Q4 2023 Nexa Resources SA Earnings Call
Good morning.
Welcome to the next or resources fourth quarter and full year 2023 conference call.
All participants will be in listen only mode should you need assistance. Please signal 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 Nexus Investor Relations website, where the presentation presentation is also available.
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And that will be answered soon.
I would now like to turn the conference over to Mr. Rodrigo Camara Sano head of Investor Relations for opening remarks. Please go ahead.
Good morning, everyone and welcome to Mexico resources fourth quarter, and full year 2023 earnings conference call.
Thanks for joining us today.
During the call we will be discussing the company's performance C. S per the earnings release that we issued yesterday.
We encourage you to follow along with his own spree presentation through the webcast.
Before we begin I would like to draw your attention to slide number two as we we'd be making forward looking statements about our business and we just ask that you refer to the disclaimer and the conditions surrounding those stake.
It is now my pleasure to introduce our speakers.
Joining us today, he's our CEO Ignacio rosado.
Our CFO Jose Carlos Novaya, and our senior Vice President of mining.
Got it.
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.
Please let's move now to slide number three where we will begin our presentation.
We appreciate you joining us today to discuss our fourth quarter and full year 2023 results along with insights into our outlook for 2024.
I am pleased to report that we achieved our guidance for the year with metal production at the high end of guidance and total smelting sales or the midrange, while mining and smelting costs were in line with the guidance.
As many of you are aware 2023 boasts persistent challenges to our business, particularly Jude zinc prices and the delay in the ramp up of what you point out.
Nonetheless, I would like to highlight that education and professionalism of our team, which has supported us in improving efficiency our gross our organization.
Which enabled us to deliver solid operational results and also to meet the gate in part the negative impact of lower zinc prices.
Our 2023 Castro.
For the full year total consolidated net revenues amounted to 2.573 billion down by 15% year over year, mainly due to lower zinc prices on lower metal sales.
Adjusted EBITDA in the fourth quarter of 23 was 105 million compared to 120 million a year ago.
This performance was mainly driven by lower smelting sales volumes and zinc prices.
<unk> was down 17% year over year.
Compared to last quarter, adjusted EBITDA rose, 28% due to higher chip prices, which were partially offset by lower smelting sales volume.
For the full year adjusted EBITDA amounted to 391 million down 49% year over year, primarily driven by lower Ele me metal prices. In addition to lower smelting sales volume.
I want to reassure you that we remain focused on.
Competing there to your point I ramp up and consequently, reaching their nameplate capacity in the second quarter of this year.
Maintaining our operational and cost optimization D. C. P N aiming to generate positive cash flow throughout this year.
On advancing with a formal approval process for the salary Pasco integration project.
Now I would like to go over that the progress of our ESG initiatives.
2023 accurately portrays our airports to extreme thing our sustainable business model.
Nick salary Easter each collarbone emissions on the L. M E passport.
Rondon metal exchange platform, which promotes sustainability and transparency across the base metal sector.
<unk> seen production has one of the lowest carbon footprint recorded in the sector. We've done emission intensity of point 36 tonnes of C. O two equivalent calls either one or two.
This achievement positions snacks that as one of the global leaders in carbon reduction within the zinc industry.
Moreover, CDP.
Carbon disclosure project recently concluded its evaluation cycle for the year 2023.
Now that makes us rating in the climate change questionnaire was upgraded changing from C to b.
This recognition is a result of our efforts disclosure and transparency related to go over and US is try to respond eschmann metrics and targets.
Now moving to slide number four.
Regarding the operating performance of the mining segment, you can see that zinc production increased to 90 90000 tons in the fourth quarter of 23 up 21% year over year.
Mainly explained by higher production at the airport on mine.
Combined with higher production from the Cerro Lindo mine.
Compared to a third quarter of twenty-three zinc production was up 3% explained by higher volumes from the Cerro Lindo Agriculture and motor Aguila mines. In addition to additional production from the idea of poor not ramp up.
It is important to highlight that in 2023 production was up 12% compared to 2022.
In relation to cash cost in the fourth quarter of 'twenty three it increased to 45 cents per pound compared to 20 cents per pound in the fourth quarter of 'twenty two mainly.
Mainly explained by lower byproduct credits from our Peruvian mines higher operational costs in El Porvenir and higher treatment charges.
Compared to the third quarter of 23 mining cash cost increased by 10, Sainsbury bone, mainly affected by lower by product credits from Cerro Lindo and higher operational costs email perennial.
Due to the increase in mine development.
