Q2 2026 Nexa Resources SA Earnings Call
Speaker #1: Good morning, ladies and gentlemen, and welcome to Nexa Resources Q2 2026 earnings conference call. Please note that today's event is being recorded and broadcast live via Zoom with access also through Nexa's investor relations website.
Speaker #1: A slide presentation accompanying the webcast is available for download, as well as the replay of the conference call following its conclusion. As a reminder, all participants are currently in listen-only mode.
Speaker #1: Following today's presentation, we will open the floor for questions. If you are joining via Zoom, please click the raise hand button. If your question is answered, you can lower your hand by clicking put hand down.
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Speaker #1: Reading questions that are not addressed during the call will be answered afterward by the investor relations team. Questions from media outlets will be handled separately by our corporate affairs team.
Speaker #1: Now, I would like to turn the conference over to Mr. Rodrigo Cammarosano, Head of Investor Relations and Treasury, for his open remarks. Please go ahead.
Speaker #2: Good morning, everyone, and welcome to Nexa Resources Q2 2026 earnings call. Thank you for joining us. Today we will walk through the results we published yesterday.
Speaker #2: If you would like to follow along the presentation is available through the webcast. Before we begin, please take a moment to look at slider number 2.
Speaker #2: It contains our forward-looking statements disclaimer and we ask that you review it along with the related risk factors. Here with me today are Ignacio Rosado, our CEO; Jose Carlos Dovalle, our CFO; and Leonardo Coelho, our senior vice president of mining operations.
Speaker #2: Ignacio, over to you.
Speaker #3: Thank you, Rodrigo, and good morning, everyone. Let me start on the slide number 3. The operational inflection we have been pursuing becomes visible this quarter.
Speaker #3: Adjusted EBITDA grew 78% year over year, 286 million with a margin of about 31%. Net income was 98 million or 52 cents per share.
Speaker #3: And net leverage continued coming down, closing the quarter at 1.4 times, a steep drop from where we were a year ago supported by last 12 months adjusted EBITDA of over 1 billion.
Speaker #3: Three things drove the results. First, a constructive price environment across our entire metal mix, most notably silver, where prices averaged 117% above Q2 of last year.
Speaker #3: Second, the recovery of production at our Peruvian mines after the Q1 setbacks. As those assets returned to normal run rates. And third, better performance at our Brazilian smelters.
Speaker #3: Including the contribution from by-products, which partially offset the challenges at Cajamarquilla. Two milestones position us well for the second half of the year. At Aripona, the fourth tailings filter is now up and running.
Speaker #3: That removes a key bottleneck and gives us more production flexibility going forward. And at Cerro Lindo, we implemented the block caving mining method. It is an important milestone, and over time we expect it to contribute to lower unit costs and better access to higher-grade areas.
Speaker #3: In mining, zinc production reached 79,000 tonnes up 8% year over year on better grades. In smelting, zinc metal and oxide cells total 134,000 tonnes down 7% year over year and 8% Q/Q.
Speaker #3: Impacted by the prior at Cajamarquilla in May. It is important to mention that the event affected the casting house, not upstream processing. So we continue producing cathodes, while we restored operations.
Speaker #3: Activities resumed gradually and returned to normal levels in June. That cathode inventory underpins the recovery of the affected volume in the second half. Free cash flow was slightly negative in the quarter.
Speaker #3: Mainly reflecting a 131 million tax settlement payment in Peru, related to the Cerro Lindo stability agreement. Looking ahead, we expect positive cash flow in the coming quarters supported by improved production at Aripona, the recovery of production at Cajamarquilla, and a resilient pricing environment.
Speaker #3: Let's move to slide number 4 for a closer look at the mining. Year over year, the 8% increase in zinc production comes from better ore grades across key assets.
Speaker #3: Sequentially, production was broadly flat. The recovery in Peru offset temporarily lower grades at Aripona, the commissioning of the fourth tailings filter, and the scheduled ball mill liner replacement.
Speaker #3: Cash cost net of by-products came in at 4 cents per pound in the quarter. For the first half, that puts us at negative 35 cents per pound, well below our 2026 guidance range.
