Nexa Resources Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 3, 2024

There are 9 speakers on the call.

Operator

Good morning, and welcome to Nexon Resources First Quarter 2024 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 Nexa's Investor Relations website where the presentation is also available. Simply type your question in the box and click send and that will be answered soon. And now, I'd like to turn the conference over to Mr.

Operator

Rodrigo Camarosano, Head of Investor Relations, for opening remarks. Please go ahead.

Speaker 1

Good morning, everyone, Welcome to Nexa Resources' Q1 2024 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, where we will be making forward looking statements about our business, and we ask you to refer to the disclaimer and conditions surrounding those statements.

Speaker 1

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

Speaker 2

Thank you, Rodrigo. Good morning, everyone. Thanks for joining us today to discuss our results for the Q1 of 2024. Before starting our presentation, I regret to inform you that in early March, we had a federal incident involving one of our employees in the Alport Rainier mine. And earlier this week, another fatal incident involving one of our employees at the Vasante Mine.

Speaker 2

This is a very difficult time for Nexa and it becomes clear that we need to work even harder on reinforcing our safety system. We extend our heartfelt condolences to the families of our 2 employees and reassure them and all of our stakeholders that the safety and well-being of every person who works at Nexa are our main values and remain our utmost priority. We are committed more than ever on enhancing employee safety and achieve 0 fatalities. Please let's move to Slide number 3, where we will start our presentation with the main highlights of the quarter. Let me begin by saying that I am pleased to report that we had a positive start of the year.

Speaker 2

We have achieved another quarter of consistent operating performance, maintaining our focus on cost, discipline and capital allocation. Despite ongoing challenges in our industry at the beginning of the year, such as weak microeconomic conditions, commodity price volatility and lower demand due to seasonality, we continue to make steady progress and remain focused on executing our priorities. In the Q1 of 2024, consolidated net revenues were $580,000,000 down by 13% year over year, mainly due to lower zinc prices, lower premiums and lower metal sales. Adjusted EBITDA in the Q1 of 2024 was 123,000,000 compared to 133,000,000 a year ago. This performance was mainly driven by lower zinc prices and lower metal sales.

Speaker 2

Despite the still low zinc price scenario in the Q1 of this year compared to last quarter, adjusted EBITDA rose 17% due to strong production, lower costs and lower mineral exploration and project evaluation expenses. Our Ibona project continues to make good progress, and we expect to conclude the ramp up process in mid-twenty 24. Concerning mineral reserves, we had very positive outcomes, as evidenced by a 59% increase in mineral reserves at Cerro Pascua as highlighted in our recently released technical report summary. Overall mineral reserves for 2023 increased by 10% compared to 2022. I encourage you to review both the technical report and our mineral reserves and mineral resources report, which were published at the end of March and are available on our Investor Relations website.

Speaker 2

I would like to emphasize that we recently announced the divestiture of our Moragudo mine, making another step in our capital allocation strategy. Our team has done incredible work providing full support to the employees who work at Morro Agudo for many years. We estimate that around 25% of our employees will be reallocated to other operations by the completion of the transaction. I want to reaffirm that we remain focused on completing the Aripuana ramp up by mid-twenty 24. We observe improved in metal recoveries and concentrate quality in the Q1 of this year, maintaining our operational and cost optimization discipline to achieve positive cash flow generation throughout this year and advancing with a formal approval process for execution of the Cerro Pascua integration project.

Speaker 2

Before we move to our next slide, I would like to share that we released our 2023 sustainability report on April 25. This report highlights the collective efforts of our team in advancing our ESG initiatives meaningfully. Additionally, in April, we concluded important transactions in line with our liability management program. These transactions include extending our debt profile through the issuance of new debentures and bonds, making a significant milestone for Nexa. This strategy move allowed us to optimize our financial structure, diversify our funding sources and enhance our liquidity position.

