Good morning, and welcome to the Nexa Resources Fourth Quarter and Full Year 2019 Conference Call. [Operator Instructions]. The presenter in this call is Ms. Roberta Farella, Head of Investor Relations. Also joining the call and available for questions are Mr. Tito Martins, CEO of Nexa Resources; and Mr. Rodrigo Menck, CFO of Nexa Resources. Please note, this event is being recorded. I would now like to turn the conference over to Mr. Roberta Varella. Please go ahead.

Thank you. Good morning, and good afternoon, everyone, and thank you for participating in another nexus earnings conference call. Today, we'll be talking about our results for fourth quarter and full year of 2019. Please, let's move to Slide 3, we will begin our presentation. Nexa is a large-scale, low-cost integrated zinc producer with a unique position in Latin America. We are strategically located in Brazil and Peru, which is the second largest zinc producer in the world and where we operate 300 ground mines. We also operate in Peru Cajamarquilla smelter, the largest in the Americas. In Brazil, we operate two mines and two smelters, and we are developing the Aripuanã project. Located in the Mato Grosso state, Aripuanã is a world-class underground polymetallic mine, which will produce zinc, lead and copper, among other metals. And beyond Aripuanã, we have important strategic projects that are in different stages of maturities, like Magistral, Shalipayco, Pukaqaqa and Hilarion, which should support our strategic organic growth of increasing our capacity on copper and zinc and fully integrate our mine and smelter business. We remain confident in the long-term prospects and market fundamentals of zinc and copper, but the scenario is still challenging. In 2019, commodity prices faces downward pressure due to the volatile economic scenario. Zinc and copper prices decreased 13% and 8%, respectively, compared to 2018. As a result, Nexa's net revenue of $2.3 billion was 6% lower than 2018. Lower prices were partially offset by higher sales volumes. Production sales guidance for 2019 were achieved. However, we also faced some setbacks in our operations, primarily in our mining segment, which affected our performance. Adjusted EBITDA, excluding non-recurring expenses was $402 million in 2019 compared with $605 million in 2018, which was positively affected by the recognition of a tax credit…

[Operator Instructions]. Our first question comes from Carlos de Alba with Morgan Stanley.

So the first question is on the €120 million benefit from the several initiatives that are -- that you guys are implementing to improve EBITDA. Can you talk a little bit more about how do you see this progression to that level? I think you guided to €120 million incremental annualized EBITDA by 2021. But if you could give us some comments around the ramp-up to get to that level? As well as the cost that you believe you will incur in 2020, which was mentioned in the press release, but you have a number or even a range, that will be very useful? As well as just to confirm, given that the success fee was paid up front. So I just wanted to confirm that, if you get to the level of €120 million, which I think is the target or above, would incremental success fees related to these initiatives will have to be paid to the consultants? A long-winded question, but that's one topic. And the second topic, I would like to explore is, if you can have -- if you have any further comments beyond those presented in the release around the Magistral project. What were the changes, if you can mention, what were the changes in the engineering studies that you faced?

I thank you for your questions, Carlos. This is Tito speaking. About the $120, I would say that you will see along -- spread it out along the year. We're expecting to have it being added to our cash generation along the time. Why is that? Because there are a group of almost 300 initiatives that we are carrying on right now that we'll generate those results. Those initiatives are related to the operations and to different procedures to operate different perspective, different corporate procedures that will be made. So I'm not expecting any, let's say, difference along the year in terms of -- if there is a 1 specific month that the cash generation will be higher or not. It will be embedded in the numbers along the year. In terms of the fees, as we said, in the earnings release and also last year, when we had the third quarter, those fees applies a success fee on the results as a result of the increase in cash generation. There will be some along the year. We -- I cannot provide a number now because it will depend on when the benefits will be enjoyed. But I would guess that is also will be along the year, and the impact will be diluted by the additional cash generation. In terms of the other question, I'm going to pass to Rodrigo, who want to answer you.

Carlos, Rodrigo here. About Magistral, the only thing is that we had an estimation to disclose the technical report now in the beginning of the year. But as we will proceed with the FEL3, which is feasibility study to the end of the year, we thought it would be much more complete to disclose the full report once we finalize the feasibility study. So that's the only difference. The project remains being studied as scheduled and as mentioned in the previous releases.

Our next question comes from Orest Wowkodaw with Scotiabank.

Could you please clarify what's happening with the Aripuanã development? I find the language in the release a little bit confusing because you've disclosed that there is a delay in development, but at the same time, you don't think there's any impact to the three year production guidance. Can you maybe give us a bit of color on what's going on? And why it's not -- if there's a delay, why you don't think it's going to impact the production?

Well, Orest, thanks for the question. Basically, the following is happening, when we provided guidance, we were very conservative. If you compare the guidance with the technical report, we were already being conservative. That's why we think that there will be no impact. On the other hand, we are -- there will be the delay, but we are also working on the -- in advancing the ramp-up. Originally, the ramp-up was scheduled to be in 12 months. We believe that we can do it in between 6 and 9 months, that's why. What's going on over there? There was -- every 3 to 4 years, one of the bridge that gives us access to the site goes through an upgrade, some construction...

