Good morning, and welcome to the Nexa Resources conference call. [Operator Instructions] Presenters in this call are Mr. Tito Martins, CEO of Nexa Resources; Mr. Mario Bertoncini, CFO of Nexa Resources. Also joining the call, Nexa's Executive Team and Mr. Leandro Cappa, Head of Investor Relations. Please note this event is being recorded. I would now like to turn the conference call over to Mr. Tito Martins, CEO of Nexa Resources. Mr. Martins, the floor is yours, sir.

Thank you. Good morning, everyone, and thank you for joining Nexa's first quarter earnings call. On Slide 3, right after disclaimer page, you'll see the agenda for today's call. We're going through the following topics: first quarter main events and performance; then Nexa's CFO, Mario Bertoncini, will discuss our operational performance and the consolidated results; closing the first part of the call, we will remind you of our projects and priorities for 2018. Then, we'll open for Q&A session. Please go to Slide 4. As we had already discussed in the last call, we have clear priorities for 2018. Safety comes first. We are working to meet our guidance and we want to deliver our project pipeline. Last week, Nexa's first greenfield project on the pipeline, Aripuanã, was granted preliminary environmental license or LP. The LP certified that the project is in compliance with environmental standards, is an important milestone for the implementation of the project. All other greenfields and brownfield projects including Shalipayco and Magistral in Peru are also on track. Following the best disclosure practices, we filed on Monday Nexa's Form 20-F for 2017 and the mineral reserves and resources report. The total net increase of reserves comparing with the reports of last year was 8.9 million tons. This is a remarkable result from our exploration campaigns, and reinforce our long term track record of converting resources into reserves. Regarding metal sales, has been consistent and growth is expected. I would say it's back to normalized levels when comparing to the same quarter of 2017. As announced in February, we paid a share premium of $0.60 per share in March 28th, resulting in a 3.4% yield at that time. Finally, it's important to mention that our credit was reinforced by the 3 major rating agencies. Fitch, for example,…

Thank you, Tito. Moving onto Page 7, we present our mining performance in the first quarter. Let me remind you that we convert our production by metal to a zinc equivalent basis using full-year 2017 LME prices in order to present comparable figures. The zinc equivalent production in Nexa's mining operations totaled 134,000 tons in the first quarter of '18, in line with the same period of the previous year. The volume of treated ore increased by 4% in this quarter, this last quarter, and also benefited from an increase in copper and silver grades. On the other hand, grades in Cerro Lindo were lower, as Tito mentioned before. This production level represents 101% of the volume planned for the quarter, and it was considered in our annual guidance. At the bottom right part of the page, we have our mining cash cost after by-product credits, which were [ 4% ] lower in the quarter, benefiting from higher by-product prices and lower treatment charges, TC. Please, let's move onto Slide 8, where we discuss our smelting performance. Sales of metallic zinc in the first quarter of this year were 5% higher compared to the first quarter of '17, totaling 137,000 tons, supported by higher production once our smelters operated at full capacity; and as discussed in the previous quarters, fully recovered from the impact of rains and floods in Peru at the beginning of last year. The Brazilian metal sales were in line with the previous year. The smelting costs were positively affected by the higher LME prices and lower TCs. Moving onto Page 9, our revenues went up 23% to $676 million in the first quarter of this year, primarily due to higher metals volumes and base metals prices in the global market. The higher revenues allowed us to…

