Good morning, and welcome to Nexa Resources' Third Quarter Conference Call. [Operator Instructions] The presenter in this call is Ms. Roberta Varella, Head, Investor Relations. Also joining the call and available for questions are Mr. Tito Martins, CEO of Nexa Resources; and Mr. Rodrigo Menck, CFO of Nexa Resources. Please note, this event is being recorded. I would now like to turn the conference over to Mr. Tito Martins, CEO of Nexa Resources. Please go ahead.

Thank you. Good morning and good afternoon, everyone, and thank you for participating in another Nexa's earnings conference call. Today, we will be talking about our results for the third quarter of 2019. Please, let's move to Slide 3 where we will begin our presentation. Here, we present some of the main highlights of the quarter. Beginning with our segment performance, our mining operations were solid. Zinc production was 97,000 tons, up 80% (sic) [ 8% ] compared with third quarter of 2018, driven by Cerro Lindo and Vazante growth. Regarding our smelting segment, production was affected by technical issues in the purification process in Três Marias smelter during September. As a result, metallic zinc sales in third quarter of 2019 decreased by 0.8% from last year. Compared to second quarter 2019, however, sales volume was at 1.2%. It was affected by the 6% volume increase in Cajamarquilla, driven by higher export sales. Moving to our financials. Adjusted EBITDA was $58 million in third quarter compared with $120 million last year. Lower average LME prices and changes in market prices in respect of quotation period adjustments had a negative impact of $37 million. We also had a temporary increase in G&A costs related to operational efficiency initiatives that I will comment later in our presentation. Liquidity remains strong, and we end the quarter with a leverage of 1.4x. Despite the challenging pricing scenario, operating cash flow was positive in $105 million, driven by working capital improvement. Free cash flow was also positive in $35 million. In third quarter, we recognized a non-cash interim loss of $142 million in Cerro Pasco cash-generating unit primarily driven by lack of mine production. As a result of the above-mentioned factors, net loss was $171 million in the third quarter. Regarding guidance, we've revised our…

[Operator Instructions] Our first question comes from Thiago Lofiego with Bradesco BBI.

It's actually Isabella here. So I have a couple of questions. First on the zinc market outlook. You mentioned that you expect the refined zinc market to remain a deficit in 2019. Well, I was wondering if you could just share a bit of your outlook for 2020? It would be helpful. And also on the temporary increase in SG&A that you registered in the third quarter. I was wondering if you could expand a little bit on what type of measures you are working on. And if possible, what future benefits that you're expecting? These are my 2 questions.

Isabella, this is Tito. Good morning, good afternoon, everybody. Two good questions. In 2019, what we've seen in the market is clearly, in the case of Asia, specifically, China, there is an excess of concentrate availability, which actually is helping the smelters -- the Chinese smelters. That's why the TCs -- they are both -- they reference TC. We've seen transactions with the TCs action close to $300 per ton. What it means in terms of the general market? The way we see it is that there was an expectation that more smelters in the -- zinc and smelters in China would be in full operation now. Then there was more imports of concentrates to the country. And we are not seeing this additional capacity enter in operational. Because of that, there is no change in the stocks -- the stock availability of zinc either in LME and in Shanghai. We are with the lowest levels ever of zinc in the market. And it, in some ways, explains why price of zinc has been resilient. I mean we're talking about 2,500,000 per ton in a period of time where most of the analysts are saying that price should fall, but the market is proving that there is a reason to -- for price to remain where they are. In terms of 2020, it's a big question mark. We don't see a major change in what is happening right now. I mean, of course, demand will be the important factor, but the stock should remain low, and we are not foreseeing an increase in refined metal production, which implies that price should be pretty much around where they are today. I was in LME along with -- in this -- during this week and clearly, there were different views about not…

Our next question comes from Carlos De Alba with Morgan Stanley.

