Q3 2023 Nexa Resources SA Earnings Call
Good morning, and welcome to next of Resources third quarter 2023 conference call. All participants will be in listen only mode should you need assistance.
Please signal a conference specialist by pressing the star key followed by zero. This event is being recorded and is also being broadcast via webcast and maybe accessed through Nexus Investor Relations Web site, where the presentation is also available after today's presentation there'll be an opportunity to ask questions to ask a question.
You May press Star then one on your telephone keypad to withdraw your question. Please press Star then two remember that the participants of the webcast will be able to register via website questions simply type. Your question in the box and click send and that will be answered soon I would like now to turn the conference over to Mr. Rodrigo.
Ah Rossano head of Investor Relations for one for opening remarks. Please go ahead.
Good morning, everyone and welcome to <unk> resources third quarter 2023 earnings conference call. Thanks for joining us today.
During the call we will be discussing the company's performance Inc. S earnings release that we shouldn't yesterday.
We encourage you to follow along with this one screen presentation through the webcast before we begin I would like to draw your attention to slide number two as we will be making forward looking statements about our business.
We just ask that you refer to the disclaimer and conditions surrounding those statements.
It is now my pleasure to introduce our speakers joining us today, he's ever CEO Ignacio Rosado, our CFO Jose Carlos <unk>, and our senior Vice President of mining Luna are quiet.
So now I will turn the call over to Ignacio for his comments in Austin. Please go ahead.
Thank you Rodrigo and thanks to everyone for joining us this morning.
Please let's move now to slide number three where we will begin our presentation.
Let me start by providing you a brief overview on our third quarter of 'twenty to 'twenty three.
We continue to experience us an ideal of downward pressure on metal prices.
Driven by negative external factors, such as inflation on high interest rates in the U S.
In addition to uncertainty about the performance of key sectors over the Chinese economy.
Although the prices of our main made does have performed at levels below our expectations. We remain committed to our financial discipline, which made it possible to have a positive cash generation in the third quarter of this year.
Our operating performance was in line with expectations in our mining and smelting segments in both segments. We also provided cash cost guidance revised downwards.
Total revenue reached $649 million and was down 8% year over year, mainly due to lower zinc prices and the smelting sales volumes.
Compared to the last quarter net revenues increased by 4% as a ritual of higher mining production and metal sales volume in the period, which were partially offset by lower metal.
Metal prices.
Consolidated adjusted EBITDA for the quarter decreased by 32% year over year, reaching $82 million.
This performance was mainly explained by lower Ele me prices.
Compared to the second quarter of this year adjusted EBITDA grew 14% due to higher metal sales mine production and lower costs in Brazil.
We revised the Eddie pointed out production range downwards for the year given the limitations, we found related to the design capacity of that rotation pumping system, which resulted in the extension of the ramp up phase.
Nonetheless, 2023 production estimates for Nicks us older mines and smelters remain unchanged.
Our salaried Busskohl integration project is advancing as expected X.
Exploration project evaluation on the other expenses were reduced by 15%.
However, we are still prioritizing the expansion of the resource and mineral resource base in our minds.
I would like to close this is light by mentioning that we have successfully closed a $320 million sustainability linked revolving credit facility, which will support nicks us liquidity profile on this link to our collarbone reduction keep her four months indicators.
Carlos will go into details later on in the presentation.
Now moving to slide number four.
Okay.
Regarding the operating performance of the mining segment you.
You can see that zinc production increased to 87000 tons up 15% year over year, mainly.
Mainly explained by the increase in treated ore volume and I start up of the Eddie why not mine.
Compared to the second quarter of this year seeing production was up 8% explained by higher volumes from the Cerro Lindo by Sunday, and Motorola with all mines.
With respect to cash cost in the third quarter of this year. It decreased to 35 cents per pound compared to 57 cents per pound in the third quarter of last year.
Mainly explained by higher byproduct contribution related to higher lead prices and copper concentrate volumes.
Compared to the second quarter of these year mining cash costs decreased by 6%.
Looking at the cost per run of mine in the quarter, It was flat year over year and quarter over quarter.
Despite inflationary cost pressures, especially in Brazil.
Now moving to slide number five.
Regarding the operating performance of the smelting segment metal sales totaled 154000 tons in the third quarter down 5% from the third quarter of last year and up 3% compared to the second quarter of this year.
The nine months year over year production performance was relatively flat.
A smelting cash growth in the third quarter of this year decreased to $1.01 per pound compared to $1.36 per pound in the third quarter of last year and $1.12 per pound in the second quarter of this year.
In both periods. This decrease was mainly explained by lower zinc and lead prices, which reduce the cost of raw materials.
Our conversion cost was 29 cents per pound on Wes up 11% from the third quarter of last year due to higher energy expenses on lower metal production.
Compared to the second quarter of this year conversion cost was down 9%.
Now moving to slide number six.
So in January of this year ramp up activities in deep whatnot have continue with a strong focus on steadily increasing the plant's throughput rate.
Reducing plant downtime on improving recoveries and concentrate quality and grades.
In the second quarter of this year the plant therefore at an average of 66% capacity basis was 50% capacity in the first quarter.
In July we observed some problems in the capacity of that rotation pumping system due to limitations indentified in the original design and as a result, the plant performed at an average rate of 56% in the third quarter.
The permanent replacement of pumps is scheduled to take place in the first quarter of next year driving ramp up completion to the second quarter of next year.
We have also implemented additional actions in the plant that include processes and systems improvements azuela upgrades on water treatment facilities.
