Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Nexa Resources SA (NEXA, Financial) reported a 27% increase in consolidated net revenues quarter over quarter, driven by higher LME prices and increased smelting sales volume.
- Adjusted EBITDA for Q2 2024 was $200 million, a 64% increase from the previous quarter and a 180% increase year over year.
- The net leverage ratio improved significantly, decreasing from 3.75 times in Q1 2024 to 2.72 times in Q2 2024.
- Operational performance at Aripuana showed significant improvement, with increased utilization rates and positive operational cash flow generation in June.
- The Cerro Pasco integration project is advancing well, with expectations for approval in the upcoming months, which could unlock significant value for the company.
Negative Points
- Zinc production decreased by 5% compared to the first quarter of 2024 due to lower volumes from Peruvian mines and the absence of contributions from Morro Agudo.
- Smelting cash costs increased to $1.19 per pound in Q2 2024 from $1.12 per pound in Q2 2023, mainly due to higher raw material costs.
- The cost per run-of-mine increased by 10% year over year and 7% quarter over quarter, driven by higher third-party services and personnel costs.
- Despite improvements, the Aripuana project still faces challenges in achieving its target capacity and further production improvements.
- The company’s debt profile, although improved, still carries an average cost of debt of 6.61%, which could impact future financial flexibility.
Q & A Highlights
Highlights of Nexa Resources SA (NEXA) Q2 2024 Earnings Call
Q: What are your thoughts on the zinc market, especially with new production coming on in Central Africa and Congo?
A: Rodrigo Cammarosano, Head of Investor Relations & Treasury, noted that while new productions are expected, including from Nexa's Aripuana mine, they are not anticipated to offset the tight concentrate market. Ignacio Rosado, CEO, added that the current low treatment charges (TCs) and premiums indicate that many smelters are not profitable, suggesting that zinc prices need to rise to avoid metal scarcity.
Q: How are you approaching capital allocation between investments in Cerro Pasco expansion, debt repayment, and Aripuana ramp-up?
A: Ignacio Rosado, CEO, explained that with Aripuana starting to generate positive cash flow, the priority is to reduce gross debt. Future cash flow will be allocated towards debt repayment, dividends, and growth investments, with the Cerro Pasco project expected to be approved by year-end.
Q: Can you provide more details on the CapEx for the Cerro Pasco integration project?
A: Ignacio Rosado, CEO, detailed that the total CapEx for the project is $150 million, covering components like the tailings pumping system, shaft upgrades, and water management. The project is expected to take two to three years, with significant investments in 2024 and 2025.
Q: Will you start disclosing costs for Aripuana now that it has transitioned to an operating mine?
A: Ignacio Rosado, CEO, confirmed that cost disclosures for Aripuana will begin in the next quarter, reflecting its status as an operational mine.
Q: What are your expectations for CapEx next year?
A: Jose Carlos Del Valle, CFO, indicated that CapEx for 2025 is expected to be similar to 2024, around $311 million, primarily for sustaining activities. Additional investments may be required if the Cerro Pasco project is approved.
Q: How do you see costs evolving in the second half of the year?
A: Jose Carlos Del Valle, CFO, stated that costs are expected to remain within the current guidance, with ongoing efforts to mitigate inflationary pressures.
Q: Is Nexa still considering diversifying into copper?
A: Ignacio Rosado, CEO, confirmed that Nexa is looking to increase its copper portfolio due to its competitive advantage in underground mining and the more stable pricing of copper compared to zinc.
Q: Do you have a target for net leverage by the end of the year?
A: Jose Carlos Del Valle, CFO, mentioned that the goal is to reduce net leverage to below 1.5 times, focusing on reducing gross debt as cash flow improves.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
