Q1 2024 Nexa Resources SA Earnings Call
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Operator: Good morning and welcome to Nexa Resources' first quarter 2024 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.
Good morning, and welcome to Baxter Resources' first quarter 'twenty 'twenty four conference call.
Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad. Again, press star 1.
All participants will be in listen only mode.
So do 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 Max's Investor Relations website, where the presentation is also available.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad.
Again star one.
Throw all your question.
If needed.
Brett Star then two.
Remember that the participants on the webcast, we'll be able to register your website questions.
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That will be searched it.
Operator: To withdraw your question, if needed, please press star then 2. Remember that the participants on 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. Now, I would like to turn the conference over to Mr. Rodrigo Cammarosano, Head of Investor Relations, for opening remarks. Please, go ahead.
What Regal: And now I would like to turn the conference over to Mr. What Regal camera was subtle head of Investor Relations for opening remarks. Please go ahead.
Rodrigo Cammarosano: Good morning, everyone, and welcome to Nexa Resources' first quarter 2024 Earnings Conference Call. Thanks for joining us today.
What Regal: Good morning, everyone and welcome to Mexico resources first quarter 'twenty 'twenty four earnings conference call. Thanks for joining us today.
Rodrigo Cammarosano: 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 on the web. Before we begin, I would like to draw your attention to slide number two, where we will be making forward-looking statements about our business. And we ask you to refer to the disclaimer and conditions surrounding those statements.
What Regal: During the call we will be discussing the company's for pharmacy.
Speaker Change: The earnings release that we issued yesterday.
Speaker Change: We encourage you to follow along with these onscreen presentation through the webcast.
Speaker Change: Before we begin I would like to draw your operation to slide number two where we will be making forward looking statements about our business and we ask you to refer to the disclaimer and conditions surrounding those statements.
Rodrigo Cammarosano: It is now my pleasure to introduce our speaker. 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 comment. Inácio, please go ahead.
Speaker Change: It is now my pleasure to introduce our speakers joining us today is our CEO Ignacio Rosado, our CFO Jose Carlos no value in our senior Vice President of mining operations Miramar decoy.
Ignacio Rosado: So now I will turn the call over to Ignacio for his comments.
Ignacio Rosado: Please go ahead.
Ignacio Rosado: Thank you, Rodrigo. Good morning, everyone.
Ignacio Rosado: Thank you Rodrigo good morning, everyone. Thanks for joining us today to discuss our results for the first quarter of 'twenty 'twenty four.
Ignacio Rosado: Thanks for joining us today to discuss our results for the first quarter of 2024. Before starting our presentation, I regret to inform you that in early March we had a fatal incident involving one of our employees at the El Porvenir mine. And earlier this week, another fatal incident involving one of our employees at a Basante mine. This is a very difficult time for Nexa, and it is clear that we need to work even harder on reinforcing our safety system.
Speaker Change: Before starting our presentation I regret to inform you that in early March we had a fatal incident involving one of our employees in dial Porvenir mine.
And earlier this week another fatal incident involving one of our employees Ottawa sand demand.
Speaker Change: This is a very difficult time for next Oh needs becomes clear that we need to work even harder on reinforcing our safety system.
Ignacio Rosado: We extend our heartfelt condolences to the families of our two employees and reassure them and all of our stakeholders that the safety and well-being of every person who works at Nexa are our main values and remain our utmost priority. We are committed, more than ever, to enhancing employee safety and achieve zero fatalities.
Speaker Change: We extend our heartfelt condolences to the families of our two employees.
Speaker Change: Reassured them on all of our stakeholders that the safety and wellbeing of every person who works at next though are our main values on remains our utmost priority.
Speaker Change: We are committed more than ever on enhancing employee safety and achieved zero fatalities.
Ignacio Rosado: Please, let's move to slide number three, where we will start our presentation with the main highlights of the quarter. Let me begin by saying that I am pleased to report that we had a positive start to the year. We have achieved another quarter of consistent operating performance, maintaining our focus on cost, discipline, and capital allocation. Despite ongoing challenges in our industry at the beginning of the year, such as weak microeconomic conditions, commodity price volatility, and lower demand due to seasonality, we continue to make steady progress and remain focused on executing our priorities.
Speaker Change: Please let's move to slide number three where we will start our presentation with the main highlights over the quarter.
Speaker Change: Let me begin by saying that I am pleased to report that we had a positive start of the year.
Speaker Change: We have achieved another quarter of consistent operating performance, maintaining our focus on cost discipline and capital allocation.
Speaker Change: Despite ongoing challenges in our industry at the beginning of the year, such as weak microeconomic conditions commodity price volatility and lower demand due to seasonality, we continue to make steady progress and remain focused on executing our priorities.
Ignacio Rosado: In the first quarter of 2024, consolidated net revenues were $580 million, down by 13% year over year, mainly due to lower zinc prices, lower premiums, and lower metal prices. Adjusted EBITDA in the first quarter of 2024 was $123 million compared to $133 million a year ago. This performance was mainly driven by lower sink prices and lower metal sinks. Despite the steel low zinc price scenario in the first quarter of this year compared to the last quarter, adjusted EBITDA rose 17% due to strong production, lower costs, and lower mineral exploration and project evaluation expenses. Our Ipona project continues to make good progress, and we expect to conclude the ramp-up process in mid-2024.
Speaker Change: In the first quarter of 2024 consolidated net revenues were $580 million down by 13% year over year.
Speaker Change: Mainly due to lower zinc prices lower premiums and lower metal space.
Speaker Change: Adjusted EBITDA in the first quarter of 'twenty, four was 123 million compared to 133 million a year ago.
Speaker Change: You spent four months was mainly driven by lower zinc prices on lower metal sales.
Speaker Change: Despite.
Speaker Change: There's still no sheen price scenario in the first quarter of this year compared to last quarter adjusted EBITDA rose, 17% due to a strong production low.
Speaker Change: Lower costs on lower mineral exploration and project evaluation expenses.
Speaker Change: Our our already borne out project continues to make good progress and we expect to conclude the ramp up process in mid 2024.
Ignacio Rosado: Concerning mineral reserves, we had very positive outcomes, as evidenced by a 59% increase in mineral reserves at Cerro Epasco, as highlighted in our recently released technical report summary. Overall, mineral reserves for 2023 increased by 10% compared to 2022. I encourage you to review both the Technical Report and our Mineral Reserves and Mineral Resources Report, which were published at the end of March and are available on our Investor Relations website. I would like to emphasize that we recently announced the divestiture of our Moragudo mine, making another step in our capital allocation strategy. Our team has done incredible work providing full support to the employees who work at Morro Agudo for many years.
Speaker Change: Well certainly mineral reserves, we had very positive outcomes as evidenced by a 59% increase in mineral reserves at Cerro Pasco us.
Speaker Change: As highlighted in our recently released technical reports summary.
Speaker Change: They're all mineral research for 'twenty to 'twenty three increased by 10% compared to 2022 I encourage you to review both the technical reports on our mineral reserves and mineral resources report.
Speaker Change: Which were put publish at the end of March and are available on our Investor Relations website.
Speaker Change: I would like to emphasize that we recently announced the divestiture of our Morro who don't mind.
Making a northerly step in our capital allocation strategy.
Speaker Change: Our team has done incredible work, providing full support to the employees who work at Motorola for many years.
We estimate that around 25% of our employees will be reallocated to all their operations by the completion of that transaction.
Ignacio Rosado: We estimate that around 25% of our employees will be reallocated to other operations by the completion of the transition. I want to reaffirm that we remain focused on completing the Arapana Ramp-Up by mid-2024. We observed improved metal recoveries and concentrate quality in the first quarter of this year, maintaining our operational and cost optimization discipline to achieve positive cash flow generation throughout this year, and advancing with a formal approval process for the execution of the Cerro Epasco integration project.
Speaker Change: I want to reaffirm that we remain focused on.
Speaker Change: Completing the edit button now ramp up by mid 2024.
We observe improve in metal recoveries and concentrate quality in the first quarter of this year.
Speaker Change: Maintaining our operational and cost optimization discipline to achieve positive cash flow generation throughout each year.
Speaker Change: And advancing with a formal approval process for execution of the Cerro Pasco integration project.
Ignacio Rosado: Before we move to our next slide, I would like to share that we released our 2023 Sustainability Report on April 25th. This report highlights the collective efforts of our team in advancing our ESG initiatives meaningfully. Additionally, in April, we concluded important transactions in line with our Liability Management Program. These transactions included extending our debt profile through the issuance of new debentures and bonds, a significant milestone for Nexa. This strategic move allowed us to optimize our financial structure, diversify our funding sources, and enhance our liquidity position. Jose Carlos will provide more details on this topic in his presentation later on.