It will allow us to return to a high average throughput rate in a more consistent way.
We expect to run at a 70% average utilization rate through the fourth quarter of this year.
On the mine site, we have been successfully increasing our run of mine production.
We would reach 237000 tons in the quarter compared to 61000 tons in the second quarter of this year.
290%.
Based on activities in the quarter progress as expected we are focused on upgrading the mineral resource unexplained in our mineral reserves.
Our priority in this as it is to keep improving metal recovery.
Concentrate quality and grades and to conclude the upgrade in the plant aiming to achieve a stable production and minimize additional financial impacts.
Now moving to slide number seven.
Yeah.
Starting with our planned downtime in the upper left side, we noted an increase of 5% quarter over quarter as the limitations of Saturday in the third quarter required additional preventative hours now.
The plant capacity utilization averaged 56% versus 66% in the second quarter.
However, we can see an improvement in copper and lead recoveries well see recoveries is slightly reduced compared to the previous quarter, but has been recovering in the last few weeks.
Now moving to slide number eight.
Well, there's no lumber and eight you can see that zinc production was 10% lower compared to the second quarter of 2023, reaching 5.8 thousand tons.
Copper production reduced by 12%, while lead and silver production increased by 5% and 2%, respectively, mainly driven by higher grades.
Now moving to slide number nine.
Well this is light I would like to highlight that we continue to advance the technical studies.
The Pasco integration project.
These technical studies cover different works, such as New mine design and the studies for the underground interconnection shaft upgrade on engineered our assessment of the plant as well as that assessment of options to improve capacity to provide a long term solution for tailings hits.
<unk> facilities.
Furthermore, we continue to advance the required environmental permits.
Honesty studies protest the project demonstrates the potential to unlock important value for nixer through economies of scale cost improvement and extension of asset life.
We expect to submit this project for approval during the first quarter of next year.
Now I will turn over the call to Jorge Carlos they'll buy our CFO, who will present, our financial results well say please go ahead.
Thank you Ignacio good morning to everyone I will continue on slide 10.
As you can see beginning with the chart on your upper limit total consolidated net revenues for the third quarter decreased by 8% year over year maybe.
Mainly due to lower CPI Lindsay prices and lower Nielsen's These schools.
The second quarter of 2023 net revenues increased by 4% as a result of higher mining production and metal parts.
Partially offset by no were seeing prices.
In the first nine months of the year consolidated net revenues reached $1 $90 million down by 14% compared to the same period a year ago.
In terms of profitability.
Consolidated adjusted EBITDA in the third quarter of 2023 was $82 million compared to 121 million in the third quarter of 2022.
These lower performance.
Unknown Executive: Good morning and welcome to Nexa Resources 3rd Quarter 2023 Conference Call. All participants will be in listen only mode. Should you need assistance? Please signal a conference specialist by pressing the star key followed by zero. 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.
No we're seeing metal prices.
The second quarter of 2023, adjusted EBITDA increased 13%, mainly due to higher mining and metal sales and lower costs in Brazil, which were partially offset by lower zinc prices and ethics.
In the first nine months of this year consolidated adjusted EBITDA reached $286 million.
<unk>, 5% from the same period last year.
Unknown Executive: After today's presentation there will be an opportunity to ask questions. To ask a question you may press star then one on your telephone keypad. To withdraw your question please press star then two. Remember that the participants of the webcast will be able to register via website questions. Simply type your question in the box and click send and that will be answered soon.
Also it is name of the reasons I mentioned.
Now, let's move to slide number eight.
On the top left of the slide we can see that in the first nine months of <unk>.
We invested $198 million in cabinets.
Staining investments you reminded that totaled 185.
Rodrigo Cammarosano: I would like now to turn the conference over to Mr. Rodrigo Cammarosano, head of investor relations for opening remarks. Please go ahead.
The total investment in the third quarter was 82.
With respect to mineral exploration and pre devaluation, we have updated our guidance for the year.
Ignacio Rosado: Good morning everyone and welcome to Nexa Resources 3rd quarter 2023, 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 is light number two. As we will be making forward looking statements about our business and we just ask that you refer to the disclaimer and conditions surrounding those statements.
We now expect to be at $100 million.
The decrease which is a reduction of $10 million from the previous guidance, mainly due to initiatives to improve our cash flow for the.
And the first nine months of 2020.
We invested a total of 69 days.
Of which 39 million were related to lease exploration and mine development to support our exploration.
Now, let's move on to the next slide, which I will discuss our cash flow generation in the third quarter of <unk>.
For the third quarter of 2023, starting from our $82 million.
NATO nonoperational items.
Unknown Executive: It is now my pleasure to introduce our speakers.
Almost $38 million related to interest and taxes.
Unknown Executive: Join us today is our CEO in Asu Osado, our CFO Jose Carlos Lovalle and our senior vice president of mining Leonardo Coyle.
$75 million in sustaining Capex and HFC in our operations in Chile.
Additionally, most investments in D C and D and a positive net impact for $3 million.
Ignacio Rosado: So now I will turn the call over to in Asu for his comments. In Asu, please go ahead. Thank you Rodrigo and thanks to everyone for joining us this morning.
We then had a negative impact also $3 million due to the effects of foreign exchange on our cash and cash equivalents. This was driven by the depreciation of the Brazilian real.