Cost per run of mine in the quarter was $48 per ton.
Up 3% year over year explained by higher variable costs and up 10% quarter over quarter also affected by high body our costs.
Now moving to slide number five.
Regarding the operating performance of the smelting segment metal sales totaled 143000 tons in the third of last year.
14% from the fourth quarter of 22, 7% compared to a third quarter of 23.
Mainly impacted by lower volumes in <unk> and <unk>.
In 2023 total sales were down 4% compared to 2022.
So smelting cash cost in the fourth quarter of 'twenty three decreased to one dollar per pound compared to $1 20 in the fourth quarter of 'twenty two.
This decrease was mainly explained by lower zinc prices.
Reducing the cost of raw materials for chase, which was partially offset by lower byproduct contribution.
Compared to third quarter of 23 cash cost was down one cents per pound.
Our conversion costs was 29 cents per pound compared to 25 cents per pound in the fourth quarter of.
Due to higher maintenance and energy costs.
Compared to a third quarter of 23 conversion cost was relatively flat.
Now moving to slide number six where we will talk about our D point out.
In the fourth quarter, a D. D. C 90 point out half progress as planned with our airports concentrated on further improving plant is stabilization and reliability as well as increasing metallurgical performance.
In December we had five days of downtime in the plant to address the replacement of equipment together with the execution of important Debottlenecking task force activities.
Securing this downtime the average planned capacity utilization in the quarter was 61%, 5% higher compared to the previous quarter.
In the last quarter. We also saw improvements in synch recovery why concentrate grades on quality where to stay with.
As a result, there was an increase in production compared to the previous quarter.
Our exploration plan in as you point out in the fourth quarter also progress as expected and our results confirmed that continuity of mineralization with high poly metallic content showing that we have a robust mining method with a potential to operate for many years.
We started 2024 with positive progress that keep us confident in estimating the completion of the ramp up in the second quarter of this year.
In the next two slides, we will see more details on the operational performance of 30 point out.
Now moving to slide number seven.
Starting with our plant downtime in the upper left side, we noted a decrease of 6% quarter over quarter, considering the five days planned downtime.
We chose the improvements in the stabilization of the plant.
Average planned capacity utilization increased to 61% versus 56% in the third quarter.
In the lower left side, we can see the progress of the zinc recovery, which reached 66% in December basis was 59% in September.
When compare looking at the January 2024 number we see that the recovery ratio improved even further reaching 73%.
Copper and lead recoveries also improved significantly in January showing a strong positive trend.
Now moving to slide number eight.
On the slide number eight you can see that due to all the improvements mentioned above compared to the third quarter of 2023 zinc production was 27% higher reaching 7.4 thousand tons in the fourth quarter.
Copper production increased 31%, while led until oil production grew up 49% and 42% respectively.
These improvements show that we are in the right direction to achieve nameplate capacity in the second quarter of this year.
Now moving to slide number nine.
Well this is slide I would like to highlight that we continue progressing with our exploration program.
Now 2023 plan shows indications of positive results for both brownfield and Greenfield activities.
In Cerro Lindo, the exploratory drilling program focused on extending the mineralization of the Obi eight on Ob nine mineralized bodies.
As well as he identified a new mineralized zones at abacus higher target any extensions.
What about Sunday, our focus was on expanding existing mineralized zones in the northern and southern parts of the mine.
I mean as you point out that program was directed at increasing mineral resources at above us who mineralized body honest started drilling other mosshart undue about target.
Both targets have solid indications of potential resource addition, with attract content.
Finally, and as Cerro Pasco complex. The exploration program also showed relevant results.
That brought them focus mainly on the integration targets, which I will describe in detail in the Nexus light.
In the slide number 10, you can see some of the exploration program results in the Pasco complex, especially in the target integration that keep suggesting potential resource extensions.
Target integration is an exploration area located between the El Porvenir and at our courtyard underground mines.
The results of these exploration confirmed that continuity of mineralization at deeper levels with higher metal content.
We will continue to explore this area with the aim of not only increasing the mineral inventory.
But also increasing the geological potential.
Now I will turn over the call to Jose Carlos they'll buy our CFO, who will present, our financial results Jose. Please go ahead. Thank.
Thank you Ignacio good morning to everyone I will continue on slide 11.
As you can see beginning with the chart in your upper left total consolidated net revenues for the fourth quarter decreased by 19% year over year.
Mainly due to lower zinc prices and lower smelting sales volumes.