Thank you, Mario. Let's go through the highlights regarding our projects and operations. In Cerro Lindo, the EIA was approved for new disposal area and FEL3 was completed for the replacement and upgrade of the seawater pipeline. In Vazante, Ausenco was appointed to develop the detailed engineering for the dry stacking tailings project, and the long lead time orders have already being executed. The life of mine extension project, the deepening of Vazante, is advancing well. 64% of overall physical progress is completed and production from lower mining levels already accounted for 52% of Vazante production. As we discussed earlier, Aripuanã was granted the preliminary environmental license, and FEL3 is 58% completed. We will discuss Aripuanã in more detail in the next slide. FEL2 is advancing for Magistral and Pukaqaqa. During the first quarter, the focus was to execute the drilling campaign and appoint engineering contractors to develop the FEL2. Ausenco was appointed for Magistral and JRI for Pukaqaqa. Please move to the next slide. As mentioned before, our main greenfield project Aripuanã achieved an important milestone. We have been granted the preliminary environmental license, LP. Usually in Brazil, the LP is considered the most complex and challenging permit to be obtained; it's because this is the first time that the [indiscernible] communities have an official information about the project. The project had a great acceptance by the members of the Environmental Committee; reinforced the concept that Aripuanã must be aligned with the best practice for a project of this type. For example, the project uses dry stacking process, which is much more environmental-friendly and safer than tailing dams. We want to have at least 70% of the water recirculating in the production. The project development is on schedule. The FEL3, which is our final stage for the feasibility study,…

[Operator Instructions] The first question we have comes from Thiago Lofiego of Bradesco.

So I have got 2 questions, the first one on zinc inventory levels. Do you guys see any risk of additional shadow stocks appearing and impacting zinc prices? We've talked about this recently, and this apparently had been a concern. And also, how do you see the impact of some mines like Huallaga River and some restarts coming to the market along 2018 and 2019? The second question is on strategy and capital allocation. You lost the bidding process for Michiquillay in Peru. So are you evaluating any other growth initiatives on copper, on any other metals? And if not, considering your under-leveraged balance sheet, should we expect higher dividends ahead?

Thiago, thank you very much for your questions. About the zinc inventories, I would say, it was a good surprise to see the shadow inventories coming to the market. Some of the guys -- some of the experts are saying that those inventories -- they were very old ones, probably more than 20 years' old, which is -- which implies that the rest of inventories available are coming up to the market. So proves that what we've been saying along the last almost 12 months, there is a strong demand, demand is still there, and the supply has not been enough to cope with the demand. You asked also about the new mines coming to life. According to the numbers we've seen released by different analysts, even with the new mines, the supply will not be enough to cover the demand we may see in the next few years. I would say -- we're talking about at least a 300,000, 400,000 tons of additional demand in the market against an average supply that there is between 250,000 and 300,000 tons. New projects, of course, we have the obligation to keep an eye in the opportunity in the market. Michiquillay, we won't have actually not so -- we were not very happy about what happened, but we would never pay what Southern offered to pay for a project of that size and with the level of risk that project has. We are confident our pipeline of projects actually can be well developed; this is our priority. We would come up first with El Porvenir, Magistral and Shalipayco moving their well. Pukaqaqa maybe also good surprise for us the next 2 years. So we will pursue the development of those projects, keep an eye in other opportunities. That's what I can say so far. And in terms of the dividends, we will be following our policy. We want to provide a certain level of dividends to the market, we want to keep some stability in paying that. So we would follow the policy as it is today.

The next question we have will come from Orest Wowkodaw of Scotiabank.

I was wondering if we can get a bit more color on smelting business in respect to the EBITDA there. We've seen kind of continued compression in EBITDA. And I guess, I wanted to be clear, is the adjusted EBITDA number of $30 million -- is that -- does that still include this $4 million Peruvian, I guess, electricity dispute? And then I was just curious if you can give us some more details about what that's about and whether that has any cost -- operating cost implications moving forward?

Okay. Thanks, Orest, for your question. And just to clarify, yes, the EBITDA presented for the first quarter of '18 already includes the provision on this energy dispute, a provision of 400 -- $4 million, as said. What do have an impact as well and we have to be aware is basically the drop in TC, in treatment charges. For us, is a kind of trade off. When TCs goes down, our mining segment is benefited from that and our smelting segment not, do have a decline on the EBITDA. If you add up the TCs effect on this and the $4 million provision [ for it ], we basically explain more than 80% of these variation.

Okay. And in terms of does this electricity dispute have cost implications moving forward?

No, it's already provisioned and we're adding most probably for a settlement on a negotiated basis.

Okay. So you're not expecting operating cost increase, because of power?

No, [indiscernible].

Next we have [ Peter Gusenko ] of Barclays. Pardon, everyone. It looks like that line has accidentally dropped. We will proceed to the next question and it will come from Terence Ortslan of TSO.

