Nexa (NEXA) Q1 2026 Earnings Call Transcript

Nexa Resources posted a strong Q1 2026 with adjusted EBITDA of $283 million, up 126% year over year, and net income of $118 million, while net leverage fell to 1.59x from 2.09x a year ago. Mining zinc production rose 18% to 79,000 tonnes and smelting sales increased to 147,000 tonnes, though smelter margins remain pressured by low TCs and free cash flow was negative $126 million due to seasonal working capital and tax payments. Management reiterated 2026 CapEx of $381 million, expects Cerro Lindo's silver stream step-down to add about $100 million of annual cash generation starting in Q2, and maintained a sub-1.7x leverage target.

Analysis

NEXA is becoming a cleaner leverage-to-price vehicle, but the more important shift is mix: the silver stream step-down creates a step-change in equity cash conversion that is largely independent of zinc sentiment. That makes the stock more sensitive to precious-metals upside and less hostage to smelter cycle noise, which should compress the market’s discount for Brazilian/Peruvian political and operational risk over the next 2-3 quarters.

The near-term earnings quality is better than the headline smelting margin suggests. The core issue is not this quarter’s EBITDA; it is whether the company can sustain deleveraging while CapEx ramps into the back half of the year and while Peru remains politically noisy. If execution stays clean, the balance sheet will likely become the equity’s main catalyst, because sub-1.7x leverage plus improving cash generation materially increases optionality for buybacks, M&A, or simply a rerating toward mid-cycle miners.

The market may be underappreciating the second-order effect of low TCs: smelting weakness indirectly tightens concentrate availability for peers, but NEXA’s integrated footprint and byproduct exposure partially insulate it. The real contrarian takeaway is that this is less of a pure zinc beta trade and more of a self-help + cash-flow inflection story, with the Cerro Lindo stream change and Aripuanã stability likely contributing more to equity value than a modest move in LME zinc. The main risk is that the company’s optimism around Peru and smelting normalization proves premature; if TCs stay compressed into 2027, the market will focus on margin ceiling rather than cash flow expansion.

Key Decisions for Investors

• Long NEXA common for a 3-6 month horizon: favor entry on any pullback after the first post-earnings move fades. Risk/reward is attractive if the market starts capitalizing the ~$100M annual cash-flow uplift from the Cerro Lindo stream step-down; downside is mainly if Peru execution slips or TCs stay pinned.
• Pair trade: long NEXA / short a higher-cost pure-play zinc producer or regional peer with less byproduct leverage. Thesis: NEXA has the better self-help arc and balance-sheet optionality, while peers remain more exposed to smelter-margin compression.
• Buy NEXA upside via call spreads 6-9 months out. The catalyst stack is asymmetric: Q2 should show the first full benefit from the stream change, while leverage trends and Aripuanã normalization can re-rate the stock before any Phase 2 capital decision.
• If running a broader commodities book, hedge long zinc exposure with a partial short in smelter-exposed names. NEXA’s integrated model reduces sensitivity to TCs relative to stand-alone processors, so it should outperform if low-TC pressure persists.
• Take profits only if the stock rerates into the debt-target narrative ahead of clear Phase 2 visibility. The key risk to hold discipline is that M&A chatter can overstate near-term value unless funded without diluting the deleveraging story.