Speaker #3: The drivers were strong by-product credits from higher copper, silver, and gold prices, and lower treatment charges. Cost per tonne of run-of-mine was $57 per tonne in the quarter.
Speaker #3: And 57 dollars per tonne for the first half, in line with full year guidance. The year over year increase came from the appreciation of the Brazilian real against the US dollar and from higher personal and maintenance costs at most of our units, partially offset by a stronger by-product contribution.
Speaker #3: The financial picture for the segment is strong. Net revenues of 524 million and adjusted EBITDA of 220 million are 42% EBITDA margin that is the kind of operating leverage we expect when prices and volumes both move in the right direction.
Speaker #3: Let me turn to Aripona on slide number 5. Aripona delivered strong year over year performance. Treated ore was up 33% to 399,000 tonnes and zinc production up 44% at 8.8 thousand tonnes.
Speaker #3: That reflects higher throughput and better grades as the operation keeps moving towards design capacity. Sequentially, the decline was expected. It reflects the commissioning of the fourth tailings filter during the quarter, together with the scheduled ball meal liner replacement.
Speaker #3: And we are already beginning to see the benefit of the new liner material. The filter itself was the milestone of the quarter. The new capacity processed more than 50,000 tonnes of tailings and supported average plant feed rates of 249 tonnes per hour in June, that is more than 86% capacity utilization.
Speaker #3: For the quarter, as a whole, plant utilization averaged 71%, with peak daily rates above 92%. What that tells us is that the operation can now sustain higher throughput with more flexibility, and importantly, with materially less exposure to weather disruptions during the rainy season.
Speaker #3: As the new filter stabilizes, we expect utilization rates and production to increase further in the second half of the year. On exploration, we did not conduct exploration drilling at Aripona in the first half, but we completed over 23,000 meters of infield drilling.
Speaker #3: For the second half, the priority is the geophysical program. Generating and refining targets. Expanding known mineralization, and identifying new opportunities to support future mineral resource growth.
Speaker #3: Now to slide number 6 for the Cerro Epasco integration project. This quarter, alongside continued progress on phase 1, we completed a review of the project's long-term configuration.
Speaker #3: With a more favorable metal price environment, we reassessed some operating parameters at the Atacocha open pit mine. Including a review of economically mineable areas.
Speaker #3: Based on these results, we now expect the open pit to remain in operation for longer than originally anticipated. And because the open pit will sustain production longer, we are able to defer phase 2 spreading capital over a longer period without reducing the complexes expected production.
Speaker #3: On CAPEX, total estimated investment moves from 138 million to 180 million concentrated in phase 1. The CAPEX review was primarily driven by the incorporation of a geomembrane lining in the Atacocha tailings.
Speaker #3: Together with engineering updates and the decision to anticipate the Atacocha tailings storage facility, raised into the current project phase. Our 2026 CAPEX for the project remains unchanged.
Speaker #3: At $31 million, with the incremental investment allocated to 2027 and beyond, and Phase 2 deferred to 2032. On execution, this quarter we completed the main civil works, started electromechanical assembly—including the tailings thickener—and concluded the structural assembly of the pumping building.
Speaker #3: Looking ahead, the third quarter focused on completing assembly and starting commissioning. Mechanical completion of the pumping system is expected in December. From there, we expect approval of the MEIAS by SENASE and the start of the operating authorization process in the first quarter of 2027.
Speaker #3: Cerro de Pasco is a well-known high-potential polymetallic district. This review further de-risks the project and strengthens our integrated position there. Sequencing the ore body to maximize value and minimize risk, while preserving the long-term production of the complex.
Speaker #3: Now on slide number 7, I will talk about our exploration results. Our first half exploration results reinforce the quality and depth of the portfolio.
Speaker #3: On slide number 7, you can see the high-grade intersections from our brownfield programs. The two highlights came from Basante and El Porvenir. At Basante, drilling at the conexão Sucuri Norte target returned strong zinc mineralization, close to existing infrastructure.
Speaker #3: Which supports resource growth within the current mine plan. At El Porvenir, drilling at the confirm high-grade polymetallic mineralization, and extended known zones. Which reinforces the strategic upside of the Cerro Epasco integration project.