Ignacio Rosado: Please let's move now to slide number three where we will begin our presentation. Let me start by providing you a brief overview on our third quarter of 2023. We continue to experience a scenario of downward pressure on metal prices driven by negative external factors such as inflation and high interest rates in the U.S. In addition to uncertainty about the performance of key sectors of the Chinese economy. Although the prices of our main metals have performed at levels below our expectations, we remain committed to our financial discipline which made possible to have a positive cash generation in the third quarter of this year.
Those are doing.
Finally, there was a positive contribution of $93 million from an improvement in working capital.
Is part of the result of our ongoing program of cash optimization measures for 2023.
Combining all these effects our free cash flow in the third quarter of 2023 was $14 million.
Now moving to slide 13.
On the slide you can see that our liquidity remains healthy and we continue to present solid balance sheet with an extended debt maturity profile.
Cash balance increase in net debt declined in the third quarter of 2023 as a result of positive cash flow generation during the period I'm.
As a result.
Ignacio Rosado: Our operating performance was in line with expectations in our mining and smelting segments in both segments. We also provided cash cost guidance revised downwards. Total revenue reached $649 million and was down 8% year over year mainly due to lower sink LME prices and smelting sales volumes. Compared to the last quarter net revenues increased by 4% as a result of higher mining production and metal sales volume in the period which were partially offset by lower LME metal prices.
At the end of the third quarter of 2020.
<unk> was approximately $822 million, including our undrawn revolving credit facility $300 million.
I would like to highlight that we recently announced the successful closing of a five year $320 million sustainability linked revolving credit facility.
It became effective on October 22020.
These new revolving credit facility replaces Nexus 2019, $300 million Rcs that was set to mature in October 2024.
The amounts drawn are subject to an initial interest rate of one 6% plus the term social yeah.
Ignacio Rosado: Consolidated Adjusted Evida for the quarter, decreased by 32% year-over-year, reaching 82 million dollars. This performance was mainly explained by lower LME prices. Compared to the second quarter of this year, Adjusted Evida grew 14% due to higher mental sales, mind production, and lower costs in Brazil. We revised the Aripuana production range downwards for the year, giving the limitations we found related to the design capacity of the flotation pumping system, which resulted in the extension of the ramp up phase, nonetheless, 2023 production estimates for Nexa's other mines and smelters remain unchanged. Our Cerro Pasco integration project is advancing as expected. Exploration project evaluation and other expenses were reduced by 15%. However, we are still prioritizing the expansion of the resource and mineral resource base in our mines.
The applicable margin is subject to compliance with carbon reduction kpis, reflecting makes us unwavering commitment to reducing its carbon footprint.
As you can see these efforts are consistent with our ESG conviction and ambition.
Regarding our debt.
He has an average maturity of three nine years and a five 6% average cost is important to mention that until September 30, our total cash is sufficient to cover the payment of all obligations maturing in the next four years.
Finally, despite the $14 million increase in our cash balance leverage which is measured by the net debt to adjusted EBITDA ratio increased from two eight to 306 times quarter over quarter, mainly because of lower adjusted EBITDA in the last 12 months driven again by the prevailing trend of Nomura.
<unk> prices.
Now moving to slide 14 rigs.
Regarding market fundamentals it is worth noting that in the third quarter of 2023, Illini zinc price average $2428 per ton down by 26% from the third quarter of 2022, and 94% from the second quarter.
Unknown Executive: I would like to close this slide by mentioning that we have successfully closed a $320 million sustainability linked revolving grade facility, which will support Nexa's liquidity profile and its link to our carbon reduction keeper performance indicators.
Okay.
The same time in any copper price averaged $8366 per ton.
8% from the third quarter.
And down by 1% from the second quarter.
Unknown Executive: Jose Carlos will go into details later on in the presentation.
And the reason for the client Melanie zinc prices were speculation related to the global economy, that's potential new hikes in interest rates in the U S slower growth et cetera, I would also acknowledge that the Chinese economy has not responded as expected.
Unknown Executive: Now moving to slide number four. Regarding the operating performance of the mining segment, you can see that zinc production increased to 87,000 tons up 15% year-over-year, mainly explained by the increase in credit or volume, and I start up of the Aripuana mine. Compared to the second quarter of this year, zinc production was up 8% explained by higher volumes from the Cerro Lindo, Bastante, and Moroagudo mines. With respect to cash costs in the third quarter of this year, it decreased to 35 cents per pound compared to 57 cents per pound in the third quarter of last year, mainly explained by higher by product contribution related to higher lead prices and copper concentrate volumes. Compared to the second quarter of this year, mining cash costs decreased by 6%.
These are definitely in the appropriate decision.
Looking ahead to the rest of 2023 in the following months. Despite the fact that we're already seeing some zinc mine production cuts as a result of the current challenging price environment.
Prices are still expected to be negatively impacted by short term variables such as monetary policy in Europe and in the U S.
My last night is still prevailing in.
The Chinese economy.
In the mid to long term fundamental outlook for both zinc and copper prices remained positive. Additionally, invest any construction infrastructure.
This sector will continue to have a positive impact on demand expectations for base metals.
Supply side, both for corporates, and we anticipate that we will continue to see challenges to bring new significant production on right now.
Unknown Executive: Looking at the cost per run of mine in the quarter, it was flat year-over-year and quarter-over-quarter, despite inflationary cost pressures, especially in Brazil.
Now I will hand over the presentation back to Ignacio for his final remarks.