Refurbishment.

Refurbishment. So what happened this year is when they do that, they have a parallel bridge that is built just to -- during the period of the construction to service. What happened is, its rained a lot there, which caused the destruction of this spare bridge. And with that, those innovations, they took longer than expect -- actually more than a month than expected. Besides that, we had also a problem with the -- some of the engineering package. They were a little bit delayed, which caused us actually to reassess and see how long they actually we will have the project impacted. We should have this probably in the second quartile. But once more, I want to restate that we are not expecting a impact in the production in '21 because of this.

The project is all evolving well. It is a concern. But evolving well, and we already have 28% of physical evolution.

Yes, we already have 1,500 people at the site right now. So things are going very well in terms of execution.

Okay. And then as a follow-up -- as a follow-up, Tito, just on the consulting investment that you're making, I'm a little surprised by the magnitude of the investment that you're making. And I think you mentioned last quarter, it's a success-based fee. So I'm having trouble understanding why the fees are so large now, before you actually realize the savings?

It's a technical thing. Let me try to explain. What happen is, you generate initiatives that will result in gains. When those initiatives are validated and they validate based on technical procedures, technical approach, you pay the fee, the consultants doesn't...

Take the risk.

Take the risk. So we are now in the process of implementing those initiatives and then we will see the gains. We've seen some already, that's why I'm saying that. And I'm seeing the same approach done in other companies. So we are following up those -- we are carrying on those initiatives and expecting to have the additional cash -- the additional generation happening along to 2020.

[Operator Instructions]. Our next question comes from Alex Hacking with Citi.

I just wanted to follow-up on the $120 million. I'm not sure if you answer this question, but how much of that should we expect to see coming through COGS and SG&A? And how much of that is going to be showing up in revenue through improved recoveries and things like that?

Yes. Actually, I can't answer that right now. Of course, there will be impact in some of them, in the SG&A and the other accounts, but I cannot be precise right now.

Once we appropriate it throughout the year, Alex, we will be providing this in our earnings release.

Yes. It would be helpful just so that we can track it, given the amount of fees that have been paid, it seems like we should be kind of all the thing like -- that the benefit. And just one follow-up. Could you just remind us the cost guidance for Aripuanã? And how we should -- I guess, how we should think about the cadence of that? Like when would -- I guess, what is the steady state cost guidance and what year would you expect to reach that?

Alex, this is Roberta. Remember that for cash cost guidance, we only provide for the 2021, so we didn't provide Aripuanã and update. And -- but if you consider what we provide in our report back in 2018, it was like $0.14 per pound.

Okay. Perfect.

This is the numbers that we had, okay?

Okay. So overall, it's going to reduce your average cost, right?

Yes, that's the idea in terms of what we have when we are analyzing the projects. We have projects in the first and second quartile of the cash cost curve. That's one of the assumptions that we have for future projects.

Our next question comes from Diego Torres with MCC.

Just a question regarding the dividend policy. What is -- are the -- what is the dividend policy going forward? And also, in terms of the presentation, this is back to text one number that I couldn't match. On the -- at the beginning, you mentioned to that the cash dividend payment of $50 million, that is on Page 3, I guess. And at the end, there's -- when you mentioned about the EBITDA -- sorry, the cash flow in 2019, it said dividends of $113 million. So I would like to -- I don't understand the difference between the two numbers?

Okay, Diego. Thank you for the question. First of all, let me answer the easier one. When you say dividends and the cash flow for 2019 that we declared and paid approximately $70 million of dividends from Nexa Resources S.A. in Luxembourg, right? But we have internal payment -- dividend payments between Nexa Peru and the other going -- the cash [indiscernible] Nexa [indiscernible], Nexa Luxembourg. In Nexa Peru, we are a listed company. We have 16% in the market. So we pay the proportional dividend to the minority shareholders on $200 million. So it was approximately the difference that you see there, right? The second thing is we disclosed approximately $50 million of dividends in the press release, you have the accurate number per share. I don't have it in front of me right now, but it's approximately $0.37, it's $0.37 per share. So when you get to the total amount of shares, you're going to get to approximately $50 million. Is that clear?

Okay. Yes. And regarding the dividend policy going forward?

Oh, sorry, I was missing that one. Our policy remains the same. We have a leading policy that state there will pay a minimum dividend of 2% on the average market capitalization in the past 12 months. The policy remains the same.

Our next question comes from Lucas Yang with JPMorgan.

A very brief one. Can you give us an up to date on the Cajamarquilla conversion project? Is this going to happen this year? If not, when? If it happened at all?

Thank you for the question. Yes, it will happen. We are not sure when it's going to be along the year. But we are reassessing -- as we've said in our press release, we are reassessing the whole project, also talking with the contractors and equipment suppliers in order to rearrange the schedule. We should be news about that by the second quarter. Our intention is to move on with the project along the year, but of course, it will depend on this discussions with the contractors. But the idea is to move on with this along to 2020.