Speaker #3: At Cerro Lindo and Aripona, our geological and target generation programs advanced priority targets and opened new opportunities for future drilling campaigns. Taken together, these results support the potential for future mineral resource growth and life of mine extensions across our assets.
Speaker #3: Let's turn to slide number 8 for smelting. In smelting, zinc metal and oxal cells were 134,000 tons. Down 7% year over year and 8% quarter over quarter.
Speaker #3: Both declines mainly reflect the temporary suspension at Cajamarquilla after the fire in May. That was partially offset by higher volumes at both Brazilian smelters year over year and at Juiz de Fora sequentially.
Speaker #3: We expect to recover the affected volume in the second half, supported by the cathode inventory built during the quarter, and our 2026 sales guidance remains unchanged.
Speaker #3: By-products continue to gain weight in the segment, year over year. Sulfuric acid, sales rose 4%, silver content sales 22%, and copper cement sales were up 40%.
Speaker #3: On costs, cash cost net of by-products was $1.44 per pound in the quarter. $1.42 per pound in the first half, above the upper end of our annual guidance.
Speaker #3: That reflects higher zinc LME prices impacting raw material costs, together with temporarily higher operating costs at Cajamarquilla due to the fire, and the appreciation of the Brazilian real.
Speaker #3: Conversion cost was $36 per pound in the quarter, and $35 per pound in the first half, slightly above guidance, mainly on lower volumes at Cajamarquilla.
Speaker #3: At volumes recovered through the second half, we expect conversion cost to move back towards the guidance range. Despite the lower volumes, the segment delivered a strong financial performance.
Speaker #3: Net revenues of $584 million and adjusted EBITDA of $66 million, up 162% year over year, with an 11% margin. The year-over-year improvement came from lower raw material costs, driven by the concession of calcine inventory with lower unit costs and a higher share of zinc concentrate from our own mines.
Speaker #3: Together with a stronger by-products contribution. With that, I will hand over to José Carlos, our CFO, for the financial slide.
Speaker #2: Thank you, Ignacio, and good morning, everyone. Let's go to slide number 9 for an overview of the financials. The momentum we achieved in the fourth quarter of last year carried through into the second quarter of 2026, supported by a favorable price environment and by the normalization of our Peruvian mining operations, despite a softer quarter in smelting.
Speaker #2: Net revenues totaled $908 million, up 28% year over year and 2% quarter over quarter. The year-over-year increase came from higher metal prices across the portfolio, including a $99 million larger by-product contribution.
Speaker #2: Together with higher zinc prices. This was partially offset by lower smelting sales volume. The sequential improvement was more modest, reflecting continued strength in metal prices and higher mining volumes, again partially offset by lower smelting sales volume.
Speaker #2: Adjusted EBITDA came in at $286 million. Up 78% year over year with a margin of 31.5%. The year-over-year improvement reflects price realization, which translates into a stronger by-product contribution, along with higher volumes in mining.
Speaker #2: Sequentially, adjusted EBITDA was broadly stable. The positives were lower raw material costs in smelting, lower maintenance expenses in Peru, and a higher share of zinc concentrate sourced from our own mines.
Speaker #2: Those were partially offset by lower by-product contribution, mainly on lower silver prices, and by lower smelting sales volume. Let's move to investments on slide number 10.
Speaker #2: We invested $89 million in capex during the quarter. Bringing the first half total to $160 million. About 42% of our full year guidance. Most of it went into sustaining activities, mine development, and tailing storage facilities.
Speaker #2: Phase one of the Cerro Epasco integration project accounted for $9 million in the quarter, and $17 million in the first half, versus our $31 million guidance for the full year.
Speaker #2: Our total 2026 capex guidance of $381 million remains unchanged. With disbursements weighted toward the second half, as execution intensifies, mainly on Cerro Epasco phase one.
Speaker #2: On exploration and project evaluation, we invested $17 million in the quarter, mainly in exploration drilling and mine development. First half investment represents about $38% of the full year guidance, which is broadly in line with our typical first half pace.
Speaker #2: We expect disbursements to weight toward the second half, as drilling programs advance at Basante Aripuana and the Cerro Epasco complex. Our full year guidance of $86 million remains unchanged.