Speaker Change: Before we move to our next slide.
Speaker Change: I'd like to share that we released our 'twenty to 'twenty three sustainability report on April 25th.
Speaker Change: This report highlights the collective efforts of our team in advancing our ESG initiatives meaningfully.
Speaker Change: Additionally in April we concluded important transactions in line with our liability management program.
Speaker Change: These transactions included extending our debt profile through the issuance of new debentures and bonds, making.
Speaker Change: Making a significant milestone for <unk>.
Speaker Change: This is Trey you move allowed us to optimize our financial structure.
Speaker Change: Diversify our funding sources and enhanced our liquidity position.
Speaker Change: Carlos will provide more details on this topic in his presentation later on.
Ignacio Rosado: Now moving to slide number 5. Regarding the operating performance of the mining segment, zinc production reached 87,000 tons in the first quarter of this year, up 17% year-over-year, mainly explained by an increase in treated ore volume and higher zinc average grades, particularly at the Cerro Pasco, Bazante, and Aripuaná mines. Compared to the fourth quarter of 23, sink production was down 3%, which can be explained by lower volumes from the Peruvian Mines and Morro Ag.
Carlos: Now moving to slide number four.
Carlos: Regarding the operating performance of the mining segment zinc production reached 87000 tons in the first quarter of this year.
Carlos: Up 17% year over year, mainly explained by an increase in treated ore volume on higher zinc grades, particularly as a separate bus school bus Sunday and how do you plan on mines.
Compared to the fourth quarter of twenty-three zinc production was down 3% extra.
Carlos: Explained by lower volumes from the Peruvian mines and Motorola.
Ignacio Rosado: Concerning cash costs in the first quarter of 2024, it decreased to $0.27 per pound compared to the $0.43 per pound in the first quarter of 2013, mainly explained by lower treatment charges and higher volume. Compared to the fourth quarter of 23, mining cash decreased by 18 cents per pound, mainly explained by lower treatment charges and lower operating costs at the Cerro Lindo and the El Porvenir mine. The cost per run of mine in the quarter was $45 per tonne, relatively flat year over year and down 6% quarter over quarter. Mainly explained by lower operators.
Carlos: Concerning cash cost in the first quarter of 'twenty four.
Carlos: <unk> decreased to 27 cents per pound compared to the 43 cents per pound in the first quarter of 'twenty three.
Mainly explained by lower treatment charges and higher volumes.
Compared to the fourth quarter of 'twenty, three mining cash cost decreased by 18 cents per pound.
Carlos: Mainly explained by lower treatment charges and lower operating costs at the Cerro Lindo and for many of your minds.
Carlos: The cost per run of mine in the quarter was $45 per ton.
Speaker Change: Got it.
Speaker Change: Well for year over year, and down 6% quarter over quarter.
Speaker Change: Mainly explained by lower operating costs.
Ignacio Rosado: Now moving to slide number 5. Regarding the operating performance of the smelting segment, metal sales totaled 139,000 tons in the first quarter, down 4% from the first quarter of 2023 and 3% compared to the fourth quarter of last year, mainly impacted by lower production volumes and a typical seasonality of demand in the period. A smelting cash cost in the first quarter of this year decreased to 98 cents per pound, 22% lower compared to $1.25 per pound in the first quarter of 2023.
Speaker Change: Now moving to slide number five.
Speaker Change: Regarding the operating performance of the smelting segment metal sales totaled 139000 tons in the first quarter down 4% from the first quarter of 23, 3% compared to the fourth quarter of last year may.
Speaker Change: Mainly impacted by lower production volumes and the typical seasonality of the month in the period.
Speaker Change: Our smelting cash cost in the first quarter of this year decreased to 98 cents per pound and 22% lower compared to the $1.25 per pound in the first quarter of 2023.
Ignacio Rosado: This decrease was mainly explained by lower costs of raw materials attributed to lower zinc prices. Compared to the fourth quarter of last year, cash cost was down 3%. Our conversion cost was $0.30 per pound, compared to $0.31 per pound in the first quarter of last year, due to lower variable costs and lower energy costs. Compared to the fourth quarter of last year, our conversion cost was 4% due to higher variable costs and lower smelting sales.
Speaker Change: This decrease was mainly explained by lower cost of raw materials.
Speaker Change: Due to lower zinc prices.
Speaker Change: Compared to the fourth quarter of last year cash cost was down 3%.
Speaker Change: Our conversion cost was 30 cents per pound compared to 31 cents per pound in the first quarter of last year due to lower variable costs on lower energy costs.
Speaker Change: Compared to the fourth quarter of last year conversion cost was 4% due to higher variable costs on lower smelting sales.
Ignacio Rosado: Now moving to slide number six, where we will talk about Aripuana. In the first quarter, activities in Aripuaná have progressed as planned, with our efforts concentrated on the replacement of some critical equipment and on improving the metallurgical process. Those were important steps to keep improving plant stabilization and reliability. As a consequence, in the quarter, we saw significant advances in recoveries and concentrate quality. Although capacity utilization during the first quarter of 2024 was 57%, we saw an important increase in utilization in March and April, with levels reaching more than 80% on certain days of both months and stabilizing at around 70% in the second week of April.
Speaker Change: Now moving to slide number six where we will talk about our D point out.
Speaker Change: In the first quarter activity seemed Eddie point out half progress as planned with our air force concentrated on the replacement of some critical equipment and on improving the metallurgical process.
Speaker Change: Those were important steps to keep improving plant is stabilization unreliability.
As a consequence in the quarter, we saw significant advances in recoveries and concentrate quality.
Speaker Change: Although capacity utilization during the first quarter of 2024 was 57% we.
Speaker Change: We saw an important increase in utilization in March and April.
Speaker Change: Would love us levels, reaching more than 80% on certain days of both months.
Speaker Change: Honest stabilizing at around 70% in the second week of April.
Ignacio Rosado: In the following months, we expect this positive trend to continue. In the first quarter of this year, we saw an increase in copper, lead, and silver production compared to the previous quarter, while zinc was flat. Our current focus continues on plant stabilization and on adjusting some critical processes, such as improving the performance of the tailings-fertilizing circuit, which will allow us to further increase capacity utilization, paving the way for the completion of the ramp-up, which is expected by mid-2020.
In the following months, we expect this positive trend to continue.
Speaker Change: In the first quarter of this year, we saw an increase in copper lead and silver production compared to the previous quarter, while sync was flat.
Speaker Change: Our current focus continues on plan the stabilization and we're adjusting some critical processes such as improving four months of the tailings filtering she'll quit.
Speaker Change: Which will allow us to further increase capacity utilization.
Baby and the wait for the completion of the ramp up which is expected by mid 2024.
Ignacio Rosado: Our exploration plan in Aripuana in the first quarter also progressed as expected, and the results confirm the continuity of mineralization with high polymetallic content, reaffirming that we have a robust mining asset with the potential to operate for many years. I would like to highlight the important results we obtained in the 2023 Exploration Campaign, which contributed to Nexa's overall 10% increase in mineral reserves. On the next two slides, we will see more details on the operational performance of Aripuaná in the quarter.
Speaker Change: Our exploration plenty of you point out in the first quarter also cross progress as expected.
Speaker Change: The results confirmed the continuity of mineralization with high poly metallic condense re up here to mean that we have a robust mining asset with a potential to operate for many years.
Speaker Change: I would like to highlight the important results we obtained in the 2023 exploration campaign.
Speaker Change: Which contributed to an excess overall, 10% increase in mineral reserves.
Speaker Change: In the next two slides, we will see more details on the operational performance of 80 point out in the quarter.
Ignacio Rosado: Now moving to slide number 7. Starting with plant downtime on the upper left side, we noted a decrease of 14% quarter over quarter, indicating improvement in the stabilization of the plant. Average capacity utilization averaged 57% in the quarter, but increased to 70% during April.
Speaker Change: Now moving to slide number seven.
Speaker Change: Starting with our planned downtime in the upper left side, we noted a decrease of 14% quarter over quarter, indicating an improvement in the stabilization of the plant.
Speaker Change: Average capacity utilization average, 57% in the quarter, but increased to 70% due in April.
Ignacio Rosado: On the lower left side, we can see the progress of the zinc recovery, which reached 73% in March versus 66% in December. Copper and lead recoveries also improved significantly in March, indicating a strong positive trend. Now moving to slide number 8. On slide 8, compared to the fourth quarter of 2023, seam production was relatively flat.
