Good morning and welcome to Nexa Resources Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Presenters in this call are Mr. Tito Martins, CEO of Nexa Resources; Mr. Mario Bertoncini, CFO of Nexa Resources; and Mr. Rodrigo Menck, who will resume the CFO position on March 1st. Also joining the call are 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 call over to Mr. Tito Martins, CEO of Nexa Resources. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining Nexa's fourth quarter earnings call. On Slide three, right after this disclaimer page, you'll see the agenda for today's call. Today we are going through the following topics; fourth quarter main events, after that the brief overview of zinc market, and then we discuss our operational performance, consolidated results, and guidance. Closing the first part of the call, I will talk about Nexa's main initiatives for 2019 and then we'll open it for a Q&A session. Please go to Slide four. Let's start with some recent highlights. 2018 was a very dynamic year for Nexa, and we are proud to have delivered what we promised to the market in the first full year following our IPO. Among our most recent achievements, we met our production guidance for all metals after very strong fourth quarter performance. We will be paying the Installation License for our greenfield project Aripuana, and we are excited to have started the construction of the project at the end of 2018. As we published on January 15th, our 2019 guidance for zinc contained in concentrate is higher 3% than 2018 when consider the mid-range of the guidance. We are confident that during 2019 we will be able to reap the benefits from the mine development initiatives carried out during 2018, mostly in Cerro Lindo mine. In addition to production increase, we are also forecasting a higher CapEx given the already mentioned Aripuana project. Later, we will give you more details on our guidance. On the financial front, we have renegotiated part of our debt to extend maturities at the lower cost. We have returned capital to our shareholders by distributing $80 million in share premium and recently we announced $30 million share buyback program that is already…

Thank you, Tito. Turning on to page six, we discuss our mining performance in the fourth quarter and full year of 2018. As usual, let me remind you that we convert our production by metal to a zinc equivalent basis using full year 2018 LME prices in order to present comparable figures. As we had anticipated at the beginning of last year, our mining production in 2018 would increase throughout the quarters, given our plans on mining development, particularly in Cerro Lindo mine. The zinc equivalent production in Nexa's mining operations totaled 150,000 tons in fourth quarter of '18, 10% higher compared to the previous quarter. As mentioned, in Cerro Lindo the mine development program supported higher production in the last quarter of '18 with higher treated ore and zinc concentrate. When comparing our mining production throughout this year, we have consistently increased our zinc equivalent production since first quarter of this year having reached a new level of production that's prepared us to achieve our guidance for this year that will be discussed later. Production on a zinc equivalent basis totaled 556,000 tons during 2018 as a whole, down 2.6% compared to 571,000 tons recorded in 2017. At the bottom right part of this page, we have our mining cash cost after by-product credits that increased by $0.15 to $0.31 per pound in the fourth quarter of '18. Taking a more careful look on this $0.15 of delta, we will note that $0.17 is due to lower credit of by-products given the decrease on LME prices during this period and $0.03 per pound from higher operating costs, mainly in Peru, primarily driven by higher development cost. Out of these two factors, our cost performance was as planned and efficient. Please let's move on to the slide seven where we…

Thank you, Mario. Regarding our debt profile and cash position, we continue to report a healthy balance sheet with extended debt profile and low leverage. The average maturity of our total debt was 6.1 years with an average cost of 4.8% per annum in US dollar terms. We have continued to implement initiatives in 2018 in order to reduce debt cost and extend maturities. On the pie chart, you can see the debt breakdown, both in terms of modality and currency. Almost three-fourths come from debt and capital markets being the remaining amount compounded by banks, ECAs, and BNDES. In terms of currency, 91% of our total debt is denominated in US dollars and 9% in reais. We have reported a net debt balance of $303 million as a result of a cash balance of $1.1 billion versus a total debt of $1.4 billion, resulting in a net leverage of 0.5 times net debt to EBITDA, a comfortable position to move ahead with our higher CapEx plan guided for 2019. On the next slides, we will discuss guidance for production and CapEx in more details. Please move to slide 11. I would like to start reiterating that we met our 2018 mining production guidance for all metals, driven by a production recovery in the fourth quarter '18 as planned and our Smelting segment had a strong performance throughout the year reaching the top of the range of our sales volume guidance. For 2019, as Tito mentioned before, we expect zinc mining production to expand approximately 3% versus 2018, considering the mid-range of the guidance presented herein. Nexa's main assumptions for such increase are; first, higher treated ore volumes compensating lower grades already forecasted by technical reports; second, stabilized production throughout 2019 at levels achieved in the fourth quarter of '18…