Speaker #2: Let's now turn to slide number 11 to discuss cash flow generation for the quarter. Starting from adjusted EBITDA of $286 million, and adjusting for non-operational items, operating cash flow before working capital and capex was strong, at $286 million.
Speaker #2: From there, $92 million went to capex and $93 million to interest and taxes. Foreign exchange had a negative impact of $3 million. On the financing side, regular debt service and lease payments resulted in a net outflow of $22 million.
Speaker #2: Dividends were a net negative of $4 million, reflecting dividends paid to non-controlling interest, partially offset by dividends received by our subsidiary, Polarix, from EnerCal.
Speaker #2: Working capital and other variations were negative at $82 million in the quarter. This was mainly driven by the $131 million payment made in June, related to a tax settlement in Peru, associated with the Cerro Lindo stability agreement controversy with SUNAT, following the final ruling issued by the Peruvian tax authority in May.
Speaker #2: Let me be clear on what this payment represents. Following a reassessment of uncertain tax positions, we made the required payment to preserve our legal right to continue disputing the assessments in the Peruvian judicial system.
Speaker #2: By doing so, we also secure reductions in penalties and interest, available under the Peruvian tax law. This payment does not represent in any way acceptance of the positions asserted by the tax authority, furthermore, we continue to believe our technical and legal positions provide strong basis for recovering the disputed amounts in the next few years.
Speaker #2: Excluding that payment, free cash flow for the quarter would have been positive $120 million. Including this one-off payment to SUNAT, free cash flow closed slightly negative at $10 million.
Speaker #2: On the remaining working capital items, the second quarter showed a meaningful recovery from the seasonal outflow recorded in the first quarter. We expect further improvement in the quarters ahead.
Speaker #2: Let's move to slide number 12 to talk about liquidity, indebtedness, and credit rating. Our liquidity position remains healthy. We ended the quarter with $707 million in total liquidity, including our undrawn $320 million sustainability-linked revolving credit facility.
Speaker #2: As you can see, our cash on hand alone covers substantially all of our financial commitments over the next three years. Additionally, average debt maturities stood at seven years, a quarter-end, with an average cost of debt of $6.22%.
Speaker #2: This represents a slight improvement from 6.27% at the end of the first quarter. Net leverage continued trending down, at 1.4 times, from 1.59 times in the prior quarter and 2.28 times a year ago.
Speaker #2: This improvement was driven primarily by stronger adjusted EBITDA for the last 12 months, now above $1 billion. Looking ahead, we will maintain our commitment to discipline the leveraging, gross debt reduction, and lower interest expense over time.
Speaker #2: For year-end, we are targeting net leverage close to one time, while preserving our investment-grade rating and a competitive cost of capital. With that, I'll hand it back to Rodrigo to discuss the market fundamentals section.
Speaker #3: Thank you, Jose Carlos. Let me turn to the zinc and copper markets on slide number 13. Zinc prices stayed well supported through the quarter.
Speaker #3: On tight fundamentals and persistent geopolitical risk, with the LME price averaging $3,466 per ton, 31% above the second quarter of last year. Smelter margins, on the other hand, remain compressed.
Speaker #3: Spot treatment charges in China fell further into negative territory, ending the quarter at minus $109 per ton. That is a clear sign of how acute the concentrate shortage still is.
Speaker #3: By-products are what cushion that pressure, especially sulfuric acid, and that is where we are well positioned as a net producer. Looking ahead, we expect zinc to stay supported by tight concentrate supply, low exchange inventories, and resilient demand.
Speaker #3: TC pressure on global smelter margins is likely to persist, and continued geopolitical uncertainty could push energy prices up, which can further constrain smelter utilization and tighten refined supply.
Speaker #3: On copper, the LME price averaged $13,329 per ton in the quarter, 40% above a year ago. Supported by tight fundamentals and by expectations around US import tariffs.
Speaker #3: Spot treatment and refining charges remained structurally negative, reflecting a persistent concentrate deficit. We did see some short-term volatility linked to trade policy and inventory dynamics.
Speaker #3: But a structural picture remains constructive over the medium and long term. Supported by electrification, the energy transition, and decarbonization. Now, let's turn to slide number 14 for a look at precious metals.
