Nexa Resources S.A. Q1 FY2026 Earnings Call

Good morning, ladies and gentlemen, and welcome to Nexa Resources First Quarter 2026 Earnings Conference Call. Please note that today's event is being recorded and broadcast live via Zoom with access also through Nexa's Investor Relations website. A slide presentation accompanying the webcast is available for download as well as a replay of the conference call following its conclusion. The operator will now provide instructions. Now I would like to turn the conference over to Mr. Rodrigo Cammarosano, Head of Investor Relations and Treasury, for his opening remarks.

Good morning, everyone, and welcome to Nexa Resources first quarter 2026 earnings conference call. Thank you for joining us today. During the call, we will discuss Nexa's performance as detailed in the earnings release issued yesterday. We encourage you to follow along with the presentation available through the webcast. Before we begin, please turn to Slide #2, which contains our forward-looking statements disclaimer. We ask that you review the information regarding these statements and the associated risk factors. Joining the call today are our CEO, Ignacio Rosado; our CFO, Jose Carlos del Valle; and our Senior Vice President of Mining Operations, Leonardo Coelho. With that, I will turn it over to Ignacio.

Thank you, Rodrigo, and good morning, everyone. Starting on Slide #3, our main highlights. The first quarter of 2026 was a strong start to the year. Adjusted EBITDA more than doubled year-over-year to $283 million with a margin of nearly 32%. Net income was $118 million or $0.67 per share, and net leverage continued to come down, closing the quarter at 1.59x, half a turn lower than where we were a year ago, benefited by a strong last 12 months adjusted EBITDA. Three things drove the results: a constructive price environment across our entire metal mix, most notably silver, where prices averaged 164% above the first quarter of 2025; higher sales volumes in both segments; and operating performance that continues to improve, particularly at Aripuana, which delivered another quarterly production record. The quarter was not without challenges, heavy rainfall at Cerro Lindo, an illegal community blockade at Atacocha and a shaft constraint at El Porvenir, all impacted Peruvian production sequentially. Those issues have been addressed and the affected operations returned to normal run rates. In mining, zinc production reached 79,000 tonnes, up 18% year-over-year, with all five mines benefiting from improved ore grades. In smelting, zinc metal and oxide sales totaled 147,000 tonnes, up year-over-year and quarter-over-quarter, supported by ongoing operational improvements at our Brazilian smelters and continued solid performance at Cajamarquilla. The negative free cash flow in the quarter is consistent with our typical first quarter seasonality, reflecting working capital buildup and tax payments. We expect this to unwind over the coming quarters, reinforcing expectations of strong free cash flow generation in 2026. Let me move to Slide #4 for a closer look at the mining segment. Year-over-year, the 18% increase in zinc production reflects better ore grades across all of our operations. Quarter-over-quarter, the decline was driven by the temporary constraints at the Peruvian mines. Cash cost net of byproducts came in at negative $0.76 per pound, well below our 2026 guidance range, driven by stronger byproduct credits following higher zinc, copper, silver and gold prices. Cost per run of mine was $57 per tonne, in line with guidance. The year-over-year increase was driven by the appreciation of the Brazilian real, higher maintenance costs and higher variable costs in specific operations. The financial picture for the segment is strong. Net revenues of $460 million and adjusted EBITDA of $231 million, translating into a 50% EBITDA margin, the kind of operating leverage we expect when prices and volumes both move in the right direction. On Slide #5, I will talk about Aripuana. Aripuana was the standout asset of the quarter. We produced 13,000 tonnes of zinc, a quarterly record since the operation reached commercial production, supported by higher grades, better plant utilization and improved operational stability. On the fourth tailings filter, construction and installation were completed in late April. Commissioning started in early May and is expected to be concluded in the second quarter. Once fully operational, the filter materially reduces our exposure to weather-driven throughput disruptions during the rainy season. Exploration continued to deliver encouraging results in the quarter. At Massaranduba, we hit a 16.6-meter intercept grading 9.6% zinc and 3% lead, additional confirmation of the long-term potential of the district. Now to Slide #6 for the Cerro Pasco integration project. Phase 1 of the Cerro Pasco integration project remained firmly on schedule during the quarter. We completed a slope stabilization at the construction site, started civil works and structural assembly of the pump building and concluded the manufacturing, testing and packaging of the main equipment, including the thickener and pumps, as you can see in the picture on the bottom of the slide. These are important technical milestones. Looking ahead, we expect civil works to be completed and electromechanical assembly to progress through 2026. Construction is targeted for completion in the third quarter of this year with full project finalization expected in the fourth quarter of this year. We then begin the operating authorization process, which positions the start of the pumping for the second quarter of 2027. On the broader regulatory front, the second MEIA for El Porvenir and the third for Atacocha are under evaluation by SENACE, and we currently expect both approvals in the first quarter of 2027. Preparatory studies for Phase 2, including the Picasso shaft assessment, also continued to advance during the quarter. This is one of the most important strategic levers in our portfolio. The integration extends life of mine at the Cerro Pasco complex beyond 15 years, lifts the average NSR of the life of the operation and consolidates our position in one of Peru's most prospective polymetallic districts. Now on Slide #7, I will talk about our smelting segment. In smelting, zinc metal and oxide sales of 147,000 tonnes were up year-over-year and quarter-over-quarter. The Brazilian units are recovering their production pattern with Juiz de Fora producing 56% more zinc than in the first quarter of last year and Tres Marias 17%. Cajamarquilla continued to operate at solid levels. Cash cost net of byproducts was $1.40 per pound, slightly above the upper end of our annual guidance, reflecting higher zinc LME prices and lower TCs impacting concentrate purchases. We expect this to ease modestly over the next quarters as our Peruvian operations return to normal run rates, reducing third-party concentrate need. Conversion cost was $0.34 per pound, in line with our 2026 guidance. Starting this quarter, we have expanded our earnings release to include byproduct sales performance, sulfuric acid, silver content and copper cement. As byproducts become a more expressive part of segment economics, we want to make those drivers more transparent for the market. Net revenues for the segment were $609 million with adjusted EBITDA of $51 million, an 8% margin. The margin reflects the structural pressure on global smelter economics from very low TCs. With that, I will hand the call over to Jose Carlos del Valle, our CFO, for the financial review.