Speaker 2

Jose Carlos will provide more details on this topic in his presentation later on. Now moving to Slide number 4. Regarding the operating performance of the mining segment, zinc production reached 87,000 tons in the Q1 of this year, up 17% year over year, mainly explained by an increase in treated ore volume and higher zinc average grades, particularly at the Cerro Pasco, Basante and Aripuana mines. Compared to the Q4 of 'twenty three, zinc production was down 3%, explained by lower volumes from the Peruvian mines and Moro Agulu. Concerning cash costs in the Q1 of 2024, it decreased to $0.27 per pound compared to the $0.43 per pound in the Q1 of 'twenty three, mainly explained by lower treatment charges and higher volumes.

Speaker 2

Compared to the Q4 of 'twenty three, mining cash cost decreased by $0.18 per pound, mainly explained by lower treatment charges and lower operating costs at the Cerro Lindo and the Il Porvenir mines. The cost per run of mine in the quarter was $45 per tonne, relatively flat of year over year and down 6% quarter over quarter, mainly explained by lower operating costs. Now moving to Slide number 5. Regarding the operating performance of the smelting segment, metal sales totaled 139,000 tons in the first quarter, down 4% from the Q1 of 'twenty 3 and 3% compared to the Q4 of last year, mainly impacted by lower production volumes and the typical seasonality of demand in the period. The smelting cash cost in the Q1 of this year decreased to 0 point the $1.25 per pound in the Q1 of 2023.

Speaker 2

This decrease was mainly explained by lower costs of raw materials attributed to lower zinc prices. Compared to the Q4 of last year, cash cost was down 3%. Our conversion cost was $0.30 per pound compared to $0.31 per pound in the Q1 of last year due to lower variable costs and lower energy costs. Compared to the Q4 of last year, conversion cost was up 4% due to higher variable costs and lower smelting sales. Now moving to Slide number 6, where we will talk about Aripona.

Speaker 2

In the Q1, activities in Aripuana have progressed as planned with our efforts concentrated on the replacement of some critical equipment and on improving the metallurgical process. Those were important steps to keep improving plant stabilization and reliability. As a consequence, in the quarter, we saw significant advances in recoveries and concentrate quality. Although capacity utilization during the Q1 of 2024 was 57%, we saw an important increase in utilization in March and April, with levels reaching more than 80% on certain days of both months and stabilizing at around 70% in the 2nd week of April. In the following months, we expect this positive trend to continue.

Speaker 2

In the Q1 of this year, we saw an increase in copper, lead and silver production compared to the previous quarter, while zinc was flat. Our current focus continues on plant stabilization and on adjusting some critical processes such as improving the performance of the tailings field tailings circuit, which will allow us to further increase capacity utilization, paving the way for the completion of the ramp up, which is expected by mid-twenty 24. Our exploration plan in Aripuana in the Q1 also progressed as expected. And the results confirm the continuity of mineralization with high polymetallic contents reaffirming that we have a robust mining asset with a potential to operate for many years. I would like to highlight the important results we obtained in the 2023 exploration campaign, which contributed to Nexa's overall 10% increase in mineral reserves.

Speaker 2

In the next two slides, we will see more details on the operational performance of Aripuana in the quarter. Now moving to Slide 7. Starting with the plant downtime in the upper left side, we noted a decrease of 14% quarter over quarter, indicating improvement in the stabilization of the plant. Average capacity utilization averaged 57% in the quarter, but increased to 70% during April. In the lower left side, we can see the progress of the zinc recovery, which reached 73% in March versus 66% in December.

Speaker 2

Copper and lead recoveries also improved significantly in March, indicating a strong positive trend. Now moving to Slide number 8. On Slide 8, compared to the Q4 of 2023, zinc production was relatively flat. Copper production increased by 9%, while lead and silver production increased by 14% and 11%, respectively. These improvements indicate that we are moving in the right direction to complete the ramp up in mid-twenty 24.

