Good morning. And welcome to Nexa Resources Third Quarter 2024 Conference Call. All participants will be in 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 third quarter 2024 earnings conference call. Thank you 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, 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. And good morning to everyone. Thanks for joining us today to go over our third quarter results of 2024. Let's move to Slide number 3 where we will begin our presentation with the main highlights of the quarter. We are pleased with our third quarter and year-to-date results. We have delivered consistent operational performance and maintained financial discipline. Our commitment to cash flow generation initiatives has been a key driver supported by positive momentum in metal prices, especially zinc, which reinforces industry resilience and strengthen market fundamentals. With nine months behind us, we are on track to meet our full year outlook. Zinc metal and oxide metals rose by 3% quarter-over-quarter supported by improved demand in our home markets. In mining production, zinc was relatively flat compared to last quarter while lead and silver increased by 2%, each driven by higher treated ore volumes and grades. Copper production decreased by 4% due to lower grade areas in the period. Our financial results were strong. Total consolidated net revenues for the third quarter reached $709 million, up by 9% year-over-year largely due to higher average LME prices. Adjusted EBITDA was $183 million, 111% higher than the $87 million reported in the same quarter last year with adjusted EBITDA margin of around 26% expanding by 12 basis points. This performance was mainly driven by higher byproduct contribution, higher zinc prices and lower mineral exploration and project evaluation expenses. Our net leverage ratio improved to 2.2 times, down from 2.7 times in the second quarter of this year and 3.1 times in the third quarter of last year. Regarding Aripuanã, I would like to provide further details later, but here are some key points. Aripuanã generated positive operating cash flow and marked its third consecutive quarter of EBITDA growth. Treated…

Thank you, José Carlos. As we look to the remainder of the year, we are confident that zinc and copper prices will continue to receive a strong support from global fundamentals reinforcing our outlook for a robust close to 2024. The landscape shaping the base metals market, especially zinc, is characterized by a stable demand, supply constraints and a pivotal role zinc plays in galvanizing sustainable infrastructure. This is a metal at the heart of today industrial growth and tomorrow's green innovations. Our commitment to enhancing productivity, efficiency and performance across all operations remains steadfast. We are focused on extending the life of our mines and consistently improving our cash generation, all while prioritizing the safety of our people. We believe Nexa is very well positioned to size growth opportunities with a well established business, a proven track record and a strong commitment to stakeholders' value creation. This concludes our remarks. Thank you for your support. Operator, we are ready to open the floor for questions.

[Operator Instructions] The first question comes from Orest Wowkodaw with Scotiabank.

I wanted to get a little more color on the status of Aripuanã. You mentioned that you need another tailings filter that's coming next year. Can you give us more specifics, i.e., where is current throughput constrained until that new equipment is put in and when next year do you expect that to be operational?

So what we said is Aripuanã is already in operation today. Aripuanã process between 130,000 to a 140,000 tons per month, and this is equivalent to 90% of the capacity. So the problem that we faced with the filters is that we have a lot of fans and the capacity of the filters cannot absorb those fans, so limits the capacity. This happened because this was a fast track project during the pandemic and COVID in a very isolated area so that the design of the filters that we had and implementation of them were not appropriate to the mineral that we are processing today. Having said that, the fourth filter is necessary. We knew this since February or March of this year so we have been doing tests to accommodate a fourth filter that have higher capacity and has the capacity to have a lower humidity of tailings. So we are ready to approve that. This is going to happen in the next two weeks. The implementation will take between 10 to 14 months. We are trying to fast track that and the cost might be between $12 million $14 million. Once we approve it and we are in -- executing the project, we will give more flavor on that. This filter will give us not only, let's say, full capacity but we have some more capacity in the other parts of the process of Aripuanã. So if we are able to develop the mine, as we are expecting that, we might even increase production farther of the capacity -- of the design capacity that it is today. So that's more or less where we are.

