Nexa Resources Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
April 28, 2023

Key Takeaways

  • Q1 Financial Performance: Net revenue of $667 M was down 8% year-over-year and adjusted EBITDA fell 39% to CAD 133 M, partially offset by an 11% sequential EBITDA gain versus Q4 2022.
  • Ramp-up at the new Aripuana mine is progressing, with throughput around 70% and improving concentrate grades, as the company aims to reach nameplate capacity in the second half of 2023.
  • Exploration added 8.3 Mt of mineral reserves in 2022—extending Aripuana’s life by three years—and Q1 drilling at Aripuana, Vazante, Cerro Lindo and Pasco continues to confirm high-grade, thick intersections.
  • The Pasco complex integration project, set to merge underground Atacocha and El Porvenir, could boost production and extend mine life, with feasibility studies due in H2 2023 and board approval targeted by year-end.
  • Free cash flow was negative CAD 132 M in Q1 due to working-capital outflows from ramp-up expenses and the Cerro Lindo suspension, though management expects a positive reversal over the coming quarters.
AI Generated. May Contain Errors.
Earnings Conference Call
Nexa Resources Q1 2023
00:00 / 00:00

There are 7 speakers on the call.

Operator

Good morning, and welcome to the Nexa Resources First Quarter 2023 Conference Call. All participants will be in listen only mode. This event is being recorded and is also being broadcast via webcast and may be accessed through NEX's Investors Relations website, where the presentation is also available. After today's presentation, there will be an opportunity to ask questions.

Speaker 1

Questions. Remember that the participants of the webcast

Operator

I would now like to turn

Speaker 1

the conference over to Mr. Rodrigo Camarosana Urshamo,

Operator

Head of Investor Relations, for opening remarks. Please go ahead. Okay. I've reconnected the line.

Speaker 1

I would now like to turn the conference over to Mr. Diego Camarosano, Head of Investor Relations for opening remarks. Please go ahead.

Speaker 2

Good morning, everyone, and welcome to Nexa Resources' Q1 2023 earnings conference call. Thanks for joining us today. This is my first conference call with the financial community since I was appointed Head of Investor Relations and Treasury. I want to thank Nexo's leadership team for their trust and for this opportunity and say that I'm very excited about this new role. I would also like to thank Roberto Varela for her contributions to Nexa's Investors Relations area over the past few years.

Speaker 2

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 this on screen presentation through the webcast. Before we begin, I would like to draw your attention to the 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 our CEO, Ignacio Rosado our CFO, Jose Carlos del Valle and our Senior Vice President of Marine, Leonardo Correa.

Speaker 2

So now I will turn the call over to Ignacio for his comments. Ignacio, please go ahead.

Speaker 3

Thank you, Rodrigo, 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 still challenging environment, with significant volatility in commodity prices, persistent inflationary pressures and some unexpected events in Cerro Lindo, we generated solid results in the Q1 of 2023. In mid March, we experienced unusual heavy rains in Peru, which affected our Cerro Lindo mine. Nevertheless, we were able to resume the operation at normal level capacity at the end of March, ensuring all protocols and the safety of our employees.

Speaker 3

Our net revenue for the quarter reached $667,000,000 8% down year over year, mainly explained by lower metal prices, but partially improved by mining production and metal sales over the period. Our adjusted EBITDA was £133,000,000 39 percent lower year over year, impacted by lower LME prices and by products contribution. When compared to the Q4 of 2022, our adjusted EBITDA increased by 11%. In our new mine at Ipona, the ramp up continues to progress. Our current focus is on plant stabilization, increasing throughput rate and improving concentrates, grades and quality.

Speaker 3

We are aiming to reach nameplate capacity in the second half of this year. In terms of exploration activities in our mines, we look with optimism to the initial results we had in the Q1 of 2023, especially in Aripuana and Vazante, revealing results with high grade thick intersections. I would also like to emphasize our balance sheet, which remains solid despite the investment cycle we have gone through in the past years and the temporary pressure on working capital affecting our cash flow in the first quarter. Finally, I want to highlight that we are advancing in the studies related to the integration project of the Cerro Epasco complex. This is a project with a strong potential to transform the underground Atacocha and El Porvenir operations into a flagship combined mine, not only through production increase, but by extending the life of the 2 assets.