Speaker 2

Now moving to Slide 9. On this slide, I would like to highlight that we continue progressing with our exploration program. We have reached important results with an overall 10% increase in our mineral reserves in 2023, net of depletion. Risk was mainly driven by the infill and brownfield positive results from drilling activities in Aripuana and the inclusion of the Atacocha mineral reserves, driven by the positive results from the Cerro Pasco integration project. The 2023 results reinforce Nexa's successful track record in not only replicating, but also increasing our mineral reserves and mineral resources base, as well as showing the potential of our assets.

Speaker 2

Now I will turn over the call to Jose Carlos Del Valle, our CFO, who will present our financial results. Jose, please go ahead.

Speaker 3

Thank you, Ignacio. Good morning to everyone. I will continue on Slide 10. As you can see, beginning with the chart on your upper left, total consolidated net revenue for the Q1 decreased by 13% year over year, mainly due to lower zinc prices, lower net premiums and lower smelting sales volumes, which were partially offset by higher mining sales volumes. Compared to the Q4 of 20 23, net revenues decreased by 8%, also as a result of lower smelting sales volumes and lower zinc prices.

Speaker 3

In terms of profitability, consolidated adjusted EBITDA in the Q1 of 2024 was $123,000,000 compared to CAD133 1,000,000 a year ago. This lower performance was mainly explained by 22% reduction in zinc prices year over year and lower smelter sales volumes. Compared to the Q4 of 2023, despite lower zinc price levels, adjusted EBITDA increased by 17%, primarily due to lower costs and lower mineral exploration and project evaluation expenses. Finally, it is worth noting that our consolidated adjusted EBITDA margin increased to 21%, one basis point and three basis points higher compared to the Q1 of 2023 and to the Q4 of 2023, respectively. Now let's move to the next slide, number 11.

Speaker 3

On the top left of the slide, we can see that in the Q1 of 2024, we invested $74,000,000 in CapEx, nearly all of which went to sustaining activities, including mining development and tailing storage facilities. In line with this, our 2024 CapEx guidance for the year remains unchanged at $311,000,000 With respect to mineral exploration and project evaluation, we invested a total of $12,000,000 of which $9,000,000 were related to mineral exploration and mine development to support our exploration activities. However, we expect our investments in these areas to accelerate in the upcoming quarters, and therefore, we are maintaining unchanged our 2024 guidance for exploration and project evaluation at $72,000,000 Now let's move on to the next slide in which I will discuss our cash flow. Starting from the $123,000,000 of adjusted EBITDA, net of non operational items, we paid $46,000,000,000 related to interest and taxes and spent $75,000,000 in total CapEx in our operations. Additionally, loans and investments had a positive net impact of $24,000,000 mainly due to a new $30,000,000 short term facility that became effective in March.

Speaker 3

Then had a negative impact of $3,000,000 due to the effect of foreign exchange on our cash and cash equivalents, driven by the depreciation of the Brazilian real against the U. S. Dollars during the period. Finally, we saw a negative effect of $125,000,000 related to working capital, which is a typical cycle observed in the Q1 of each year and in line with our established payment terms and annual tax obligations in the jurisdictions where we operate. As in 2023, we expect this negative working capital effect to be reversed throughout the year.

Speaker 3

Combining all these effects, our free cash flow in the Q1 of 2024 was negative in $144,000,000 Now moving to slide 13. In this slide, you can see that our liquidity remains healthy and we continue to present a sound balance sheet with an extended debt maturity profile. At the end of the Q1 of 2024, our available liquidity totaled approximately $644,000,000 including our undrawn sustainability linked revolving credit facility of $320,000,000 Furthermore, in March, we successfully renegotiated and extended by 5 years one of our remaining export credit notes totaling $90,000,000 which was previously set to mature in October 2024. Regarding our overall profile, in the Q1 of 2024, average debt maturity was 3.7 years and carried an average cost of 6.1%. It is important to mention that as of March 31, our total cash position is sufficient to cover the payment of all obligations maturing in the next 3 years.