Unknown Executive: Now moving to slide number five. Regarding the operating performance of this melting segment, metal sales total 154,000 tons in the third quarter, down 5% from the third quarter of last year, and up 3% compared to the second quarter of this year. The nine months year-over-year production performance was relatively flat. Smilting cash costs in the third quarter of this year, decreased to $1.1 cents per pound compared to $1.36 cents per pound in the third quarter of last year, and $1.12 cents per pound in the second quarter of this year.
Thank you Jose Carlos.
Yeah.
On our last a slight and I would like to close this presentation by mentioning our priorities for the rest of the year.
The completion of the Eddie upon our ramp up is our top priority.
Our focus is to improve recoveries and quality of concentrates while replacing pumps adapt rotations here grid to increase capacity.
We are advancing on the studies related to Cerro Pasco integration project we.
We look forward to approve this project in the first quarter of next year.
We remain committed to looking for alternatives to optimize costs Capex and corporate expense in addition to strengthening our balance sheet.
Unknown Executive: In both periods, this decrease was mainly explained by lower sink LME prices which reduced the cost of raw materials. Our conversion cost was 29 cents per pound and was up 11% from the third quarter of last year due to higher energy expenses and lower metal production. Compared to the second quarter of this year, conversion cost was down 9%.
We will continue to accelerate our exploration program prioritizing the life extension of our assets.
We will continue to focus on safety productivity and Egypt public commitments.
Looking forward, we are confident in our long term fundamentals of our industry and our business.
Thank you all for attending this presentation with that we will be happy to take your questions.
Unknown Executive: Now moving to slide number 6. In January of this year, ramping activities in Arizona have continued with a strong focus on steadily increasing the plant's throughput rate, reducing plant downtime and improving recoveries and concentrate quality and rates. In the second quarter of this year, the plant performed at an average of 66% capacity versus 50% capacity in the first quarter. In July, we observed some problems in the capacity of the protein system due to limitations identified in the original design and as a result, the plant performed at an average rate of 56% in the third quarter.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two you may also send questions via chat at the web class web.
Cast platform, we will pause for a moment to assemble our queue.
As a reminder.
Under you May ask a question by pressing Star then one on your Touchtone phone.
Unknown Executive: The permanent replacement of pumps is scheduled to take place in the first quarter of next year driving ramp up completion to the second quarter of next year. We have also implemented additional actions in the plants that include processes and systems improvements as well as upgrades on water treatment facilities. That will allow us to return to a high average throughput rate in a more consistent way. We expect to run at a 70% average utilization rate through the fourth quarter of this year.
Now we are going to address some questions that we got from the audience.
On the online audience.
We will start with a question from Alexandra <unk> from William Blair and company wide is the interest rate in these new assets and ability Lincoln Rcs.
Unknown Executive: On the main side, we have been successfully increasing our run of mine production. We reach 237,000 tons in the quarter compared to 61,000 tons in the second quarter of this year. Up to 190%. Patient activities in the quarter progress as expected. We are focused on upgrading the mineral resource and expanding our mineral reserves. Our priority in this asset is to keep improving metal recovery and concentrate quality and rates and to conclude the upgrade in the plant aiming to achieve a stable production and minimize additional financial impacts.
Neil and good morning to everyone.
Hawaii in relation to these question a just a clarify the interest rate Ace Ace Salzburg Itchy staff secured overnight financing rate plus one 6% with a possibility of another debt.
Points, depending on compliance with the ESG targets that have been established for these sustainability linked affiliate.
Thank you hope that Oh, we have another question.
From the audience.
Sandra female, Indiana as well.
Unknown Executive: Now moving to slide number 7. Starting with a plant downtime in the upper left side, we noted an increase of 5% quarter over quarter as the limitations observed in the third quarter require additional preventive hours. The plant capacity utilization average 56% versus 66% in the second quarter. However, we can see an improvement in copper and lead recoveries while zinc recoveries slightly reduce compared to the previous quarter but has been recovering in the last few weeks.
In terms of elaborates it seems that the leverage has increased in this quarter is there a leverage target for the company.
Does the company plan to address this.
Thank you for the question. This is something that we talk about continuously and as you can imagine a leverage has increased mainly because of the a reduced EBIT.
Because our net debt.
Hasnt changed that much.
Finally, we are a REIT.
Right above three times a week we are a we are we are doing all our efforts to bring this a below a three times towards the end of the year. However aim.
Unknown Executive: Now moving to slide number 8. On Sni-Lambernate you can see that zinc production was 10% lower compared to the second quarter of 2023 reaching 5.8,000 tons. Copper production reduced by 12% while lead and silver production increased by 5% and 2% respectively, mainly driven by higher grades.
In the medium to long term definitely we will feel more comfortable with levels around two times, we don't have any let any leverage calling that in our in our facilities, but we believe that something around two times will be more sustainable. So we continue to work on a number of initiatives to bring.
Unknown Executive: Now moving to slide number 9. On this slide I would like to highlight that we continue to advance the technical studies of the Pasco Integration Project. These technical studies cover different works such as new mind design and studies for the underground interconnection, shaft upgrade and engineering assessment of the plant, as well as the assessment of options to improve capacity to provide a long-term solution for training storage facilities. Furthermore, we continue to advance the required environmental permits and as studies progress the project demonstrates the potential to unlock important value for Nexa through economies of scale, cost improvement and extension of asset life. We expect to submit this project for approval during the first quarter of next year.
These down our top priority in the next months and years is to reduce our net debt.
Obviously, a good part of that will remain on prep will depend on prices, but we are doing all of the <unk> yeah, we're trying to.