Thank you, Menck. Please move to slide 13 where we highlight some key initiatives for 2019. Our operations are always working on improving its efficiency, productivity, and lower costs. This allows us to operate in different market scenarios. With the conclusion of Vazante's dry stacking project along the year, Nexa's major mines, Cerro Lindo and Vazante, which represent 70% of our total production, we will be adopting the dry stacking method, a process that is much safer and environmental friendly. We'll keep working on our greenfield pipeline, primarily with the advance of the construction of Aripuana's mine and plant, which includes contracting main equipment and servicing among others. In addition to Aripuana, we intend to conclude in 2019 FEL2 for the Magistral and Pukaqaqa projects. Along the year we intend to deliver an updated mineral reserves and resource simulations for Vazante, Atacocha, El Porvenir, Morro Agudo, and Shalipayco. At our Mine segments, the main objective is to maintain Cerro Lindo production stable at full capacity, in other words, 21,000 tons of run of mine per day. Vazante also should some improvement in production along the year. As it was mentioned before, we estimate to reach 97% of zinc recovery rate in Cajamarquilla by the end of the year as well as increased usage of secondary raw material in Juiz de Fora production and increase silicate concentrates in Tres Marias resulting in a higher productivity in our smelters. Before we go to the Q&A session, I would like to say a few words about Mario Bertoncini. Mario is leaving us for a new professional challenge, and I'm sure he will be very successful. Without Mario's contribution and work, we would not be at the point we are today. He had an important role in our IPO as well as in the structuring of our company. And I'm sure we would not be where we are today without his efforts and contribution. Thank you, Mario. I wish you good luck and I welcome Menck in his new position. Let's move to the questions.

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] Our first question today will come from Carlos de Alba with Morgan Stanley. Please go ahead with your question.

Good morning, everyone, and good afternoon for you guys. Mario, first of all, all the best in the new challenges and thank you very much for these few years of working together. It was a very good experience. So all the best in the future. If I may ask about 2019, Tito or the rest of the team, is there any special sequence in terms of output and I guess cost performance? Your last year obviously, as you just pointed out, the second half of the year, particularly the fourth quarter was really strong. So in order to avoid any surprises, are there any comments on the sequence for this year that you may point out? And then on Brazil, given the tragic accident on the tailing dam there, do you expect any potential impact in Nexa's operations or production? Clearly Vazante moving to dry stacking is a major initiative. And I guess the Company anticipates to where the industry may be moving forward. But are there any comments or considerations that we need to be aware given what happened in Brazil tragically? Thank you.

Thank you, Carlos. I'm going to leave to Mario to answer the first part of the question about the costs and then I'll answer your question about how we see the future of operations in Brazil -- I mean short-term in Brazil after the accident of Brumadinho. Mario please.

Carlos, thanks for your message. Regarding production and costs, a different from last year. What we are planning for this year is a more flat production throughout the quarters. We don't see that pattern that we had in these two previous years. We are prepared with Cerro Lindo at full capacity, and although that mine is in very good shape, we're prepared now to have a more flat production throughout the quarter. Regarding costs, will keep investing in mine development. We should expect pattern costs -- kind of pattern that we saw last year. For a while I think a fair assumption is to consider that cost structure. Since we'll keep investing in mining development, particularly in Cerro Lindo, Atacocha well and El Porvenir.

I would add to that, if we have -- if everything goes as we expect, we should have some gains in productivity as well, right. So comparing this year with the previous one, probable performance will be a little bit better, mostly also because we are increasing production in our mines and we should have a slight growth also in our smelters. Answering the second question about Brazil, how we see our production being affected or not in 2019. I don't see anything actually directly impacting us. You have to remember that our dams in Brazil are all of them -- the operating dams, all of them are downstream dams. So we do not have any issue about the new regulation that was released at the beginning of this week actually about the upstream dams not being allowed to stay in operations. About the dry stacking at Vazante, we're expecting to have this being ready to be used on the second half, which is very positive for us. It's positive for our -- not only for our operations but also for our reputation I would say. It's good to be perceived as a company that is actually moving on with a different approach in terms of disposal of cadence. Thank you.