Compared to the third quarter of 2023 net revenues decreased by 3% also as a result of lower smelter sales volumes, but partially offset by higher zinc prices and higher production in the mining segment.
In 2023 consolidated net revenues reached $2 6 billion down by 15% compared to 2022.
In terms of profitability.
Consolidated adjusted EBITDA in the fourth quarter, if they did 93 was $105 million compared to $120 million in the fourth quarter of 2022.
This lower performance was mainly explained by lower snapper sales volumes and lower zinc prices.
Compared to the third quarter of 2023, adjusted EBITDA increased by 28%, mainly due to higher selling prices and higher mining production, which was partially offset by lower smelter sales bookings.
In 2023 consolidated adjusted EBITDA reached $391 million down 49% from 2022. This is also explained by the recently mentioned a moment.
Now, let's move to the next slide number 12.
On the top left of the slide we can see that in 2023, we invested $309 million in capex of which sustaining investments, including mine development totaled $293 million.
<unk> investment in the fourth quarter was 111 million, leaving us within our guidance for the full year.
With respect to mineral exploration and project evaluation, we invested a total of $92 million of which 52 million were related to mineral exploration mine development to support the exploration activities that Ignacio presented just a moment.
The total invested in the fourth quarter was $24 million.
This was $8 million below our guidance as we de prioritize some activities as a result of the cash optimization program that we developed for the year.
Now, let's move on to our next slide in which I will discuss our cash.
For 2023, starting from the $391 million adjusted EBITDA net of non operational items, we paid $170 million related to interest and taxes and spent $390 million in total capex in our operations, including Edwin.
Additionally, loans and investments and dividends received had a positive net impact of $66 million.
Due to a new 50 million dollar export financing lung that became effective in December.
Furthermore, dividends state had a negative impact of $49 billion, including.
Including the payment of share premiums it makes us shareholders and their contractual dividends paid to noncontrolling interests.
Had a positive impact of $8 million due to the effects of foreign exchange on our cash and cash equivalents driven by the appreciation of the Brazilian real against the U S dollar during the period.
Additionally, we had a positive contribution of $101 million in working capital as a result of the efforts deployed throughout 2023, which focus on shortening our working capital cycle.
Combining all of these effects our free cash flow in 2023 was negative $41 million.
Finally on the top right of the slide we can see the evolution of our free cash flow generation quarter over quarter.
Our operational and cost discipline together with improvements in working capital throughout the year enabled us to generate positive cash flow in the last three quarters. So slide three despite the external and internal challenges we face.
Now moving to slide 14.
On this slide you can see that our liquidity remains healthy and we continue to present, a sound balance sheet with an extended debt maturity profile.
By the end of 2023, our available liquidity was approximately $788 million, including our undrawn sustainability linked revolving credit facility of 320.
Regarding our debt. It currently has an average maturity of three eight years and a six 1% average cost. It is important to mention that as of December 31, our total cash is sufficient to cover that Amy or all along obligations maturing in the next three years. Nevertheless, we are always evaluating options to continue.
To keep our maturity profile that is in line with the long life of our mines and at that most competitive costs.
Finally, despite the $43 million, increasing our cash balance quarter over quarter leverage which is measured by the net debt to adjusted EBITDA ratio increased from three 1% to three two times in the last 90 days.
This is mainly because of lower adjusted EBITDA in the last 12 months driven by the prevailing trend of lower seeing prices year over year.
Moving now to slide 50.
Regarding market fundamentals it is worth noting that in the fourth quarter of 2023, and let me think price average 2490 8000 per ton down by 17% from the fourth quarter of 2022 and.
And the reason for the decline with a combination of a bullish scenario in 2020, due mainly driven by the Chinese post pandemic stimulus.
And the metal production cuts in Europe, due to high energy prices and lower global demand in 2023, this driven by persistent high interest rates in key economies and lower than expected performance of each hany's sink consuming sectors like appropriately Mark <unk>.
Compared to the third quarter of stated Ninety-three, Illinois zinc prices were up 3% mainly.
Mainly related to the expectation of the federal reserve rate cuts in 2024 and to stronger demand expectation.
And let me copper price averaged $8159 per ton in the fourth quarter of $2 93, and by 2% from the fourth quarter of 2022 and down by 2% from the third quarter of 2023 also presenting high sensitivity to the Chinese economy throughout 2020.
Looking ahead to 2020 for metal prices are expected to be supported by easy monetary policy in the U S. A macroeconomic stimulus in China.
In the mid to long term the fundamental outlook for both zinc and copper prices remains positive.