Speaker Change: In the lower left side, we can see the progress of the <unk> recovery, which reached 73% in March but it was 66% in December.
Speaker Change: Corporate and lead recoveries also improved significantly in March, indicating a strong positive trend.
Speaker Change: Now moving to slide number eight.
Onto slide eight compared to the fourth quarter of 2023.
Speaker Change: <unk> production was relatively flat.
Ignacio Rosado: Copper production increased by 9%, and wireless and silver production increased by 14% and 11%, respectively. These improvements indicate that we are moving in the right direction to complete the ramp-up in mid-2020. Now moving to slide 9.
Speaker Change: Copper production increased by 9%, while lead and silver production increased by 14 and 11% respectively.
Speaker Change: These improvements indicate that we are moving in the right direction to complete the ramp up in mid 2024.
Speaker Change: Now moving to slide number nine.
Ignacio Rosado: On this slide, I would like to highlight that we continue progressing with our exploration program and have reached important results with an overall 10% increase in our mineral reserves in 2023, net of depletion. This was mainly driven by the positive infield and brownfield results from drilling activities in Aripuaná and the inclusion of the Atacocha mineral reserves, driven by the positive results from the Cerro Pasco integration project. The 2023 results reinforce NEXA's successful track record in not only replenishing, but also increasing our mineral reserves and mineral resources base, as well as showing the potential of our assets. Now, I will turn over the call to Jose Carlos Del Valle, our CFO, who will present our financial results. Jose, please go ahead.
Speaker Change: Well this is light I would like to highlight that we continue to progress with our exploration broad.
Speaker Change: We have reached important results with an overall, 10% increase in our mineral reserves in 2023 net of depletion.
Speaker Change: This was mainly driven by the infill and brownfield positive results from drilling activities and as you point out and.
Speaker Change: And the inclusion of the courtyard mineral reserves.
Speaker Change: And by the positive results from their separate Busskohl integration project.
Speaker Change: Now 2023 results reinforce nicks us successful track record.
Speaker Change: He not only replenished, but also increasing our mineral reserves and mineral resources base.
Speaker Change: Well us showing the potential of our assets.
Speaker Change: Now I will turn over the call to Jorge Carlos they'll buy our CFO, who will present, our financial results will say please go ahead.
Jorge Carlos: Thank you Ignacio good morning to everyone I will continue on slide 10 as you.
Jose Carlos Del Valle: Thank you, Ignacio. Good morning to everyone.
Jose Carlos Del Valle: I will continue on slide 10. As you can see, beginning with the chart on your left, total consolidated net revenue for the first quarter decreased by 13% year-over-year, mainly due to lower sink prices, lower net premiums, and lower smelting sales volumes, which were partially offset by higher mining sales volumes. Compared to the fourth quarter of 2023, net revenues decreased by 8%, also as a result of lower smelting sales volumes and lower zinc prices.
Jorge Carlos: You can see beginning with the chart on your upper left total consolidated net revenue for the first quarter decreased by 13% year over year.
Jorge Carlos: Mainly due to lower zinc prices lower net premiums and lower smelting sales volumes, which were partially offset by higher mining sales volumes.
Jorge Carlos: Compared to the fourth quarter of 2023 net revenues decreased by 8% all sorts, a result of lower smelting sales volumes and lower zinc prices.
Jose Carlos Del Valle: In terms of profitability, Consolidated Adjusted EBITDA in the first quarter of 2024 was $123 million, compared to $133 million a year earlier. This lower performance was mainly explained by a 22% reduction in sink prices year-over-year and lower smelter sales volume.
Jorge Carlos: In terms of profitability consolidated adjusted EBITDA in the first quarter of 2024 was $123 million compared to $133 million a year ago. This slower performance was mainly explained by a 22% reduction in zinc prices your ear and lower smelter sales volumes.
Jorge Carlos: <unk>.
Jose Carlos Del Valle: Compared to the fourth quarter of 2023, despite lower sink price levels, adjusted EBITDA increased by 17%, primarily due to lower costs and lower mineral exploration and project evaluation expenses. Finally, it is worth noting that our consolidated adjusted EBITDA margin increased to 21 percent, one basis point and three basis points higher compared to the first quarter of 2023 and to the fourth quarter of 2023.
Jorge Carlos: Compared to the fourth quarter of 2023, despite lower seeing price levels, our adjusted EBITDA increased by 17%, primarily due to lower costs and lower mineral exploration and project evaluation expenses.
Jorge Carlos: Finally, it is worth noting that our consolidated adjusted EBITDA margin increased to 21% one basis point and three basis points higher compared to the first quarter of 2023 and to the fourth quarter of 2023, respectively.
Jose Carlos Del Valle: Now let's move to the next slide, number 11. On the left side of the slide, we can see that in the first quarter of 2024, we invested $74 million in CAPEX, nearly all of which went to sustaining activities, including mining development and tailing storage facilities. In line with this, our 2024 CapEx guidance for the year remains unchanged at $311 million. With respect to mineral exploration and project evaluation, we invested a total of $12 million, of which $9 million were related to mineral exploration and mine development to support our exploration activities.
Jorge Carlos: Now, let's move to the next slide number 11.
Jorge Carlos: On the top left off the slide we can see that in the first quarter of 'twenty 'twenty four we invested $74 million in Capex near all of which went to sustaining activities, including might need development and tailing storage facilities in.
Jorge Carlos: In line with these our 'twenty 'twenty four capex guidance for the year remains unchanged at $311 million.
Jorge Carlos: With respect to mineral exploration and project evaluation, we invested a total of $12 million of which 9 million were related to mineral exploration and mine development to support our exploration activities.
Jose Carlos Del Valle: However, we expect our investments in these areas to accelerate in the upcoming quarters, and therefore we are maintaining and increasing our 2024 guidance for exploration and project evaluation at $72 million. Now let's move on to the next slide, where I will discuss our cash flow. Starting from the $123 million of adjusted EBITDA met of non-operating items, we paid $46 million related to interest and taxes, and spent $75 million in total CAPEX in our operation.
However, we expect our investments in these areas to accelerate in the upcoming quarters and therefore, we are maintaining unchanged our 2024 guidance for exploration and project evaluation at $72 million.
Speaker Change: Now, let's move on to the next slide in which I will discuss our cash flow.
Speaker Change: Starting from the $123 million, if I adjusted EBITDA net of non operational items, we paid $46 million related to interest and taxes and spent $75 million in total capex in our operations.
Jose Carlos Del Valle: Additionally, loans and investments had a positive net impact of $24 million, mainly due to a new $30 million short-term facility that became effective in March. We then had a negative impact of $3 million due to the effects of foreign exchange on our cash and cash equivalents, driven by the depreciation of the Brazilian real against the U.S. dollar during the period. Finally, we saw a negative effect of $125 million related to working capital, which is the typical cycle observed in the first quarter of each year and in line with our established payment terms and annual tax obligations in the jurisdictions where we operate.
Speaker Change: Additionally, loans and investments had a positive net impact of $24 million, mainly due to a new $30 million short term facility that became effective in March.
Speaker Change: We then had a negative impact of $3 million due to the effects of foreign exchange on our cash and cash equivalents driven by the depreciation of the Brazilian rail against our U S dollars during the period.
Finally, we saw a negative effect of $125 million related to working capital, which is a typical cycle observed in the first quarter of each year and in line with our established payment terms and annual tax obligations in the jurisdictions, where we operate.
Jose Carlos Del Valle: As in 2023, we expect this negative working capital effect to be reversed throughout the year. Combining all these effects, our free cash flow in the first quarter of 2024 was negative by $144 million. Now moving to slide 13.
Speaker Change: As in 2023, we expect these negative working capital effect to be reversed throughout the year.
Speaker Change: Binding all these effects our free cash flow in the first quarter of 'twenty 'twenty four was negative in $144 million.
Now moving to slide 13.
Jose Carlos Del Valle: In this slide, you can see that our liquidity remains healthy, and we continue to present a sound balance sheet with an extended debt maturity program. At the end of the first quarter of 2024, our available liquidity totaled approximately $644 million, including our Andron Sustainability Link Revolving Crate Facility of $320 million. Furthermore, in March, we successfully renegotiated and extended, by five years, one of our remaining export credit notes totaling $90 million, which was previously set to mature in October 2021.
Speaker Change: In 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 at.
Speaker Change: At the end of the first quarter of 2024, our available liquidity totaled approximately $644 million, including our undrawn sustainability linked revolving credit facility of 320 million.