They influence all the factors that we can control to try to maximize cash flow generation ever use net debt and consequently bring leverage to.
Below the levels at current years.
Thank you Jose Carlos.
I have another question from Camilo Barger from Bradesco BVI.
What can we expect in terms of free cash flow impact in Q4, and <unk> 20 far from my viewpoint.
And these ignacio so so far the impact on cash flow of 94 nine in the first nine months of this year was $146 million as we put it in the presentation.
José Carlos Alba: Now I will turn over the call to José Carlos del Valle, our CFO, who will present our financial results. José, please go ahead. Thank you Ignacio.
For the for the first quarter, we expect a number of cash outflow of around a $40 million to $50 million.
José Carlos Alba: Good morning to everyone. I will continue on slide 10. As you can see, beginning with the chart on your upper left, total 28% revenue for the third quarter decreased by 8% year over year, maybe due to lower zinc enemy prices and lower smelting say exposure. Compared to the second quarter of 2023, net revenue increased by 4% as a result of higher mining production and metal sales losses, partially offset by lower zinc prices.
And depending on the ramp up how it goes in the summer or in the first part of next year. We will have stated by impact on cash flow, but the idea is that we start to being breakeven towards the end of the first quarter and begin with our fourth quarter.
We cannot put a number here because this is a process.
So we will keep the market posted a.
When we provide guidance in January for the rest of the lines.
José Carlos Alba: In the first 9 months of the year, Consolidated net revenues reached 1.9 billion dollars, down by 14% compared to the same period a year ago. Interest of profitability consolidated adjusted EBDA in the third quarter of 2023 was 82 million dollars compared to 121 million in the third quarter of 2022. This lower performance was mainly explained by lower zinc metal prices. Compared to the second quarter of 2023, adjusted EBDA increased 13%, mainly due to higher mining and metal sales and lower costs in Brazil, which were partially offset by lower zinc prices and Fx rate. In the first 9 months of this year, Consolidated adjusted EBDA reached 286 billion dollars, down 55% from the same period last year. Consolidated also explained the reasons I mentioned in the moment.
Thank you and I assume we'll have a follow up question from <unk> <unk> from Bradesco BVI and could you provide some color on what you expect in terms of volumes for zinc and copper for 'twenty 'twenty four.
This is this is going back out also in our guidance that is coming in January.
I would like to wait until we provide that in two or three months.
Okay. Thank you Ignacio are we have a question from Orlando Bahia from climate Corp capital.
Good morning, and thanks for taking my question. My first question is related to costs in galvan, Akita wide cost increase quarter on quarter, despite lower raw materials and conversion costs.
Yes actually the.
The main the main driver of the increase in the conversion costs are of course, driving up <unk> was energy.
José Carlos Alba: Now let's move to the next slide, number 11. On the top left of the slide, we can see that in the first 9 months of 2023, we invested $198 million in capital, of its sustaining investments in truly minor development, total 185 million dollars. The total investment in the third quarter was 82 million. With respect to minor exploration and priority valuation, we have updated our items for the year and we now expect to be at $100 million in 2023, which is a reduction of 10 million from the previous guidance.
José Carlos Alba: Maybe due to initiatives to improve our capital for the year. In the first nine months of 2023, we invested a total of $69 million, of which $39 million were related to linear exploration and mind development to support our exploration activities.
Thank you Ignacio will have.
A question.
From Alexander <unk> from William Blair and company.
There was a big working capital outflow due to higher payables and lower inventory in the quarter can you. Please give more color there and shall we expect this to reverse in Q4.
José Carlos Alba: Now let's move on to the next slide in which I will discuss our Castro generation in the third quarter of the year. For the third quarter of 2023, I'm starting from our $82 million, $38 million related to interest and taxes and spent $75 million in sustaining capital and HSC in our operations, including Adipona. Additionally, loans and investments and dividends received and paid had a positive net impact of $3 million. We then had a negative impact of also $3 million due to the effects of foreign exchange on our cash and cash agreements.
Thank you for the question, what's the catalyst again.
If you go back and you review as a result of the first quarter you will see that we had a very significant investment in working capital, which is actually what we have baked where you are seeing in the second quarter and third quarter. So if we compare ourselves with the beginning of the year what were pretty good.
At the same levels marginally marginally lower working capital this D D.
José Carlos Alba: This was driven by the depreciation of the Brazilian real against the US dollar during this period. Finally, there was a positive contribution of $93 million from an improvement in working capital, which is part of the result of our ongoing program of cash optimization measures for 2023. Now combining all these effects are fee cash flow in the third quarter of 2023 was $14 million.
These variations a actually are the result of a number of initiatives that we have taken a to optimize working capital have more control over our inventory as such we should always do better.
Also Tau M.
A change in a way that the terms that we have with our suppliers for example, a all within industry standards.
José Carlos Alba: Now moving to slide 13. On this slide, you can see that our liquidity remains healthy and that we continue to present a solid balance sheet with an extended maturity profile. Cash balance increase and net debt declined in a third quarter of 2023 as a result of positive cash flow generations during the period. As a result, available liquidity at the end of the third quarter of 2023 was approximately $722 million, including our Andron Revolving Cray Facility of $300 million.
Renegotiating slightly longer payment terms. So this is a structural change that actually will continue and this takes time to implement that as contracts renew and it's part also of the it's related to our cost control initiatives. When we when we renegotiate contracts consolidate a con.
Tracks in oil in order to get better terms.
