Nexa Resources S.A. Common Shares 2026 Q2 Earnings Call

Good morning, everyone, and welcome to Nexa Resources' second quarter 2026 earnings call. Thank you for joining us. Today, we will walk through the results we published yesterday. If you would like to follow along, the presentation is available through the webcast. Before we begin, please take a moment to look at slide number two. It contains our forward-looking statements disclaimer, and we ask that you review it along with the related risk factors. Here with me today are Ignacio Rosado, our CEO, José Carlos del Valle, our CFO, and Leonardo Coelho, our Senior Vice President of Mining Operations. Ignacio, over to you. Thank you, Rodrigo.

Good morning, everyone. Let me start on slide number three. The operational inflection we have been pursuing becomes visible this quarter. Adjusted EBITDA grew 78% year-over-year to $186 million, with a margin of about 31%. Net income was $98 million, or $0.52 per share. Net leverage continued coming down, closing the quarter at 1.4 times. A steep drop from where we were a year ago, supported by last 12 months Adjusted EBITDA of over $1 billion. Three things drove the results. First, a constructive price environment across our entire metal mix, most notably silver, where prices averaged 117% above the second quarter of last year. Second, the recovery of production out of our Peruvian mines after the first quarter setbacks as those assets return to normal run rates.

Third, better performance at our Brazilian smelters, including the contribution from byproducts, which partially offset the challenges at Cajamarquilla. Two milestones position us well for the second half of the year. At Aripuanã, the fourth tailings filter is now up and running. That removes a key bottleneck and give us more production flexibility going forward. At Cerro Lindo, we implemented the block caving mining method. It is an important milestone, and over time, we expect it to contribute to lower unit costs and better access to higher-grade areas. In mining, zinc production reached 79,000 tons, up 8% year-over-year on better grades. In smelting, zinc metal and oxide sales totaled 134,000 tons, down 7% year-over-year and 8% quarter-over-quarter, impacted by the fire at Cajamarquilla in May. It is important to mention that the event affected the casting house, not upstream processing.

We continue producing cathodes while we restored operations. Activities resumed gradually and returned to normal levels in June. That cathode inventory underpins the recovery of the affected volume in the second half. Free cash flow was slightly negative in the quarter, mainly reflecting a $131 million tax settlement payment in Peru related to the Cerro Lindo Stability Agreement. Looking ahead, we expect positive cash flow in the coming quarters, supported by improved production at Aripuanã, the recovery of production at Cajamarquilla, and a resilient pricing environment. Let's move to slide number four for a closer look at the mining. Year-over-year, the 8% increase in zinc production comes from better ore grades across key assets. Sequentially, production was broadly flat. The recovery in Peru offset temporary lower grades at Aripuanã, the commissioning of the fourth tailings filter, and the scheduled ball mill liner replacement.

Cash cost net of byproducts came in at $0.04 per pound in the quarter. For the first half, that puts us at -$0.35 per pound, well below our 2026 guidance range. The drivers were strong byproduct credits from higher copper, silver, and gold prices and lower treatment charges. Cost per ton of run of mine was $57 per ton in the quarter, and $57 per ton for the first half, in line with full-year guidance. The year-over-year increase came from the appreciation of the Brazilian real against the U.S. dollar and from higher personnel and maintenance costs at most of our units, partially offset by a stronger byproduct contribution. The financial picture for the segment is strong net revenues of $524 million and adjusted EBITDA of $220 million, a 42% EBITDA margin.

That is the kind of operating leverage we expect when prices and volumes both move in the right direction. Let me turn to Aripuanã on slide number five. Aripuanã delivered a strong year-over-year performance. Treated ore was up 33% to 399,000 tonnes, and zinc production up 44% at 88,000 tonnes. That reflects higher throughput and better grades as the operation keeps moving towards design capacity. Sequentially, the decline was expected. It reflects the commissioning of the fourth tailings filter during the quarter, together with the scheduled ball mill liner replacement. We are already beginning to see the benefit of the new liner material. The filter itself was the milestone of the quarter. The new capacity processed more than 50,000 tonnes of tailings and supported average plant feed rates of 249 tonnes per hour in June. That is more than 86% capacity utilization.

For the quarter as a whole, plant utilization averaged 71%, with peak daily rates above 92%. What that tells us is that the operation can now sustain higher throughput with more flexibility, and importantly, with materially less exposure to weather disruptions during the rainy season. As the new filter stabilizes, we expect utilization rates and production to increase further in the second half of the year. On exploration, we did not conduct exploration drilling at Aripuanã in the first half, but we completed over 23,000 meters of infill drilling. For the second half, the priority is the geophysical program, generating and refining targets, expanding known mineralization, and identifying new opportunities to support future mineral resource growth. To slide number six for the Cerro de Pasco Integration Project. This quarter, alongside continued progress on phase 1, we completed a review of the project's long-term configuration.