Speaker Change: Furthermore, in March we successfully renegotiated and extended by five years, one of our remaining export credit notes totaling $90 million, which was previously set to mature in October 2024.
Jose Carlos Del Valle: Regarding our overall profile, in the first quarter of 2024, the average death maturity was 3.7 years and carried an average cost of $6.1. It is important to mention that as of March 31st, our total cash position is sufficient to cover the payment of all obligations maturing in the next three years. In terms of our leverage ratio, measured by the net debt to adjusted EBITDA ratio, it increased from 3.2 to 3.7 times quarter over quarter.
Speaker Change: Regarding our overall profile in the fourth and the first quarter of 2024 average debt maturity was three seven years and carried an average cost of 6.1%.
Speaker Change: It is important to mention that as of March 31, our total cash position is sufficient to cover the payment of all obligations maturing in the next three years.
Speaker Change: In terms of our leverage ratio measured by the net debt to adjusted EBITDA ratio. It increased from 3.2 to three seven times quarter over quarter.
Jose Carlos Del Valle: This expected increase is primarily due to the previously explained temporary decrease of $144 million in our cash balance, quarter over quarter, and to the lower adjusted EBITDA registered in the last 12 months, driven by the prevailing trend of lower sink prices. As previously disclosed and in line with our proactive approach to liability management, in April, Nexa successfully extended its debt profile from 3.7 years to around 7 years through the execution of a new bond issuance and then its offers for existing.
Speaker Change: This expected increase is primarily due to the previously explained temporary decrease of $144 million and our cash balance quarter over quarter and to the lower adjusted EBITDA registered in the last 12 months driven by the prevailing trend of lower zinc prices in the period.
Speaker Change: As previously disclosed and in line with our proactive approach to liability management. In April next are successfully extended it that its debt profile from 3.7 years to around seven years through the execution of our new bond issuance and tender offers for existing books.
Jose Carlos Del Valle: This strategy also included the issuance of a new $130 million six-year ESG-linked venture in the Brazilian market. In relation to the bonds transactions, the new $600,000,000 10-year bond carries a 6.75% coupon and allowed us to repurchase around $485,000,000 and $100,000,000 of the existing notes due in 2027 and 2028, respectively. These transactions mark a significant milestone for the company, as Ignacio mentioned at the beginning of his presentation. These strategic initiatives allowed us to optimize our financial structure, diversify our funding sources, and enhance our liquidity position.
Speaker Change: This strategy also included the issuance of a new $130 million six year ESG linked debentures in the Brazilian market.
Speaker Change: In relation to the bonds transactions, the new 600 million 10 year bond carries a 675% coupon and allowed us to repurchase around $485 million and $100 million of the existing notes due in 2027 and 2028, respectively.
Speaker Change: These transactions marked a significant milestone for the company as Ignacio mentioned at the beginning of his presentation.
Speaker Change: These strategic initiatives allowed us to optimize our financial structure diversify our funding sources and enhance our liquidity position.
Jose Carlos Del Valle: It is important to understand that the extension of our debt profile is part of an ongoing optimization effort and is a reflection of our commitment to prudent financial management and of our confidence in the long-term prospects of our. In this line of thinking, we are always evaluating cost-efficient options to continue to maintain a maturity profile that is in line with the long life of our assets. Moving now to slide 14.
Speaker Change: It is important to understand that the extension of our debt profile is part of an ongoing optimization effort and it's a reflection of our commitment to prudent financial management I don't know if our coffee is in the long term prospects of our business.
Speaker Change: In this line of thinking we're always evaluating cost efficient options to continue to maintain and maturity profile that is in line with the long life of our assets.
Speaker Change: Moving now to slide 14.
Jose Carlos Del Valle: Regarding market fundamentals, it is worth noting that in the first quarter of 2024, LME zinc prices averaged $2,450 per ton, down by 22% from the first quarter of 2023. This decrease primarily stems from the conditions present at the beginning of 2024, reflecting lower demand prospects in China and uncertainties regarding the U.S. economy, especially in relation to trade. Compared to the fourth quarter of 2023, LME sink prices were down 2%, mainly explained by the Chinese New Year holiday and also lower demand due to seasonality during the first quarter of 2023.
Speaker Change: Regarding market fundamentals it is worth noting that in the first quarter. If they did before and let me see prices averaged $2450 per ton down.
Speaker Change: Down by 22% from the first quarter of 2023.
Speaker Change: This decrease primarily stems from that condition suppression at the beginning of 2024, reflecting lower demand prospects in China and uncertainty regarding the U S economy, especially in relation to inflation.
Speaker Change: Compared to the fourth quarter of 30, 23 L. M zinc prices were down 2% mainly explained by the Chinese new year holiday and also lower demand due to seasonality during the first quarter of 2024.
Jose Carlos Del Valle: LME copper prices averaged $8,438 per ton in the first quarter of 2024, down by 5% from the first quarter of 2023 and up 3% from the fourth quarter of 2023. Also, presenting high sensitivity to the Chinese economy throughout the first. Looking ahead, zinc prices are expected to be positively supported by the macroeconomic stimulus in China and by the current tight zinc concentrate market that has driven benchmark TCs to levels that are 40% lower than what they were in 2020.
Speaker Change: Yeah, let me copper prices averaged $8438 per ton in the fourth and the first quarter of 2024 down by 5% from the first quarter of 2023 and up 3% from the fourth quarter of 'twenty twenty-three also presenting high since you D V D to the Chinese economy throughout the firm.
Speaker Change: Looking ahead sink prices are expected to be positively supported by the macroeconomic stimulus in China and by the current tight zinc concentrate market, that's driven benchmarks D. CS two left that are 40% lower than what they were in 2023.
Jose Carlos Del Valle: 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 Basel. Now, I will hand over the presentation back to Ignacio for his final remarks. Thank you, Jose Carlos.
Speaker Change: And then mid to long term fundamental outlook for both sink in copper prices remains positive.
Speaker Change: <unk> investments in construction infrastructure and in the automotive sector will continue to have a positive impact on demand expectations for base metals.
Speaker Change: Now I will hand over the presentation back to Nashville for his final remarks.
Speaker Change: Thank you Jose Carlos.
Ignacio Rosado: As I mentioned earlier, we expect to conclude the ramp-up at Aripuaná by mid-2024, as we continue gradually reducing plant downtime while increasing capacity utilization and improving recoveries of all the methods. Our Cerro de Pasco integration project is progressing as expected toward the approval process. Our exploration results provide significant indications not only of the potential to further extend the life of our corner mine but also of our consistent track record of replenishing reserves.
Nashville: As I mentioned earlier, we expect to conclude the ramp up of deep whatnot, but mid 2024.
Nashville: We continue with other elite, reducing plant downtime, while increasing capacity utilization and improving recoveries of all the metals.
Nashville: Our survey Busquin integration project is progressing as expected towards the approval process.
Nashville: Our exploration results provide significant indications not only of the potential to further extend the life of a recorded mind's muddled.
Nashville: But also of our consistent track record of replenishing reserves.
Ignacio Rosado: We are focused on our ESG strategy, which prioritizes safe performance across our operations, higher environmental standards, and the development of our communities within a framework of ethics, transparency, and responsibility. We already took an important step in strengthening our balance sheet with the execution of the liability management transactions at the beginning of this year, which, combined with a disciplined capital allocation and positive cash flow generation, will allow Nexa to start deleveraging and improve its financial position. That concludes our remarks. Thank you for your support and encouragement. Operator, we are ready to open the floor for questions.
Nashville: We are focus on our easiest study.
Nashville: Which prioritizes safe performance across our operations higher environmental standards and the development of our communities within our framework of ethics transparency and responsibility.
Nashville: We already took an important step in strengthening our balance sheet with the execution of the liability management transactions at the beginning of this year.
Nashville: Which combined with our disciplined capital allocation and positive cash flow generation will allow <unk> to start deleveraging and improve its financial position.
Speaker Change: That concludes our remarks, thank you for your support.
Speaker Change: Our confidence operate or we are ready to open the floor for questions.
Speaker Change: Yes.
Operator: We'll now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone cell phone. If you're using a speakerphone, please pick up your handset before pressing those keys.
We will now begin the question and answer session.
Operator: And again, it's star 1 for a question. If you need to withdraw your question, please press star then 2. And remember, you also may send questions via chat on the webcast platform at this time. We will pause to assemble our roster. Thank you. And our first question comes from Camilla Barder from Bradesco BBI. Camilla, please go ahead. So, good morning. Two questions on my side.
