Good morning, and welcome to the Nexa Resources Second Quarter 2020 Conference Call. [Operator Instructions] The presenters on this call are Mr. Tito Martins, CEO of Nexa Resources; Mr. Rodrigo Menck, CFO of Nexa Resources; and Ms. Roberta Varella, Head of Investor Relations. Please note this event is being recorded. I would now like to turn the conference over to Mr. Tito Martins. Please go ahead.

Thank you, and good morning, and good afternoon, everyone. Thanks for joining us in another Nexus earnings conference call. Today, we'll be talking about our results for the second quarter of 2020. I hope you and your loved ones remain safe and healthy. Please, let's move to Slide 3, where we will begin our presentation. As I stated before in our presentation related to the results of the first quarter, the health and safety of our people and the local communities are our highest priority. COVID-19, as for most of mining companies, had a negative impact in our business in the second quarter. Our mining operations in Peru, in response to the Peruvian government requirement to combat the virus, remained suspended almost half of the quarter while the Cajamarquilla smelter operated at reduced rates. By mid-May, we started to return our operations in Peru. Cerro Lindo mine and El Porvenir are ramping up production since then. We are still facing from time to time some constraints related to the workforce availability. The spread of the virus in our firm remains a big concern. This problem probably will last for some more months. In the process of returning the mines, we decided to keep Atacocha underground production suspended. It's higher costs made it less competitive. The Cajamarquilla smelter is already running at full capacity. In Brazil, the Juiz de Fora smelter, which was operating in May and June at reduced rates because of lower demand, is now almost back at full capacity. Our third smelter, Três Marias has been operating normally during all this complex time. Despite the challenging scenario, we were able to mitigate the economic impacts of the pandemic. Thanks to the business continuity measures implemented and the strong commitment of our team, our mines in Brazil posted a…

Thank you, Tito, and good morning, everyone. I am on Slide 4 now. We ended March with a solid cash position, but in response to the COVID-19 escalation and the mandatory suspension of our operations in Peru, we increased our liquidity position by adding almost $350 million to our cash balance through new debt, bringing $45 million through our Brazilian subsidiary and the drawdown of our revolving credit facility in the amount of $300 million through Nexa Resources in Luxembourg. Taking the advantage of the capital market momentum in June, we issued our new long 7-year bonds of $500 million, and its net proceeds were fully used to repay short-term debt and our revolving credit facility. As a result, maturity is now over 5 years. Please note that the revolving credit facility remains committed until October 2024. As we previously anticipated, due to the impact of lower metal prices and lower production in our cash generation, we were already expecting leverage to increase and potentially breach the 4x ceiling determined for the leverage ratio and financial covenants of certain loans. During the quarter, we were successful in paying certain debts and also in negotiating waivers with our counterparts. In a way, we will not be required to measure the leverage ratio until June 2021. Other financial covenants remain in place and are being complied with. Turning now to Slide 5. On Slide 5, we present Nexa's free cash flow generation. During the quarter, we generated $343 million, mostly driven by new debt incurred during the period. Describing it further and starting from our $40 million adjusted EBITDA, we had a $19 million gain in working capital, mainly as a result of increased average supplier payment terms, coincidentally offset by $19 million of sustaining CapEx and another $30 million of interest…

Thank you, Menck. Good morning, and good evening, everyone. Please, let's move to Slide 8. Beginning with the first chart on your left, zinc production of 62,000 tonnes decreased by 32% compared to second quarter of 2019. The solid performance of our mines in Brazil was offset by the mandatory suspension of our mines in Peru, resulting in an estimated decrease of 1.7 million tonnes in treated ore volume in the quarter. Copper production was also affected and decreased by 44% year-over-year, primarily driven by Cerro Lindo. In respect to our Smelting segment, total zinc metal sales of 120,000 tonnes decreased 23% versus the same period a year ago, given the reduced operating rate in both Cajamarquilla and Juiz de Fora smelters as demand for all products was impacted by COVID-19. On the following graph, consolidated net revenue was $337 million compared with $613 million a year ago, reflecting the decline in volumes and lower base metal prices. The LME average prices for zinc, copper and lead were down by 29%, 12% and 11%, respectively compared to second quarter of 2019. Turning to Slide 9. We will comment on our consolidated EBITDA. Adjusted EBITDA decreased 66% to $40 million in the second quarter. This performance was mainly driven by lower sales volumes with an impact of $36 million, a negative price effect of $69 million related to lower LME prices and changes in market prices in respect of quotation period adjustments, the decrease in by-product credits due to lower treated ore volume and LME prices, which were partially offset by lower operating costs and expenses, partially driven by lower production volumes, the reduction in exploration and project development expenses, and the decrease in corporate expenses. The U.S. dollar appreciation against Brazilian real had a positive impact of $14 million in…