But is that -- does that imply then, it sounds like all of 2025 will be constrained at around 90%?

Yes. I mean, we are aiming to produce between 140 to 150 in all 2025. And there's nothing we can do because the filter -- the production -- the manufacturing of the filter will take more or less six to eight months but then we will have to run in parallel with the civil works. And we already have that detail but it won't take less than 12 -- 10 to 15 months.

But just -- I assume that means there's now downside risk to your previous 2025 guidance at Aripuanã, I think it was $58 million to $72 million. Any idea at this point how much impact that could have?

I would say that we are still fine tuning the life of mine plan for next year. I would say that it will be safer for us to give you that information in our estimates that we provide in January. So for that, I would rather wait for that because it will be more accurate and we are still fine tuning all these plans.

And the next question comes from Carlos de Alba with Morgan Stanley.

So I just wanted to hear a little bit what's your view on the impact of the recent trends on TCRCs for Nexa. I know you have staggered your contracts over the next three years but nonetheless, you have some exposure. And so I wanted to get your take on that.

This is the main question in the market today. This is the question. So what is happening in the market is that TCs are negative and this is an unusual situation for everybody given the shortage of concentrates, the zinc concentrates that happen in 2024 and 2023 and the capacity of the -- the smelting capacity in the world. So we smelters have to pay miners to get the the concentrate and process that. And this is a very unusual situation that I don't think is going to prevail for many more other months. Besides this and because of the recession in China and the recession in Europe that still goes, the premiums that we are facing today, the premiums we get to sell the metal are also going down, probably to normal levels that we had five years ago. So the two main sources of income of the smelters are reducing and sometimes have to be negative because of the TCs. So we gather with most smelters and everybody is ready to cut production. In the case of Nexa is the same. We are evaluating contract-by-contract and we will make decisions during this budget season. And if we believe that buying concentrate at negative terms and selling at lower premiums will not pay we will cut production. We can do that easily. How much or what percentage of our production is going to be cut, we don't know yet. And once we have our budget approved, we will come back to the market. The thing is that, and this is reflected in the zinc price, because all the market know this. So given that inventories of zinc are low, imagine this cut in production will generate a problem in the market even if there is recession and then I would say further price increases could happen. My view, my personal view, is that the market will adjust this in the next three to six months. But 2025, it will be a really bad year for smelters and there's -- I mean, this is the situation that we have to face.

But you have a very high level of vertical integration, right? What what is right now -- what are your expectations for the vertical integration between concentrate and and smelting capacity for 2025?

It's a very important question, because in Cajamarquilla, we -- 50% of the ore feeder in Cajamarquilla comes from our mines. So the benefits goes to our own mines. But the other 50% comes from the market and that's where Cajamarquilla gets the heat. It's negative for Cajamarquilla in that way. In the case of Brazil, the percentage is higher, between 80% to 90% of the concentrate comes from our mines, but the other 10% comes from the market. But Brazil has to import. At Cajamarquilla -- I mean, the local market in Peru provides zinc for Cajamarquilla. So Brazil imports in an additional cost so the penalty for Brazil is higher. But the integration with our mines help with this situation and that's why our smelters are in a better position with -- if you compare them with the rest of the market.

And the next question comes from Lawson Winder with Bank of America.

I appreciate the updates today. May I ask on capital allocation, particularly M&A and in the context of your rising free cash flow? So I mean, despite the issues at Aripuanã, I mean, the other assets are remarkably offsetting those challenges and you are generating robust cash flow at this point. Where is your thinking in terms of timing of potential M&A? Is the focus still on copper? To what extent might you also consider M&A in the zinc space?

