Good morning, and welcome to Nexa Resources Second Quarter 2024 Conference Call. All participants will be in a listen-only mode. [Operator Instructions] This event is being recorded and is also being broadcast via webcast and maybe accessed through Nexa’s investor relations website, where the presentation is also available. After today’s presentation, there will be an opportunity to ask questions [Operator Instructions] I would now 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 second 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 number 2, where we will be making forward-looking statements about our business and we ask you to refer to the disclaimer and the conditions surrounding those statements. It is now my pleasure to introduce our speakers. Joining us today is our CEO, Ignacio Rosado; our CFO, Jose 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, and good morning to everyone. Thanks for joining us today to go over our second quarter results of 2024. Please let's move to Slide number 3, where we will begin our presentation with the main highlights of the quarter. Let me start by saying that we had a strong second quarter results. We have been witnessing positive momentum from commodity prices from the end of the first quarter, which has been sustained throughout the second quarter. Our solid operational performance and financial results reflect our commitment to our strategy and our focus on executing our priorities, as well as our efforts to optimize key investments and initiatives. In the second quarter of 2024, consolidated net revenues were $736 million, up 27% quarter-over-quarter, mainly due to higher LME prices and increased smelting sales volume. Year-over-year, net revenues were up by 17%. Adjusted EBITDA in the second quarter of this year was $200 million, 64% higher compared to the $123 million in the last quarter. This performance was attributed to higher byproduct contribution, higher zinc prices and increased smelting sales volume. Compared to the second quarter of last year, adjusted EBITDA increased by 180% from $72 million. Our net leverage ratio in the second quarter of 2024 was 2.72 times versus 3.75 times in the first quarter of this year and 2.83 times in the second quarter of last year. These results reinforces our commitment to our strategy and our healthy and steady business fundamentals. Now let me talk about the operational performance of Aripuana. Throughout April, May and June, the plant increased utilization rates, delivered stable concentrate quality and improved metallurgical recoveries that contributed to a solid adjusted EBITDA. In June, we achieved a positive operational cash flow generation. These factors confirm the transition of Aripuana to an…

Thank you, Ignacio. Good morning to everyone. I will continue on Slide 9. As you can see, beginning with the chart on your upper left, total consolidated net revenues for the second quarter increased by 17% year-over-year. This increase was primarily driven by higher LME metal prices and increased mining sales volumes, partially offset by lower net premiums and slightly lower smelting sales volume. Compared to the first quarter of 2024, net revenues increased by 27%, driven by higher LME metal prices and increased smelting sales volume. For the first six months of 2024, net revenues totaled $1.3 billion, up by 2% from the same period a year ago. In terms of profitability, consolidated adjusted EBITDA in the second quarter of 2024 was $200 million compared to $72 million a year ago. This improvement was mainly explained by higher mining sales volumes, improved performance in our Aripuana operation, higher byproduct contribution, lower variable costs and higher zinc prices. Compared to the first quarter of 2024, adjusted EBITDA increased by 64%, driven by higher byproduct contribution, higher zinc prices and increased smelting sales volume. In the first half of 2024, adjusted EBITDA reached $323 million, up by 58% compared to the same period a year ago. Finally, it's worth noting that our consolidated adjusted EBITDA margin increased to 27% in the second quarter of 2024, representing a 16 basis point improvement compared to the second quarter of 2023 and a 6 basis point improvement compared to the first quarter of 2024. Now let's move to Slide number 10. On the top left of the slide, we can see that in the first six months of 2024, we invested $138 million in CapEx, with nearly all of this amount directed towards sustaining activities, including mining development and tailing storage facilities. In line…