Speaker Change: To ask a question you May press Star then one on you touched on that.
Speaker Change: If youre using a speakerphone please pick up your handset before pressing dose.
Speaker Change: And again its star one for a question.
Speaker Change: If you need to withdraw your question. Please press Star then two.
Speaker Change: And remember you also may send questions via chat.
Speaker Change: Webcast platform.
Speaker Change: At this time.
Speaker Change: Well, we bought to assemble a rough start thank you.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: And my first question comes from company, let BARDA from Bradesco BBB I Camilla. Please go ahead.
Camilla Barder: Is any cash outflow expected for that? And the second question is about the guidance. You kept production guidance despite the disinvestment in Mojagudo, right? So, could you please share a little bit about the rationale for this maintenance of the guidance? Do you expect better production in other mines to offset this divestment, or could we potentially expect production more towards the end of the guidance, the low end of the guidance? Thank you.
Camilla Barder: So, good morning. Two questions on my side. The first one is, you commented yesterday on the release about a potential impact, a legal impact on legislation in Brazil and Peru, on results and in cash flow. Could you please give more details in terms of magnitude and timing for those impacts? And for Brazil, what would be the exact impact?
Camilla: So good morning, two questions on my side. The first one you commented on yesterday on the release about the potential impact.
Camilla: Our legal and tax legislation, Brazil and Peru.
Camilla: Hmm results and cash flow.
Camilla: Could you please give more details in terms of magnitude and timing for adults and peds and for Brazil, what would be the exact impact if any.
Camilla: <unk> cash cash outflow are expected for that.
Camilla: And the second question is about the guidance and you kept but that's some guidance.
Camilla: Despite who do you see that many will hug will do right.
Camilla: So could you please share a little bit about the rationale for this room comes up the guidance do you expect them better production in order to offset.
Camilla: Divestment or we could potentially expect.
Camilla: But it does show more towards the end of the guidance the low end of the guidance. Thank you.
Camilla: Sure.
Speaker Change: No Brian.
Ignacio Rosado: No, no. I wanted to clarify. Thanks, Camilla, for the question. You were talking about, to make sure that I answer the question correctly, you're referring to some legal, something in Brazil. I didn't quite understand the question. Could you please clarify?
Speaker Change: No no I wanted to clarify things coming up on a question you were talking about.
Speaker Change: To make sure that I answered the question correctly, you're referring to some legal.
Speaker Change: Something in Brazil, I didn't quite get the question could you. Please clarify.
Camilla Barder: Yeah, in Brazil, there was a law about that you have to submit impacts for mining by June, but I wasn't quite sure if there is any outflow related to that, or it's just something legal.
Speaker Change: Yes in Brazil, there was a law about.
Speaker Change: Do you have to submit <unk> for.
Speaker Change: For for mining to do but.
Speaker Change: I wasn't quite sure Danielle outflow related to that point.
Speaker Change: Bingo.
Ignacio Rosado: I honestly am not sure exactly which legislation you're referring to on that one. And you mentioned that there was another one on Peru as well? You're asking about something, and maybe it's a communication that it wasn't so clear. Sorry.
Danielle: I don't know I am not sure.
Speaker Change: Exactly which which legislation youre, referring to on that one.
Speaker Change: And you mentioned that there was another one on data as well.
Speaker Change: You are talking about something.
Maybe it's a communication that it wasn't silkier sorry.
Camilla Barder: In Peru, you mentioned a discussion regarding tax that could impact results in 2024.
Speaker Change: Ooh Ooh.
Speaker Change: So not a lot of discussion and we've gotten that couldn't take result, along 2024.
Ignacio Rosado: And you're probably referring to some of the tax contingencies that we have, or you're talking about tax reform? Because these are, I mean, these are, you know, plain standard wording that we include because there are always discussions about potential changes in the tax regimes, both in Peru and in Brazil. So I want to know if you're talking about something specific related to a particular operation, or you're asking in general about the two countries.
Speaker Change: And you're probably referring to some of the tax contingencies that we have are you talking about tax reform because these are I mean these are clean.
Clean standard rewarding the weakness because there are always discussions about potential changes in the tax regimes. Both in February and in Brazil. So I want to know what you were talking about something specific related to a particular operation or you're you're asking in general about the two countries.
Camilla Barder: Yeah, in general.
Speaker Change: Yeah in general.
Speaker Change: Yeah.
Ignacio Rosado: Yeah, as far as I know, there is. Sorry, you wanted to say something else?
Speaker Change: Yeah.
Speaker Change: As far as I know there is.
Speaker Change: Sorry, you want to say something else.
Camilla Barder: No, but go ahead, please.
Speaker Change: Go ahead please.
Ignacio Rosado: No, I can comment in general terms, and I'm happy to get in touch after the call if you have a specific question that we can help you with. But, in general terms, I think there are always discussions both in Peru and in Brazil about potential changes in tax legislation, and this is something that happens in other countries as well, related to the desire of the government to increase its income. But there is not material that we have flagged as of now, either in Peru or in Brazil, even though there have been discussions, but we have not flagged anything that is material that may significantly affect our operations in either of the countries. But happy to get in touch after the call if you have something specific in mind, maybe that you have read somewhere else or you need further detail; we can help you with that.
Speaker Change: No way I can comment in general and I'm happy to.
Speaker Change: Get in touch after the call. If you have a specific question that we can help you with that in general terms I think there are always discussions both in Peru, and in Brazil about potential changes in the tax legislation.
Speaker Change: And this is something that happens in other countries as well.
Speaker Change: Related to that.
Speaker Change: Of the government soon to to increase their income, but there is nothing material that we have flat as of now either in Peru or in Brazil, even though there have been discussions but.
Speaker Change: But we have not flag anything that is material that may I think significantly our operations in Europe the countries that.
Speaker Change: Happy to happy to get in touch after the call. If you have something specific in mind, maybe that you have read somewhere else or you need further detail. We can help you with that.
Okay. Thanks, and then also wanted to stability.
Camilla Barder: Okay, thank you. That is all for the stability of Seho Lido.
Speaker Change: And you mentioned.
Ignacio Rosado: Okay, sure. Okay.
Speaker Change: Sure. Okay. Yes. This is as you may as you May know a this is a matter that has been ongoing for a number of years in blue.
Ignacio Rosado: Yeah, this is, as you may know, this is a matter that has been ongoing for a number of years in Peru, and it's affecting all the mining companies that have stability agreements, tax stability agreements with the Peruvian government. You may know that I come from Antamina, and in Antamina, we had exactly the same problem. There is actually an international arbitration that is going on right now between Cerro Verde and the Peruvian government.
Speaker Change: And this I think in all of the mining companies that have stability agreements.
Speaker Change: Tax stability agreements with the Peruvian government.
Speaker Change: You may know that I come from in timing that we had exactly the same program. The same problem. There is actually an international arbitration that is going on right now between several there then the Peruvian government. So these are these are ongoing disputes.
Ignacio Rosado: So these are ongoing disputes, and we always, in our mindset of transparency, always consider that these are things that may affect us at some point, but our view is that we have a very strong case, but we still have to make that disclosure. So there's nothing new here. It's just that we're making sure that we're disclosing that we have this contingency, just like all the other mining companies that have these stability agreements with the Peruvian government.
Speaker Change: And you know we always say.
In our minds it of transparency, we always review that these are things that at some point may affect us that our our view is that we have very strong case.
Camilla Barder: Okay, clear, thank you.
Speaker Change: But we still have to make that disclosure news of this is there's nothing new here. It's just that we make we are making through that where these closings that we have disclosed contingency just night just like all the other mining companies that have these stability agreements with the Peruvian government.
Speaker Change: Okay clear thank you.
Ignacio Rosado: Yes, only one comment on this. No, go ahead, go ahead, please. The second one.
Speaker Change: Okay.
Speaker Change: Sure.
Speaker Change: No go ahead go ahead please.
Camilla Barder: The second one is about guidance. If you want to add something about that,
Speaker Change: Yeah.
Speaker Change: The second one about the guidance.
Speaker Change: Ken if you want to.
Ken: Something about that.
Ignacio Rosado: About the guidance I was asking about... Ah, yeah, yeah, so, so, yeah, Borregudo, yeah, yeah. Borregudo? Yes.
Speaker Change: But about the Guy just said I was asking about.
Ken: So yeah, yeah yeah.
Ken: Yes, yes, yes.