Speaker #3: In the second quarter, silver peaked at nearly $87 per ounce in May, then retracted. Closed in June around $59 per ounce. Despite that volatility, prices averaged $73 per ounce in the quarter, more than doubled the level of a year ago.
Speaker #3: Forecast now points to a more balanced silver market. Supported by higher mine supply and by accelerated substitution in cost-sensitive applications. And weaker expectations for further federal reserve rate cuts amid persistent inflation and geopolitical instability added volatility during the quarter.
Speaker #3: Nexta remains a significant player in the global silver market, with annual production of around $11 million ounces. And with the Cerro Lindo streaming step-down in effect since May, that exposure matters more.
Speaker #3: A larger share of production is which supports stronger cash generation. On gold, the rally moderated during the quarter, with prices averaging around $4,500 per ounce, 37% above a year ago.
Speaker #3: Gold stayed supported by Middle East tensions and persistent US inflation, while expectations that the federal reserve easing cycle had run its course took some momentum out.
Speaker #3: Looking forward, both metals should continue to provide diversification to our polymetallic portfolio, and their by-product credits continue to reduce unit cash costs across our operations.
Speaker #3: Now, on slide 15. We continue advancing our ESG priorities during the quarter. On safety and community, we strengthened controls and reduced personal exposure, with remote-operated blasting and a startup of block caving at Cerro Lindo.
Speaker #3: We also continue investing in the communities around our operations, in both Brazil and Peru, on innovation and circular economy we moved several projects toward commercialization, turning waste into value, and began deploying artificial intelligence in our operations at Lazante and Carmarquilla, and on governance, we reinforced risk management under our framework, advanced tailings management in line with international press practices, and were awarded once again the Gold Seal of the Brazilian Greenhouse Gas Protocol program.
Speaker #3: With that, I will hand it back to Ignacio for the closing remarks.
Speaker #1: Thank you, Rodrigo. Before we open for questions, let me close on slide 16 with a quick recap of our priorities. First, Aripona. With a fourth tailings filter now fully operational, we are positioned to unlock full production capacity in the second half of the year.
Speaker #1: Supported by its long reserve life, and significant resource potential. Aripona remains one of the key pillars of our long-term cash flow generation strategy. Second, the Cerro Pasco project.
Speaker #1: The scope review, parallelizes lower-risk, low-cost open-pit extraction at Atacosha, and sequences capital more efficiently. While preserving the production profile we expect. It is a well-known high-potential polymetallic district, and the project is strengthened our integrated position there.
Speaker #1: Third, exploration. Our first half exploration program delivered encouraging results. With positive drilling results at El Porvenir and Vasante. As well as continued success in extending life of mine across Cerro Pasco, Cerro Lindo, and Vasante.
Speaker #1: Our goal is not simply to replace depletion, it is to further grow our resources and reserve base. Fourth, growth. We continue to actively evaluate value generating opportunities in mining-friendly jurisdictions.
Speaker #1: Underpinning all of this is a consistent set of priorities: financial and operational discipline; a stronger balance sheet; balanced capital allocation that includes shareholder returns; and a consistent ESG strategy.
Speaker #1: And above all, our commitment to the safety of our people and our communities. With the first quarter constraints in Peru behind us, the Aripona filter up and running, Cajamarquilla back to normal levels, and the Cerro Lindo silver streaming step-down in effect, we enter the second half of the year with a strong momentum and a clear set of priorities.
Speaker #1: With that, let's open the line for questions.
Speaker #2: Thank you. We will now begin the question-and-answer session. To ask a question, if you are joining via Zoom, please click the raise hand button.
Speaker #2: You may also submit your questions using the Q&A icon at the bottom of your screen. Please include your name and company when typing your question.
Speaker #2: For participants joined by phone, press star followed by nine to raise or lower your hand. Once announced, press star followed by six to mute or unmute your microphone.
Speaker #2: The first question comes from Pedro Melo with City.
Speaker #4: Hi, everyone. Good morning. Thank you for taking my questions. My first question is regarding the production guidance for other metals, especially copper, silver, and lead.
Speaker #4: We saw that production in the first half of the year reached about midpoint of the guidance for the year for zinc, and in bottom for the other metals.
