Good morning and welcome to Nexa Resources First Quarter 2024 Conference Call. [Operator Instructions] This event is being recorded and is also being broadcast via webcast and may be accessed through Nexa's Investor Relations website where the presentation is also available. [Operator Instructions] And now I would like to turn the conference over to Mr. Rodrigo Cammarosano, Head of Investor Relations, for opening remarks. Please go ahead.

Good morning, everyone, and welcome to Nexa Resources' First Quarter 2024 Earnings Conference Call. Thanks for joining us today. During the call, we will be discussing the company's performance as per the earnings release that we issued yesterday. We encourage you to follow along with this on-screen presentation through the webcast. Before we begin, I would like to draw your attention to Slide #2, where we will be making forward-looking statements about our business and we ask you to refer to the disclaimer and conditions surrounding those statements. It is now my pleasure to introduce our speakers. Joining us today is our CEO, Ignacio Rosado; our CFO, José Carlos Del Valle; and our Senior Vice President of Mining Operations, Leonardo Coelho. So now I will turn the call over to Ignacio for his comments. Ignacio, please go ahead.

Thank you, Rodrigo. Good morning, everyone. Thanks for joining us today to discuss our results for the first quarter of 2024. Before starting our presentation, I regret to inform you that in early March, we had a fatal incident involving one of our employees in the El Porvenir mine. And earlier this week, another fatal incident involving one of our employees at a Vazante mine. This is a very difficult time for Nexa, and it becomes clear that we need to work even harder on reinforcing our safety system. We extend our heartfelt condolences to the families of our 2 employees and reassure them and all of our stakeholders that the safety and well-being of every person who works at Nexa are our main values and remain our utmost priority. We are committed more than ever on enhancing employee safety and achieve 0 fatalities. Please let's move to Slide #3, where we will start our presentation with the main highlights of the quarter. Let me begin by saying that I am pleased to report that we had a positive start of the year. We have achieved another quarter of consistent operating performance, maintaining our focus on cost, discipline and capital allocation. Despite ongoing challenges in our industry at the beginning of the year, such as weak macroeconomic conditions, commodity price volatility and lower demand due to seasonality, we continue to make steady progress and remain focused on executing our priorities. In the first quarter of 2024, consolidated net revenues were $580 million, down by 13% year-over-year, mainly due to lower zinc prices, lower premiums and lower metal sales. Adjusted EBITDA in the first quarter of '24 was $123 million compared to $133 million a year ago. This performance was mainly driven by lower zinc prices and lower metal sales. Despite…

Thank you, José Carlos. As I mentioned earlier, we expect to conclude the ramp-up at Aripuanã by mid-2024 as we continue gradually reducing plant downtime while increasing capacity utilization and improving recoveries of all the metals. Our Cerro Pasco integration project is progressing as expected towards the approval process. Our exploration results provide significant indications not only of the potential to further extend the life of our current mines but also of our consistent track record of replenishing reserves. We are focused on our ESG strategy, which prioritizes safe performance across our operations, higher environmental standards and the development of our communities within a framework of ethics, transparency and responsibility. We already took an important step in strengthening our balance sheet with the execution of the liability transactions at the beginning of this year, which combined with a disciplined capital allocation and positive cash flow generation, will allow Nexa to start deleveraging and improve its financial position. That concludes our remarks. Thank you for your support and confidence. Operator, we are ready to open the floor for questions.

[Operator Instructions] Our first question comes from Camilla Barder from Bradesco BBI. Camilla, Please go ahead.

Two questions on my side. The first one, you commented yesterday on the release about a potential impact on legal impact in legislation in Brazil and Peru, results and in cash flow. Could you please give more details in terms of magnitude and timing for those impacts. And for Brazil, what would be the exact impact? Is it any cash outflow expected for that? And the second question is about the guidance. You kept production guidance despite the investment in Morro Agudo, right? So could you please share a little bit about the rationale for this maintenance of the guidance? Do you expect better production in other mines to offset the divestment or we could potentially expect production more towards the end of the guidance, the low end of the guidance. José Carlos del Valle Castro: I wanted to clarify. Thanks, Camilla, for the question. You were talking about -- to make sure that I answered the question correctly. You're referring to some illegal, something in Brazil. I didn't quite get the question. Could you please clarify.