Ignacio Rosado: Yes, thank you, Borregudo. It was a very small operation for us. It was a marginal operation, and we decided to sell because of that. Having said that, Moragudo was in our guidance, but we are still maintaining our guidance on production and on cost. So, we don't believe that selling Moramudo and stopping production, and reporting production of Moramudo is going to affect our guys for the end of
Ken: Hello.
Ken: A very small operation for us.
Ken: It was a marginal operation.
Ken: We thought we decided to sell because of that.
Ken: How would you say that's more of a little what's in our guidance, but it's still we are maintaining our guidance on production and costs.
Speaker Change: So we don't believe that.
Speaker Change: Selling more of them are installed being in production.
Speaker Change: Reported production of Nomura, we're always going to affect our guidance.
Speaker Change: For the for the MLP.
Speaker Change: Okay.
Speaker Change: Because it's a marginal investment.
Do you expect.
Speaker Change: Okay.
Speaker Change: Yes, yes.
Speaker Change: Yeah.
Operator: And our next question comes from Carlos De Alba from Morgan Stanley. Carlos, please go ahead.
Speaker Change: And our next question comes from Carlos de Alba from Morgan Stanley. Please go ahead.
Carlos de Alba: Good morning, everyone. Thank you very much.
Carlos de Alba: Two questions. The first one is if you can provide a little bit more comment on the Magistral Environmental Impact Study and the issue there that, apparently, it might be rejected by the authorities. I wanted to understand what is behind this and what could be the repercussions. And then, second question, Ignacio, maybe on working capital. Typically, yeah, there is seasonality on working capital in Q1, but this time, relative to the last several years, the consumption of cash flows for working capital was much bigger. So I wanted to understand how much of that you expect to be reversed in the second quarter or throughout the year. Thank you.
Yeah. Good morning, everyone. Thank you very much two questions. The first one is if you can provide a little bit more comment on the.
Speaker Change: The mightiest trial, environmental impact study and the and the issue there that apparently it might be rejected by the authorities are you you're just I wanted to understand what is behind this and what could be the repercussions and then a second question you can answer it maybe on.
Speaker Change: The working capital that you typically yeah, there is seasonality.
Speaker Change: On working capital in Q1, but this time relative to the last several years.
Speaker Change: The consumption of cash flows for working capital was a much bigger so I wanted to understand.
Speaker Change: How much of that do you expect to be reversed in the second quarter or throughout the year. Thank you.
Speaker Change: Yes.
Ignacio Rosado: Yes, yes, so thank you Carlos. Regarding Magistral, what happens is that ANA, which is the National Water Authority, has stated that they still have some observations regarding the project's impact on the water deposits that are near our project. This means that this report goes to SENACE, which is the main authority that is going to issue a report of approval or disapproval. And this is now in the hands of this Senate.
Speaker Change: Yes, yes, so thank you guys.
Speaker Change: It might be.
Speaker Change: What happens is that it.
Speaker Change: Ana which is the nationality.
Speaker Change: Alrighty.
Speaker Change: Cause issue, our reports with where they stated that a some of your.
Speaker Change: It's still somewhat some observations regarding the project impact on their what their deposits that are near our project.
Speaker Change: This means that this report goes to say that they would use that may not already that is when they issue a report of a provider of these approval.
Speaker Change: And this is a now in the hands of these save us.
Ignacio Rosado: So we expect that they will come back to us with an answer in the next one or two months, okay? So, in the context of that, I would like to say that, and we have said this many times, Carlos, that Magistral is a good project for us. And it still is an investment of $1 billion, and we always want to compare this investment of $1 billion with other investments that we might be able to do, not only in Peru but also in other countries. So, and the contract that we have signed with the government. It means that we can invest in Magistral until 2028 and start investing in my district, unless the project is disapproved.
Speaker Change: So we expect.
Speaker Change: Is that they will come back to us.
Speaker Change: With a I'll answer in the next one or two months okay.
Speaker Change: So in the context of that I would like to say that and we said it many times Scott was that studies like look part of it for us.
Speaker Change: The SPV is an investment of $1 billion.
Speaker Change: We always want to compare this investment of $1 billion, we bought a business that we might be able to Hulu.
Speaker Change: But also in other guidance.
Speaker Change: So on.
Speaker Change: And on the.
Speaker Change: Contract that we have signed with it with that with a lower I mean.
Speaker Change: It means that.
Speaker Change: We are investing about yourself and <unk>.
Speaker Change: He is 2028, so we start investing.
Speaker Change: In that case you'd be approved.
Ignacio Rosado: We will need to start all this process again, and it's going to take us at least four years. But then, in that case, we will have to assess if that's a priority. Or we just let Magistral go for the moment, put it on hold, and try to look for other options in our pipeline. So that's mainly what is happening with Magistral. I guess for the next call in July, we will have more information, and we can answer that in a more specific way. And regarding working capital, Jose Carlos, please. Yes, good morning, Carlos.
Speaker Change: We will need to start again, all these proceeds that's going to take us at least four years.
Speaker Change: In any in that case, we will have to assess if not their priority.
Speaker Change: Well, yes, let me start and go for the moment what are you long haul.
Speaker Change: Try to look for other options.
Speaker Change: So that's mainly it.
Speaker Change: What is happening I guess for the next call.
Speaker Change: In July we will know if we will have more.
Speaker Change: Information on weekend onshore.
Speaker Change: In a very specific breakouts.
Speaker Change: Regarding working capital.
Speaker Change: Okay got it.
Jose Carlos Del Valle: Yes, Carlos. As we have seen in previous years and actually in discussions that we've had with different funds and analysts, there is a lot of seasonality in our working capital, particularly in the first quarter of the year. This is very typical, and it's actually not too different from what we saw last year, and it has to do with increased receivables and much lower payables because there is a trend of increased spending towards the end of the prior year, particularly in CAPEX, which is a large number.
Jose Carlos Del Valle: So you have to pay for all of that in the first quarter of the following year. You have to rebuild your inventories because, typically, you sell everything that you have at the end of the prior year as well. And in addition to that, in the first quarter, we pay a significant amount of taxes and employee bonuses, etc., so for those reasons, mainly, the first quarter is always negative in working capital and therefore negative in terms of cash. Just as last year, we expect this to start reversing throughout the year. Obviously, prices will have an important impact on how quickly this happens. But we will see a reversing trend starting in the second.
Speaker Change: Yeah, Hey, good morning, guys.
Speaker Change: As we as we have.
Speaker Change: Seen in prior years and actually in discussions that we've had with different funds and analysts.
Speaker Change: There is a little seasonality in our working capital.
Speaker Change: Particularly in the first quarter of the year. This is very typical.
Speaker Change: Not too different from what we saw last year.
Speaker Change: And it has to wait a increase we see awards and much lower payables because there is a trend of increased spending towards the end of the prior year, particularly in Capex that are large numbers. So you have to pay all of that in the first quarter of the following year you have to.
Speaker Change: To rebuild the inventories because typically you sell everything that you have.
Speaker Change: At the end of the prior year as well and in addition to that in the first quarter, we pay a significant amount of Tac.
Speaker Change: Taxes, and employee bonuses et cetera, so for those reasons mainly.
Speaker Change: First quarter is always negative in working capital and therefore negative in terms of cash flow.
Just as last year, we expect this will start reversing throughout the year and obviously prices will have an important impact on how quickly.
Speaker Change: Quickly these happen.
Speaker Change: But we will see that reversing trend starting in the second quarter.
Speaker Change: Thank you.
Operator: And our next question is going to come from Lawson Winder of Bank of America. But before we turn Lawson on, I just wanted to remind you if you would like to pose another question, please press star 1 or, on the webcast, go to the chat tool and send your question. Thank you. Mr. Winder, please go ahead.
Speaker Change: And our next question is going to come from Lawson Winder with Bank of America.
Lawson Winder: Before we turn our Watson on just wanted to remind you that if you would like to close another question. Please press star one.
Lawson Winder: Or on the webcast go to the chat tool N sand your question. Thank you.
Lawson Winder: Lawson Winder. Please go ahead.
Lawson Winder: Thank you, Operator, and good morning, Ignacio and team. Thank you for the update.
Lawson Winder: Thank you operator, and Hello, good morning, Ignacio and team. Thank you for the update I have a few questions. If you don't mind first on <unk> on the balance sheet and the debt what what is your target net debt to EBITDA ratio and when do you.
Lawson Winder: I have a few questions, if you don't mind. First, on the balance sheet and the debt, what is your target net debt to EBITDA ratio, and when do you expect to reach that? And then, when you think about capital allocation, at what point might more attention be given to an update to the dividend?
Lawson Winder: We expect to reach that and then when you think about capital allocation at what point might more attention being given to an update to the dividend.