Speaker 3

In terms of our leverage ratio, measured by the net debt to adjusted EBITDA ratio, it increased from 3.2 to 3.7 times quarter over quarter. This expected increase is primarily due to the previously explained temporary decrease of $144,000,000 in our cash balance quarter over quarter and to the lower adjusted EBITDA registered in the last 12 months, driven by the prevailing trend of lower zinc prices in the period. As previously disclosed and in line with our proactive approach to liability in April, Nexa successfully extended its debt profile from 3.7 years to around 7 years through the execution of a new bond issuance and tender offers for existing bonds. This strategy also included the issuance of a new $130,000,000 6 year ESG linked debentures in the Brazilian market. In relation to the bond transactions, the new $600,000,000 10 year bond carries a 6.75 percent coupon and allowed us to repurchase around 485,000,000 dollars $100,000,000 of the existing notes due in 2027 and 2028 respectively.

Speaker 3

These transactions marked a significant milestone for the company, as Ignacio mentioned at the beginning of his presentation. These strategic initiatives allowed us to optimize our financial structure, diversify our funding sources and enhance our liquidity position. It is important to understand that the extension of our debt profile is part of an ongoing optimization effort and is a reflection of our commitment to prudent financial management and of our confidence in the long term prospects of our business. In this line of thinking, we are always evaluating cost efficient options to continue to maintain a maturity profile that is in line with the long life of our assets. Moving now to Slide 14.

Speaker 3

Regarding market fundamentals, it is worth noting that in the Q1 of 2024, LME zinc prices averaged $2,450 per tonne, down by 22% from the Q1 of 2023. This decrease primarily stems from the conditions present at the beginning of 2024, reflecting lower demand prospects in China and uncertainties regarding the U. S. Economy, especially in relation to inflation. Compared to the Q4 of 2023, LME zinc prices were down 2%, mainly explained by the Chinese New Year holiday and also lower demand due to seasonality during the Q1 of 2024.

Speaker 3

LME copper prices averaged $8,438 per tonne in the Q1 of 2024, down by 5% from the Q1 of 2023 and up 3% from the Q4 of 2023, also presenting high sensitivity to the Chinese economy throughout the Q1. Looking ahead, zinc prices are expected to be positively supported by the macroeconomic stimulus in China and by the current tight zinc concentrate market that has driven benchmark TCs to levels that are 40% lower than what they were in 2023. In the mid to long term, the fundamental outlook for both zinc and copper prices remains positive. Additionally, investments in construction, infrastructure and in the automotive sector will continue to have a positive impact on demand expectations for base metals. Now I will hand over the presentation back to Ignacio for his final remarks.

Speaker 2

Thank you, Jose Carlos. As I mentioned earlier, we expect to conclude the ramp up at Aripuana by mid-twenty 24 as we continue gradually reducing plant downtime, while increasing capacity utilization and improving recoveries of all the metals. Our Cerro de Pasco integration project is progressing as expected towards the approval process. Our exploration results provide significant indications not only of the potential to further extend the life of our current mines, but also of our consistent track record of replenishing reserves. We are focused on our ESG strategy, which prioritizes safe across our operations, higher environmental standards and the development of our communities within a framework of ethics, transparency and responsibility.

Speaker 2

We already took an important step in strengthening our balance sheet with the execution of the liability management transactions at the beginning of this year, which combined with a disciplined capital allocation and positive cash flow generation will allow Nexa to start deleveraging and improve its financial position. That concludes our remarks. Thank you for your support and confidence. Operator, we are ready to open the floor for questions.

Operator

We'll now begin the question and answer session. We will pause to assemble our roster. Thank you. And our first question comes from Camilla Bardo from Bradesco BBI. Camilla, please go ahead.