Yes, we are starting to generate cash flow. As you're saying, Aripuanã is not consuming any more cash flow and it's producing some, and the rest of the mines are -- at these prices have a lot of cash. So the aim is to reduce the debt right away, because even if our net debt is 1.2, 1.3, our gross debt is high and we want to make sure that we reduce that right away because the interest that are competitive, I would say, is still a cost. And we want to make sure that we have the minimum cash and reduce the debt -- the gross debt. So that's the aiming for -- that's what we are trying to achieve in the next one or two years. In parallel, we are developing our mines. We are developing Pasco, putting some capital allocation there, $140 million. The pumping system is $90 million. The other $50 million is. The integration of the mines and the upgrade of the shaft, that is happening in the next two years, and that will bring us more production in Pasco. So part of the capital allocation will go there. And then we are finding some very good targets in Cerro Lindo as well, the most profitable mine. So next year will be a very good year in trying to project if we can have more life of mine in Cerro Lindo. So that is in a capital allocation within our mines. Having said that, yes, we are still aiming to buy copper. Copper -- the reason is behind the mines or the profile of the mines that we look in copper are similar to the mines that we have today. The ticket for us is around $800 million, it's like 50,000 to 60,000 tons of copper. And the reason behind it is that we can still produce and manage these type of mines but copper has less volatility than zinc and it will diversify us and give us [Technical Difficulty] a profile. We are actively looking in the market. We have been doing that for the last three years. There are some options that we have today. So while we are reducing the debt, we are looking for opportunities. And once we have those opportunities, we will decide on the next three years' capital allocation, and that's where we are today. Luckily, the zinc prices look good, the copper prices as well. We have now all the mines running at full capacity [indiscernible] Aripuanã that is going through these challenges. Smelters are going through a difficult situation today but I don't think that's going to be the case in 2026. So going forward, yes, we will start producing cash flow and reducing the debt and looking for the opportunities, especially in growth.

And then if I could just follow-up on your release from two weeks ago on exploration. What is your current thinking on year end reserves, particularly at Cerro Lindo? Because you've highlighted the fact that you'd like to extend the lifeline there but also at Vazante and Aripuanã, do you expect that you can replace reserves or better again this year?

Yes. So let let me see if I hear you correctly. So in the in the case of Cerro Lindo, yes, if you look at the profile of Cerro Lindo, the OB-8 and OB-9 have been replacing a yearly reserve since Cerro Lindo for the last year. So what we are doing is that we are drilling near these deposits to bring more life of mine and today with perhaps close to eight to 10 years of life of mine, which was the case many years ago but I think we are increasing that. The good thing with that is that these resources that will be converted into reserves for these 10 years are still profitable. They are very close to the infrastructure that we have today. So we are confident that the next 10 years of Cerro Lindo will be very similar to what we have today. Having said that, we are -- we found some very good anomalies near the current infrastructure, one was Pukaqaqa. Pukaqaqa, we started drilling Pukaqaqa and Pukaqaqa didn't show the potential we wanted, and it was like 3 kilometers away. But there is a new area that is 2 or 3 kilometers, but on the other side of the infrastructure that we will start drilling on 2025. We are allocating $8 million to that, and we will have some results towards the end of 2025. It's early days, but the anomalies show that we might have a potential there that can bring us 5 to 7 years more. So that is a priority for us given that Cerro Lindo is the most profitable mine by far. In the case of Aripuanã, Aripuanã is a very good case because you know Aripuanã has been a really bad project to build. It was a fast…

And just one follow-up. I appreciate you touching on the regional target at Cerro Lindo. So just on that target. What is the thinking right now in terms of what you'll spend on that in 2025? And then secondly, is that region subject to the silver stream?

No, it's not subject to a silver stream, to what our friends. But today, we have -- we found a very big anomaly there and we put two drill holes more than a 1000 meter drill holes that cross this big anomaly. And we found [Technical Difficulty] similar to what we have in the OB-8, OB-9 and all the infrastructure that we have. So what we are doing is putting like five more drill holes with more than a 1000 meters to start to delineate what is the shape of this anomaly. And this is the beginning of what we are going to do. This is starting in January, as I said, $8 million. So I would say towards June and towards December, we will have more information on those. Our team is conservative on that but -- you see their faces and they look happy. So we'll see what happens.