Thanks, Roberta. Please turn to Slide 15. Here, we will talk about the Aripuanã project. As disclosed, we have had a change in our management team and Mr. Marcio Godoy was appointed as Nexa's Senior Vice President for Project Development and the Aripuanã project is one of his responsibilities. We have also reorganized our project team and made some change in the scope of our contractors looking for mitigating risks of the project execution. In Aripuanã, we have joined efforts with the local authorities to combat the COVID-19. We kept up mobilizing works to the site, but at a reduced pace given the protocols implemented. Mobilization should increase along the next month, reaching our construction targets. The amount invested in the second quarter was less than expected and our estimated CapEx for the year is now something around $172 million. Going forward, the new rebaseline for the project will be available sometime in the second half of this year. Aripuanã is our main priority and we keep on working to successfully execute the project plan. Please move now to Slide 16. On this slide, we'll comment about our pipeline of projects. As you know, we reassessed our capital allocation strategy because of the COVID and most of our Greenfield projects were placed on hold. Magistral studies progressed in the quarter, but as we had anticipated, COVID-19 related measures could end up slowing down our 2020 targets. As a result, the FEL3 conclusion is now expected for 2021. Feasibility studies for Shalipayco and Pukaqaqa remain on hold. Regarding Hilarion, we intend to resume our exploration campaign in the second half. Moving now to our next slide, Slide 17. Here, we will make some comments about market fundamentals. Despite the first impact of COVID-19 on LME prices, we are seeing now some…

[Operator Instructions] Our first question comes from Jackie Przybylowski with BMO Capital Markets.

I just -- I guess my first question is just a specific one. I haven't seen any mention, excuse me, on the Jarosite conversion project mentioned in this release. Can you maybe talk a little bit about what the plan is? Is that project completely on hold or canceled right now?

Jackie? Thank you for your question. I hope you are okay. Life has not been easy for anybody. Jarosite, what's going on? As we announced over the year, we stopped the project to revise it. It has been suspended. With the COVID, we decided not to go back to this along the year. It is still in our plans, revision has been almost at the end. So as soon as we can actually come back to a more normal situation, we should have news about the Jarosite. It is still very important project for us in terms of increasing the recovery and the production capacity in Cajamarquilla.

Great. And on Aripuanã, I know you're working on the rebaselining study now. Can you talk a little bit about what that might include? Is it going to be a new project time line and some sort of inflation do you think to the CapEx budget that you have right now?

Yes. What happened is we had those difficulties at the end of last year, which impacted and it made us move the completion of the project to the third quarter of '21. We're still keeping this date up to now. We have revised some impacts that COVID may have along this first semester -- along the crisis, right? What happened is, we never stopped to move on with the project, with the development, but we are operating in reduced capacity. I mean, we've been operating around 80%. So the difficulty we are facing today is actually to define if the schedule will be kept, I mean, to the third quartile of next year and how much, in financial terms, it will actually affect us. I tend to be optimistic. I think there will be some additional costs because time now is different from the original ones. So we are finishing this. We should have moved that in some -- in a couple of months, but still with the level of uncertainty, given how much the COVID actually can affect us moving forward. I mean, we know how much it has affected already, but we don't know how much it can impact in the future. There will be more delays. We should be able to bring in all the people we need at on-site. Just to give an example, we have nowadays 1,500 people on-site, and we should have already more than 2,000. Difficulties related to the protocols that were implemented, to bring in people to Aripuanã -- Aripuanã is really far away from everything. So we need to test people before we send them there and then they have to wait 2 weeks before they are allowed to move to the site. And we have to keep testing them from time-to-time. So those difficulties are the one we are facing now. And we are trying to negotiate with the authority as well, an opportunity to change the protocols a little bit and they'd be not having to keep the quarantine in vicinity for the group in the site. Things like that, when we sort them out, we should be able to actually to come up with a much precise date and a precise number for the project, but in general, the project is moving well given the difficulties we are facing.

Okay. But it's really just a question of the schedule? You're not actually changing the scope of the project at all? It's just the...

No, not at all. Not at all. Everything is pretty much the same.

Our next question comes from Jens Spiess with Morgan Stanley.

Yes. I just wanted to ask if the percentage of the $4 million due to COVID-related costs that you mentioned, I think, it was about 60%, and that will be recurring. Is that already included in the cash cost guidance that you didn't change? And secondly, at the Atacocha, the decision to keep it closed the underground mine, is it due to the cost of the mine? Or is it related to operating issues? What's the rationale there?