Speaker #4: So, based on the grades that you have for the next two quarters and the dynamics for each asset, does it make sense to imagine a midpoint for the year, or higher in the second half? Or do you see the quarterly pace continuing to reach a level between the bottom and the middle of the range?
Speaker #4: The second one is regarding liability management. We saw another delivery in the quarter. What's the timeline you foresee for the gross debt payments now that the leverage is lower?
Speaker #4: And how should we view this payment pace in the coming quarters? Thank you.
Speaker #3: Hi, Pedro. Can you hear me well?
Speaker #4: Yes, I hear you fine.
Speaker #3: Okay, this is Rodrigo here. Thanks for your question. I will address the first question regarding the guidance, and then I will pass over to Jose Carlos to talk about the liability.
Speaker #3: In terms of the guidance, you're right, so if we look at the first half of the year, it was mainly driven by the in terms of the mining production, by the impacts of the setbacks that we saw, especially in the help of the year, the beginning of the year.
Speaker #3: We are we pretty much recover everything in the help of the year, and with the forest filtering also up and running in Aripona. We expect to increase production on the second half of this year.
Speaker #3: So that's why the production guidance for the mining segment remains unchanged. So we expect it's hard to say if this is going to be midpoint or lower end, but we are confident that we're going to be able to keep increasing production on the second half, and try to maximize production as much as we can.
Speaker #3: In terms of the smelting, we also had in the first half of the year the impact of the fire in Cajamarquilla. Important to mention that the fire was specifically in the casting house, so we were able to keep reducing cathodes during the incident, and during the time we were recovering the operations, and now we are moving towards to recover the production we missed in the second half of this year.
Speaker #3: But again, maximizing production, and keeping also the smelting guidance, production guidance unchanged. So I will pass to Jose Carlos to address the liability question.
Speaker #5: Hi, Pedro. Good morning. Thank you for the question. It is true that we are lowering our net leverage, and this is, as Rodrigo as we mentioned during the presentation, this is mainly related to the higher EBITDA that we are recording for the last 12 months.
Speaker #5: And this trend is expected to continue, so we see that as something favorable. However, we continue to have as a first priority the goal of reducing gross debt.
Speaker #5: Because as you know, EBITDA can change, depending on what prices are. So we cannot just rely on that. We want to continue to reduce gross debt in line with the priorities that we have communicated over the last couple of years.
Speaker #5: And we can assume that any excess cash that we generate, we will use part of that to pay dividends within our dividend policy. But any excess cash, additional to that, will go to pay down debt.
Speaker #5: Difficult to tell exactly how long that will take, because it will depend on a number of factors that we don't control, but you can be sure that that will continue to be our first priority.
Speaker #4: Very clear. Thank you.
Speaker #2: The next question comes from Lao Sewinder with Bank of America.
Speaker #6: Thank you very much, operator. Hello. Rodrigo, and the entire team. Thank you for taking my question today. I just wanted to drill down a little bit on cost.
Speaker #6: There was a comment that you made in the release, and I apologize for the background noise. There was a comment you made in the release about addressing smelter costs that were running ahead of guidance in the first half of the year.
Speaker #6: I mean, it's not surprising. Given the incident that occurred, could you maybe speak to why you highlighted that in the text? And whether you see the ability to recover from those higher costs in the second half of the year?
Speaker #6: And then I might have a follow-up on that too. Thank you.
Speaker #3: So yeah, to clarify, you were talking about that our conversion cost was high in the first half of the year, and why we are projecting that it's going to go down.
Speaker #3: Is that really a question?
Speaker #6: Yeah. That's exactly it. And then I'm just yeah. Yeah, no, that's fine. Thank you.
Speaker #3: So it's very important that you know that we keep a lot of control in our conversion costs in the smelters. However, we had two important events that affected the costs.
Speaker #3: One is the Cajamarquilla events that we couldn't produce all the throughput or the metal we wanted to produce in June and July, because of the fire.
Speaker #3: So this throughput affected the unit cost, and that's why the conversion costs went up. The second one is effects, especially affecting the smelters in Brazil.
Speaker #3: As you know, the effects always all Brazil costs are in reais, and then when there is an impact on effects, the costs in dollars go up.