Thank you, Jose Carlos. I would like to conclude this presentation by sharing some important news in our sustainability agenda. As part of Nexa's circular economy initiatives, we completed our first commercial sale transaction in May, involving 26.4 tonnes of waste material from our Tres Marias smelter. This project aims to sell significant amounts of waste from our smelter by developing partnerships and evaluating viable technologies and trade routes for these materials. Additionally, in collaboration with the Brazilian Agricultural Research and the Brazilian Micro and Small Business Support Service makes a partner to expand the Rural Practices Project in Vazante, Brazil. This initiative aims to enhance the income of 40 selected farmers by introducing new agricultural techniques and market strategies. This project demonstrates Nexa's commitment to improve local agricultural practices and supporting community development. Another notable achievement is that Nexa Peru was recognized for the third consecutive year as one of the 16 leading companies in sustainable practices by the Peruvian Stock Exchange for the 2024-2025 period. This recognition reflects Nexa's ongoing commitment to integrating ESG strategies into its operations and advancing responsible mining practices. These highlights underscore our commitment to operational excellence and transparency as well as our dedication to creating sustainable value for our shareholders and the communities where we operate. Looking at the remainder of the year, we will continue to focus on enhancing productivity, efficiency and performance across operations and corporate areas, while also prioritizing the safety of our people. We will maintain our disciplined focus on our priorities, including the further improvement of Aripuana's performance, the development of the Cerro Pasco integration project, delivering on guidance, extending the life of our mines and consistently improving our cash generation. We believe that Nexa is well-positioned to maintain positive momentum. We have an established business with a proven track record and unwavering commitment to stakeholder value creation. This concludes our remarks. Thank you for your support. Operator, we are ready to open for questions.

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Lawson Winder with Bank of America Securities. Please go ahead.

Thank you, operator. And good morning, Ignacio and team. Thank you for the update as always. I wanted to just start off with your thoughts on the zinc market. So that was really helpful the color you provided. But just ask in particular about some new production coming on in Central Africa and in Congo, there's new production. And just your thoughts on whether or not that would be a concern of yours as you look out to the second half of this year and then 2025 as that asset starts to hit run rate capacity.

Okay, Lawson. It's Rodrigo here. Thank you so much for the question. Yeah. I mean, we expect -- we have been following the possible new productions very closely. We know that some mines are about to put more concentrate in the market in the coming months, including Aripuana, our mine in Aripuana. But we are -- we keep our view that this is not going to be enough to somehow offset the tight concentrate market that we are seeing right now. So as a consequence, we may still see in terms of fundamentals based on the supply/demand rationale, we may see a positive support for zinc pricing in the following months. Of course, just like we said, Ignacio mentioned in the -- sorry, Jose Carlos mentioned in the presentation, we may see some volatility, especially driven by the U.S. elections and the expectations on Fed rates cut. But we keep our review. We are very confident on the fundamentals of zinc, not only in the short-term, but also in the mid, long-term. And we will keep following this possible new production that should come as well as monitoring the Chinese market very closely. So as everybody knows, China is another important player in the zinc industry and it's important to understand what's happened in terms of the production and the consumption of zinc concentrate in China, and thanks again for your question.

Yeah. And just to add to what Cammarosano is saying, Lawson. Regarding the smelters, that this is -- that TCs are so low now that in some cases, we have negative TCs and the premiums as well that most smelters are not making money. In our case, we are in privileged markets. We are in Peru and in Brazil. So we are very close to the producers of concentrate, but it's a very tight market. And in the cycle, when you see that, you see that this couldn't last many months. So we know that some smelters are making money and are trying to keep up with the market, but this is not sustainable. So we believe that zinc prices have to go up because otherwise, scarcity of metal will come in the coming months.

Okay. Thank you very much for that color. All very helpful. [Multiple Speakers] If I might, I'd like to also ask about capital allocation and how you guys are thinking about making a decision on investments in the Cerro Pasco expansion versus paying down debt and the continued ramp-up of Aripuana. I guess Aripuana, you're now expecting that to be EBITDA positive going forward. So does that now provide some additional flexibility with capital return? And then what's the timing of decision around Cerro Pasco.