So so I wouldn't worry about that I don't expect that there won't be a reversal in the fourth quarter because I think the key point here is that we are recovering the working capital that we lost in the first quarter of the year.
José Carlos Alba: I would like to highlight that we recently announced a successful closing of a five-year, $320 million sustainability link Revolving Cray Facility, which became effective on October 20, 2023. This new Revolving Cray Facility replaces Nexus 2019's $300 million RCAF that was set to mature in October 2024. The announced drawn are subject to an initial interest rate of 1.6% plus a term so far. The applicable margin is subject to compliance with current reduction KPIs who's letting Nexus and wavering commitment to reducing its carbon food.
Thank you Jose.
We will go back to one question because it seems that we had an audio problem and the question was from Orlando Barriga from <unk> capital.
The question was related shoe co hamartia costs why did cost some brief market.
Over quarter, despite lower raw material and conversion costs. Yeah. So saw the as I was explaining the I'm sorry about that.
Now probably would be.
Communication as I was explaining.
José Carlos Alba: As you can see, these efforts are consistent with our ESG conviction and ambition. Regarding our debt, it currently has an average maturity of 3.9 years and a 5.6% average cost. It is important to mention that as of September 30, our total cash is sufficient to cover the payment of all obligations metering in the next four years. Finally, despite the $14 million increase in our cash balance leverage, which is measured by the net debt to adjusted yield ratio increased from $2.8 to $3.06 times quarter or quarter mainly because of lower adjusted yield in the last two months during and again by the pervading trend of lower lending prices.
Yes, it is exposed to a mainly to energy cost inflation and.
This is linked to our contract we have a longer contract and listening to us.
So this was the main body of holding Inc. Remainder conventional cost how do you say it that way.
We started a program in September to work on reducing costs to work on increasing production to work on productivity measures too.
Now fewer people in the operation and this is being very successful.
Most of these benefits are going to be shown in the in our budget for next year and in the first quarter.
<unk> of next year as well.
So a.
Okay, Thanks, Inacio and sorry, again for the for niche with the audio.
José Carlos Alba: Now moving to slide 14. Regarding market fundamentals, it is worth noting that in the third quarter of 2023, L&E sync price averaged $2,428 per ton, down by 26% from the third quarter of 2022 and by 4% from the second quarter of 2023. At the same time, L&E copper price averaged $8,356 per ton by 8% from the third quarter of 2022 and down by 1% from the second quarter of 2023. The reasons for the declining L&E sync prices were speculation related to the lower economy, such as potential new heights in interest rates in the US, slower economic growth, etc.
We have a question from Carlos US himself from Bank of America.
Thanks for your presentation could you give us some color about capital allocation going forward.
Next our considering inorganic growth in another geographies. Yes. This is a very important question with.
With this price this is worth mentioning that most of our mines if he can make money on our sensors.
And we are a we thought with all of the programs a optimization programs that we are a Ronnie are also here.
L Peanuts, we generate more cash.
However, as you can see we high a high debt.
Our priority in this capital allocation is to reduce that debt.
José Carlos Alba: But also the acknowledgement that the Chinese economy has not responded as expected to economic experience, particularly in the property sector. Looking ahead to the rest of 2023 and the following months, despite the fact that we're already seeing some sync mining production cuts as a result of a current challenging price environment, metal prices are still expected to be negatively impacted by short-term barriers, such as monetary policy in Europe and in the US, as well as by the still prevailing uncertainty of the Chinese economy.
We are putting together the budget for the coming months.
In a year.
And we have to assess if a how much cash generation, we're going to provide.
So we started reducing debt as I was saying this is a priority.
Just on that we might look for other options, who changed their capital allocation of the company.
These are early days and we will provide more color to the market.
Beginning of next year or mid next year.
From the inorganic growth I think it's the best option, we have some good op shows in.
José Carlos Alba: In the mid to long term, the fundamental outlook for those sync and copper prices remains positive. Additionally, unless any construction infrastructure and the automotive sector will continue to have a positive impact on demand expectations for base metals. On the supply side, both for copper and sync, we anticipate that we will continue to see challenges to bring new significant production online.
Inorganic.
Growth.
This is something that we are assessing.
If I was a two day.
Our priority is to finish.
Opinion to leap or not.
For a start.
Have more clarity on the or through one of the several possible project and reducing diverse. So these are the three priorities that we have over the coming months and for 2024.
Ignacio Rosado: Now I will hand over the presentation back to Ignacio for his final remarks. Thank you Jose Carlos.
Ignacio Rosado: On our last slide, and I would like to close this presentation by mentioning our priorities for the rest of the year. The completion of the Adipana ramp up is our top priority. The focus is to improve recoveries and quality of concentrates while replacing pumps and a flotation circuit to increase capacity. We are advancing on the studies related to the Cerro Pasco integration project. We look forward to approve this project in the first quarter of next year.
Thanks Nacho.
We have a one question related to <unk>.
It says sure wireless under Samuel <unk> from William Blair and company Watson.
While production should we expect for money for non next year.
And what is the annual capacity.
Okay. Mr. Leonardo speaking, so we expect to keep their rugby apps over the next year. So by the second quarter are expected to start to reach full production.
And when you reach the full production there running duration, we used about $2 $2 million on the year, we still work on the plan.
Ignacio Rosado: We remain committed to looking for alternatives to optimize costs, topics and corporate expense in addition to strengthening our balance sheet. We will continue to accelerate our exploration program prioritizing the live station of our assets. We will continue to focus on safety, productivity and ESG public commitments. Looking forward, we are confident in the long-term fundamentals of our industry and our business.