Speaker 3

Finally, we maintain an optimistic view for the year and we remain confident about the long term fundamentals of our industry and our business. 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 first quarter increased to 75,000 tons, up 13% year over year, mainly explained by an increase in treated ore volume and higher head zinc average grades. Compared to the Q4 of 2022, zinc production was relatively flat. About the cash cost, even though we are keeping under control our cash cost per ton of run of mine, our cash cost per pound in the Q1 of 'twenty three increased to $0.43 compared to the $0.19 per pound in the Q1 of 'twenty two and $0.20 per pound in the Q4 of last year.

Speaker 3

In both cases, the increase was mainly explained by lower byproducts contribution due to lower LME prices and the effects of the Cerro Lindo operation suspension. Now moving to Slide number 5. In Slide 5, regarding the operating performance of the smelting segment, metal sales totaled 144,000 tonnes in the Q1, down 14% from the Q4 of 2022, mainly due to a lower comparable quarterly production and sales seasonality. Compared to the same period of last year, we were up 7%. About the cash cost per pound in the Q1 of this year, smelting cash cost decreased to 0 point $2.5 per pound compared to the $1.26 per pound in the Q1 of 'twenty 2.

Speaker 3

This slight decrease was mainly driven by lower raw material costs due to lower LME prices. When we compare the Q1 of 'twenty three to the Q4 of 'twenty two, cash cost increased by 4% due to lower byproducts contribution and lower LME metal prices. Now moving to Slide number 6. Rampart activities at the Arepaona mine continue to progress and we are currently focused on steadily increasing the plant throughput rate, asset reliability and stability of concentrate grades and quality. During March, we had a planned stoppage at the plant to adjust some bottlenecks such as pumping and piping system and improve the drainage configuration, which presented limitations after the rainy season.

Speaker 3

These measures are contributing to the overall performance of the asset and consequently, the stabilization of production aiming to reach nameplate capacity in the second half of this year. During the quarter, treated ore volume was 277,000 tons and zinc production reached 2,500 tons. Sustaining CapEx during the quarter was $15,000,000 mainly related to mining development and infrastructure. In our exploration activities in 2022, we added 8,300,000 tons of mineral reserves, extending the life of Aripuana by 3 years. In the Q1 of this year, these activities were focused on the northwest extension of the Babasu area with very positive results.

Speaker 3

Now moving to Slide number 7. In the Q1 of 2023, we executed over 12,000 meters of exploratory drilling in all of our mines and projects, over 12,000 meters of infill drilling and over 2,000 meters from early stage exploration projects drilled in Peru. At Cerro Lindo, the Pucacaya mineralized body continued to be extended to the Southeast. At Vazante, brownfield exploratory drilling in the Extremo North area confirms mineralization with continuity at depth, which provides a good indication of the potential around the main infrastructure. At Aripuana, exploratory drilling has been focused on the northwest extension of Babazu, where new drilling continues to confirm high grade mineralization and exploration infill drilling at the Ambrex ore body is being successful for resource classification upgrade.

Speaker 3

Regarding the PASCO complex, exploration activities continue to focus on the extensions of known bodies like Porvenir Sur and integration at El Porvenir, highlighted by high grade new intersections. Now moving to Slide number 8. As I mentioned earlier, we are moving forward with the integration studies of the Atacocha and El Porvenir underground mines to create a robust strategic organic option for Nexa. The scope of the project included a sequence of investments with an emphasis on upgrading the porvenir shaft, developing the integration of both the Atacocha and the Porvenir underground infrastructure and increasing the capacity of the Porvenir plant and Atacocha tailings dam. We are very confident in the potential of this project and we expect to complete the studies in the second half of this year with submission for board approval at the end of this year.

Speaker 3

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.

Speaker 4

Thank you, Ignacio. Good morning to everyone. I will continue on Slide 9. As you can see, beginning with the chart on your upper left, total consolidated net revenues for the Q1 decreased by 8% year over year, due mainly to lower LME metal prices. Compared to the Q4 of 2022, net revenues decreased by 14% mainly as a result of lower metal sales volumes and the impact of the Cerro Lindo temporary suspension.