Additionally, investments in construction infrastructure and in the automotive sector will continue to have a positive impact on demand expectations for base metals on the supply side for both copper and zinc we anticipate that we will continue to see challenges to renew significant production online to fulfill expected demand.
Now I will hand over the presentation back to Ignacio for his final remarks. Thank.
Thank you Jose Carlos on our that's the slide I would like to close this presentation by mentioning our priorities for 2024.
As we look ahead to this year, we anticipate that volatility across commodities may or may persist for a while and continue to put pressure on our business.
However, we will remain focused on our priorities, including the completion of the added point on Cerro Pasco integration project.
Two our commitment to always seek alternatives to optimize costs capex on corporate expenses.
Well as a strengthening our balance sheet.
We will continue our journey as we foster that creation of shared value through operational excellence environmental protection and the integral integral development of our communities within our framework of ethics transparency and responsibility.
In summary, although we expect 2024 to be a challenging year, we are confident that of our business and the long term fundamentals of our industry will be key to sustain our position.
That concludes our remarks. Thank you all for attending this presentation. Operator, we are ready to open the floor for questions. Please.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
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Our first question comes from Camilo barter from Bradesco. Please go ahead.
Hi, good morning, Thanks for the presentation.
Just a quick question on the cost side and if you could provide some.
Do you see costs evolving throughout the year for the semesters and if you can.
Also.
Cortisone finished below our expectations it would be great. Thank you.
So regarding cost.
As you saw in the presentation, we were able to keep costs flat.
In our minds in big one in Brazil.
This was a I would say a combination of those hired through homes.
You say allows us 500 people in all our.
Our operations and regardless.
Let's say inflation issues, especially in Brazil.
Sadly below on regarding some FX impact, especially in Brazil, we were able to keep costs flat.
However, there were some costs that we can control because we needed to develop some mines such as already.
We have been taking additional measures for 2020 for sure.
The idea is that we also get.
Our gross over Oprah plus a V.
This year, we are we're very committed in making sure that a.
All these days.
<unk>.
All these measures that we think are really follow up very closely. So we are confident that we might also have this under control for 'twenty one before.
Yeah.
Thank you and can you comment on free cash flow expectations.
That as well.
Well free cash flow as big as yours.
We will depend on prices.
I would say that this year compared to last year.
Last year, we knew that we have two effects on cash flow. The first one there was seemed prizes.
Especially because the prices went down heavy or let's say for water and the second one is that.
Buffalo Valley or whatnot.
It was delayed on that.
These cost us a lot of money, we're spending in Nevada.
Are all of the $200 million last year.
You'll see that I mean, do you see that cash.
Cash flow generation that we had in the third last part is that was positive.
It was something that we feel proud of in.
In 2020 before as we said.
Well price it remains low but that Ebola.
Is it in the right back who will be our nameplate capacity in the second quarter.
So yes it does.
If prices.
Go up a little bit we expect that that is the case, we are in the bottom of the price cycle.
We might generate some cash flow in 2024.
This cash flow for us is a priority because we have to start reducing our debt.
That was up a we are aware of the of the leverage we have.
That went up because of as you point out made so that nowadays.
<unk> is being completed and as well as stipulated in Gatineau.
Elimination of Gaslog.
Right.
We believe that we've done.
They help comprises tackled by leasing that is really in a good position to again.
And just.
Just to confirm that he put in.
The breakeven is expected.
The first semester.
Yes.
No no.
Are they.
Oh, no I'm, sorry, an hour on the nameplate capacities to AC.
We are very close on that.
January has been good months.
Recoveries are high in the three methods.
The quality of concentrate is also a stable and good so save on water, we see a named.
Nameplate capacity.
Very close on that so we are coping with that.
In the second quarter.
We will be able to achieve that.
I I mean breakeven.
Yeah breakeven, yes, yes of course.
Thank you very much.
And thank you for the presentation.
Again, if you have a question. Please press Star then one.
There are no more questions in the question queue I'll hand, it back to Rodrigo for any webcast questions. They may have.
Hey, Thank you operator.
Good morning, everyone.
Can I start with the question from Omar Industrial mob Demob ISP.
The first question is regarding the is the $300 million your annual sustaining capex.
<unk> hundred million authorities that got me that will help a lot our sustaining capex more or less is 230 or 240 and arrays based on visual on capex that we spend on explorations on another areas.
Hey.
And and then the second the second question also from Omar.
Is that what is the Capex for fast integration project and when do you expect what room to the project.
It's a good question, we have been talking about integration.