With a more favorable metal price environment, we reassessed some operating parameters at the Atacocha open-pit mine, including a review of economically mineable areas. Based on these results, we now expect the open pit to remain in operation for longer than originally anticipated. Because the open pit will sustain production longer, we are able to defer phase 2, spreading capital over a longer period without reducing the complex's expected production. On CapEx, total estimated investment moves from $138 million to $180 million, concentrated in phase 1. The CapEx review was primarily driven by the incorporation of a geomembrane lining in the Atacocha tailings. Together with engineering updates and the decision to anticipate the Atacocha tailings storage facility raised into the current project phase. Our 2026 CapEx for the project remains unchanged at $31 million, with the incremental investment allocated to 2027 and beyond.

Phase two is deferred to 2032. On execution this quarter, we completed the main civil works, started electromechanical assembly, including the tailings thickener, and concluded the structural assembly of the pumping building. Looking ahead, the third quarter focus on completing assembly and starting commissioning. Mechanical completion of the pumping system is expected in December. From there, we expect approval of the MEIA by SENACE and the start of the operating authorization process in the first quarter of 2027. Cerro de Pasco is a well-known high-potential polymetallic district. This review further de-risks the project and strengthens our integrated position there, sequencing the ore body to maximize value and minimize risk while preserving the long-term production of the complex. On slide number seven, I will talk about our exploration results. Our first half exploration results reinforce the quality and depth of the portfolio.

On slide number seven, you can see the high-grade intersections from our brownfield programs. The two highlights came from Vazante and El Porvenir. At Vazante, drilling at the Conexão Sucuri Norte target returned strong zinc mineralization close to existing infrastructure, which supports resource growth within the current mine plan. At El Porvenir, drilling at the integration target continued to confirm high-grade polymetallic mineralization and extended known zones, which reinforces the strategic upside of the Cerro de Pasco Integration Project. At Cerro Lindo and Aripuanã, our geological and target generation programs advanced priority targets and opened new opportunities for future drilling campaigns. Taken together, these results support the potential for future mineral resource growth and life of mine extensions across our assets. Let's turn to slide number eight for smelting. In smelting, zinc metal and oxide sales were 134,000 tonnes, down 7% year-over-year and 8% quarter-over-quarter.

Both declines mainly reflect the temporary suspension at Cajamarquilla after the fire in May. That was partially offset by higher volumes at both Brazilian smelters year-over-year and at Juiz de Fora sequentially. We expect to recover the affected volume in the second half, supported by the cathode inventory built during the quarter, and our 2026 sales guidance remains unchanged. By-products continue to gain weight in the segment year-over-year. Sulfuric acid sales rose 4%, silver content sales 22%, and copper cement sales were up 40%. On costs, cash cost net of by-products was $1.44 per pound in the quarter, $1.42 per pound in the first half, above the upper end of our annual guidance. That reflects higher zinc LME prices impacting raw materials costs, together with temporary higher operating costs at Cajamarquilla due to the fire, and the appreciation of the Brazilian real.

Conversion cost was $0.36 per pound in the quarter, and $0.35 per pound in the first half, slightly above guidance, mainly on lower volumes at Cajamarquilla. As volumes recover through the second half, we expect conversion cost to move back towards the guidance range. Despite the lower volumes, the segment delivered a strong financial performance. Net revenues of $584 million and adjusted EBITDA of $66 million, up 162% year-over-year and 11% margin. The year-over-year improvement came from lower raw material costs, driven by the consumption of calcine inventory with lower unit costs and a higher share of zinc concentrate from our own mines, together with a stronger by-products contribution. With that, I will hand over to José Carlos, our CFO, for the financial slide.

Thank you, Ignacio, and good morning, everyone. Let's go to slide number nine for an overview of the financials. The momentum we achieved in the fourth quarter of last year carried through into the second quarter of 2026, supported by a favorable price environment and by the normalization of our Peruvian mining operations, despite a softer quarter in smelting. Net revenues totaled $908 million, up 28% year-over-year and 2% quarter-over-quarter. The year-over-year increase came from higher metal prices across the portfolio, including a $99 million larger by-product contribution together with higher zinc prices. This was partially offset by lower smelting sales volume. The sequential improvement was more modest, reflecting continued strength in metal prices and higher mining volumes, again, partially offset by lower smelting sales volume. Adjusted EBITDA came in at $286 million, up 78% year-over-year with a margin of 31.5%.

The year-over-year improvement reflects price realization, which translates into a stronger by-product contribution along with higher volumes in mining. Sequentially, adjusted EBITDA was broadly stable. The positives were lower raw material costs in smelting, lower maintenance expenses in Peru, and a higher share of zinc concentrate sourced from our own mines. Those were partially offset by lower by-product contribution, mainly on lower silver prices, and by lower smelting sales volume. Let's move to investments on slide number 10. We invested $89 million in CapEx during the quarter, bringing the first-half total to $160 million, about 42% of our full-year guidance. Most of it went into sustaining activities, mine development, and tailing storage facilities. Phase 1 of the Cerro de Pasco Integration Project accounted for $9 million in the quarter and $17 million in the first half versus our $31 million guidance for the full year.