Yeah. So very good questions. Aripuana is starting to make some money for the rest of the year. As we were saying, throughput capacity is going to be 80%, 90% of our target. And with the production that we have based on stable recoveries and good quality of concentrates, we will start accumulating cash in Aripuana. So it will no longer be a cash deficit mine. However, building Aripuana was really difficult because we spent a lot of money in this project and part of that has been translated into a very high gross debt. So part of the capital allocation that we want is that our priority is to reduce this gross debt. We believe that in the second half of this year and starting 2025, we will start bringing more cash flow. And part of that cash flow is going to go to pay down debt, okay? Part is going to go to pay dividends as well because we are a company that pay dividends. It might not be the case this year or probably the first quarter or last year. But long-term, we paid dividends. And then we will invest in growth. Pasco is the most advanced project that we have. Our two operations -- we have two operations there. So it's a no-brainer because, as we said before, there is a lot of potential in the intersection of the two mines and we will unlock potential of Atacocha that today has resources cannot be converted into reserves because we cannot access them. And by using the infrastructure of El Porvenir, we will access that. The CapEx for a -- this is $150 million. We will approve this in the coming months. I'm trying to say that probably before the year-end. And probably the bottleneck here is that the pumping system that we pump tailings from El Porvenir to Atacocha. So we extend life of mine of the dam, yes, is probably the first bottleneck and we will have to approve equipments to buy because the lead times are long. We will approve that in the last quarter of this year and finishing engineering of the shaft, finishing engineering of these tailings dam facility and advancing with the permits will help us approve on an official basis, this project in the next four months. But the idea is that with this $150 million is going to be fund with our own cash. We have some possibilities of advancing sales of lead, etc., etc. We will communicate that. But -- so in summary, bringing down the debt, paying some dividends going forward once the cash flow is accumulated and bring Pasco in the next -- I mean, approve that in the next months. These projects last three -- two to three years, but is the most important project that we have to bring more cash flow later on. So that’s more or less where we are today.

And the next question comes from Carlos De Alba with Morgan Stanley. Please go ahead.

Yeah. Good morning, Ignacio, Carlos and Rodrigo. Just maybe following on Cerro Pasco before I ask a question on Aripuana. So just to confirm, the $150 million CapEx that you mentioned is for the entire project or just for the first stage?

Yes.

Okay. And…

No. It's the entire project because I can give you color on that, if you want, but please go ahead.

Yeah. No. Can you talk a little bit about the CapEx for Cerro Pasco integration project in total? And if there are different stages, if you can add color to that and the pace of the disbursement because I think you mentioned that it could take potentially three years to complete the project. So if you can give us a little bit of color on the total CapEx and maybe the pace of disbursements in those three years, that'd be great.

Okay. Perfect. So the three years has two components. One is permits because we need a modification of studies for the integration of the two mines. The two mines are now connected, but we will have to connect them at a lower level. It's a 2 kilometer and we will have to extract the mineral from Atacocha through the Porvenir shaft. So that will take time. That takes at least two years. So that is our restriction. The other restriction is the pumping system, no? We have four components in this project. The pumping system that pumps tailings from El Porvenir to Atacocha is key. Why? Because El Porvenir tailings dam will finish in three years. So we -- to continue exploiting El Porvenir, we will have to pull the tailings into Atacocha. The engineering of that project takes us to probably $80 million. We are finishing that and we will need to start buying the equipment because they are long lead time. That project itself is $80 million. It's going to probably demand two years, those 80. So it's 40-40, '24 and '25, okay? Then we will have to upgrade the shaft. The shaft of El Porvenir is a very efficient one. We don't need to upgrade all the shafts. There are some parts that are in good conditions and are very reliable. So we are assessing that. And that might cost between $15 million to $20 million, okay? Then we have to build a water management plant because close to the tailings that could cost -- in Atacocha, especially that could cost us between $20 million and $25 million. And the rest is the integration. The integration of the two mines, yes? And all the development of the mines to, let's say, extract the mineral is sustaining CapEx…

Great, Ignacio. Thanks for the color. And so the total CapEx is indeed $150 million, right?