And our next question will come from Caio Ribeiro of Credit Suisse. Please go ahead. Mr. Ribeiro, your line may be muted. Your line is open, sir.

Yes. Hi, good morning, everyone, and thank you for the opportunity. My first question is regarding your expansion projects other than Aripuana. I just wanted to ask if the timing has changed at all in regards to those other projects? And after Aripuana, what would you envision today to be the project that would be the next priority? And whether you would consider carrying out investments in two projects at the same time or wait until Aripuana starts up before kicking off investments in another project? And then my second question in regards to dividends, the latest announcement that Nexa made in regards to the $70 million dividend payout for March, it comes well above the 2% minimum dividend yield policy that the Company has in place right now. So I just wanted to see if you would consider revising this dividend policy upwards given the low leverage that the Company has right now? Those are my two questions. And also, Mario, I just wanted to wish you the best of luck in your new challenge. Thanks.

Thank you for the questions. About expansions, what happened is Aripuana is going well. We started up at the end of last year. We are on track on our contractors -- with the contractors' equipment has already been ordered. So we're confident we should finish the construction by the end of 2020 and starting up 2021. What happened about other projects is the following. We until a few months ago, we were expecting to finish FEL3 for Shalipayco assuming that we will use the ore mined in Shalipayco in the facility in El Porvenir. So we work most of the time with the concept that we had only to open up the mine and not building the plant -- the beneficiation plant. What happened is when we conclude the FEL1, we came to the conclusion that it was much better actually to increase the capacity of the mine in Shalipayco and actually work with the possibility to build a new plant there. So we are moving on with the FEL 2 of Shalipayco looking at two possibilities; the first one is, okay, we're going to have an independent project, a larger plant -- a larger mine with a larger plant, and it's dependent on El Porvenir. And there is an variation of those studies where we look at the possibility that before we start production in the Shalipayco site, we trucked some ore to be used in Atacocha. It implied a reschedule of Shalipayco for at least 10 months, which means that we were planning to have the FEL3 of Shalipayco by sometime 2020, and we are moving to the end of 2020 and beginning of 2021, which means that when we finish the studies of Shalipayco, we will be finishing Magistral studies at the same time. If you ask me today what I think about that since we do not want to stockpile the projects, we have been saying that for as far as I remember, we should actually have to choose in between the development of the Shalipayco as a full project -- I mean mine and plant or Magistral as a full project. My guess today is that probably Magistral will be the preferred one for two reasons; the numbers in Magistral have been showing much more traction than the Shalipayco as an independent project. And secondly, we've been saying all the time that we want to have more production of copper. So we have to wait and see. I think this is going to be a good problem for us to have to choose between the two projects sometimes in the second half of 2020 or the beginning of 2021. In terms of the dividends, Mario, you want to mention something?

Regarding dividends, I think, first, we have paid more than we had announced as a policy, but at the same time keeping consistency I think is quite important. What we did in this dividend is not that much different from what we did last year when we paid in 2018, right. From now on we should keep more or less the same consistency, I would say, respecting not only the market cap and dividend yield, but also the capacity of cash generation, the EBITDA, and the obligations ahead. I would say quite well that at this point, keeping the track record and building this consistent with the market is even more important than the policy per se.

And as I like to say all the time, we are sticking with our concept of paying 2%. What is wrong with the market cap? Thank you.

Perfect. That's very clear. If I might just have one quick follow-up, Tito. I imagine that these developments with Shalipayco they might impact the returns of the project as a whole. But when you run the analysis, do you still view the implied IRR of this project above the minimum return that you would establish for a new project and above your cost of capital?

Yes, yes. All the projects will be analyzed based on the minimum hurdle rate of 15%.

Yeah.

Yeah. We have not changed anything. And actually when you talk about Shalipayco, we're saying that we're seeing a different project because it's going to be larger than the one we were talking before. Thank you.