Thank you, Ignacio, and good morning, everyone. Let's turn to Slide #8 for an overview of our financial performance. We started the year carrying momentum from our fourth quarter of 2025, a favorable price environment combined with stronger operational execution. Net revenues totaled $888 million, up 42% year-over-year and down 2% sequentially. The year-over-year increase was driven by higher metal prices across our portfolio, evidencing a $158 million larger byproduct contribution and improved performance in both the mining and smelting segments. The sequential decline reflects lower mining sales volumes, partially offset by higher smelting sales and stronger byproduct pricing. Adjusted EBITDA came in at $283 million, up 126% year-over-year with a margin of 31.8%. The year-over-year improvement reflects price realization, operational leverage from higher volumes in both segments and stronger byproduct credits. Sequentially, EBITDA was 6% lower, driven mainly by higher unit costs from increased third-party concentrate consumption required to compensate for the temporarily lower output at our own Peruvian mines this quarter. We expect this to normalize as those operations return to full run rates. Now to investments on Slide #9. We invested $72 million in CapEx during the first quarter, about 19% of our full year guidance, in line with the typical 20% to 25% first quarter pace. The bulk went into sustaining activities, mine development and tailings storage facilities. Phase 1 of the Cerro Pasco integration project accounted for $8 million in the quarter versus a $31 million guidance for the full year. We reaffirm our total 2026 CapEx guidance of $381 million with disbursements weighted towards the back of the year as project execution intensifies, particularly for Cerro Pasco Phase 1. On exploration and project evaluation, we invested $16 million in the quarter, mainly in exploration drilling and mine development. We also reaffirm our full year guidance of $86 million. With that, let's turn to Slide #10 to review our cash flow for the quarter. Starting with our adjusted EBITDA of $283 million and adjusting for non-operational items, our operating cash flow before working capital was strong at $308 million. From there, $72 million went to CapEx and $81 million went to pay interest and taxes. Working capital and other variations were negative $283 million in the quarter, in line with what we typically see in the first quarter of every year. Furthermore, this quarter, we made significant tax payments related to the stronger results we had in 2025, paid out annual bonuses and settled year-end confirming payables across our jurisdictions. As before, we expect this to reverse substantially over the coming quarters, both as part of the natural intra-year seasonality and as we push initiatives to continue to improve our cash conversion cycle. Moving along, we also see that foreign exchange added a positive $6 million. And on the financing side, in Brazil, we drew a new $40 million 6-month loan at a very competitive interest rate. This was partially offset by regular debt service and lease payments, resulting in a net cash inflow of $21 million. In addition, we distributed $25 million in dividends to non-controlling interest. With that, free cash flow for the quarter closed at negative $126 million. Let's move to Slide #11 to discuss liquidity, indebtedness and credit rating. Our liquidity position remains healthy. We ended the quarter with $716 million in total liquidity, including the undrawn $320 million sustainability-linked revolving credit facility. As you can see, our cash on hand alone is enough to cover pretty much all financial commitments over the next four years. Average debt maturities stood at 7.2 years at quarter end with an average cost of debt of 6.27%, an improvement from the 6.49% at the end of 2025. Net leverage continued to come down at 1.59x versus 1.69x in the prior quarter and 2.09x a year ago. The improvement was driven primarily by stronger last 12-month EBITDA of $929 million. Looking ahead, we remain committed to disciplined deleveraging, focusing on reducing gross debt over time, lowering interest expense and maintaining net leverage below 1.7x throughout 2026, while preserving our investment-grade rating and competitive cost of capital. With that, I'll hand it back to Rodrigo for the market fundamentals section.