[Operator Instructions] At this time, you’re showing no more questions. We can move to the webcast questions.

We have some follow-up questions from the audience in the web. So the first one it's, comes from Matheus Moreira from Bradesco BBI. Hi, guys. Congratulations for the results. We have seen overall positive dynamics for zinc prices in the past few weeks, with continued tightness on the supply side. So going forward, how do you see supply demand dynamics? So I believe that Ignacio has already addressed, but José Carlos will complement the question. José Carlos del Valle: As you might remember, we've been anticipating this situation in previous calls expressing that we believed in the fundamentals of zinc and that we expected for prices to increase at some point. So in the last few months this has materialized. And as Ignacio mentioned, we currently have a very tight concentrate market. The story for zinc continues to be more a supply story. Even though we currently have a soft demand in China, what we're seeing are constraints in terms of supply of concentrate. Just a couple of days ago, if I remember correctly, there was a publication by BMO, anticipating that zinc concentrate production for 2024 will actually be lower than zinc concentrate production in 2023. So it is very unlikely the way we see it, the prices will go back down to levels that we saw last year 2,400, 2,500. I think personally that these prices are a better reflection of market dynamics. And going forward, even though zinc demand grows at low single digits, it's a very consistent demand growth. So based on the limitations that we have on supply in the concentric market that may later translate to a metal market, because of the actions that could be taken by smelters, this situation of tightness could prevail for some time. With the potential growth of zinc going forward supported also by its participation in the energy transition economy, we expect the fundamentals will continue to be strong, that supply will continue to be constrained and that we should continue to have strong fundamentals. We don't know whether this will be at 3,000, at 3,200, at 2,800. But certainly, we don't see prices going back down to the lower levels that we saw before. There could be some volatility along the way, it's never a straight line. But I think the dynamics that we're seeing will continue to evidence the strong fundamentals of the zinc market. Hope that answered the question.

We have one question. This is more connected to the leverage. So it's from Julian Rios from SMBC Nikko Securities. So if the intention of the company is to reduce gross debt, do you guys have any specific type of liability management that you as a company expect to undertake? José Carlos del Valle: Yes, in general terms, and I think it's consistent with what we have explained before. We are in a cyclical industry. So we will feel more comfortable with lower levels of leverage. We are -- there's part of the leverage that we control or that we can influence and there's part of the leverage that we can't. We saw our net leverage levels peak in the first quarter of 2024. If I remember correctly, it was around 3.70, 3.75. This was mainly due to the decline in the price of the commodities that we sell. This situation is reverting because of the higher prices that we have so we have better results and also, we are having better operational performance and a higher contribution from Aripuanã. So that peak level of 3.7 is now at 2.2. And with these operational levels and these prices, we continue to expect that that trend is going to prevail going forward. So we would like to be below two for sure. Our target would be something in the range between 1 and 1.5, so that it will give us the buffer to absorb the different cycles that we can see or shorter volatility that could still take place going forward. So that is in line also with the comment made by Ignacio that we want to reduce gross debt that will help us reduce our net leverage and also allow us to reduce the interest -- the cost of interest every year, which is significant for a company the size of Nexa. So that will continue to be a priority.

This concludes our question-and-answer session. Now we will hand the call over to Ignacio for final remarks. Mr. Rosado, please go ahead.

Thank you, Dave. Thank you very much, everyone for attending the call. We look forward to close the year achieving all our targets and achieving guidance. We are very committed to that and we are very committed to our 2025, 2026 challenges. We believe that Aripuanã will start performing and will become a very solid operation going forward. We believe that Pasco project is going to give us a lot of upside. And we believe that we are well positioned to look for some other acquisitions moving forward. Thank you again. And we look forward to hear from you in the following quarters.

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