Our next question will come from Orest Wowkodaw of Scotiabank. Please go ahead.

Hi, good morning, everybody. Two questions for me. First of all, can you provide any cost guidance for 2019? Obviously costs were very good on a per pound basis in 2018. I'm just wondering whether you anticipate those unit costs to move up in 2019. And then secondly, just wondering if there was any impact from the recent truck drivers' strike in Peru and whether that had any impact on your operations? Thanks.

Hi, Orest. Thanks for your questions. Starting from the second one, no, no impact at all on the drivers' strike in Peru. We haven't had any impact, and we don't see any impact for us. Regarding the cost to guidance, we haven't provided the cost guidance for Nexa. But what I can tell you is, first, if we divide cost in three main fronts. Let's assume first the operating costs per se, right, referring particular on mining here. We should expect a flat operating costs for the Company on a per unit basis. Some productivity gains we should expect as we grow in production [ph]. As we produce more we should total costs or kind of half of that total cost. The second aspect is that costs that are not operational per se, and related particularly on the development cost, mining development, and we are budgeting and expecting to spend in mine development pretty much the same amounts we spent last year. We'll keep developing the mining fronts of particularly Cerro Lindo and Pasco and also Vazante. And the third aspect in costs that we have to pay attention is exogenous one is the impact on foreign exchange rate on our costs. This is a low impact in Peru since we are much more exposed to US dollars. As you know, there we pay in salaries only -- salaries on wages, the workforce accounted for 17%, 18% of our total costs. But in Brazil it's different. In Brazil, 80%, 83% of our costs are in BRL, Brazilian reais, and based on how we evolve, FX can have impact on our cost side.

The next question will come from Thiago Lofiego of Bradesco BBI. Please go ahead with your question.

Hi, thank you. First of all, Mario, best of luck in this new career phase. Wish you all the best. I have two questions. The first one on capital allocation. What's the rationale behind the canceling of the Atacocha delisting, especially considering your low level of debt? Does it mean that we should not expect this delisting to happen, let's say, in the next year or so, or even new projects eventually delisting, should we not wait -- expect that to happen? The second question about the zinc market, what's your view on concentrate prices from here? And also we've seen TCs pressured by some logistics difficulties at Townsville Port. So what's your outlook for treatment charges from here as well? Thank you.

Thank you for your questions. About the capital location, on why we gave up the delisting of Atacocha has much more to do with the volatility we were seeing at the end of the year, at the beginning of this year, meaning that we should -- we would come back as soon as we feel comfortable about that. It's a priority for us, but it's not a primary item in the -- first item in our list. So we have been very conservative in terms of allocation of capital. Our main priority has to do with the development of our CapEx, our projects, and seemed to us to that when we announced that we'll start a process of this was a good opportunity, but given this volatility, we've decided to stop it, which doesn't mean that depending how the market behaves the next few months, we will come back to that, okay. It's just a tactical decision, let's put this way. In terms of the zinc market, we haven't seen many differences in between what we would say three to four months ago and what we are seeing today. Even when you mention that we may see China is slowing down a little bit in terms of the general market. Demand for zinc is still there and supply is not there at all. Metal stocks were dropping along the last three months and actually recovered a little bit the last two weeks -- two to three weeks which has to do with the holidays in China. So we need to wait and see what's going to happen in the next two to three weeks. What is reflecting in the market right now is the fact that the TCs has to do with the lack of supply of concentrate in the…

The next question will come from Alex Hacking of Citi. Please go ahead.

Hi. Yes, good morning. I just wanted to follow up on the TC/RCs. I got a little confused on the answer. Are you saying that the TC/RCs you expect to move up this year or to stay relatively stable? And then I guess second question, any change to the terms of the TC/RCs in terms of payables and escalators and things like that? And then thirdly, just again related to the smelting business, has there been any change to the regional premiums that you see locally in Latin America in terms of the zinc price? Thank you.

Thank you for your questions. Let me clarify the TCs. We were seeing the reference price for the last year was around $140 per ton. Spot market was around it as well. In the last month or so, spot price went up to $200, $220, and we are seeing the possibility for the benchmark be around $220 as well without any changes in the free zinc and any changes in the escalation. So we would not see anything different from that.