Speaker 4

So good morning. Two questions on my side. The first one, you commented yesterday on the release about a potential impact, a legal impact in legislation in Brazil and Peru in results and in cash flow. Could you please give more details in terms of magnitude and timing for those impacts? And for Brazil, what would be the exact impact?

Speaker 4

Is it any cash outflow expected for that? And the second question is about the guidance. You kept production guidance despite the disinvestment in Moragudo, right? So could you please share a little bit about the rationale for this maintenance of the guidance? Do you expect better production in other mines to offset the divestment or we could potentially expect production more towards the end of the guidance, the low end of the guidance?

Speaker 4

Thank you.

Speaker 5

No, no. I wanted to clarify. Thanks, Camilo, for the question. You were talking about to make sure that I answered the question correctly. You're referring to some legal something in Brazil.

Speaker 5

I didn't quite get the question. Could you please clarify?

Speaker 4

Yes. In Brazil, there was a law about that you have to submit impacts for the mine until June, but I was not quite sure if there is any outflow related to that or it's just something legal.

Speaker 5

I honestly not sure exactly which legislation you're referring to on that one. And you mentioned that there was another one on Peru as well. You're asking about something in Peru. Maybe it's a communication that it wasn't so clear, sorry.

Speaker 4

In Peru, you mentioned about a discussion regarding tax that could impact results along 2024.

Speaker 5

You're probably referring to some of the tax contingencies that we have or you're talking about tax reform? Because these are I mean, these are plain standard wording that we include because there are always discussions about potential changes in the tax regimes both in Peru and in Brazil. So I want to know if you're talking about something specific related to a particular operation or you're asking in general about the 2 countries?

Speaker 4

Yes, in general.

Speaker 5

Yes. As far as I know, there's sorry, you want to say something else?

Speaker 4

No, but go ahead please.

Speaker 5

No, I can comment in general and happy to get in touch after the call if you have a specific question that we can help you with. But in general terms, I think there are always discussions both in Peru and in Brazil about potential changes in the tax legislation. And this is something that happens in other countries as well. Related to the desire of the government to increase their income. But there is not material that we have flagged as of now either in Peru or in Brazil, even though there have been discussions.

Speaker 5

But we have not flagged anything that material that may affect significantly our operations in either of the countries. But happy to get in touch after the call. If you have something specific in mind, maybe that you have read somewhere else or you need further detail, we can help you with that.

Speaker 4

Okay. Thank you. There is also only stability of Cerro Lindo that you mentioned.

Speaker 5

Okay. Sure. Okay. Yes, this is a as you may know, this is a matter that has been ongoing for a number of years in Peru and is affecting all the mining companies that have stability agreements tax stability agreements with the Peruvian government. You may know that I come from Antamina.

Speaker 5

And in Antamina, we had exactly the same program. There is actually an international arbitration that is going on right now between Cerro Verde and the Peruvian government. So these are ongoing disputes and we always in our mindset of transparency, we always reveal that these are things that at some point may affect us, but our view is that we have very strong case, but we still have to make the disclosure. So this is there's nothing new here. It's just that we make we are making sure that we are disclosing that we have these cost contingencies just like all the other mining companies that have these stability agreements with the Peruvian government.

Speaker 4

Okay, clear. Thank you. And I'll be glad I have

Speaker 6

only one comment on this. No, go ahead, please.

Speaker 4

The second one about the guidance, but Ken, if you want to add something about the About the guidance, I was asking about Yes.

Speaker 6

Udo, it was a very small operation for us. It was a marginal operation, and we decided to sell because of that. Having said that, Moragullo was in our guidance, but still we are maintaining our guidance on production and costs. So we don't believe that selling Moravunu and stopping production reporting production of Moravunu is going to affect our guidance for the end of the year.

Speaker 4

Okay. Because it's a marginal investment, but do you expect Yes. Okay.

Operator

Yes. And our next question comes from Carlos de Alba from Morgan Stanley.