Yes. In Brazil, there was a law about that you have to submit impacts for [ May to ] June, but was not quite sure if there is any outflow related to that or it's just something legal. José Carlos del Valle Castro: I honestly not sure exactly which legislation you're referring to on that one. And you mentioned that there was another one on Peru as well. You're right exactly about something in Peru, maybe it's a communication that it wasn't so clear, sorry.

In Peru, you mentioned about a discussion regarding tax that could impact results along 2024. José Carlos del Valle Castro: You're probably referring to some of the tax contingencies you're talking about tax reform because these are -- I mean, these are a plain standard wording that we include because there are always discussions about potential changes in the tax regimes both in Peru and Brazil. So I want to know if you're talking about something specific related to a particular operation or you're asking in general about the 2 countries?

Yes. In general. José Carlos del Valle Castro: Yes. As far as I know, there's -- sorry, you wanted to say something else?

No, go ahead, please. José Carlos del Valle Castro: No. I can comment in general, I'm happy to get in touch after the call if you have a specific question that we can help you with. But in general terms, I think there are always discussions both in Peru and in Brazil about potential changes in the tax legislation. And this is something that happens in other countries as well, related to the desire of the government to increase their income. But there is no material that we have flagged as of now, either in Peru or in Brazil, even though there have been discussions. But we have not flagged anything that is material that may affect significantly our operations in near of the countries. But happy to get in touch after the call if you have something specific in mind, maybe that you have read somewhere else or you need further detail, we can help you with that.

Okay. There is also only stability of Cerro Lindo that you mentioned. José Carlos del Valle Castro: Okay. Sure. Okay. Yes, this is -- as you may know, this is a matter that has been ongoing for a number of years in Peru and is affecting all the mining companies that have stability agreements, tax stability agreement with the Peruvian government. You may know that I came from Antamina. In Antamina, we had exactly the same program, the same problem. There is actually an international arbitration that is going on right now between [ Cerro ] and the Peruvian government. So these are ongoing disputes, and we always, in our mindset of transparency, we always review that these are things that, at some point, may affect us. But our view is that we have a very strong case but we still have to make that disclosure. So this is -- there's nothing new here. It's just that we make -- we are making sure that we are disclosing that we have this contingency just like just like all the other mining companies that have these stability agreement with the Peruvian government.

Okay. Clear. And about the...

Only one comment on this. No, go ahead. Go ahead, please.

The second one about the guidance. But can -- if you want to add something about it. About the guidance was asking about...

So yes, yes, yes, Morro Agudo, it was a very small operation for us. It was a marginal operation, and we decided to sell because of that. Having said that, Morro Agudo was in our guidance, but still we are maintaining our guidance on production and costs. So we don't believe that selling Morro Agudo and stopping production -- reporting production of Morro Agudo is going to affect our guidance for the end of year.

Okay. It's because it's a marginal investment, what -- do you expect -- okay.

Yes. Yes.

And our next question comes from Carlos De Alba from Morgan Stanley.

Two questions. The first one is if you can provide a little bit more comment on the Magistral environmental impact study and the issue there that apparently it might be rejected by the authorities. Just I wanted to understand what is behind this and what the repercussions? And then second question, maybe on the working capital. Typically, yes, there is a seasonality on working capital in Q1, but this time, relative to the last several years, the consumption of cash flows for working capital was much bigger. So I wanted to understand how much of that do you expect to be reversed in the second quarter or throughout the year?