Thank you, Jose Carlos. Turning now to zinc and copper markets on Slide #12. Zinc prices remain supported by persistent concentrate tightness and low LME refined inventories. The LME zinc price was up 4% during the period, closing at $3,185 per tonne. At the same time, smelter margins remain compressed. Spot treatment charges in China, both domestic and imported, continue at historically low levels, which highlights how acute the concentrate shortage is. While key smelting byproducts such as sulfuric acid have provided some partial relief to margins, they have not been sufficient to fully offset the impact of lower TCs. Looking into 2026, we do not expect a material recovery in TCs, particularly given that the annual benchmark has been settled at $85 per tonne. As a result, smelter margins are likely to remain under pressure. On the price front, zinc should continue to find support from solid fundamentals, including tight concentrate availability, low exchange inventories and resilient demand from galvanizing and infrastructure-related end users. On copper, supply fundamentals remain tight with ongoing concentrate scarcity and negative spot TC and RCs. Copper price presented some short-term volatility in the quarter linked to trade policies and inventory dynamics, but a structural setup remains constructive over the medium to long-term, supported by bullish demand expectations. Now let's turn to Slide #13 for a look at precious metals. Silver prices reached multi-year highs during the quarter, briefly trading above $120 per ounce before retracting. The fundamentals continued to be supportive: a sixth consecutive year of structural deficit, combined with strong industrial demand from solar PV, electric vehicles, AI infrastructure and data center build-out. This carries greater significance for Nexa as we produce roughly 11 million ounces of silver per year, making us a meaningful player in the global silver market. Furthermore, in April, we reached a delivered threshold under our Cerro Lindo silver streaming agreement. As a result, the stream share of Cerro Lindo's production stepped down from 65% to 25%, with the remaining 75% now to be sold at prevailing market prices. At current silver levels, these represent an important recurring additional contribution to our cash generation from the second quarter onward. Gold prices also remained well supported through the quarter, driven by safe haven flows, sustained central bank purchases, a weaker U.S. dollar and elevated geopolitical uncertainty. Looking ahead, both metals should continue to contribute strongly to our cash generation and should provide diversification and countercyclical support to our polymetallic portfolio. Now on Slide 14 on ESG, we have made progress across our main priorities during the quarter. We expanded community and inclusion programs in Brazil and Peru, advanced education and infrastructure projects with local communities near Cajamarquilla and Aripuana and continued our operational efficiency and low-carbon initiatives across the operations, including a backfill optimization project at Cerro Lindo that delivered meaningful reductions in cement and water consumption. We also strengthened HS&E and ESG governance, including leadership-level engagement and continued progress on environmental permitting at our Peruvian assets. Finally, in late April, we published our 2025 Annual Sustainability Report, our most comprehensive disclosure to date on environmental, social and governance performance. It is available on our Investor Relations website. With that, I will hand it back to Ignacio for the closing remarks.