And we're going to provide more color when do we should the guidance in the next quarter.
Thank you. Thank you bill.
<unk>.
And can you explain Ah sorry, that's a.
Okay.
Hold on just a moment.
Unknown Executive: Thank you all for attending this presentation. With that, we will be happy to take your questions.
I have one another question related to try to point out from Orlando very eager from credit card capital at when would you expect and if one night to reach breakeven yes.
Unknown Executive: We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys.
So as long as you are.
Unknown Executive: To withdraw your question, please press star then two. You may also send questions via chat at the webcast. We will pause a moment to assemble our queue. As a reminder, you may ask a question by pressing stars in one on your touchtone phone.
Well it was management and we expect full capacity towards the end of the third quarter of the first part of next year and poorly in those months, we will reach also a breakeven.
Having said that this is also the case because it is the capex that we are investing in and whatnot.
You say is related to changing the bonds on installation of these pumps and is a higher capex. So this is affecting our breakeven costs.
But as we said in the presentation in the second quarter of next year, we will be we should be at breakeven.
Thanks, and also we have a question related to <unk>. It comes from my H E T. Brian <unk> from Morgan Stanley.
Are there any other bottlenecks for adequate non ramp up that the management can identify.
This is this is a very good question.
I think I can say as a summary that as you point out have been very difficult too weak to start the ramp up.
Because there were some flaws in the arena design that also affected construction.
So we.
We have we had many it's small water lakes and some of the processes.
But today I would say the main eight.
Unknown Executive: Now, we are going to address some questions that we are going to have to ask a few questions that we got from the audience on the online audience.
Alexandra Simeldini: We will start with a question from Alexandra Simeldini from William Blair & Company.
José Carlos Alba: What is the interest rate in this new sustainability linkage RCS? Good morning to everyone. This is José Carlos Alba. In relation to this question, just to clarify, the interest rate is so far, which is the secured overnight financing rate, plus 1.6% with the possibility of another net points depending on compliance with the ESG target that have been established for this sustainability link facility. Thank you, José.
As Paul I'm sure that we have is that is that he said industrial patient pumping system.
So besides this we don't see any other small bottlenecks, we might have some related to the ramp up as the day to day.
By the replacing of the pumps industrial facial cheesecake is the one that is going to take us through to full production or in general.
And I'll take the first part of next year.
Yeah.
Alexandra Simeldini: We have another question from the audience, from Alexandra Simeldini as well. In terms of leverage, it seems that the leverage has increased in this quarter. Is there a leverage starting for the company?
Okay. So so these are these are all the questions that we have a we go back to the moderator. Please.
José Carlos Alba: How does the company plan to address this? Thank you for the question. This is something that we talked about continuously. As you can imagine, leverage has increased mainly because of the reduced event, because our net debt hasn't changed that much. Clearly, we are right above three times and we are doing all our efforts to bring this below three times towards the end of the year. However, in the middle of the long-term, we will feel more comfortable with levels around two times.
This concludes our question and answer session now I will hand over to Ignacio for his final remarks. Mr. Rosado. Please go ahead.
José Carlos Alba: We all have any leverage covenants in our facilities, but we believe that something around two times will be more sustainable. We continue to work on a number of initiatives to bring this down. Our top priority in the next month and years is to reduce our net debt. Obviously, a good part of that will depend on prices, but we are doing all of the, we are trying to influence all the factors that we can control to try to maximize capital generation and reduce net debt and consequently bring leverage to below the levels it currently. Thank you, Jose Carlos.
Thank you and thank you everyone for attending.
As you can see this is a still a difficult quarter for us.
As we were saying we are committed to our financial lease ripping, we're working with many work streams to reduce our costs too.
Slide two.
Green Dot Capex tunnel and to make sure that he put a nice up and running in that in the coming months. So thank.
Thank you very much again for the time and we look forward to provide you more color in the next quarter of year over year.
Have a good date.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
[music].
Ignacio Rosado: We have another question from Camilla Barder from Rodrigo BVI. What can we expect in terms of free cash flow impact in Q4 and one Q24 from Adipona? Okay, this is Ignacio. So far, the impact on cash flow in Adipona in the first nine months of this year was $146 million as we put it in the presentation. For the fourth quarter, we expect a number of cash outflow of around a 40 to 50 million and depending on the ramp up how it goes in the summer or in the first quarter of next year, we will assess the impact on cash flow. But the idea is that we start to be in break even towards the end of the first third quarter and begin on the fourth quarter. We cannot put another here because this is a process.
Unknown Executive: So we will keep the market posted when we provide guidance in January for the rest of the months. Thank you, Nasi.
Unknown Executive: We have a follow-up question from Camilla from Rodrigo BVI. And could you provide some color on what do you expect in terms of volumes for Zinc and Copper for 2024? Yeah, this is going to come also in our guidance that is coming in January. I would like you please to wait until we provide that in two or three months. Okay, thank you, Nasi.
Orlando Bahiga: We have a question from Orlando Bahiga from QueryCorp Capital.
Unknown Executive: Good morning. Thanks for taking my question.
Unknown Executive: My first question is related to cost in Camilla. Why did cost increase quarter on quarter despite lower raw materials and conversion costs? Yes, actually the main driver of the increase in the commercial cost or cost driving us in Camilla was energy.
Unknown Executive: Thank you, Nasi. We have a question from Orlando Bahiga.