And Tito, just coming back to the question. Can you give us a sense of the potential savings that you expect to generate from these "investments" in -- that you have -- that have increased your SG&A expenses in the quarter and may increase your expenses next year? So that we can more appropriately evaluate the overall trend in SG&A, the net increase or net reduction. And then moving on to cost. Can you elaborate a little bit how you see the trends there? Presumably based on what you just mentioned on the smelting side, cost should go down from where we are or where we were in the third quarter. But if you could elaborate on the mining side and overall cost trends for the company, and not only in the fourth quarter, but in 2020, that'll be really useful. And then finally, if I may, and I know that may be -- have you seen -- can you remind us where -- when do you expect to release the technical report -- the updated technical reports that you mentioned in the past conference call?

Thank you, Carlos, for the questions. First, I cannot provide you now with any number. There are many reasons for that, but the most important one has to do with -- we still don't have the final numbers. We know that some of the KPIs have a very good chance to improve, but we have not -- as we have not actually turn it to money, we cannot provide this sort of information. What I can say is that we intend to release the year-over-year guidance for costs. And probably, or actually almost surely, you will see some of those -- some changes and impacts of the program we are implementing right now. So we should release the guidance there sometime in January next year. Regarding cost, I'm going to pass to Menck, and he can give you an overview.

Good morning and good afternoon, everyone, depending on the time zones you are. Carlos, thank you for your question. As you could see from the second quarter to the third quarter, we have reduced our cash cost from $0.48 per pound to $0.42 in the mining sector. We believe that this operational improvement that we have been, say, experimenting, ever since we have begun this program, are bearing fruit and we believe this will continue looking forward. I don't believe there will an aggressive drop. But in any case, we understand there is some marginal gains to be captured in this sense. On the smelting side, it's been pretty stable. The cash flows from the smelting has been reduced for a variety of reasons, and we are approaching, let's say, a level that we believe is from a balance cash cost looking forward. About the technical reports.

May I -- I can comment there. As you know, all will be released in the next few weeks. We -- to the end of the year, we will be releasing the new tech report for Cerro Lindo and Magistral early in next year. So we expect to have all this information available even before we release the year's numbers by February, yes.

[Operator Instructions] At this time, I'm seeing no further questions. I would like to turn the conference back over to Tito for his final remarks. Oh, I'm sorry. Mr. Martins, we actually do have an additional question from Orest Wowkodaw with Scotiabank.

Just curious, you took a fairly large impairment on the Pasco complex noting both the zinc price and a reduction in reserves. Can you give us an idea of what sort of -- what the mine life looks like now at that asset? I mean how short is it?

Orest, thank you for the question. I'm checking here, but basically the impairment was done on the Pasco complex because of Pasco complex. We -- at the beginning of the year when we did the AMR, we released the information about Pasco, specifically, Atacocha. Some -- we have a drop in the resource availability -- I don't have the information here right now. Yes. It's only Atacocha and the life of mine goes up to 10 years, if I'm not wrong.

13 years.

13 years. 13 years, sorry. So Atacocha was affected, but it still has 13 years of production.

Okay. Are you still planning to develop Shalipayco or no?

Yes. Shalipayco is in our pipeline. We are moving on with 2 analysis: the first one is Shalipayco being built and producing on a stand-alone basis; and the second one has to do with the use of ore in the Pasco complex, which would mean that probably we'd have to make some adjustments in the plants in Pasco, in Atacocha plant, in the El Porvenir plant. We are not 100% sure which of those plants should be actually improved in order to accept more ore from Shalipayco. That's exactly what we're looking at today. We should have some news about it at the beginning of the year. Because Shalipayco was in the -- just to remind you, Shalipayco was in our pipeline as being developed for the alternative that the ore would be used in Pasco. Something around '21, '22. If it goes to stand-alone basis, probably, we'll be late and it will remain in the pipeline, but we'll move back a few years.

Okay. And Tito, with regards to the project pipeline, can you maybe just lay out kind of what the current thinking is in terms of which -- I mean after Aripuanã, which is being built right now, what do you see the sequencing to be on the various projects moving forward?

