how much are impairments?

So Aripuanã is not included in the cash flow guidance because, as I was saying, during the ramp-up period, we are adjusting our concentrate plant, and this is a process. As I was saying, we are at 60% capacity, and in the coming months, it's going to go up. So it is very difficult to predict what is going to be the cash cost of Aripuanã because it is in the ramp-up. In the coming months, when we stabilize the plants, and we reduce all the costs that we are improving right now because of the ramp-up, we can give you more flavor on Aripuanã. And that is why we couldn’t include that in the guidance. Regarding the second question, I’m going to turn it to Jose Carlos to answer that question.

Yes. I didn’t hear you very well. Could you please repeat? I know you are referring to the cash flow, right?

Exactly. The cash flow from operations where you reported a cash out back into accruals and impairments. I think it was $82 million. Just want to understand what that is related to and how much is actually accrual and how much is impairment?

From what I can remember, in terms of impairments, there are a number of things, mainly two factors. There is an impairment reversal related to Cerro Pasco based on the new scenario that we use to evaluate the assets. This has to do with something that we have mentioned before related to the future of Cerro Pasco and the potential integration of El Porvenir and Atacocha. In terms of impairments, we did a write-down of Shalipayco and Puka at the end of this year, which had a net effect combined with the impairment reversal related to Cerro Pasco. I’m not sure if that answers your question.

Yes, I mean, you have two lines. One says impairment loss of long-lived assets is $32.5 million. I guess that is what you are saying.

Yes. That is really tied to that type of improvement.

And then there is a second line that says changes in accruals and other asset impairment that is $84 million. So just want to understand. It is different.

Yes. Cerro Pasco's impairment reversal was about $82 million if I remember correctly.

Okay. Alright, thank you.

Thank you.

We do have an additional question from Alexandra Andrade from JPMorgan.

Thank you so much for taking my question. Just a quick one for me. Would you be interested at all in looking at M&A possibilities to increase your zinc production there? There have obviously been headlines over the new asset that will be for sale. So just curious to see what you think there?

Thank you, Alexandra. Actually, we are actively looking for opportunities in zinc and copper in various jurisdictions. Peru is going through a difficult situation today. As you know, we have a very good portfolio of gold market standards, for example. So we assess the projects and the operating mines there. But in Peru today, as you know, we have to be cautious about the country. Given that our concentration, we have spent a lot of CapEx in Aripuanã, and our focus today is to make sure that the Aripuanã ramp-up continues to progress very well. We are concentrating our efforts today on making sure that this happens and also in increasing the production, especially in our Pasco complex. So today, even if we are actively looking for opportunities, we are cautious about things.

Continue the questions from the web. We have here one from Victor Vidal. Hi, Ignacio. Thanks for the opportunity and congratulations on the results. I have two questions. The first one with regard to Aripuanã volumes. The guidance for 2022 was not achieved and compared to the technical report, I have the impression that metal volumes in the new guidance for 2023, 2025 are below the potential and also below the last guidance. Are you being more conservative, or was there a significant change in the mine exploration plan? If you are being more conservative, what is the main motive? If there are changes in the mine exploration plan, are these related to a slower ramp-up and less ore being treated or related to lower grades?

Yes, no, I would say that during that period of ramp-up, we are always facing some problems. So far, we don’t have any fatal flaws. As I was saying, Aripuanã is progressing towards being in full production during the second half of this year. However, we have to be conservative in our projections for this year. We are being conservative, but again, it is advancing in a solid way. As we informed in our earnings release, Aripuanã is increasing in its life of mine. The body shows that we can potentially increase reserves by more or less 35%. So with this and the potential that we see in the deposits, we believe that in 2024, we can potentially increase the capacity or the production of Aripuanã. However, this is early days and we prefer to comply with what we see today. That is why we are trying to be conservative. But again, Aripuanã is going through a solid ramp-up period.

If I may also ask about CapEx with regard to Aripuanã, I would like to understand better its sustaining CapEx needs. I noticed you expected an increase in sustaining CapEx in 2022 to 2023 related to this mine. Could you provide more details on this matter and your view on this line going forward?

Yes. We published a number of $54 million in Aripuanã. A part of it is sustaining. Today, it is almost $40 million and $14 million is related to some issues around the tailings. However, it is difficult to say what the sustaining CapEx for Aripuanã will be because we are in the ramp-up period. We have a lot of contractors, and we are trying to ensure that the plant and the mine are ready for full production. So we have some additional costs and CapEx that we are incurring to ensure that Aripuanã is in full production during the second half of the year. Having said that, this $54 million is a number that is going to be optimized in 2024. I believe that during the second half of the year, we can give you more insight into what the sustaining CapEx on a yearly basis will be going forward.