Thank you, Rodrigo. Before we open for questions, let me close on Slide #15 with a quick recap of our priorities and key business drivers. First, Aripuana. The fourth filter commissioning is being completed this month, which positions us to reach full production capacity in the second half of 2026. Combined with our long reserve life, the asset is one of the central pillars of our long-term cash flow generation. Second, Cerro Pasco integration. Phase 1 is on schedule for project finalization in the fourth quarter, setting up the start of pumping in the second quarter of 2027. The project extends the life of the mine beyond 15 years and improves the profitability of the complex. Third, exploration. The 2025 reserve update extended life of mine across all of our operations. We are not just replacing depletion, we are growing the reserve and resource base. And this year, on the back of strong drilling results, we have revised our 2026 program upwards to nearly 67,000 meters, about 12% above the original plan, with the increase concentrated at the Cerro Pasco complex and other exploration projects. Fourth, growth. We continue to evaluate value-accretive opportunities in mining-friendly jurisdictions. Underlying all of this is a consistent set of priorities: financial and operational discipline, a stronger balance sheet, balanced capital allocation that includes shareholders' returns and an active ESG strategy. And most importantly, our absolute commitment to safety for our people and our communities. Before we move to questions, I would like to take a moment to recognize Mauro Boletta, our Senior Vice President of Smelting and Commercial, who is retiring at the end of this month after more than 40 years with the Votorantim Group. Mauro has been instrumental in shaping our smelting and commercial operations. And on behalf of the entire Nexa team, I want to thank him for his contribution and wish him the very best. With the first quarter Peruvian constraints behind us, the Aripuana filter commissioning underway and the Cerro Lindo silver streaming transition now in effect, we are entering the rest of the year with a strong momentum and a clear set of priorities. With that, let's open the line for questions.

Operator: The first question comes from Pedro Mello with Citi.

My first question is regarding the Cerro Pasco integration project. So Phase 1 of the project remains on schedule with tailings pumping start estimated for 2Q '27. However, the two environmental approvals for El Porvenir and Atacocha are only expected for next year's first quarter, leaving a very tight window. So my question is: what are the key execution and permitting risks that could delay the 2Q '27 start? And regarding Phase 2, when do you expect to have a clear investment decision on the Picasso shaft and underground integration alternatives? This is the first one. The second one relates to the smelting segment where we saw a great improvement of results. Could you give us more color on what you expect in terms of drivers for this segment's results in the next quarters and why? And should we expect this level of EBITDA near $50 million per quarter going forward?