Speaker 7

Thank you very much. Two questions. The first one is if you can provide a little bit more comment on the Magistral environmental impact study and the issue there that apparently it might be rejected by the authorities. I wanted to understand what is behind these and what could be the repercussions? And then second question, Ignacio maybe on the working capital, typically, yes, there is seasonality on working capital in Q1, but this time relative to the last several years, the consumption of cash flows for working capital was much bigger.

Speaker 7

So I wanted to understand how much of that you expect to be reversed in the Q2 or throughout the year? Thank you.

Speaker 6

Yes. Yes. So thank you, Carlos. So regarding Magistral, what happens is that ANA, which is the National Water Authority, has issued a report where they stated that some of the they have still some observations regarding the project's impact on the water deposits that are near our projects. This means that this report goes to Cenace, which is the main authority that is going to issue a report of approval or disapproval.

Speaker 6

And this is now in the hands of this Enas. So we expect that they will come back to us with an answer in the next 1 or 2 months, okay? So in the context of that, I would like to say that, and we said this many times, Carlos, that Magistral is a good project for us and still is an investment of $1,000,000,000 And we always want to compare this investment of $1,000,000,000 with other investments that we might be able to do, not only in Peru, but also in other countries. So and the contract that we have signed with the government means that we can invest in Magistral until 2028 to start investing in Magistral. In the case the project is approved, we will need to start again on this process that's going to take us at least 4 years.

Speaker 6

But then in that case, we will have to assess if that's a priority or we just let Magistral go for the moment, put it on hold and try to look for other options in our pipe. So that's mainly what is happening in Magistral. I guess for the next call in July, we will know we will have more information and we can answer that in a more specific way, guys. And regarding working capital, Jose Carlos, please?

Speaker 5

Yes. Carlos. As we have seen in prior years and actually in discussions that we've had with different funds and analysts, there is a lot of seasonality in our working capital, particularly in the Q1 of the year. This is very typical. I mean, it's actually not too different from what we saw last year, and it has to do with increased receivables and much lower payables because there is a trend of increased spending towards the end of the prior year, particularly in CapEx that are large numbers.

Speaker 5

So you have to pay all of that in the Q1 of the following year. You have to rebuild the inventories because typically you sell everything that you have at the end of the prior year as well. And in addition to that, in the Q1, we pay a significant amount of taxes and employee bonuses, etcetera. So for those reasons mainly, the Q1 is always negative in working capital and therefore negative in terms of cash flow. Just as last year, we expect this to start reversing throughout the year.

Speaker 5

Obviously, prices will have an important impact on how quickly this happens, but we will see the reversing trend starting in the second quarter. Thank you.

Operator

And our next question is going to come from Lawson Winder of Bank of America. But before we turn Lawson on, just wanted to remind you if you would like to pose another question, please press star 1. Thank you. Lawson Winder, please go ahead.

Speaker 8

Thank you, operator, and hello. Good morning, Ignacio and team. Thank you for the update. I have a few questions, if you don't mind. First on the balance sheet and the debt.

Speaker 8

What is your target net debt to EBITDA ratio and when do you expect to reach that? And then when you think about capital allocation, at what point might more attention be given to an update to the dividend?

Speaker 5

Yes, I can comment on that. Good morning, Lawson. I don't comment about leverage in general terms. Obviously, in the Q1, as expected, we had a higher net leverage ratio. This is something that will change throughout the year, quarter after quarter, not only as we accumulate cash even more so with these prices, but as our adjusted EBITDA improves.

Speaker 5

As Ignacio mentioned, our Aripuana project is performing well. We are in the process of achieving the completion of the ramp up as we've been commenting in previous calls. So our EBITDA will improve over time and we expect that leverage will net leverage will reduce significantly throughout this year, below much, much lower than the levels that we have seen in the Q1. Having said that, we continue to state that reducing our debt, not just the leverage is our top priority. So the idea is that gradually over the next few years as we start generating cash with Aripuana and generating more cash flow as a company as a whole, we will start looking to reducing our debt.