Congratulations for the credit revision with Moody's, S&P and Fitch. Just a question on that. They obviously looked all the forward-looking CapEx and the balance sheet issues, it wasn't a cut-off of the revision of the last few quarters, was it?

Yes. Terence, thanks for the question. Regarding the CapEx, we reiterate our guidance that is our total CapEx for the year of $280 million. As expected and is normal for the first quarter of the year, the same occurred last year, for instance, the CapEx is a kind of [indiscernible] in amounts throughout the year. And another important thing to mention that is, of course, accounting wise that's the financial schedule for the CapEx, the CapEx we need to report. And the physical advancement, it's not exactly at the same proportion, is ahead of the financial [ disbursement ] and accounting, okay.

We mentioned during the presentation that everything is in the proper speed and I would say that we are not concerned at all about the level of investments we will be performing along the year [Audio Gap].

Moody's and S&P and Fitch ratings included the revisions of the capital in the stable BB+ and Ba2, they include all the capital spending you submitted to them, there will be no more revisions besides that, is there?

Exactly, yes. We -- in order for them, we leave this credit ratings; and it was confirmed all of these numbers, they do have with us, [ it's reopened ], yes.

The 5% weighted average cost of the debt, how much is it variable, how much is it fixed?

This is basically fixed and we have a small amount of our debt today around $200 million out of the total gross debt of $1.4 billion; that is in total terms LIBOR plus; the remaining part is fixed.

Okay. And one more question, sorry. In the smelting side, the CapEx, what's -- going forward, what is the CapEx requirements on the smelting side that we should be modeling forward? I mean this year first quarter was a pretty big number. What is the number for remainder of this year? You already have [indiscernible] beyond that, what is smelting expenditure that you expect to incur?

Most of the CapEx that is spent in the smelting has to do with sustaining. We do have one project that has been performing along 2018 and should be ready by the end of the year, beginning of 2019, which is the Jarosite the project, with total value is $23 million. Besides that, if you look at now our guidance, we are forecasting to the smelter $108 million, right? So if you discount the $20 million, we would be around $80 million a year to the smelters. We do not have any plans to actually increase the smelting capacity. Just the bottlenecking, what we have -- with the assets we have today.

And finally on the TC/RC on the refining charges, where do you see this heading going in the next -- besides this year, going into 2019, given the balance has been for you [ and the industry ]?

It's a good question. It's a very good question. We haven't seen yet the final agreement about the TCs in 2018. Market analysts are working with the possibility to have -- to see -- we agree with that, we may see a drop in the TCs. The benchmark was $170 per ton. We -- market is talking about something between $140, $150, $155. Next year, if we are right in saying that there will be a lack of concentrate in the market, we should see that this is dropping a little bit more. According to what we are seeing in terms of availability of concentrates in the market.

With less...

Sorry, we have to move on, we have a big line of questions. Sorry about that.

And the next question, sir, will come from [ Peter Gusenko ] of Barclays.

Apologize for some tech issue earlier. I wanted to follow up on the earlier question on your cash balance and new projects. Since you brought up Michiquillay development that, I think, Southern Copper won. The project was fairly large, about $2.5 billion in addition to what they paid. So should we expect it to pursue some huge projects of similar magnitude that would impact your liquidity fairly quickly? Or you intend to target smaller greenfields that have longer development schedule?

Thanks for the question, Peter. You are right. Our intentions regarding [ TCI ] were to be with the project, which we have the concession in order to have a chance to look at it, and actually, we never thought that we would be able to develop it by ourselves. We knew and we understood that we should be with someone else, at least an additional partner or maybe a group of partners, because of the size of the project, right? Our projects, our pipeline of projects, the size of them, they suit us. I mean, the size of each of the projects are more -- they suits more our size, our financial capacity, our resource capacity. By resource, I mean not only the financial resource but also our capability to manage projects of big size or medium-size size. What I would say is, of course, if we have a chance to access bigger projects, being able to be partners with other companies, we will try to do it, but always have -- bear in mind that we would have to prioritize the projects. We have the pipeline of vis-a-vis another potential projects. We keep saying since the beginning, we don't want to stockpile the projects, we want to develop a project by -- every project independently and in its own timing. I mean, Aripuanã is the priority; after Aripuanã, we have Shalipayco; after Shalipayco, we have Magistral. We understand that we do not have enough resource to develop a -- more than one project at the same time. And if there is an opportunity to develop another project, new one from outside, we would actually have to prioritize and replace one of the -- one of those that are in our pipeline.