Jens, it's Rodrigo Menck here. Thank you for your questions. First of all, the COVID-related expenses are already included in the cash cost, that guidance that is provided until the end of the year. So we are absorbing those costs, yes, but we are also constantly looking for other efficiencies that can be resulting in cost reduction. So the costs are not in a magnitude that worries us. We understand, in the coming quarters, costs can be approximately the same as we saw in the second quarter, probably a bit higher in the third quarter, maybe converging towards the end of the year. But I believe that not only for our case, but also for all the peers, it's yet too early to define how much of this cost has come to state. In any case, we are constantly revising and absorbing other efficiencies, so we can cope with it. In case of the Atacocha question, addressing your point, we have Atacocha underground as a high cost mine. So, under the current situation and provided that we had already the operation suspended, we decided to maintain suspension so that we operate in that specific mine only with the open pits of San Gerardo, which has a much lower cost. There are no operation issues, as you mentioned as your question -- as you mentioned, so that we are only suspending it as to cost. Have I addressed your questions?

Yes, that's clear.

Our next question comes from Orest Wowkodaw with Scotiabank.

And I hope everybody is well there. I realize that most of the focus this year has been on COVID and managing through the pandemic, but I was wondering if there's been any thought or discussion about the Nexa domicile and whether there is any consideration being given to moving from Luxembourg to another location, likely North America, and whether that's a priority for the Board.

Orest, thanks for the question. Everybody's well here on this side for sure. We're still in home office. No, honestly, we have not talked about that. We may come up one day with the conclusion that being incorporated in Luxembourg may not be the ideal situation. We have to see how things will -- we are potentially foreseeing a new world after this pandemic, right? So, everything is possible, but no, it's not in our plans at all to change anything right now.

Okay. In my view, it would certainly help...

Is there a reason for that? Can I raise the question? Your question's trigger, is there a reason for that? I mean any specific issues related to the fact that we are based in Lux?

Well, I personally think it impacts your trading liquidity because your -- because of your domicile you're not in any of the North American indices. So moving -- in my view, moving the domicile would help trading liquidity.

Okay. That makes sense.

Our next question comes from Oscar Cabrera with CIBC.

I hope everyone and your families are doing well. So I may just start with your smelting segment. The treatment charges -- ore treatment charges have been coming down. And just wondering if you can remind us of the structure of your contracts. Is most of your sales from the smelting side on an annual contract? Do you have exposure to the stock market?

The standard contract is still as it was before. I mean we have agreements that they go over more than a year usually. The part that is related to the spot market is very small. That's why usually our TCs are thrice, considering in average 3 years TCs, benchmark TCs. So that's why we, in 2020, are having a TC a little bit lower than the benchmark TC, which is $300. We did not face any problems during the crisis. I mean the supply of concentrate was regular. I would say that what happened is, the decision to shut down, for example -- to give an example, to reduce capacity in Juiz de Fora smelter for 2 months was based in a concern we had about the demand. We actually -- if this lockdown had lasted longer, COVID would have some problem with the supply of concentrate either to Cajamarquilla or to Brazil, but we are -- our contract's very stable and we are comfortable with that, and we should not change it at all because it gives us more stability in terms of forecasting costs and impact on each of the smelters. I hope I have answered your question.

Yes. No, that's great, Tito. It's a good reminder that the -- your smelting business is very strong and countercyclical to what we've seen at least in the beginning of the year. The other question I had for you is, you guys have done a really good job in keeping your cost down during the pandemic. The decision to keep a high-cost operation is sound. I was just wondering, because in that reduction in cost that we saw in the second quarter, there's a mention of deferred maintenance and what I believe is, like, maybe just putting your subcontracting activities on hold. But as you move forward, like are you lagging in development of stopes in the mines? Can you just put context around these savings? And how do you plan to move forward?

Oscar, it's Rodrigo. Hope you're fine. Thank you for your question. It's a good question. You see those expenses going down in the second quarter specifically because everything was pretty much shut throughout most of the quarter. When you look toward the year, part of the capital reallocation that we formed in our CapEx guidance going from expansion to the sustaining CapEx is pretty much because we have been monitoring this all the time and the majority of the activities that we are increasing our sustaining CapEx with, it's precisely mine development, as you mentioned. In the last call, if you remember well, we mentioned that we would keep all the essentials in place so that we have our operations fit and safe, right, and also the business. So -- because of the disbursements throughout the second quarter and the estimation throughout the second half of the year as to Aripuanã and also the Vazante project have been kind of delayed due to lower personnel working on the project. We have also revised the expenses on mine development and maintenance so that we keep the business safe and also in shape, not delaying anything that could cost us in the future. So you nailed it. It's precisely that.