Speaker 5

We have said a number of times that we feel more comfortable with net leverage ratios in the neighborhood of 1.5 times because that's what gives you the buzzer to be able to go through the low price cycles as we have had in the last few quarters. So we need to it is a priority to go back down to those levels and to, in parallel, reduce our debt to get to those levels. So we will see significant improvement during the year, and it will probably take some more quarters to reduce that debt to levels that will allow us to have a leverage of about 1.5x. In relation to dividends, we stated that we will take a look at market conditions and company performance in the second half of the year to make a decision on dividend. That continues to be the case.

Speaker 5

Things are looking good in terms of Aripuana performance, as I mentioned. Prices have improved, but we don't know how long these higher levels will be in place. But definitely, will be considerations that we will evaluate once we make a decision as we anticipated for the second half of this year.

Speaker 8

Okay. Thank you. That's very helpful. And then just kind of sticking with this theme of capital allocation. So, Arauquanya is ramping up.

Speaker 8

There's still quite a bit of CapEx left to go. Next project is Cerro Pasco. When you look beyond Cerro Pasco, what is kind of the thinking around the next likely project that Nexa might be tackling?

Speaker 6

Yes. So it's a very good question. Aripuana, as Jose Carlos is saying, and we have been talking about that, Lawson, Aripona is the ramp up is finishing in the coming months. So most of the CapEx of Aripuana is going to be sustaining CapEx. And I would say that Aripuana won't need more only sustaining CapEx and not growth CapEx, okay?

Speaker 6

The next one is Sierra Repasco. Sierra Pascua, we hope we approve it in the second half of this year. We are ready to approve Pascua, but we want to make sure as a company, and this is part of the Board, the conversations that we have with the Board, We are trying to make sure that we finish first the ramp up to Jalapuena and then we can announce the approval of Jalapuena. We are ready to approve Jalapuena, but it's a timing of finishing at Ipiranga before. Cerro Pascua is a project that is going to cost us between $140,000,000 $160,000,000 and it's going to be the investment is going to be in the next 3 years.

Speaker 6

This year is our passcode. We are Cerro Pascua,

Speaker 4

we are investing

Speaker 6

in all Hermes, which is our main bottleneck and in finishing the engineering of the pumping seat. So besides that, as Jose Candles was major in terms of capital allocation, with the cash generation that we will have, we want to make sure that one of the priorities on our capital allocation strategy is to reduce the debt. Okay. Having said that, we, in terms of capital allocation, we also work in our pipeline of projects. Specifically, we have, for example, Tinca Resources that is now a new technical report.

Speaker 6

And we have to make a decision if we advance on that. And we have other projects in our pipeline that we can advance. But in any case, those are 5 to 8 years to become mines, if they might become. So I would say that the next project that we will bring is a project that will be from our M and A strategy. We are assessing a lot of projects our size similar to the mines that we have, investments are around $600,000,000 to $800,000,000 And that's why we need the leverage of $1,500,000,000 that Posicamos is mentioning because that will allow us to bring to invest with our cash flow and with some debt to bring the other employees.

Speaker 6

This is more than where we are today. We are active on M and A. We are very committed to visit some projects that have more cover, as we said before. And I will say that that's mainly our capital allocation strategy going forward.

Speaker 8

Okay, fantastic. And since you touched on M and A, I might follow-up and just ask for a little bit more clarification on your latest thinking. I mean, it sounds like it's largely in line to what you said before. But in terms of timeline, I mean, what does it look like for you at this point? At what time you might be able to transact on a copper acquisition?

Speaker 8

And then maybe on some of the details, just update us on your thinking in terms of are you looking at corporate versus asset M and A, producing versus development and there's been a lot of interesting copper M and A in the past year both at the asset and corporate level. I mean, with your work, what are you seeing in terms of valuation? Are you seeing valuations that make sense?