Next question comes from Isabella Vasconcelos from Bradesco. Thank you for all the details. Three questions. Could you remind us please of the TC level expected for 2023? How has the ramp-up of Aripuanã been versus initial expectations? Have there been larger challenges or positive surprises, and regarding capital allocation, is expanding copper production still a strategic focus?

I will start with the last one. The copper production is still strategically important for us. We said that we want to diversify more from zinc. We think it is growing and going in a solid way forward. But we believe that a mix of copper production in our total production is very important. For that, we are looking for many opportunities in different countries. Regarding the TCs, we normally don’t publish TCs. What we can say is that by the end of this year and the beginning of this year, TCs were going up because of the production bottlenecking in Europe due to the energy crisis. So most smelters had issues producing. Today, energy prices are going down, and today China is sort of opening to the world. So the TC levels, we all know what will happen with them. I would say that they were a little bit higher towards the end of the year and this year, it might go down. We don’t know at which level during the rest of 2023. Regarding the third question, I don’t know. Could you repeat?

It was about capital allocation.

Yes. The ramp-up of Aripuanã is very close to what we expected. I guess an important factor to consider in measuring Aripuanã is the rainy season in January and February and part of March. In Aripuanã, this rainy season is very strong, so sometimes it is difficult for us to project the progress curve that is similar to what we have achieved. We had in our plans to reach 70% in February; we are close to that, we're more than 60%. As I said, we don’t see any future flows going forward, so we are very confident that during the second half of this year, we will be at full capacity.

Next question comes from an unidentified analyst from Scotiabank. Can you please update us on the situation of Peruvian operations and if you are seeing any impact of road blockades and protests?

Yes. Peru is going through a very difficult situation in the last two or three months after this political situation has created a lot of noise and a lot of protests in the country. What I can say is that for our operations and with the relationships that we have with entire communities, we don’t see any problems in production interruptions in the coming months. Having said that, blockages on the main highways in the country could affect the production of some of the important miners in Peru. In our case, this hasn’t been the case; only I would say that it could be the case. Given the context of where the government is managing all these conflicts and in light of what has happened in the country, if there are some blockages, I would say that they shouldn’t be material in the projection of our production for 2023. So we don’t expect any material changes. As I said, we are very close to our communities, and we are trying to ensure that is the case in the rest of 2023.

And our next question is a follow-up question from Jens Spiess from Morgan Stanley. Please go ahead with your follow-up.

Just on Aripuanã, considering that you already reached commercial production, should we still expect ramp-up and non-operating expenses in the first quarter, or will that drop to zero and be fully reflected in cost because you already will have sales there? And secondly, do you foresee any impact on your tax rate due to the provisional measure on transfer pricing in Brazil?

Yes. Jose Carlos here. On the first part of your question, going forward, obviously, we will monitor how the ramp-up continues to grow. We will continue to monitor the cost of the concentrates as we have done in the past, and we will be adjusting to the net realizable value if needed. But we expect that the unit costs will continue to go down as capacity utilization increases over time, so we will keep track of that. In terms of mining tax, we have no additional news. There is an impact for our operations in 2023, but that is based on the current information and is not so material, but we don’t have any information on anything additional to that.

Okay, thank you.

Thank you.

We have another question from the web from an unidentified analyst. Good morning. Has your Cerro Lindo operation been affected by ongoing protests in some locations in Peru? Can you please explain how logistics work around the area? How metal is transported and how consumables enter and exit the area?

Alright. Jose Carlos here again. Luckily, we have not been affected directly. Cerro Lindo's location has not been impacted. There have been some blockages on the highway south of where Cerro Lindo is located. Transportation takes place basically by trucks that go and come back from the north. So no impact whatsoever to Cerro Lindo right now. And we continue to expect that to continue with a good relationship with the communities around the operation as well.

Another question from the web from an unidentified analyst. What is the life of mine you feel comfortable with in Cerro Lindo?

The life of mine at Cerro Lindo today, as you can see in the presentation, is seven years. We have been replacing year over year the reserves at Cerro Lindo, and as I was saying, we are exploring Puka Saya Norte in Cerro Lindo and we are having good results. So, so far with this life of mine and the findings that we are having in Puka Saya Norte, we are comfortable with what we have. However, the plan for all of our mines is to prioritize more infill drilling in most mines, so we can extend the life of the mines in all of them. This is something that is reflected in the CapEx we are investing, almost $11 million related to this.

And ladies and gentlemen, with that we will be closing today’s question-and-answer session. I would like to turn the floor back over to Ignacio for final remarks. Please go ahead.

Thank you. Thank you everyone for attending. We look forward to releasing our quarterly results in April. We are very confident that all of our mines and smelters are running in the right direction and we hopefully achieve the guidance in 2023. Thank you again for participating, and if you need to contact us later on with some questions, you can do so by reaching Ignacio Rosado. Thank you again and have a good day.

Ladies and gentlemen, that will conclude today’s conference call. We thank you for attending today’s presentation. You may now disconnect your lines.