And then on the regional, any changes on the regional premiums?

No, no, actually premiums have been very flat. I mean if you see it up and down around $10 to $15, which is not relevant at all.

Okay. Thank you.

They're stable. They have been stable for I would say the last nine months. Until then they were going up. So they've been stable for the last nine months, yes. Thank you.

[Operator Instructions] Our next question today will come from Oscar Cabrera with CIBC. Please go ahead.

Thank you, operator, and good morning, everyone. I'd also like to echo my thanks to Mario for all his help during our initiation of coverage. Mario, thank you very much and all the best in the new challenge. And then also like to welcome Rodrigo into the team. We look forward to working with you. And so in terms of the questions, your mineral exploration budget of $75 million, I know you want to increase your reservoir's life, but how many more years do you think we have to be at these levels to achieve that? And then along the same line, on your project development CapEx of $53 million, how should we think about this number as we move to 2020, 2021? Do you need to keep it at those levels to maintain the cost on the operations?

Oscar, thank you for your questions. Very good ones. I would say about the exploration expenses, I would say the following. What happened is we have spent a lot of money and we know that mostly in trying to extend the life of our mines, and the results have been very positive ones. So we've set a target for us. We want to reach a minimum 12 years reserves for each of our mines, which implies that we should be spending enough capital until we reach this point. But we are not too far from that. If you look at our track record along the last three years, you will see that it's possible to be achievable in the couple of years. So we are confident we will do it. So part of the value we are spending right now the $17 million has to do with that I should say, probably almost half of it. Of course, we want to keep investing in greenfield exploration and some of brownfield as well has not directed to do with life of mine. This has much more to do with the areas that surrounds our current operations. So my guess is in the short and medium term we should see this number coming down a little bit, not too much, but should come down. And the same applies to the development projects. Why is that? We have a pipeline of seven projects, and all of them -- actually now six because Aripuana is under development -- all of now were pretty much almost at the same stage. So as I said before today, when we reach the point that we have to choose in between, for example, Magistral and Shalipayco, the amount that we will be spending for the products that will be in our shelf will be dramatically reduced. So I would say that we're in a transition time for the next two years or three years of at most we will be spending more with the projects, but the trends are that we would be able to start to refine the use of capital in new projects. So it's just a transition time. And let's be able -- and we assume that we should be able to enjoy it as long as our cash generation is positive one. Some of the analysts were saying, you are showing a negative free cash flow for the next year. It's true, but you have to consider that first we are still underleveraged, and secondly, we are investing in growth. I think the important thing here has to do we're talking about projects and exploration expense that you bring to us a future growth in the next five years. That's where we want to be. We have a very conservative approach about those expenses. But at the same time, we have a very not say aggressive but consistent brand to grow. Thank you.

Thank you very much. If I may, a second question. In your presentation on the slide 10, you say that you wanted to continue to analyze opportunities to keep reducing debt cost and extend the average maturity. The maturities that I see here that you disclose are not that great. But can you elaborate a little bit more on this? What are you looking to do with this?

Hello, Oscar. This is Menck speaking here. Given that our debt is pretty much coming from debt capital markets, the only short tenure debt we have is the Nexa Peru Bond that matures in 2023. At this point in time, we don't see economic advantage in having a liability management transaction on it. But this is always a possibility should the market price covers allow us. Aside from that, only in case we have some project-related financing along the years which come with the larger tenures and then will push this a bit more forward, right. But other than that, the bank market is not lending lines for that longer terms and we also don't have that much for bank lines, only $200 million out of the $1.4 billion. I don't know if I covered what you wanted.

[Operator Instructions] Having no further questions, this will conclude our question-and-answer session. At this time, I'd like to turn the conference back over to Mr. Tito Martins for any closing remarks.

Thank you very much. I would like to thank everybody for being with us here today. And once more I'll say that Nexa is moving in the right direction. I hope the market perceives this. And once more, Mario, I would really like to say good luck to you. I'm going to repeat it and good luck to Menck who is joining us. Have a good day. Thank you. Bye-bye.

The conference is now concluded. We thank you all for attending today's presentation. You may now disconnect your lines.