Jose Carlos Del Valle: Yes, I can comment on that more than enough. And I can comment about leverage in general terms. Obviously, in the first quarter, as expected, we had a higher net leverage ratio. This is something that will change throughout the year, quarter after quarter, not only as we accumulate cash, even more so with these prices, but as our adjusted EBITDA improves. As Ignacio mentioned, our Aripuana project is performing well.
Speaker Change: Yes, I can comment on that good morning Lawson.
Speaker Change: And I I can't comment about leverage in general in terms of.
Speaker Change: With me in the first quarter as expected.
Speaker Change: We had a higher net leverage ratio.
Speaker Change: Ratio.
Speaker Change: This is something that will change.
Throughout throughout the year quarter after quarter and not only as we accumulate even more so with these prices, but our.
Speaker Change: Adjusted EBITDA improves.
Speaker Change: As Ignacio mentioned or whatnot project is performing well.
Jose Carlos Del Valle: We are in the process of achieving the completion of the wrap-up, as we've been commenting on in previous calls. As a result, our EBITDA will improve over time, and we expect that net leverage will reduce significantly throughout this year, much lower than the levels that we saw in the first quarter. Having said that, we continue to state that reducing our debt, not just our leverage, is our top priority. So the idea is that gradually over the next few years, as we start generating cash with Aripuana and generating more cash as a company as a whole, we will start looking to reduce our debt.
Speaker Change: We are.
Speaker Change: In the process of achieving a completion of the ramp up as we've been commenting in previous calls so our EBITDA will will improve over time, and we expect that leverage will net leverage will reduce significantly throughout this year below below at much much lower than the levels that we have seen in the first.
Speaker Change: Having said that.
Speaker Change: We continue to stay debt, reducing our debt not just the leverage is our top priority. So the idea is that a gradually over the next few years as we start generating cash with 84 na and generate even more cash flow.
Speaker Change: As a company as a whole we will start looking to reducing our debt we haven't set a number of times that.
Jose Carlos Del Valle: We have said a number of times that we feel more comfortable with net leverage ratios in the neighborhood of one and a half times because that's what gives you the buffer to be able to go through the low-price cycles as we have had in the last few quarters. So we need to...
Speaker Change: We feel more comfortable with net leverage ratios in the neighborhood of one five times.
Speaker Change: Because that's what gives you.
Speaker Change: Buster and be able to go.
Speaker Change: Go through the low price cycles as we have had in the last few quarters. So we need to it is a priority to go back down to those levels and to empower that will reduce our debt to get to those live. So we will see significant improvement during the year.
Jose Carlos Del Valle: It is a priority to go back down to those levels and to, in part, reduce our debt to get to those levels. So we will see significant improvement during the year, but it will probably take some more quarters to reduce the debt to levels that will allow us to have a leverage of about one and a half times. In relation to dividends, we stated that we would take a look at market conditions and company performance in the second half of the year to make a decision on dividends.
It will probably take a some more quarters.
Speaker Change: <unk>.
Speaker Change: To reuse their debt to levels that will allow us to have a leverage of one five times in relation to dividends.
Speaker Change: We stated that we will we will take a look at market conditions and company performance in the second half of the year to make a decision on dividend that continues to be the case.
Jose Carlos Del Valle: That continues to be the case. You know, things are looking good in terms of Aripuana performance, as I mentioned. Prices have improved, but we don't know how long these higher levels will be in place. But definitely, they will be considerations that we will evaluate once we make a decision, as we anticipated for the second half of the year.
Speaker Change: Things are looking good in terms of how do you point out performance I mentioned, a prices have improved but we don't know how long these higher levels will be in place that definitely will be considerations that we.
Lawson Winder: Okay, thank you. That's very helpful.
Speaker Change: We will we will evaluate once we make a decision as we anticipated for the second half of this year.
Lawson Winder: And then just kind of sticking with this theme of capital allocation. So, Arrepueno is ramping up. There's still quite a bit of CapEx left to go. Next project is Serrapasco. But when you look beyond Serrapasco, what is the thinking around the next likely project that Nexa might be tackling?
Speaker Change: Okay. Thank you that's very helpful. And then just kind of sticking with this theme of capital allocation. So our opinion is renting up Ah theres still quite a bit of Capex a lot left to go next project is Cerro Pasco.
Speaker Change: When you look.
Speaker Change: Beyond Cerro Pasco.
Speaker Change: What is kind of the thinking around the next likely project.
Next it might be tackling.
Speaker Change: Okay.
Ignacio Rosado: Yes, so it's a very good question. Adipona, as Jose Carlos is saying, and we have been talking about that, Adipona, the round-up is finishing in the coming months. So most of the capex of marijuana is going to be sustained in capex. And I would say that Alibona won't need more. Only sustaining capex and not growth capex, okay? The next one is Cerro Pasco. We hope we can approve it in the second half of this year.
Speaker Change: Yes, so it's a very good question.
Speaker Change: We're not supposed to capitals are you, saying that we have.
Speaker Change: It's looking at all of that it also.
Speaker Change: If you see the ramp up is finishing in the coming months.
Speaker Change: So most of that Capex or whatnot is sustaining capex.
Speaker Change: And I would say that.
Speaker Change: One.
Speaker Change: More a.
Speaker Change: All in sustaining Capex is not a growth capex okay.
Speaker Change: The next one is have a basketball ACI robust growth.
Speaker Change: We hope we are through it in the second half of this year, we are ready to approve pasco.
Ignacio Rosado: We are ready to approve Pasco, but we want to make sure, as a company, and this is part of the board, the conversation that we have with the board, we are trying to make sure that we finish first the ramp-up of Alipuana, and then we can announce the approval of Cerro Pasco. We are ready to approve Cerro Pasco, but it's the timing of finishing Alipuana before. Cerro Pasco is a project that is going to cost us between $140 and $160 million.
Speaker Change: We want to make sure as a company and this is part of the conversations that we have with our board.
Speaker Change: We are trying to make sure that we finish the ramp up of R&D partner, and then we kind of announced the approval items over Pascal we are ready to approach on a basketball, but it's a timing of finishing of antibody corp, surplus, which upfront here I'll just call it cost us between 140 and $160 million.
Ignacio Rosado: And the investment is going to be for the next three years. This year in San Francisco, we are investing in On Thermis, which is our main monolith, and finishing the engineering of Pantin City, okay? So, besides that, as Jose Carlos was mentioning, in terms of capital allocation, with the cash generation that we will have, we want to make sure that one of the priorities of our capital allocation is to reduce the debt. Okay, having said that...
Speaker Change: He is going to be in.
Speaker Change: The investment is going to be in the next three years. These theories of our Pascal we are investing in autonomy, which is the main bottleneck.
Speaker Change: I mean, finishing D and engineering.
Speaker Change: <unk> okay.
Speaker Change: So besides that are supposed to Carlos was May and June in terms of capital allocation with our Kashi and the ratios that we have we want to make sure was that one of the priorities on a recovery down the location is probably is to renew that debt.
Speaker Change: Okay, having said that.
Speaker Change: We in terms of capital location, we also work in our pipeline of projects.
Ignacio Rosado: In terms of capital allocation, we also work in our pipeline of projects, no? Specifically, we have, for example, TINCA Resources that has now issued a new technical report, and we have to make a decision if we advance on that, and we have other projects in our pipeline that we can advance, five to eight years, to become mines, if they might become. So I will say that the next project that we will bring is a project that will be from our M&A strategy.
Speaker Change: Typically we have a.
Speaker Change: For example, <unk> got resources that is a now as issuer.
Speaker Change: Technical report and we have to make a decision if we advance on that on behalf of all of the projects in our pipeline that we can advance that in any case, but in any case those are.
Speaker Change: Okay.
Speaker Change: Five to eight years to come.
Speaker Change: The mines ebay might become.
Speaker Change: So I would say that the next project.
Speaker Change: That we will bring this up for you.
Speaker Change: It would be from a our M&A as Friday, we are assessing a lot of projects our sites.
Ignacio Rosado: We are assessing a lot of projects our size. It's similar to the mines that we have; investments are around $600 to $800 million, and that's why we need the leverage of 1.5 that José Carlos is mentioning, because that will allow us to invest with our cash flow and with some debt to bring in other projects. This is more or less where we are today. We are active in M&A. We are very committed to visiting some projects that have more cover, as we said before, and I would say that that's mainly our capital allocation strategy going forward.
Speaker Change: It seems to be a mine that we have investments of around 600 $300 million and that's why we need the leverage of one five.