Speaker 4

This was partially offset by higher LME metal prices. In terms of adjusted EBITDA, consolidated adjusted EBITDA in the Q1 of 2023 was CAD133 1,000,000 compared to BRL217 1,000,000 in the Q1 of 2022 and to BRL120 1,000,000 in the last quarter of last year. We now move to Slide 10, where I will explain our results in further detail. In the Mining segment, net revenues for the Q1 of 2023 totaled CAD268 1,000,000 down 17% versus the same period of last year. This is explained mainly by the decrease in metal prices, lower sales volumes of copper concentrate and the higher TCs paid by our mines.

Speaker 4

These negative effects were partially offset by higher zinc, lead and silver sales volumes. Regarding adjusted EBITDA, on your upper right, 1st quarter adjusted EBITDA for the mining segment was CAD42 1,000,000 a reduction of 70% year over year, mainly driven by lower prices and higher TCs and the negative impact related to Aripuana's higher unit costs during the ramp up phase. Compared to the Q4 of 2022, adjusted EBITDA decreased by 47%. This was mainly driven by lower sales volumes in Cerro Lindo, which as you already know was affected by severe weather during early March, lower BIPRO contribution and higher operational costs in Aripuana, partially offset by an increase in Aripuana's sales volumes. Switching over to the smelting segment, net revenues in the Q1 of 2023 totaled CAD 543 1,000,000 a decrease of 3% versus the Q1 of 2022 mainly driven by lower metal prices offset by higher sales volumes.

Speaker 4

Compared to the Q4 of 2022, net revenues decreased by 10%, mainly due to lower sales volumes, partially offset by higher LME metal prices. The smelting segment's adjusted EBITDA for the Q1 of 2023 totaled CAD89 1,000,000 up 9% from the Q1 of 2022. This is explained mainly by higher sales volumes, a positive impact of CAD26 1,000,000 related to changes in market prices, which resulted in positive quotation period adjustments, which were partially offset by a decrease in byproduct contribution that was mainly explained by lower sulfuric acid prices and higher energy prices in Cajamarquilla. Compared to the Q4 of 20 22, adjusted EBITDA for the smelting segment increased by CAD43 1,000,000 mainly as a result of a positive price effect of CAD37 1,000,000 related to changes in market prices that resulted in positive quotation period adjustments, the positive effect of variation in mark to market of inventories and higher LME metal prices partially offset by lower BiPro contribution and lower sales volumes. Now moving to Slide number 11.

Speaker 4

On the top left of the slide, we can see that in the Q1, we invested CAD56 1,000,000 in CapEx, of which 100% was related to sustaining investments, including $15,000,000 in Aripuana. We expect disbursements for investments to accelerate in the upcoming quarters. And based on our projections for the year, we believe we will comply with the 2023 CapEx guidance of CAD310 1,000,000 With regards to mineral exploration and project evaluation, we invested a total of CAD21 1,000,000 in the Q1 of which almost CAD12 1,000,000 were related to mineral exploration and mine development. I would like to emphasize that as part of our long term strategy, we are focusing our efforts on replacing and increasing mineral reserves and resources, supporting our organic growth. In this regard, it is important to mention that we're maintaining our guidance on the investment category, expecting to finish 2023 at about BRL110 1,000,000.

Speaker 4

Let's move on to Slide number 12. For the Q1 of 2023 and starting from our $133,000,000 of adjusted EBITDA, we can see that cash flow provided by operations before working capital changes was BRL106 1,000,000 We then paid BRL57 1,000,000 related to interest and taxes and BRL56 CAD56 1,000,000 in total CapEx for our current operations. We also paid dividends of CAD25 1,000,000 to our shareholders. Additionally, there was a CAD6 1,000,000 combined positive effect of loans and investments and FX impact. Finally, there was a working capital variation of $105,000,000 mainly due to the combined impacts of the Aripuana ramp up and the decrease in trade and confirming payables driven by higher payment volumes in the period.