Can I add one thing? I would add one thing here. It's important to note one thing. The performance of our mines in Brazil, which were not affected by the crisis, has been very close to what we were planning to improve. So the guidance shows clearly that the performances match perfectly the costs that we are incurring right now in the mines in Brazil and even in smelters as well.

Yes. No. As a matter of fact, just looking at that, Tito, and the first half is lower than your guidance.

[Operator Instructions] Our next question comes from Timna Tanners with Bank of America Merrill Lynch.

Hope you're all doing well. I wanted to ask 2 questions. One is pretty high level. Just listening to some of the other commentaries from miners that have operations in Peru and Brazil, I feel like they've talked about the worst being behind and kind of more the repercussions of the better outlook. And I feel like your outlook still talks about risks and uncertainties. So I'm just wondering, is that more on the cost side? Is that more potential disruptions? Or maybe why there might be a difference there, if you would?

Timna, Tito speaking. Thank you for your question. I would say the risks that we may face have more to do with our ability to keep performing as we have done so far. I mean, the lockdown in Peru, for example, was a major disruption for all mining companies operating there. We managed to come back. We are still ramping that production. We have not reached yet the 100% production of sites. And the main reason for that has to do with our capacity to bring up -- to bring in all the necessary work -- number of workers. Why is that? Because the quarantine protocol officials and our protocols and -- by the way, our protocols are more restricted than the protocols that were set by the government. They require us to test the body, test before they move to the site, test when they are at the site after some days. So we have identified many people that are not allowed to move to the site. If you look at some official data available, the contamination in Peru, for example, is around 20%, for those who are tested, which is a huge number, right? In Brazil, the case is a little bit different. Risks are there, but less than what we saw in Peru along the last 2 months to 3 months. So I would say, as long as we can operate, ensure that the costs would not be a problem, but only we have to pay attention to the disruptions related to professionals and workers availability.

Okay. And then if you wouldn't mind, and I'm sure I missed something and I apologize for that. But on Page 10, you have the cash costs, and they're increasing for the second half, just to get to the guidance. Just Can you give us a little bit more color on the puts and takes with the -- it looks like it's net of byproducts, but I'm not sure because it seems like commodity values are going up. So would that not be more positive? And the resumption of operations, I would have thought would be positive, but then the premium costs are higher. So I'm just trying to understand the puts and takes to get us to the guidance, if you would, please.

Menck? I'm going to answer that on behalf of Menck. Seems that he was cut. Basically what happened is, the lower cost we saw mostly in the mining companies -- mining sites in Peru has to do with the fact that we were not operating fully. So some of the services and the maintenance services were not performed 100%. So it impacts the cash costs. When we move back to full operation, we should have costs moving up and should be close to the guidance. Our expectations are that, we actually can generate the proper scale, our objective, of course, will be to end up the year with costs, I would say, below -- a little bit below the guidance or close to the guidance, even if we have additional costs related to COVID. So far, the costs we have registered related to COVID are around $12 million. In the quarter, we had $4 million. We had something lower than that before. And we are in line to demand $2.6 million. Most of that -- they appear just once. We're not expecting to see too many recurring costs except those relate directly to taxes and things like that, but things are -- of course, a disclaimer here, are under control as long as the situation remains as it is today. So I would advise to look at the guidance we have provided that we should be there at the end of the year, everywhere.

[Operator Instructions] Showing no further questions, this concludes our question-and-answer session. We will now hand over to Tito for his final remarks. Mr. Martins, please go ahead.

Thank you very much. I would like to thank all of you for being here today. I hope you found this call useful. We want to improve the communication we're having with all guys. And please, if you have any suggestions and feedback to us, our Investor Relations team would be glad to hear. We will see what we can do actually to be closer to you and to be more transparent, as much as possible actually. Just to end up, our priority has been actually the safety and the health of our people and those who are close to our operations. It's really important for us. And of course, we want to keep up -- keep our production in good shape, meaning being able to produce as much as possible, as planned, and at the same time, developing our Aripuanã project, which is our main priority and being able to come later after Aripuanã completion with the other Greenfield projects in our pipeline. Finally, I think that given the situation we are living today and considering what we've been through already, I tend to be more optimistic about the year. Moving back, as I said, our operations to normal life, not a new normal life, let's look this way, and assume that no big disruption will cause us to -- actually to close again the sites in Peru, we should have a more smooth second half. And hope to see you in the next earnings call in the next quarter. Thank you very much, and have a good day. Stay healthy.

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