Right. And the recovery rates, they should remain the same from 94% to eventually 97%? Or would that change it as well?

Yes, yes. We are -- it's interesting. Good question. We were recovering something around 91%, 92%. And last year, the performance was much better than before, it was 94%. And the 3% still applies. So which means that we -- after the part, we should be able to go up to 97%.

Our next question is a follow-up from Carlos de Alba with Morgan Stanley.

So could you comment about the trends that you have seen in the premiums that you realize in your different markets? Particularly Brazil, is probably a little bit more of a unique situation. Could you comment or talk about how those are moving? That will be very useful. Your realized prices came above what we expected, so perhaps that is the reason. And then finally, on the intercompany loan with Luxembourg. Can you maybe, Rodrigo, remind us what are the plans for that during 2020?

So Carlos, I'm not sure if I understood the second question.

The second question.

The second question is the intercompany loan that you have with Luxembourg Holding Company. If you -- what are the plans for that loan in 2020?

Okay. Let's talk about the premiums first. We actually have not seen a big change in the premiums along the year. I mean the premiums we are having in Latin America are pretty much the same we had in the year before. Actually, if you compare our premiums with other continents, they've been -- they have not changed much even when the market condition is not favorable. I cannot explain why your model did not price the same. There was nothing new on our side.

Nothing special, yes.

Yes. No, not at all, not at all.

And about the intercompany loan. We have been reducing this exposure, which is internal exposure. Actually, the only practical effect the intercompany loan has on the figures you see there is that on a consolidated basis, any currency devaluation impact, the net income there, right? In any case, we have reduced this to below $200 million. And throughout the year, we'll evaluate the best way to treat it and keep reducing it. As you know, the Brazilian balance sheet is the one being used now for the investment on Aripuanã. So there are some peculiarities in terms of when is the best time to keep reducing it. But don't worry, the intention is to reduce the dollar exposure in the Brazilian balance sheet.

Our next question comes from Oscar Cabrera with CIBC.

I apologize, I came in late in to the call, so if you already answered this question, I can just go back to the transcripts. You have had what appears to be a very successful exploration program for the second half of 2019. I'm just wondering if you feel confident you can meet your target of, if I remember correct, increasing your reserves from 7 to 12 years? That would be the first question. And a follow-up to that is, based on what you've seen so far in completing your feasibility studies, do you still have the same priorities in terms of development projects after you finish Aripuanã?

Oscar, thank you for the question. Exploration, yes, we have a very aggressive program. If you look at the numbers we released from the guidance, it's a little bit lower than the number from last year. We still intend to reach the 12 years, but we are slowing down a little bit, given the price volatility, zinc price volatility. So we wanted to be more careful about the expenses along 2020, it was even before the coronavirus issue, but the plans are actually to reach the target -- the previous targets. In terms of the projects, yes, we intend to move on with them. After Aripuanã, we should have a decision to make about Magistral. As was said before, we will have Magistral feasiblity study or FEL3 ready on the second half of this year. So we have in between the second half and the first half of next year to decide about the execution of the project. And if everything goes as expected in terms of comfort and maturity of the project, expected return and so, we should approve it and move on with that probably starting in the second half of '21. After that, we have in the pipeline Pukaqaqa, which is right now is going under metallurgical review. We decided to be more cautious about the budget and actually it's helping to move faster Magistral. And after that, we have[indiscernible] pipeline as you know. So the pipeline is still there. We are confident that we can go for those projects.

Okay. Just taking the -- if you were to start Magistral in second half of 2021, do we then lower expectations for mineral exploration. I think you're spending about $60 million in round numbers in 2020. Would that expenditure decline? Or would just keep it at the same level to get your research to 12 years?

No. It still can -- doesn't affect Magistral at all.

No, no. But I mean, just in general?

No, in general, the slight reduction we have in exploration will slow down the increase in life of mine of some of our operations. But doesn't mean that we are not pursuing to reach the 12 years resource available, okay?

This concludes our question-and-answer session. Now we will hand over to Tito for his final remarks. Mr. Martins, please go ahead.

Thank you. I would like to thank you all for being with us in the call. I would like to also to reinforce our commitment with our plans, as said before. We are moving on with Aripuanã. Aripuanã's execution going very well. Unfortunately, we have this setback, but we are confident that with the reduction in the ramp-up time, we can actually move ahead with the production '21. The company had some issues last year, but we believe we are back on track, expecting to have a very good year, despite the problems we have seen around the world with the coronavirus and issues about trading and so. We are confident we can accomplish what we intend to. And we have to remember one thing, price -- zinc price are lower than what we were expecting, but we are not seeing any change in the fundamentals. Just to give an example, at the very beginning of the year, zinc price were around 2,400, when everybody was saying that they should be lower than that. And they just came down because of the coronavirus crisis. So we are still confident in the zinc market. And we are enjoying one thing that a few people realize the fact that we have -- we prevailing is smelting over mining, but this is being the level they are today, it actually -- they benefits us as a net result. Well, thank you very much. And anything you need to be available to provide the proper information. Have a good day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.