Speaker 4

We expect this to be reversed positively throughout the year. As a result of these effects, free cash flow in the Q1 of 2023 was negative in CAD132 1,000,000 We are confident that throughout 2023 with the completion of the Aripuana ramp up and our ongoing efforts to be more productive and efficient, we will positively contribute to the company's free cash flow generation in 2023. Now moving to slide number 13. In this slide, you can see that our liquidity remains robust and that we continue to report a sound balance sheet with an extended debt profile. By the end of the Q1 of 2023, our current available liquidity was approximately CAD 675 million including our undrawn revolving credit facility of CAD 300 1,000,000 It is important to mention that as of March 31, the average maturity of our total debt was 4.4 years with a 5.5 percent average cost of debt.

Speaker 4

Finally, our leverage measured by net debt to adjusted EBITDA was 1.9 times compared with 1.5 times at the end of the 4th quarter and to 1.4 times a year ago. Going to my last slide before I turn it over to Ignacio. In this slide, we show that in the Q1 of 20 averaged $3,124 per tonne, down 17% compared to the same period a year ago. We believe zinc demand remains positive in the mid and long term, driven by investments in infrastructure, in construction, in renewable energy and in the automobile sector, now boosted by sales of electric vehicles. On the supply side, a lack of feasible projects to fulfill demand requirements will continue to put positive pressure on prices.

Speaker 4

Regarding copper, the LME price was down 11% compared to the Q1 of 2022 and up 12% compared to the Q4 of 2022. Copper prices like those of other metals have benefited from a weaker U. S. Dollars, an optimism of a Chinese economic recovery. In terms of demand, the metal will play a key role in the energy transition.

Speaker 4

On the supply side, volumes from greenfield and brownfield projects will materialize in 2024 2025, contributing to a mild temporary surplus in the market, with long term additional supply facing important challenges. Overall, the outlook for zinc and copper in the mid- to long term remains positive and supported by solid market fundamentals. I now turn it over to Ignacio.

Speaker 3

I would like to close this presentation by reinforcing our priorities for 2023 and our short term strategy. We are progressing with a ramp up of Aripuana. Currently, we are performing at a higher running rate capacity and both zinc and copper concentrate grades and quality are improving in line with our projections. Looking ahead, the Pasco complex integration project has the potential to be a robust organic strategic option for Nexa. We will keep executing our exploration program in our current operations and key projects.

Speaker 3

We continue to have very encouraging results in the Q1 of this year. I would like to point out that we are moving forward with our ESG strategy, and we intend to release our annual sustainability report in May. We will remain focused on optimizing costs, OpEx and CapEx, and once again, we remain confident on the long term dynamics of our industry. Thank you all for attending this presentation. With that, we will be happy to take your questions.

Operator

Our first question will come from Lawson Winder with Bank of America Merrill Lynch. You may now go ahead.

Speaker 5

Yes. Thank you, operator, and good morning, everyone. Just two questions from me. One, I wanted to just get a little bit more detail on the expected ramp at Aripuana and then a little bit more detail on the issues that you experienced at the plant. So if I understood it correctly, it's really just the plant, the mining is fine.

Speaker 5

And then, yes, actually I'll leave it at that and then I'll follow-up with my second question after you address that. Thank you.

Speaker 3

Okay, Lawson. Thank you. No, I think it's going as planned. We had an unplanned in March because of the rainy season, it was very heavy. And we as we said in the presentation, we were working on the piping system and the pumping system and also on the drainage system.

Speaker 3

In April, and this is not in the call, throughput is around 70% to 75% and quality of concentrate is very high and is ready to go to our press Maria smelter. So the second half the second quarter, you will see a major improvement compared to the Q1, and this was always in the plan.

Operator

And as

Speaker 3

I was saying, we are aiming to reach mid grade capacity in the second half, hopefully sooner than later. So the guidance on production, even if we are behind in this part of the year because, I mean, it's a ramp up. We believe that in the second half, we're going to catch up and we will achieve guidance. The other part that is important is that we want to make sure that on a monthly basis, we stop losing cash flow. At the ramp up, always the sales that you have are below the CapEx and the OpEx of demand.

Speaker 3

So part of the problem that we face of this cash flow of all the mining business was because Aripuana, We invested $40,000,000 in Aripuana in the Q1. In the second, it's going to be much less. And hopefully, the second part is going to be positive. And all the benefits of Aripuana will come in 2024.

Speaker 5

Okay. Thank you for that. And then second question I wanted to ask was just on the exploration results you put out earlier in the week. Darryl Lindo, whole OBA was very high. So my questions would be, what is the distance of that strike from the existing inferred resource?