Sandra Semyon-Dini: Sandra Semyon-Dini from William Berry Company. There was a big working capital outflow due to higher payables in the lower inventory in the park. Can you please give more color there and show expectations to reverse in Q4?
José Carlos Alba: Thank you for the question, Jose Carlos again. Actually, if you go back and you review the result of the first quarter, you will see that we have a very significant investment in working capital, which is actually what we've been rehearsing in the second quarter and the third quarter. If we compare ourselves with the beginning of the year, we're pretty much at the same level, marginally lower working capital. These variations actually are the result of a number of initiatives that we have taken to optimize working capital, have more control or inventory, as we should always do, but also to change in a way that the terms that we have with our suppliers, for example, always in industry standards, renegotiating slightly longer payment terms.
José Carlos Alba: So, this is a structural change that actually will continue in this takes time to implement as contracts renew, and it's related to our cost control initiatives when we renegotiate contracts, consolidate contracts in order to get better terms. So, I wouldn't worry about that. I don't expect that there will be a reversal in the fourth quarter, because I think the key point here is that we are recovering the working capital that we lost in the first quarter of the year.
Unknown Executive: Thank you, Jose.
Unknown Executive: We will go back to one question because it seems that we had an audio problem and the question was from Orlando Variga, from Radicorp Capital. The question was related to Caham Arteja costs. So why did costs increase credit over quarter despite lower raw material and conversion costs? Yeah, so the as I was explaining, and sorry about that, the problem with the communication, as I was explaining, Caham Arteja was exposed to mainly to energy costs, inflation, and this is linked to our contract. We have a longer contract than this is linked to that. So this was the main variable that increments the conversion cost.
Ignacio Rosado: Having said that, we started a program in September to work on reducing costs, to work on increasing production, to work on productivity measures to have fewer people in the operation, and this is being very successful. Most of these benefits are going to be shown in our budget for next year and in the first quarter of next year as well.
Unknown Executive: So okay, thanks in ASU and sorry again for the issue with the audio.
Ignacio Rosado: We have a question from Carlos as himself, from Bank of America. Thanks for the presentation. Could you give us some color about capital locations going forward? It's next to considering inorganic growth in other geographies. Yeah, this is a very important question. With these prices, it's worth mentioning that most of our minds still make money and our смenters, and we are with all the problems, optimization problems that we are running are also helping us with generating more cash.
Ignacio Rosado: However, as you can see, we have a high debt and a priority in this capital allocation is to reduce the debt. We are putting to wear the budget for the coming months and for the coming year, and we have to assess if how much cash generation we are going to provide to start reducing the debt, as I was saying, this is a priority, and based on that, we might look for other options to change the capital allocation of the company.
Ignacio Rosado: This is still an early days, and we will provide more color to the market at the beginning or next year or next year. From the inorganic growth, I think the best option, we have some good options inorganic growth. This is something that we are assessing. As I was saying today, the priority is to finish at the point, to start more clarity on the approval of the several past two projects, and reducing the debt. These are the three priorities that we have for the coming months and for 2024. Thanks, Nassio.
Leonardo Coelho: We have one question related to our opponent. It's a surmallis and the What production should we expect for money for the next year? And what is the annual capacity?
Leonardo Coelho: Okay, the Leonardo is speaking. So we expect to keep the run behind over the next year. So by the second quarter, we expect to start to reach full production. And when you reach the full production, the running ratio is about 2.2 million tons a year. We do work on the plan, and we're going to provide more color when we shoot the guidance in the next quarter. Thank you. Thank you, Leo.
Unknown Executive: Can you explain? Sorry, let's hold on just a moment.
Leonardo Coelho: There's one another question related to Adipuana, from Orlando Braiga from Cascradicorp Capital. When would you expect Adipuana to reach the given? Yeah, so as Leo, as Leonardo Coelho was mentioned in respect of the first quarter of the year, and probably in those months, we will reach also a break even.
Leonardo Coelho: Having said that, this is also the case because the topic that we are investing in Adipuana is related to changing the plans and installation of these plans, and it's a higher capital. So this is affecting our break even costs. But as we said in the presentation, in the second quarter of next year, we should be at break it.
Unknown Executive: Thanks, and also we have another question related to Adipuana.
Unknown Executive: It comes from a Hikibrada from Morgan Stanley.
Unknown Executive: Are there any other bottlenecks for Adipuana and ramp up that the management can identify? Yeah, this is a very good question, and I can say as a summary that Adipuana has been very difficult to start the ramp up because there were some flaws in the original design that also affected construction. So we have many small bottlenecks in some of the processes. But today, I would say the main exposure that we have is an exploitation punk insist. So besides this, we don't see any other small bottlenecks. We might have some related to the ramp up as this is the day today.
Unknown Executive: But the replacing of the tanks in the protection system is the one that is going to take us to full production towards the end of the first quarter of next year.
Unknown Executive: Okay, so these are all the questions that we have.
Unknown Executive: We go back to the moderator please.
Ignacio Rosado: This concludes our question and answer session. Now I will hand over to Ignacio for his final remarks. Mr. Rosado, please go ahead. Thank you. Thank you everyone for attending. As you can see, this is still a difficult quarter for us. As we were saying, we are committed to our financial discipline. We are working in many work streams to reduce the cost, to try to bring the capital and to make sure that we punish up and running in the coming days. Thank you very much again for the time and we look forward to providing you more color in the next quarter at the end of the year.
Have a good day. Thank you.