Speaker #3: This is a minor impact. So in the second half, given that all of our smelters are going to produce at full capacity, and Cajamarquilla is going to recover all the metal, that we can because we have an inventory of cathodes and only it's a matter of processing them.
Speaker #3: So that's why with the cost control initiatives that we have and the throughputs going up, we are expecting to be in guidance. So that's the clarity on or the simplest way to mention why we believe we will be in guidance.
Speaker #3: I don't know if that is clear for you. I think you're on mute.
Speaker #6: Oh, I apologize. Thank you. Yeah. That's very helpful. Can I also ask a follow-up on that question, just respect the general inflation? Where is your cost inflation running this year vis-à-vis your budget?
Speaker #6: And what was your budget? And then, as you head into the planning season for 2027, where are you anticipating general inflation will come in for your budget next year versus 2026?
Speaker #3: Sure. So inflation is, as we said in the press release, and I will say it in the presentation, inflation is coming from labor. Labor is, as almost 40% of our costs, directly and indirectly with contractors.
Speaker #3: So the demand for labor is in Peru and in Brazil is very high. And then when you replace or renew contracts, labor is a significant component, and that is happening today.
Speaker #3: So inflation comes from that. The second one is that we are having higher maintenance costs because we are in a sense anticipating most of the maintenance that we need for our plants and our equipment to make sure that we can deliver on our production for next year.
Speaker #3: And this is also facing some higher costs, especially from contractors that, at the end of the day, are the ones who perform our maintenance.
Speaker #3: So these are the two. With that, and this has been the case, and it's always like that, we try to find other initiatives by reducing people, by renegotiating some long-term contracts, that are going to help us offset most of the impacts of these let's say inflationary pressures.
Speaker #3: We cannot tell you what will happen in 2027, but what I can tell you is that we are very committed to keeping our unit costs flat.
Speaker #3: One comment that is important is that especially in Brazil, effects is difficult because, as I was saying, the costs in Brazil are in reais.
Speaker #3: So you can have a lot of measures to mitigate the inflation in reais, but because of the effects, the effect or the impact is higher.
Speaker #3: So the mines in Brazil in dollar terms might face some incrementals. In the case of Peru, it's different because it's a different scenario. But in any case, we are committing on keeping the costs at the same levels for 2027.
Speaker #3: And I think we are making good progress toward that goal.
Speaker #6: Thank you. That is extremely helpful. And then if I could just ask on M&A and your views, particularly in light of what's going on strategically with the Votorantim ownership position, in any way, does that impact your views on M&A and your appetite to potentially pursue acquisitions?
Speaker #6: And I would note, in the past, what you've told us in this venue is that with debt where it is, M&A might not be an immediate priority.
Speaker #6: It might be something you look at more carefully once debt started to reduce. So we've seen debt start to reduce. So maybe is there some more immediacy with respect to M&A at this point?
Speaker #3: Yeah. So from a if I hear you correctly, from a capital allocation let's say strategy, we are trying to still look for opportunities in the market.
Speaker #3: However, the priorities of capital allocation are extending the life of the mines today. We have been successful with Cerro Pasco. We have been successful with Cerro Lindo.
Speaker #3: And Basante is coming as well. So, capital allocation from a growth perspective is coming from extending the life of the mines. We are also actively looking for other alternatives for buying, and we have said that in all of our calls.
Speaker #3: But as you know, we have a net debt of $1.4 billion. Much of it was related to the Aripuana project, which now is generating cash flow.
Speaker #3: So we are being conservative in assessing even if we have a lot of opportunities to assess, we are being conservative in assessing or trying to look for acquisitions in the market.
Speaker #3: Having said that, the other part that is important for us is advancing our early-stage projects. So Ilarion that is a significant silver deposit is something that with these prices, looks attractive.
Speaker #3: There is Monica Lourdes that is copper, that we are advancing. So we are putting money there as well. So that is more or less where we are.
Speaker #3: With respect to our balance sheet, yeah, I would say that with the current balance sheet that we have, it's difficult to go and look for an acquisition of the transformation project that we want.