Speaker 5

What is the distance of that from the existing underground infrastructure? So how much development would it take to get there? And could you be accessing that in 2024, for example? And then finally, is it on land subject to the Silver Thanks very much.

Speaker 3

Yes. No, no, no. This is a very good question. These drill holes that we are doing at surface in Fukasaya are 3 kilometers away of the main infrastructure. So it is not connected.

Speaker 3

The Cerro Lindo mine today has 8 years of life of mine in the main infrastructure. And as you can see, we have seen that year over year. So the Jucasaya and all the surrounding areas that we are finding that we are saying that is open and is helping us, this area is to develop the new Cerro Lindo. This is coming later on. So I would say during this year, next year, we will delineate what we have in that area.

Speaker 3

And because of that, we will plan to connect these 3 kilometers in the coming years. So this is more the 2nd wave growth of Cerro Linde. Okay.

Speaker 5

Yes. Okay. On Pukasaya, I was actually asking about OVA.

Speaker 3

OV-eight. Yes. That's I mean, the OV-eight, we are this is a part of the main infrastructure. And I was saying, we are replacing that. The mineral is open.

Speaker 3

All the mineralized zones and the bodies are open in the underground I mean, in the depth of the mine. So this is good opportunities to still replace what we consume over the year. Regarding the silver stream, if I understood correctly, the silver stream is only in the current infrastructure, in the OV and all these infrastructures are in the surrounding. The area of Cucacaya is not involved in that silver stream. And to remind that the silver stream, the percentage that we give up is going down in the coming years.

Operator

Our next question will come from Pedro Nunez with Bank of Financial. You may now go ahead.

Speaker 6

Hello. Thank you very much for the opportunity. So I wanted to ask a question on your smelting EBITDA and on the EUR 26,000,000 positive impact of mark to market. Could you please give some detail as to what was the reason for the positive impact? Is this based on favorable market prices that are higher than you expected?

Speaker 6

So wanted to get more detail on that.

Speaker 3

Yes. The well, the smelter EBITDA is very stable. Yes, as a reminder, we the smelting business is very straightforward. We have 4 sources of revenue. And the first one is 15% of free zinc that you from that's concentrated wide, and that's linked to prices.

Speaker 3

The second one is the TCs that we get, and the

Speaker 1

TCs this year are higher than previous years. Yes. The benchmark is around $2.18 per fund.

Speaker 3

The third one is the premiums that also are higher this year because of the shortage of smelters in Europe, given the energy prices, some of them are going back, but some of them are not. So the premiums are high are still high today. And the 4th is our white products that in our case is mainly sulfide, yes. Sulfuric acid. Sulfuric acid in Cajamarquilla.

Speaker 3

So because of this, we got very positive results in the smelting, yes? And you were talking about a EUR 26,000,000 of?

Speaker 1

Yes. There's additional impact related to higher prices, which have 2 effects really. 1, related to the cost of inventory because those concentrates were bought at lower prices. And also due to the higher prices, you do mark to market every at the end of every month. So that also has a benefit on the result of the company.

Speaker 1

The mark to market is based on the latest prices on the at the end of each month and that also contributed to better results that are shown in the EBIT.

Operator

I would now like to

Speaker 1

turn it over to Rodrigo Camaro Sano for questions from the webcast.

Speaker 2

Thank you, operator. We have a question from Matheus Moreira from Bradesco BBI. Actually, there are 2 questions. The first one, if you could provide a bit more color on zinc and copper demand fundamentals for 2023? And then the second question would be about Aripuana.

Speaker 2

What is the current capacity that I mean, the running rate capacity of Aripuana currently?

Speaker 1

I'll start with the second question, which is very straightforward. Current capacity at Aribona is between 60% 70%, and we're looking optimistically at the evolution of the stability of the plant. In regards to the first question, as I mentioned during the presentation, we believe that there is very strong fundamentals both for copper and zinc. Definitely, copper has more visibility and it's more talked about, but zinc is also a very important metal, obviously, in relation to infrastructure, just as copper, but also in the energy transition, as it is used for energy storage, for solar power, for wind power. So it's a more under the radar metal that is also very important in the energy transition together with copper.