Yes. Yes. So thank you, Carlos. So regarding Magistral, what happens is that ANA, which is the National Water Authority, has issued a report with where they stated that some of the -- they have still some observations regarding the projects impact on the water deposits that are near our projects. This means that this report goes to [ Senate ], which is the main authority that is going to issue a report of approval of this approval. And this is now in the hands of the [ Senate ]. So we expect that they will come back to us with an answer in the next 1 or 2 months, okay? So in the context of that, I would like to say that, and we said this many times, Carlos, that Magistral is a new project for us, and it still is an investment of $1 billion and we always want to compare this investment of $1 billion with all investments that we might be able to move, not only in Peru but also in other countries. So and the contract that we have signed with the government means that we can invest in Magistral until 2028 to start investing in Magistral. In the case that project EBITDA approved, we will need to start again all these process that's going to take us at least 4 years. But then in that case, we will have to assess f that's a priority or we just led Magistral goal for the moment, put it on hold and try to look for other items in our pipe. So that's mainly what is happening in Magistral. I guess for the next call in July, we will have more information, and we can answer that in a very specific way [ caps ]. And regarding…

And our next question is going to come from Lawson Winder from Bank of America. [Operator Instructions].

Thank you, operator, and Ignacio and team. Thank you for the update. I have a few questions, if you don't mind. First on the balance sheet and the debt. What is your target net debt-to-EBITDA ratio? And when do you expect to reach that? And then when you think about capital allocation at what point might more attention be given to an update to the dividend? José Carlos del Valle Castro: Yes, I can comment on that. I can't comment about leverage in general terms. Obviously, in the first quarter, as expected, we had a higher leverage ratio. This is something that will change throughout the year, quarter after quarter, not only as we accumulate cash even more so with these prices. But as our [ EAA ] adjusted EBITDA improves as Ignacio mentioned, our Aripuanã project is performing well. We are in the process of achieving the completion of the ramp-up, as we've been commenting in previous calls, so our EBITDA will improve over time, and we expect that leverage will net leverage will reduce significantly throughout this year below -- much lower than the levels that we have seen in the first quarter. Having said that, we continue to stay that reducing our debt, not just the leverage is our top priority. So the idea is that gradually over the next few years as we start generating cash with Aripuanã and generating more cash flow as a company as a whole, we will start looking to reducing our debt. We have said a number of times that we feel more comfortable with net leverage ratios in the neighborhood of 1.5x because that is what gives you the buffer to be able to go through the low price cycles as we have had in the last few quarters. So we do -- it is a priority to go back down to those levels and to impact reduce our debt to get to those levels. So we will see a significant improvement during the year, and they will probably take some more quarters to reduce the debt to levels that will allow us to have leverage of about 1.5x. In relation to dividends, we stated that we will take a look at market conditions and company performance in the second half of the year to make a decision on dividends that continues to be the case. Things are looking good in terms of Aripuanã performance, as I mentioned. Prices have improved, but we don't know how long this higher levels will be in place but definitely will be considerations that we will evaluate once we make a decision as we anticipated for the second half of this year.

Okay. That's very helpful. And then just kind of sticking with this theme of capital allocation. So Aripuanã is ramping up. There's still quite a bit of CapEx left to go. Next project is Cerro Pasco. When you look beyond Cerro Pasco, what is kind of the thinking around the next likely project that Nexa might be tackling.

Yes. So it's a very good question. Aripuanã, as José Carlos is saying, we have been talking about that loss on Aripuanã is the ramp-up is finishing in the coming months. So most of the CapEx of Aripuanã is going to be sustaining CapEx. And I would say that Aripuanã wants need more only sustaining CapEx and not a growth CapEx, okay? The next one is Cerro Pasco. Cerro Pasco. We hope we approved it in the second half of this year. We are ready to approve Cerro Pasco but we want to make sure as a company, and this is part of the Board, the conversations that we have on the board. We are trying to make sure that we finish the ramp-up Aripuanã and then we can announce the approval of Cerro Pasco. We are ready to approve Cerro Pasco, but it's a timing of finishing Aripuanã before. So the [ basis a ] project that is going to cost between $140 million and $160 million and it's going to be -- the investment is going to be in the next 3 years. This year, in Cerro Pasco, we are investing in alternatives, which is the main model and in finishing the engineering of the pumping, okay? So besides that, as José Carlos was mentioning in terms of capital allocation, with the cash generation that we will have, we want to make sure that one of the priorities on our capital allocation is probably -- is to reduce the debt. Okay. Having said that, -- we -- in terms of capital allocation, we also work in our pipeline of projects, specifically, we have, for example, [ Tinka ] resources that is now is a new technical report and we have to make a decision if we advance on that. And we have other projects in our pipeline that we can advance. Not in a -- but in any case, those are 5 to 8 years to become mines if they might become. So I would say that the next project that we will bring is a project that will be from our M&A strategy, we are assessing a lot of projects, our size. Similar to the mines that we have investments of around $600 million to $800 million. And that's why we need the leverage of 1.5x that José Carlos mentioned because that will allow us to invest with our cash flow and with some debt to bring the other projects. This is more like where we are today. We are active on M&A we are very committed to visit some projects that have more cover, as we said before, and I will say that, that's mainly our capital allocation is not a strategy going forward.