In the last year, we expect that Capex that we are still fine tuning. That's why we have enough room in there for your guess will be around 150 to 100.
By being a system that goes away already.
Gotcha.
It might be very low end.
Between the 200 go lives in the Coachella Bahrainian, some outbreak of the shops and some other developments, especially in that approach.
So we find that actually started here and that we expect to approve these projects in the coming months.
Is that we have.
We work on where we finished up all these studies.
We have more certainty on the on the <unk>.
Investments. So we might approve this is roy in the second quarter or towards the middle of the year.
So we got it.
Yeah.
Communicate to the market what will happen in this very important point.
We have another question from Harrington.
Cusack.
For Metlife is fairly well known reaches full capacity in the second quarter 'twenty four why does the guidance showing great production over the next few years is because the first quarter.
Production was not on a 100%.
And in the Central block there as.
As we achieve nameplate capacity, we are also not 100%.
So I would say that if you extrapolate the second half of this year through the other years, you will achieve the numbers that we're showing 425%.
Yes.
We have another question.
From Joseph Legion soon.
When do you expect to start deleveraging.
So I will say.
As I was saying.
Whereas whereas we expect delivery in this year as I said this is a priority.
Cash flow.
We are in good shape in terms of what we've got Australia.
So we are working very hard on both actual goldstein topics, but where it's supposed to prices seen prices. These not began the year in that in a very good pace.
So hopefully and we are going to be is that they will recover in the following quarter. So with our cash flow that we will start <unk> with a delivery level.
Uh huh.
Question from Rodrigo <unk> from ASB data are you evaluating measures to decrease cost of Arizona royalty civil legal going forward.
Yes, Hello, lethal salaries are such outage salaried noise is a big underground mine.
It is one of the largest there.
All lines.
Yes.
Yeah on the.
Cost per ton of wrongdoing is $40.
We have.
Idea in Cerro Lindo ASP.
Mine development, we have to develop 35 kilometers per year.
So.
We have been managing in the last four years to keep the $40 flat.
Has been Oh I'm sorry, it was hey, we have some a consolidation of contractors, we have some E mail.
<unk> here.
We're using our people we have on the measures. We are using cost we have been optimizing our or a short rates does he have some parts of the.
Right.
Many many already mentioned so for us to keep and that's the first of all.
Cost per ton.
Below a $40 is is a challenge, but we get we believe that we can achieve that.
'twenty 'twenty four 'twenty five we'll see but with the measures. We take the idea is that we keep our cost below $40.
Oh, we have another question why is it expect that Capex that you are considering for the integration of the project impossible.
Yeah as I said before it's been 152.
I already explained what are the components of that.
We were still assessing how are we going to finance that.
These capex is gonna be invest in three years. So a part of the cash flow generation of Sabine pass points, whether it be allocated to lease.
If we are to say ive seen it in by visa debt or or some other cash flow that we might have for loyal ratios. So, but instead, we will communicate that once a week.
We go forward.
Okay.
Your comments on the alternatives for the Lora Google asset.
The moral with Watson.
Somebody that asset for us, it's a very small assets.
And this.
This is not transformational.
A low life by so I can I cannot comment on a specific actuals, but what I can tell you is that we are assessing.
In detail what are our options and Laura Weil.
We have a provide a guidance for production for 'twenty before but not for 2025 and this is because.
As I said this is a marginal asset and we are assessing the options are.
As soon as we have some a clarity on that we will come back to the market.
Well, we only gave what are the Nexus stent for Mrs.
There are no more questions in the queue.
This concludes our question and answer session. We will now hand, the call over to Ignacio for his final remarks. Mr. Rosado. Please go ahead.
Thank you and thank you everyone for attending.
This has been a 2023 has been a very challenging yes, I must say I think Paula Davina you already put out a consumer a lot of cash flow prices have not been there.
We as I said, we will see that we are in the wholesale motorcycle.
And we are going to hit that this year is gonna be better.
The evolution of how you put a northern nature Valley, we have taken.
We are generating cash flow for this year, we are committed to us we are committed though on our casualty ACP.
And that is.
That is.
It's up and running we are.
Point being that we approved in the original videos of our basketball. This is important for the company because it.
No a lot of value.
More.
Life of mine for sure because of all of these resources.
But but also more profitability.
The economies of scale of that pool of assets.
So we're committed to that and we're committed to all of these measures.
Thank you for the time.
We look forward to speaking with you in Asia.
No favorite with our first quarter results. Thank you very much.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
[music].
Yeah.
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