Thank you for the questions. Regarding Cerro Pasco, what we said is the pumping system is going to finish this year. So by December this year, that pumping will be up and operational. The permits, the modification on the environmental impact studies for Atacocha and El Porvenir, are expected in the first half of next year. So there is going to be an overlap. What is key here is that we have more than a year of tailings capacity life. We keep track of the permits permanently, and we are very confident that the permits are going to come in the first quarter of next year. Given that we finished the construction and we have this cushion on capacity, it shouldn't be a problem for us to continue operating El Porvenir and Atacocha. So we don't see any issues in that regard. Regarding smelting, it's a very important question because what happened last year is that we had operational problems in Juiz de Fora and in Tres Marias in Brazil that impacted their production. We started an assessment and a fast-track improvement plan during the last quarter of last year. Now we are producing more because recoveries are higher and we are addressing bottlenecks in the operations. The operation is going to evolve in the next three quarters, probably a little bit better than what we had in the first quarter. So we believe that this is a continuous improvement to come back to the operational KPIs that we had in 2024 and 2023. Having said that, it's important to mention that all the smelters, and Cajamarquilla in particular, are performing very well. But as we said in the call and in our press release, all of our smelters are facing profitability pressure in terms of TCs. China is demanding a lot of concentrate, and even if we are improving operations, negative or very low TCs are affecting all of our operations. This is being compensated by byproducts. The sulfuric acid market is very tight today. We are in a very good position for our production, especially for 2027 because 2026 is already largely sold at favorable terms, and we closed important spot sales for silver and copper. These byproducts more than offset the TC pressure. It's difficult to see exactly how the smelting market will perform in 2027 or in the next few months because profitability drivers can change. In any case, we can focus on operational improvements that are happening. The second quarter should be better than the first one, and we expect to come back to the normal levels seen in 2024.

Our next question comes from Sathish Kasinathan with Bank of America.

Sathish, we cannot hear you.

It seems that Sathish is having some technical problems. Our next question comes from Adam Smiarowski.

With the silver stream at Cerro Lindo—sorry, can you hear me now?

Yes. Perfect.

Perfect. Okay. The lower silver stream at Cerro Lindo, I was just going to see maybe how some of that extra revenue is going to be reinvested. Whether you're looking at capital returns or M&A or other sort of changes in capital allocation? Are you able to comment on that?

Thank you for the question. To give some context, as you rightly mentioned, starting in the second quarter, we will begin to see the impact of the step down in the silver stream, which is going from 65% to 25% of the Cerro Lindo production. To give you a sense of the impact, assuming Cerro Lindo produces about 3.6 million ounces per year, at current prices that's about $100 million more per year of cash generation, just to give you a sense of the magnitude. Having said that, this does not change our capital allocation strategy. As we have mentioned a number of times, our key goal is to reduce our gross debt. So this will help us accelerate that process. The idea is that any excess cash that we generate in this favorable price scenario will allow us to do this in a faster time frame. This is consistent with our overall strategy that we have been communicating to the market, and there's no change to that.

Our next question comes from Peter Varga with EAM.

Can you hear me? A couple of questions. Do you have an explicit leverage target you want to reach and over what time frame? Also, I would like to ask your CapEx plan, maintenance and expansion CapEx in detail for the coming quarters and how that can be influenced by smelting margins and zinc prices and metal prices generally?

Yes. Our capital allocation strategy has not changed despite the silver streaming step down. In terms of CapEx, we are reaffirming our guidance. The fact that we are generating higher cash flow in this favorable price scenario is not going to change that. In terms of leverage, as we have mentioned before, what we want is flexibility so that we can go through different cycles. Part of the strategy of reducing debt is to reduce interest expense, which is high for a company of the size of Nexa. But we want to have financial flexibility because prices can change, and we want to have that additional buffer. We don't know how fast we will be able to do this because we don't control prices, but we are certainly optimistic in this price scenario that we will be able to achieve this faster. I would say that reaching an overall net leverage of 1x would give us a lot of comfort so that we would have that buffer to go through different cycles. It will depend again on prices, but we are confident that we will be able to accelerate this with stable production performance and supportive prices.

Okay. We have seen some market rumors that your parent is looking to divest the company and that some European buyers are around. Can you comment on this, please?