Got it. That's very helpful. And if I can just ask one more question. On your ratings, your discussions with S&P, and even some extent to Moody's, can you maybe provide some indication of what the rating agencies need or request from you to get to IG because one can argue your balance sheet certainly resembles one of the IG corporates. So just wondering from their perspective, how should we think of getting to IG?

Okay. And we have worked hard, people at -- with rating agencies in order to that. As probably you know, we used to be investment grade by the 3 rating agencies and we lost that when Brazilian Republic lost it, along with a lot of corporations throughout Latin America. We do have an impact so far, according to the rating agencies regarding the sovereign, although we do generate 2/3 of our EBITDA out of Brazil, and even in Brazil, although the Brazilian market is important for us, we do also export from Brazil. We are working on this and in order to address all these topics. I cannot anticipate to you. Of course, it's a rating agency decision. But we have been working on this.

And next we have Rodolfo Angele of JPMorgan.

Just one question for you. Can you comment on the trends you expect to see in terms of the grade set at Cerro Lindo, please?

Okay. [ Else ] we had -- in the last call, the call of the year results, I think we mentioned that the -- we were expecting to see the grades lower levels for the first quarter, but along the year, we're expecting to see the grades moving up, increasing along the year. That's why we reinforced the guidance for the year. So we are not surprised to see the performance, and that is why we try to compensate it, actually producing more run of mine.

[Operator Instructions] Next we have Alex Hacking of Citi.

Yes. I have 2 questions. The first one is, in the press release, you noted that CapEx was $20 million below expected due to some delays of approvals. Could you maybe give a little more color there? And then the second question is about the Aripuanã. Congratulations on getting the preliminary environmental license. As part of that process, did the authorities request any major changes for the design of the project or other areas that they wanted to do more study on? Or do you believe that you can proceed largely as you originally planned?

Thanks for the question, Alex. In terms of the CapEx, when we mentioned the approvals, it has much more to do with internal approvals, actually has nothing to do with the permits of licensing. It's more a bureaucratic method, internal bureaucratic method. Actually, as mentioned before, we are already in a very good track in terms of physical development of the projects, but financially speaking, there are some delays. So you'll see, along the next quarter and the following one, the level of CapEx matching the -- what is expected for the -- in our budget. In terms of Aripuanã, what happened is, we had -- every time you get a permit, you have some conditions established by the Environmental Committee and those conditions should be fulfilled in order to get to have the final installation permits. Of course, we had that, nothing that actually interfere with this success of the project, with the development of the project; only minor issues. So there will be no significant changes in what we have planned so far. We are very confident that we should be able actually to apply for the installation permit along the next [ few ] months. And then, as I said before, we want to have the permit granted in the second half, and with that getting the approval from our board to start construction. Our intentions are to start construction to the end of the year.

Well, at this time, we're showing no further questions. We'll go ahead and conclude today's question-and-answer session. I would now like to hand the conference call back over to Mr. Tito Martins for any closing remarks. Sir?

Thank you. I would like to thank you -- all of you who've participated in the call, stating that we are really confident that we can perform as we plan. I mean, we are not seeing any issues that can prevent us to move on ahead in the year, with the light production -- the levels of productions and performing our CapEx, and all the things that we planned at the beginning of the year. I thank the team. As I said, also it was a very complex situation to have the approval for Aripuanã. We are very proud of that. You have to remember Brazil has been under a lot of pressure when the matter is mining. A few accidents and incidents happened along the last 2 years. And having a new project being approved, it proves that we are doing the right thing. Thank you very much once more. Have a good day.

And we thank you, sir, also to the rest of the management team for your time also today. The conference call is now concluded. At this time, you may disconnect your lines. Thank you again, everyone. Take care, and have a great day.