Speaker 1

On the demand side, therefore, there are very strong fundamentals. And on the supply side, as you know, copper grades continue to decline in general. It takes longer to bring up a new mining operation, whether it's copper or zinc, due to environmental standards, social consultation that has to be carried out ahead of time. So it takes longer. It's more costly because prices or the costs have gone up as well.

Speaker 1

So you require higher prices to have the right incentives to invest in new projects. So taking all those into consideration, we continue to believe that these are very strong fundamentals. Obviously, there can be temporary volatility, but overall, the medium to long term, we are very confident.

Speaker 3

Yes. Just to add to what Jose Carlos is saying, from a practical point of view, you know that we sell 600,000 tons of zinc of metal in the market, 45% that goes into the Brazilian and Latin American markets, and the rest is going to Euro, Asia and the U. S. The what we see in that specific front is that demand is weaker, but it's not that weaker. It's still strong.

Speaker 3

So my comment is around that in terms of fundamentals, demand and supply, we are the fundamentals are very strong, are still strong. The problem is that all this noise that the economy has around the China, the Ukraine and Russia crisis and the recessions in Europe and in the States and what's going to happen in the States with the index rates and power, etcetera. So the fundamental value short term is strong and we see this on a monthly basis. So hopefully, during the coming months, that is going to reflect on prices. Today, you can see that zinc prices are low.

Speaker 3

And we are waiting to see the evolution a positive evolution of that in the coming months.

Speaker 2

Okay. Thank you for the questions. Now we will have a question from Orlando Barriga from Credicorp Capital. Can you please provide an update regarding the new mining tax in Mato Grosso state?

Speaker 3

Yes. I guess, this is a new tax. Mato Grosso doesn't have a lot of exposure in terms of mining. And the this tax that we have been that has been provided in the last 2 months is new to us. And I can say that is the rate is much higher than the average in the industry of Brazil.

Speaker 3

So we are trying to speak to the government of Maduro also to make sure that we are we face market practices there. Having said that, in the short term, there's nothing we can do. We have to pay the tax. It's around our calculations and around $3,000,000 or $4,000,000 per year. And we expect that to evolve to market practices in the coming months or years, but this is work in progress.

Speaker 2

Okay. Now we have a question also from the webcast from Jose Maria Silva from BTG Pactual. Should we expect a reversal of the working capital negative effect in the coming quarters? And what would drive that working capital reversal?

Speaker 1

Yes. And here, this negative working capital variation in the Q1, it's something that we plan. It has to do with seasonality. Typically, there are a lot of expenses and cash disbursements towards the end of the year. Oh, sorry, there are a lot of accounts payable at the end of the year, which are paid in the Q1.

Speaker 1

So that makes the accounts payable and the confirming payables to go down, representing a negative impact on working capital. Additionally, there has been an increase in accounts receivable related to a higher sales higher LME prices, which also have a negative impact on the working capital variation. This is seasonal and it's in line with what we planned for the Q1. So this will gradually reverse throughout the

Operator

year.

Speaker 2

Okay. Now we have another question. It's a follow-up question from Matias Moreira from Bradesco PBI. In terms of capital allocation, is the company looking for any zinc opportunities through M and A Or the focus remain on ramping up Aripona?

Speaker 3

Well, I guess, the priority in the short term is ramping up Aripuana. This is a reality. It's only going through the process of the ramp up and Aripuana is going to be a reality. I would like to mention also in Alipona that we are drilling heavily because we want to make sure that we have a long life mine, say, for Adipona, that is a new mine. So we create more opportunities to put it more profitable in the coming year.

Speaker 3

So today, we had 11 years, today we have 14. And hopefully, towards the end of this year, it's going to be much higher. So this is a priority for the short term. The second one is, as I was mentioning, Cerro del Pascos. And Cerro del Pasco really presents an opportunity for us because if we connect the 2 mines underground, we will be able to recover some inventory of resources, especially in Atacocha that is going to give us a long life of mine.

Speaker 3

Why do we not recover these resources? Because if you do it through the infrastructure of Atacocha, it won't pay. So by layering the infrastructure of Enfrovenir, we will be able to do that and to create a combined asset that

Speaker 1

is going to be robust for the long term.

