Nexa Resources SA Q3 FY2026 earnings call

• Operational Recovery & Efficiency: Peruvian operations normalized, with Cajamarquilla processing cathode inventory buildup post-fire. Aripuanã plant utilization improved significantly, averaging 84% for the quarter and reaching 90% in September, driven by the successful fourth tailings filter.
• Production Milestones: Zinc production increased 7% to 85,000 tons, led by Aripuanã, Basante, and El Porvenir. Copper production is expected to finish at the lower end of the range due to lower grades at Cerro Lindo.
• Project Progress: Cerro de Pasco Phase I construction advanced as planned, with civil works and equipment assembly completed. Mechanical completion is targeted for December 2026, with pumping starting in early Q3 2027.
• Financial Health: Free cash flow was $73 million, and net leverage decreased to 1.2x from 1.4x in June. Net loss of $47 million was primarily due to a $124 million non-cash impairment of Brazilian units, which had no cash impact.
• Strategic Integration: The transaction to sell controlling stake to Boliden is progressing toward closing in Q1 2027. Nexa continues to operate independently with unchanged strategic priorities during this period.

The company reported consolidated net revenues of $937 million and Adjusted EBITDA of $301 million (32% margin). The Mining segment generated $454 million in net revenues with an Adjusted EBITDA of $236 million, representing a 52% margin. Zinc production reached 85,000 tons, up 7% sequentially. Cash costs net of by-products were negative 64 cents per pound. The Smelting segment generated $696 million in net revenues with an Adjusted EBITDA of $65 million (9% margin). Smelting production rose 28% to 159,000 tons, while sales grew 9% to 146,000 tons. Cash costs net of by-products were $1.65 per pound.

• CAPEX Raised: 2026 CAPEX guidance increased by 10% to $420 million, driven by accelerated mine development at Aripuanã, brought-forward investments at Cerro de Pasco, and the stronger Brazilian real.
• Cost Guidance Updated: 2026 cash cost guidance lowered to reflect higher by-product prices (silver/copper), though smelting cost guidance was raised due to higher zinc prices and currency effects.
• Production/Sales Maintained: Full-year production and sales guidance remain unchanged. Management expects Q4 to be the strongest quarter of the year for mining output.
• Cerro de Pasco Budget: Project-specific CAPEX budget raised to $41 million for 2026 from $31 million to bring forward investments.

• Impairment Risk: Significant non-cash impairment ($124 million) recorded for Brazilian assets due to lower long-term treatment charge assumptions and currency strength.
• Regulatory/Permitting Delays: Environmental impact study modifications for El Porvenir and Atacocha are under review by SENACE, with approvals expected in March/April 2027.
• Market Volatility: Smelter margins pressured by negative spot treatment charges in China (-$236/ton), though cushioned by by-product credits.
• Credit Rating Impact: S&P downgraded issuer rating to BBB+ citing perceived lower support from new parent Boliden compared to previous owner Votorantim, triggering change of control provisions on 2028 notes.
• Geopolitical/Tariff Uncertainty: Section 232 decisions and trade tensions create uncertainty for copper demand and pricing.

Q: Analyst Pedro Melo asked about the ramp-up pace at Aripuanã following the stabilization of the fourth tailings filter, how unit costs will evolve with higher volumes, and if there are operational risks regarding the start of tailings pumping at Cerro de Pasco next year.

A: CEO Ignacio Rosado confirmed that Aripuanã is approaching full capacity (100%) in coming months, noting that the automated fourth filter performs well even in rainy seasons. He acknowledged current high costs due to remote location and labor rotation but stated that profitability is improving as the operation normalizes. Regarding Cerro de Pasco, he expressed confidence in the December mechanical completion and January ramp-up, citing ample time in the current dam as a buffer and no anticipated permit issues, viewing Phase I as stable and setting the stage for future phases.

Q: Analyst Alex Emery asked why Peruvian metal production declined year-over-year in Q3 beyond the known lower grades at Cerro Lindo, and if operations would return to normal levels in Q4.

A: Ignacio Rosado explained that while Cerro Lindo's lower grades are part of the life-of-mine plan, specific development problems in Q3 further reduced extraction tonnage. He assured that these development constraints are resolved and expects Q4 to be a strong quarter for both Peruvian and Brazilian mines, putting them back on track with projections.

Q: Management discussed the impact of the pending Boliden acquisition on credit ratings and corporate strategy during their remarks and initial Q&A.

A: CFO José Carlos del Valle noted that S&P downgraded Nexa’s rating to BBB+ because the perceived support level from Boliden is one category lower than from the previous owner, Votorantim. This triggers change of control provisions on the 2028 notes. However, management emphasized that until the deal closes in Q1 2027, Nexa operates independently, and their priorities—free cash flow generation, disciplined capital allocation, and debt reduction—remain unchanged regardless of the ownership transition.