Speaker 6

Yes. I mean, products are almost expensive. In good times and in bad times, they are always expensive. I guess we are in a niche. And I guess the projects that we look for are in terms of copper, the size of 50,000 tons.

Speaker 6

It might have some polymetallic, zinc and lead as well. And that put us on the radar of $600,000,000 to $800,000,000 This is below the radar of most big mining companies that we understand that. And I would say that the opportunity that we are looking for, we are flexible on corporate or at an asset level, we are flexible on that. I would say that we are more focused on understanding the potential assets that we will acquire. And we are trying to bring or the priorities are around brownfield projects close to production or projects that are starting production and they need some experience to unlock more value for them.

Speaker 6

These are there are not that many projects of that, but they are. And I will say that given that this expertise that we have, these are the ones that we are looking for. Having said that, because of this investment and because of our leverage, our shareholders are conservative, our Board is conservative. So I would say we have to finish first at Ipona. We have to approve several passcode that is coming this year.

Speaker 6

We have to execute several passcode. And in parallel, while bringing the cash flow, we'll hopefully assess or bring some of these opportunities that we are assessing and announce an acquisition of some copper, zinc advanced projects. That's more than where we are.

Operator

At this time, to handle questions brought up through the webcast, we'll turn the conference over to Rodrigo Camarozano, the Nexa's Head of IR. Rodrigo, please go ahead.

Speaker 1

Thank you, operator. We have two questions from the webcast. The first one is from Harinan Kisluk from Life Life. And we also have another question from Alina Cipa from Easley Fund Management Company. So those questions are pretty much the same.

Speaker 1

And those have been already answered by Jose Carlos. They are related to the leverage and the dividend payment. So I believe that those questions have also have already been addressed. And we don't have any other questions. So I will turn the call over to Ignacio for his final remarks.

Speaker 6

Okay. Thank you very much, Rodrigo. Thank you very much to everyone for attending the call. We expect to we look forward to speak to you in the next quarter. Just wanted to say that we are very committed on our safety program.

Speaker 6

This is difficult times for us because we had 2 fatalities in 2 months and this never happened to us. So we are very focused on making sure that the system that we have that is a good system has to be reinforced and we have to make sure that all of our people understand that safety is our main value and we are we will dedicate a lot of time on that. We are also working very hard on making sure that Aripuana finally is at the end of the ramp up. Cerro Pascua is clear for us. We can approve it today, but we want to make sure that we first start a finish at Ibona.

Speaker 6

And then we are working always on achieving guidance on costs, on a limitation on CapEx and on production to have a stable production. So this is simple. It's a simple strategy, but it's a day to day strategy that we have to build. So we hopefully can show you that during the Q2, at the end of the Q2. Thank you very much for attending, and have a good day.

Operator

And the conference has now concluded. Thank you for attending today's presentation. You may now disconnect and have a great day.

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Key Takeaways

  • Net revenues of $580 million were down 13% year-over-year due to weaker zinc prices and metal sales, with adjusted EBITDA of $123 million, down YoY but up 17% quarter-over-quarter on cost discipline.
  • Two fatal safety incidents at the Alport Rainier and Vasante mines led management to pledge enhanced safety measures and a renewed focus on achieving zero fatalities.
  • Zinc production increased 17% YoY to 87,000 tonnes while mining cash costs fell to $0.27/lb, driven by higher ore grades and lower treatment charges.
  • Aripuana ramp-up continued with plant utilization improving from 57% to around 70% and rising metal recoveries, positioning the project for full ramp-up by mid-2024.
  • The company extended its debt maturity to about 7 years through a $600 million 10-year bond and a $130 million ESG-linked debenture, boosting liquidity to $644 million and diversifying funding sources.
AI Generated. May Contain Errors.
Earnings Conference Call
Nexa Resources Q1 2024
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