Speaker Change: Once the government sees management, because that will allow us to bring a we met with our cash flow with some depth to bring your own right.
Speaker Change: This is more or less where we are today and where are people in M&A, we are very well.
Speaker Change: Amid this who visits.
Speaker Change: Some projects that have more cover.
Speaker Change: <unk> said before.
Speaker Change: I would say that that's mainly our capital allocation.
Speaker Change: The strategy going forward.
Lawson Winder: Okay, fantastic. And since you touched on M&A, I might follow up and just ask for a little bit more clarification on your latest thinking. I mean, it sounds like it's largely in line with what you said before, but in terms of timeline, I mean, what does it look like for you at this point? At what time might you be able to transact on a copper acquisition? And then maybe on some of the details, just update us on your thinking in terms of, are you looking at corporate versus asset M&A, producing versus development? And there's been a lot of interesting Copper M&A in the past year, both at the asset and and what are you seeing in terms of valuation.
Speaker Change: Okay Fantastic and since you touched on M&A I might I might follow up and just ask for a little bit more clarification on your latest thinking.
Speaker Change: It sounds like its largely in line to what you said before but in terms of timeline I mean, what does it look like for you at this point or at what time, you might be able to transact on a on a copper acquisition and then maybe on some of the details just update us on your thinking in terms of are you looking at corporate versus asset.
Speaker Change: M&A are producing versus development in there.
Speaker Change: There's been a lot of.
Speaker Change: Interesting.
Speaker Change: Copper M&A in the past year, both at the asset and.
And yes.
Speaker Change: And corporate level.
Speaker Change: With your work what what are you seeing in terms of valuations are you seeing valuations that make sense.
Ignacio Rosado: Yeah, that's, I mean, I mean, projects are always expensive, you know, in good times and in bad times, they are always expensive. I guess, I guess we are in a niche. And I guess the projects that we look for are, in terms of copper, the size of 50,000 tons; it might have some polymetallic zinc and lead as well. And that puts us on the radar of $600 to $800 million. This is below the radar of most big mining companies, as we understand it.
Speaker Change: Yeah.
Speaker Change: I mean.
Speaker Change: I've been breakout room, which expands ignoring in good times and in bad times, they're always expensive.
Speaker Change: I guess, we are in that niche.
Speaker Change: And I guess and operators that we look for are.
In terms of corporate at all the size of a $50000 in my house.
Speaker Change: All in metallic zinc and lead as well.
Speaker Change: That put us on.
Speaker Change: The radar of $600 million to $800 million. This is below the radar of most the big mining mining companies.
Speaker Change: Understand that.
Ignacio Rosado: And I would say that the opportunities that we are looking for, we are flexible at the corporate or at the asset level. We are flexible at that. I would say that we are more focused on understanding the potential assets that we will acquire, and we are trying to bring our priorities around brownfield projects close to production or projects that are starting production, and they need some experience to unlock more value for them. These are, there are not that many projects like that, but they are.
I would say that the opportunities that we are looking for we are flexible on corporate or a dynasty.
Speaker Change: Three people or not I would say that.
We are more focused on understanding the potential market that we will acquire.
Speaker Change: And we are trying to be or other priorities are around it.
Speaker Change: Brown will be.
Speaker Change: The projects close to production all projects that are starting production.
Speaker Change: They need some experience.
Speaker Change: To unlock more value for them.
Speaker Change: These are not.
Speaker Change: Not that many projects with us but they are on.
Ignacio Rosado: And I would say that given the expertise that we have, these are the ones that we are looking for. Having said that, because of this investment and because of our leverage, our shareholders are conservative. Our board is conservative.
Speaker Change: And I won't say that.
Speaker Change: Given that these expenses that we have besides the ones that we are looking for.
Speaker Change: Having said that because of this investment and because of our leverage.
Speaker Change: Our shareholders articles area, where people have already is conservative. So I would say we have to finish first let me point out.
Ignacio Rosado: So I would say we have to finish first. We have to approve CERRE PASCO, which is coming this year. We have to execute CERRE PASCO. And, in parallel, while bringing in the cash flow, we'll hopefully assess or bring some of these opportunities that we are assessing and announce an acquisition of some copper, zinc, and advanced products. That's more or less where we are.
Speaker Change: We have to approach that robust growth that is coming this year, we have to execute surpassed the pasco unimpaired.
Speaker Change: But while bringing that cash flow.
Speaker Change: We will.
Speaker Change: Hopefully.
Speaker Change: S or bringing some of these opportunities that we are assessing and announced the acquisition of <unk>.
Speaker Change: Some copper zinc.
Speaker Change: Advanced brands this morning, where we are.
Lawson Winder: Fantastic. Thank you so much.
Okay fantastic. Thank you so much.
Operator: Thank you. At this time, to handle questions brought up through the webcast, we'll turn the conference over to Rodrigo Cammarosano, NEXA's head of IR. Rodrigo, please go ahead.
Speaker Change: Thank you at this time to handle questions brought up through the webcast I'll will turn the conference over to Rodrigo Gomorrah, Cameroon Zahnow.
The next is head of IR.
Rodrigo Cammarosano: How did you go please go ahead.
Rodrigo Cammarosano: Thank you, Operator. We have two questions from the webcast. The first one is from Hernan. And we also have another question from Alina Sipa from Eveleigh Fund Management Company. So those questions are pretty much the same, and those have already been answered by Jose Carlos. They are related to leverage and dividend payment.
Rodrigo Cammarosano: Thank you operator.
Rodrigo Cammarosano: We have two questions are from the oil from the webcast. The first one is from Paragon.
Rodrigo Cammarosano: Here's a look from my life and we also have another question from Oliver.
Speaker Change: ZIP off from easily fund management company. So those questions are pretty much the same.
Speaker Change: And and those have been already answered by Jose Carlos de are related to the leverage and AR and AR and the dividend payment. So.
Rodrigo Cammarosano: So I believe that those questions have already been addressed, and we don't have any other questions. So I will turn the call over to Hinojosa for his final remarks. Okay. Thank you very much, Rodrigo.
Speaker Change: I believe that those questions have also have already been addressed.
Speaker Change: And and we don't have any other questions. So I will turn the call over three months before his final remarks, okay. Thank you very much. Thank.
Ignacio Rosado: Thank you very much, Rodrigo. Thank you very much to everyone for attending the call. We look forward to speaking to you in the next quarter. Just wanted to say that we are very committed to our safety program. These are difficult times for us because we have had two fatalities in two months, and this has never happened to us before.
Speaker Change: Thank you very much for everyone for attending the call.
We expect as we look forward to speak to you in the next quarter.
Speaker Change: Just wanted to say that we are very committed.
Speaker Change: Our safety program.
Is difficult times for us because we have two fatalities in two months and this has never happened to us. So we are very focused on making sure that.
Ignacio Rosado: So, we are very focused on making sure that the system that we have, which is a good system, has to be reinforced, and we have to make sure that all of our people understand that safety is our main value, and we will dedicate a lot of time to that. We are also working very hard on making sure that Ipuana is finally at the end of the ramp-up. San Ropasco is clear for us.
Speaker Change: The system that we have that is a good system has to be reinforced and we have to make sure that all of our people understand that safety is our main value and we are at we will.
Speaker Change: Dedicate a lot of time on that.
Speaker Change: We are also working very hard on making sure that it went up.
Speaker Change: Uh huh.
Speaker Change: Finally, <unk> is at the end of the ramp up of our bus with clear for us.
Ignacio Rosado: We can approve it today, but we want to make sure that we first start a finish at Iguana, and then we are always working on achieving guidance on costs, on optimization of capex, and on production to have a stable production. So this is a simple strategy, but it's a day-to-day strategy that we have to build. So, we can hopefully show you that during the second quarter or at the end of the second quarter. Thank you very much for attending, and have a good day.
Speaker Change: We cannot prove it today, but we want to make sure that we first we stopped it.
Speaker Change: Is it finished I think one of them and then we.
Speaker Change: We are working always on achieving guidance.
Speaker Change: On the gaming digital graphics on their own production.
200 <unk>. So this is a is as important is our simple strategy, but he's saying is basically the strategy that we have to win.
Speaker Change: So we hopefully can join in with us.
Speaker Change: During the second quarter, albeit over the cycle work.
Speaker Change: You very much for attending.
Speaker Change: Yeah.
Operator: And the conference has now concluded. Thank you for attending today's presentation. You may now disconnect and have a great day.
And the conference has now concluded. Thank you for attending today's presentation. You may now disconnect and have a great.
Speaker Change: [laughter].