Speaker 3

So these are the priorities for short term. From an M and A point of view of and capital allocation, we are looking for opportunities. We have some early stage projects that we are working right now, and we are active in the market for looking for zinc and copper opportunity. So we explained that before, and this is still the case. The market is not easy today, but we are optimistic that probably in the next 12 to 14 months, we will be able to find something that is similar to the mines that we have.

Speaker 3

We want sizes such as Cerro Lindo, Vasante, Arikona. So we are active on that front as well.

Operator

Okay. We have one question from the phone line from the line of Carlo from Alba

Speaker 1

with Morgan Stanley. You may Ignacio, I just have a question, maybe a little bit of extension to the working capital question that was asked before. How do you see the progression of the free cash flow? Because in most of the last several quarters, it has been negative. And I understand that Aripuana obviously had an impact on this.

Speaker 1

But it would be interesting to see if now that Aripuana is ramping up despite potentially lower commodity prices and a stronger BRL, if you expect positive free cash flow to show up in the coming months quarters?

Speaker 3

Yes. No, that's very important.

Speaker 4

And thank

Speaker 3

you for the question and you're right. I would like to start first by saying that the if you see the cash flow of the mining and the smelting segment, the smelting is very stable, as I was saying before, because of these sources of revenue. But in terms of mining, it was low. It was low because 2 factors. 1 is Cerro Lindo.

Speaker 3

2 weeks of Cerro Lindo has an impact on the cash flow and Cerro Lindo is a big mine and very profitable. And the second one, Anipona. Anipona and Cerro Lindo combined were short of cash flow more or less of $45,000,000 to $48,000,000 in that quarter. And the reason behind that, Iboni is that while we are ramping up, the only production that we had in the quarter was 2,500 tons. And this is changing positively in the second quarter.

Speaker 3

And we will start breakeven in the next quarter. So we depending on prices, yes, depending on prices, but if we use an average price of last year, the mining segment, we will be able to make cash flow towards the end of the year, including Aripuana and including the fact that Aripuana has been ramping up. The question around why are we not having cash flow and this is a reflect of the previous years, the answer is Aripuana. Because even if the CapEx of Aripuana has been $625,000,000 which we informed last year. Adipona has working capital, has pre operating expenses, that's a lot of additional expenses that create a more a bigger amount that is linked to this line.

Speaker 3

So to give you an idea, last year, we said that it was $290,000,000 that went to Aripuana, part in CapEx, part in operating expenses, etcetera. So once we is up and running and we have the rest of the mines in positive cash flow, we don't see why the cash flow profile of the company is going to be much better and substantially better. That's mainly the view that I can give to Cap.

Speaker 2

We have another question from the webcast. Discussion comes from Omar Abiyanada from Apimaa AFP. What is the expected CapEx for the for Vermeer and Atacocha integration? And the second question would be, when do you expect to deploy this investment?

Speaker 3

Yes, I guess, it's early days today. As we were saying, we have 4 projects that are advancing in PEL2 analysis. The number that we have, I can give you a range between $160,000,000 to $200,000,000 and this is going to be deployed between $24,000,000 $27,000,000 So part of the idea that we have is that we deploy these. These are very specific investments. So we deploy these while running the mine.

Speaker 3

So the idea is that with our own cash flow of Enfogenir and Atacocha, we finance this. And we are working towards that result. And as I was saying before, I would say towards the end of Q3, beginning of Q4, All this study will be ready. We will have a technical report on this as well. And we will submit these proposals to the Board for the approval.

Speaker 3

And we will be more specific in investments and in timetables once this is approved. Okay. So we don't have any other questions. Thank you very much as always to attend the call. And as you know, we have I would like to say that we would like to thank you, Roberta, for these 5 years working with us in Investor Relations.

Speaker 3

She's a fantastic professional and she's we appreciate very much all the work that she has done. Rodrigo Caramanosano, our new Investor Relations manager is available for you to take to make calls to team after this. And we look forward to speaking to you in the quarter. Hopefully, this is stabilized and follow demand and supply. And hopefully, we have better signals from the macroeconomic environment in the world, so we can benefit from the cash flow that we can generate at higher price.

Speaker 3

Okay. Thank you very much and have a good weekend.

Operator

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

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