Yeah. It's a total CapEx. I mean it might change a little bit probably because of the engineering, but it won't be material. It won't be material.

Right. Okay. And then moving on to Aripuana, sorry. So now that the operation of the mine has graduated to an operating mine, would you start disclosing cost for Aripuana and stop making the adjustment on the EBITDA for the ramp-up expenses?

Yeah. That's the idea. That's the idea. We have now moved to an operation and we will need to start disclosing that as well. Yes. That's the way it has to be from now on.

And would that start in the next quarter or until 2025?

No, next quarter. The idea is that third quarter, we'll start doing that.

Okay. Any color that you can -- any advance that you can give us now or should we just wait until you report the third quarter?

I think we have to wait. I think we have to wait because -- yes, we don't know prices.

Okay. Sounds good. Thank you.

And the next question comes from Camilla Barder with Bradesco BBI. Please go ahead.

Hi. Just two quick questions on my side. First, on CapEx. Maybe still early to say, but could you talk about your expectations for CapEx next year? And secondly, you kept your guidance for costs this year unchanged, but it would be great to hear if you could provide some more color on how you see costs evolving through the second semester.

Hi, Camilla. Thank you for the question. Jose Carlos here. I'm not sure if I heard everything well, but I'll try to give it a shot. The first one was in relation to CapEx for next year, if I heard correctly. We were obviously always looking beyond the current year and we have an expectation of what CapEx should be. We're finalizing or fine-tuning the projects, the numbers of all the different priorities that we have. So we don't expect a significant reduction in CapEx. I think it should be somewhere around where we are today for 2024, somewhere between -- in the low 400s. So I don't expect a significant variation on that. We have a number of projects and investments that we have to make mostly sustaining but things that have to happen in 2025. Can you please repeat the second question you mentioned, I think it was related to cost, but I don't know if there was a specific question. I just heard cost, but if you could please clarify.

It was cost for the second half.

Cost for the second half, okay. Sure. As we mentioned in the earnings release, and I think we mentioned in the presentation as well, I mean we feel good about the cost levels that we are having mostly within guidance. So we – for now, we’re keeping our cost guidance and we don’t expect that – we’re not expecting right now that we will make a change. Obviously, things can change. But we feel comfortable that we are being able to be within the guidance that we provided, mitigate the impact of inflation that is still there in all of our operations, so always finding ways in which we can compensate for the pressure that we see in some of the inputs and in third-party services. So for now, we’re keeping things the way they are and we expect that we will be within the guidance.

Okay. Thank you.

And the next question comes from Orest Wowkodaw with Scotiabank. Please go ahead.

Hi. Good morning. Two questions. Sorry, could you just clarify, did you say that we should anticipate CapEx for 2025 around $400 million, mostly sustaining? Did I hear that correct?

No. What I said was that we shouldn't expect a significant variation from what we have in 2024. And the guidance we have for 2024 is $412 million, so something in that same range.

Jose -- I'm sorry, Orest, just to clarify because we -- in this calculation that Jose is mentioning, we consider the CapEx, which our guidance for this year is $311 million, mostly sustaining. We expect this level to be the same next year. The difference for the $400 million because Jose Carlos is also including the -- some of the expenses that we consider together when evaluating the total CapEx internally here at Nexa. But in terms of the CapEx, to compare with the guidance for this year, it's $311 million and we expect the level to be the same next year, also considering a scenario which is pretty much what we have right now. But if we approve, say, with the past integration project, we may increase this -- the total CapEx because we're going to include the investment that we have to do in Cerro Pasco next year according to what Ignacio explained. So this $400 million is a combination of the CapEx plus some operational expenses that we have not -- sorry, operational expenditures that we have that internally we consider as CapEx. Just to clarify and make sure that there is no misunderstanding, okay.