We receive rumors every week, and we do not comment on rumors. What I can emphasize is that we are very active in looking for opportunities to grow Nexa, and we have a very dedicated team to make sure that we grow the company, not only in reserves and resources where we have been successful, but also on opportunities in the market, especially in copper. With this price environment, as Jose Carlos mentioned, and with internal actions such as the Cerro Lindo stream, we might expedite reducing the debt to levels we are comfortable with. In the interim, the strategy is to look for accretive opportunities in the market. The timing depends on how much we reduce debt and how fast, and on the opportunities we find. We keep many opportunities on our radar. It's a difficult market today because it's very expensive. So it will be a combination of reducing debt and using our balance sheet, mainly our balance sheet, to pursue opportunities. Given potential overlap between deleveraging and M&A, we will need to be creative, and we have been. I believe it could be done, and we'll see what happens in the coming months.

What do you expect from the new Peruvian government? We've heard various scenarios. How do you expect licensing and especially environmental licensing for operations going forward? Do you have any view on how a left-leaning presidency could affect operations, and do you have plans for that scenario?

It's early days in the electoral process, and the second round is still to be determined. We were already exposed to President Castillo previously, and there are a few points to consider. First, the Central Bank is independent, and changing that would require constitutional change, which is difficult. Second, the Ministry of Finance recognizes that much of government revenue comes from the mining sector. If authorities pursued policies hostile to mining, tax income would decline and that would constrain other government actions. This reality moderates extreme policy shifts. Finally, mining companies are used to operating in this environment. The most important element is maintaining good relations with local communities. Strong, long-term agreements that benefit both communities and the company help insulate operations from political noise. We don't see a material change in our operating environment due solely to the political cycle. We will, of course, be prepared for any scenario, as we have been for many years.

Now I would like to turn the call over to the company for the written questions.

Thank you, operator. We have one question from the audience. The question is: is there any estimated date for a construction decision for Stage 2 or Phase 2 of the Cerro Pasco integration project? And will this Phase 2 require additional permitting?

Very important question. Phase 2 of the project involves integrating the two mines and increasing ore production. We have a dedicated exploration team that started drilling heavily some years ago, and we have found a lot of resources with higher NSR and important opportunities in the interfacing areas at Atacocha and El Porvenir underground. The reason we delayed a final decision on Phase 2 is that we want to build a life-of-mine plan that is more effective and more profitable for these two mines. This will take some additional time. I would say we might be able to inform the market in the second half of this year how we intend to proceed. Our Board is also reviewing this and it is a priority. The good news is that the permits expected for El Porvenir and Atacocha in the first half of next year also apply to Phase 2 integration, so we do not expect bottlenecks in those approvals. We are on track and have a very positive situation because the endowment used to justify Phase 2 has increased significantly. Today, the complex life is beyond 15 years, and the question is how to design the new life-of-mine plan to maximize profitability and NAV. We will keep the market posted in the coming months.

This concludes our question-and-answer session. I would now like to hand the call over to Mr. Ignacio Rosado for his closing remarks. Mr. Rosado, please go ahead.

Thank you. I would like to emphasize that at the close of last year we had very strong results and we benefited from good prices. This has been the case for the first quarter of this year. Unfortunately, we had some problems in our Peruvian operations that have already been resolved. The message I want to convey is that for the rest of the year we are committed to very stable operations. We are committed to offsetting cost pressures, including oil, inflation and FX in Brazil, by focusing on productivity measures. We have built a robust operating profit plan for our mines and smelters for the rest of the year, not only because we have favorable prices, but because we are managing the main operational variables. We look forward to speaking to you towards the end of the second quarter, and we are confident that we will deliver on our commitments and guidance. Thank you very much for attending the call. We look forward to speaking with you in a few months.

Thank you. This concludes today's conference call. We appreciate your participation and interest in Nexa. You may now disconnect.