Speaker #3: That is between $800 million to $1 billion. We are aware of that. So today, it's not something that is doable. Going forward, with these projections on our cash flow generation for the next three, four years, our leverage is going to go down significantly.
Speaker #3: And that will match with our acquisition strategy. So I guess that's more or less the context that we have today, though. So I don't know if that's clear for you.
Speaker #6: Yep. That is very clear. Thank you very, very much.
Speaker #1: Once again, if you'd like to ask a question, please click the 'raise hand' button at the bottom of your screen. The next question comes from Enrique Braga with Morgan Stanley.
Speaker #5: Hello, everyone. Thank you for taking my question. Just some additional color on Aripuanã: now that the four filters are installed and we'll integrate the operations, I just want to get your sense on how you expect to run the asset.
Speaker #5: So what's your expected run rate, and what's your capacity utilization that you are forecasting for the rest of this year and from 2027 onwards?
Speaker #5: Thank you.
Speaker #3: Hi Enrique. Thank you for the question. So, after the implementation of the fourth filter, we saw a significant increase in the tonnes per hour. We are now reaching 260 tonnes per hour, which is very close to the nameplate capacity.
Speaker #3: So expectation that you'll have is that in the coming months, we are just operational parameters and the team learn how to operate in a different level.
Speaker #3: So that you can reach the numbers that you have planned since the beginning of the year.
Speaker #4: Yeah. And one additional comment
Speaker #3: There is a point here, Enrique, that is important. By increasing this, by solving this bottleneck of the four-filter, the process of adjusting the plan to the new throughput is taking two to three months.
Speaker #3: So, you will see that this step up to full capacity will happen only in the next two or three months. However, we know what we are doing.
Speaker #3: And we know that full capacity is coming. So, I guess the significant bottleneck that will happen will prevent us from achieving full capacity in the coming months.
Speaker #3: So that's Aripuanã. And that's why we believe Aripuanã, towards the end of the year and next year, is going to produce significantly more cash flow than what we produced this year and in previous years.
Speaker #3: Yeah. We are actually moving to address questions from the chat. So we have our first question here. Let me take it. The question is: Given that first half zinc-equivalent production was down and that Peru expects an impact from the El Niño phenomenon this year, especially in Q4, how confident is the company of meeting the 2026 guidance?
Speaker #4: Yeah. That's a very good
Speaker #3: question. The projections that we have on the Niño are that it's going to be a very significant or a strong Niño. And that is really heavy rains in many parts of the country.
Speaker #3: And that could impact the operations in terms of roads, in terms of blockages of roads that will affect our consumables and delivering our concentrates etc.
Speaker #3: So we have been facing these events for many years now, and we are used to that. So we have—we're putting in place all these measures to make sure that we don't have business interruptions.
Speaker #3: Having said that, you never know, because we not only depend on ourselves, but also depend on the infrastructure of the country. And we don't control that.
Speaker #3: Having said that, with the scenarios that we are running and the projections that we have, we really don't expect a lot of impact during this year from the Niño phenomenon.
Speaker #3: So we will keep the market posted. We don't know what when we'll start. We don't know how long it will last. But I think as a company, we have been learning how to manage this.
Speaker #3: And we are prepared to face the impacts and make sure that we mitigate, or that we have a low impact, in our production and in our profitability.
Speaker #3: So that is more or less the context that we have today.
Speaker #1: Once again, if you'd like to ask a question, please click raise hand button at the bottom of your screen. This concludes our question and answer session.
Speaker #1: I would now like to hand the call over to Mr. Inasio Rosado for his closing remarks. Mr. Rosado, please go ahead.
Speaker #3: Okay, thank you. Thank you again for attending the call. Thank you again for your questions and for your interest in Nexa. As we said, we are well positioned to have a good second half of the year.
Speaker #3: With Aripuanã running at full capacity, with several past quarters recovered—all this production that we had lost in the first half. With Cajamarquilla also going back to normal levels.
Speaker #3: And with all the measures we are taking to achieve our budget and achieve our guidance, we are confident that we will have a promising results in the second half.
Speaker #3: We look forward to speaking with you in the next closing quarter. And we will keep you posted in any initiatives or anything that could happen in Nexa within this quarter and for the rest of the year.
Speaker #3: Thank you again and have a great week.