Okay. Fantastic. And since you touched on M&A, I might follow up and just ask for a little bit more clarification on your latest thinking. I mean, it sounds like it's largely in line to what you said before. In terms of time line, I mean, what does it look like for you at this point, at what time you might be able to transact on a copper acquisition? And then maybe on some of the details, just update us on your thinking in terms of -- are you looking at corporate versus asset M&A producing versus development? And there's been a lot of interesting copper M&A in the past year, both at the asset and corporate level. I mean, with your work, what are you seeing in terms of valuation? Are you seeing valuations that make sense?

Yes. Thus, I mean, bandwidth -- I mean, projects are almost expensive in good times and in bad times. They are always expensive. I guess we are in a niche. And I guess the project that we look for -- in terms of copper, the size of a 50,000 tons, it might have some polymetallic and lead as well. And that put us on the radar of $600 million to $800 million. This is below the radar of most big mining companies that we understand that. And I would say that the opportunity that we are looking for, we are flexible on corporate or at an asset level. We are flexible on that. I would say that we are more focused on understanding the potential assets that we will acquire. And we are trying to bring -- priorities around brownfield projects close to production, all projects that are starting production and they need some experience to unlock more value for them. These are -- there are not that many projects of that, but they are. And I would say that given that this expertise that we have, these are the ones that we are looking for. Having said that, because of this investment and because of our leverage, shareholders are conservative. Our board is conservative. So I would say we have to finish first Aripuanã, we have to approve Cerro Pasco that is coming this year. We have to execute Cerro Pasco. And in parallel, while bringing the cash flow will hopefully assess or bring some of these opportunities that we are assessing and announced an acquisition of some copper zinc advanced print. That's more in the year.

Thank you. At this time, to handle questions brought up through the webcast. I will turn the conference over to Rodrigo Cammarosano, the Nexa's Head of IR. Rodrigo, please go ahead.

Thank you, operator. We have 2 questions from the webcast. The first one is from Hernán Kisluk from MetLife. And we also have another question from Alina Seppä from Evli Fund Management company. So those questions are pretty much the same. And those have been already answered by José Carlos, they are related to the leverage and the dividend payment. So I believe that those questions have also -- have already been addressed. And we don't have any other questions. So I will turn the call over to Ignacio for his final remarks.

Thank you very much, Rodrigo. Thank you very much for -- to everyone for attending the call. We expect to -- we look forward to speak to you in the next quarter. Just wanted to say that we are very committed on our safety program. This is a difficult time for us because we have 2 fatalities in 2 months, and this never happened to us. So we are very focused on making sure that the system that we have that is a good system has to be reinforced, and we have to make sure that all of our people understand that safety is of our main value, and we are -- we will dedicate a lot of time on that. We are also working very hard on making sure that Aripuanã finally is at the end of the ramp-up. So our path is clear for us. We can approve it today, but we want to make sure that we first start -- finish Aripuanã and then we are working always on achieving guidance on costs on the optimization of CapEx and on production to have a stable product. So this is simple. It's a simple strategy, but it's a day-to-day strategy that we have to build. So we hopefully can show you that during the second quarter and the end of second quarter. Thank you very much for attending and have a good day.

And the conference has now concluded. Thank you for attending today's presentation. You may now disconnect, and have a great day.