Yeah. Thank you. And just secondly, I'm just wondering, we previously heard some discussion about trying to diversify into copper and potentially looking at some copper acquisitions. Is that still on the table from a strategy perspective?

Yeah. That's on the table. And the reason behind is that we are, let's say, a very competitive company in terms of the underground mining. We believe ourselves -- that one of our competitive advantages is underground mining. And we already have some copper in our portfolio. We have copper in Cerro Lindo and now in Aripuana. So we are looking for projects that are similar to those that have a higher copper content. Why is that? Because we have the advantage of exploiting that type of deposits, but copper is more resilient than zinc for certainty. I mean if you look at the volatility on copper, it’s much lower than zinc. And given our advantage, if we focus more on copper, our cash flow volatility is going to be lower as well. The fundamentals of copper are very important as the – same as the zinc one. So yes. Yes, the idea is that we bring more copper into our portfolio for the coming years.

Thank you.

There are no further questions from the phone. I will now transfer it over to Mr. Rodrigo to read questions from the webcast.

Okay. Thank you, operator. We have a couple of questions from the audience in the webcast. So I'm going to start with a question from Mr. Luis Ordonez (ph). The question is, do our expectations that higher production levels and metal price would continue in the coming quarters? Ignacio, can you jump in on this one?

Yeah. What we try to focus is on reliable production, reliable controlling of costs and reliable controlling of CapEx. So I can tell you that we are on track to achieving that for the second half of the year in the guidance that we gave. The levels of EBITDA are influenced by prices, no? Our view is that prices are going to remain similar to those of the second quarter. But volatility is there and we don't know. If prices remain, it might be the case that we might have these current levels of EBITDA, but we don't know that. But what we can confirm is that we are committed to our targets on production costs and CapEx that are the main components of the EBITDA.

Thank you, Ignacio. Following up the question from Luis, we also have another question from Luis. Do you -- does Nexa have a guidance of target or a target for the net leverage? I assume this is by the end of this year.

Yes. Thank you, Rodrigo, and thank you, Luis, for the question. I will talk in general because we have mentioned this before. We have a conservative approach to this. And obviously, in a mining company that has to go through the different cycles, you are subject to changes in some factors that you don't control. So you have to take that into consideration. We're setting a target. In the first quarter, we had a high leverage exactly because of that because prices were low. And in the last 12 months, our EBITDA had suffered because of these low prices. As Aripuana starts contributing to our results and we have prices that are more in line with fundamentals, this leverage level is already coming down in a material way. And as Ignacio mentioned, one of our main objectives is to bring down the gross debt in as much as we accumulate cash, we will focus on bringing down the gross debt. So the combination of that will help us continue to reduce our leverage until we bring it down to levels below 1.5 times, which is something that we feel more comfortable with. And if our short to medium-term target is to have it back below 1.5 times.

Yeah. Those were the questions from the audience. So we are -- operator, we're all set here. I would like to thank you so much and hand over to Ignacio.

Okay. Thank you very much for the time. Again, in this quarter, I just want to reiterate that we are very focused on achieving guidance on production cost, CapEx and trying to start reducing our gross debt. We are very happy with the advances on Aripuana. Aripuana has been a very, very difficult project to get. And now we are towards the end of the ramp-up and started making cash flow. Aripuana is a mine that is going to give us very good surprises in the coming years because it's a long-life asset with very good net smelting return. We are very confident that Pasco is coming in the next three years. So with all of our mines: Pasco Aripuana, Cerro Lindo and Vazante, the priority is to extend the life of the mine and have stable cash flows going forward given our operational guidance. In the case of the smelters, given the location and given the market that we face, there are stable smelters, even in these difficult situations, we are making money. So the idea is to keep that going forward. Thank you very much, and we will speak to you soon in the next three months. Have a good day.

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