I have no doubt the Magistral is the first in line. After that, Pukaqaqa was close to Magistral, but we assume having some additional studies in metallurgy for Pukaqaqa. So because of that, clearly, Magistral is by itself it's alone as the first in line. If everything goes as expected, we should have the completion of the feasibility study of Magistral sometime the second half of next year, which is -- coincides with the end of the Aripuanã project. So Magistral should be ready to enter in construction early in 2021. After that, Pukaqaqa could come or Hilarion, right? Because as Pukaqaqa has delayed, it will be closer to Hilarion. And we have Shalipayco running parallel, depending on the decision about only the use of ore or a setup of a new [ desalination ] plant.

Okay. And Tito, is Florida Canyon still somewhere on that list? Or is it...

Yes. It comes later. Yes, it is. Comes later. We're assuming investing a significant amount in drilling there, yes.

Our next question is a follow-up from Carlos De Alba with Morgan Stanley.

So a couple of further questions. One if you can provide a little bit more details on the energy contract in Brazil. Is there an expectation of how much -- I think if I understood you correctly, in Peru, you said that up to $50 million in savings. So in Brazil, do you have a magnitude of potential savings? And just in that Peruvian agreement, the $50 million in potential savings, is it in -- along the life of the project or is it going to be more in a specific year? That would also be helpful. And then finally, can you remind us where is the balance of the intercompany loan that you have between Brazil and the Luxembourg subsidiary as well as what are your expectations there as to the balance in the coming quarters?

Carlos, well, the agreement that was signed was signed in Peru, right? It will be valid from January 2020 on for 7 years, right, to the end of 2026. There is this -- the agreement that we have before we were separate, now we have one agreement for all the assets that we have in the country. This will provide us, in the difference of energy costs, approximately $50 million during the whole period. Due to the change of, let's say, the value in time, you probably have more value in the first years, but there's no [ detailment ] to be disclosed at this point in time. But then you can have your forecast, I think, project the way you think is the best. About the intercompany loan. By the end of the third quarter, we had $250 million. We have been reducing this ever since the beginning of last year, and the idea is to reduce a bit further.

The intercompany loan was $250 million at the end of the third quarter?

Yes.

Our next question comes from [ Miguel Garcia ] with Citi.

Just a follow-up on the SG&A expense. Just to be clear, the entire $60 million is related to the efficiency initiative and this is a one-off, a nonrecurring expense, correct?

Exactly. So we will not have anything else along 2019. And if everything goes as we expect, every time we have identified gain, the consultants will be paid based on a success fee.

This program goes up until the end of next year. So it will -- it's always a one-off expense. So it'll be always related to some efficiency gains that will be identified in our results, okay? And -- but they will occur proportional to the gains until the end of next year.

[Operator Instructions] At this time, I'm seeing no further questions. I would like to turn the call back over to Mr. Martins for any closing remarks.

Thank you. First of all, I think it's important for us to say that we are so disappointed with the financial results of the third quarter as everybody is. On the other hand, if you look into the details, the numbers of our operations, they have improved along the year. I mentioned before, the smelting is doing very well in general. We had a setback in Três Marias for 2 weeks when it was not producing well. And even with that, the production is matching the production from last year. One point that's important to address. Cajamarquilla is recovering more. It's performing better even before the Jarosite. So we are optimistic that production can be much -- can be higher than that when Jarosite is also implemented. Financial situation. We have a very strong position today. A bad quarter in financial terms, but a very good quarter in terms of liquidity and debt position. You have to consider that we are in the middle of significant investment, which is Aripuanã. So we have a strong financial position and it matches our plans. It's ready to support our plans. Our projects are doing very well. We finished the dry stacking in Vazante through the first half. It's operating properly. We finished it on-budget and on-time. Aripuanã, despite the difficulties we could face because of the location, it's a place where there is not proper access and so on, we are doing well. We are keeping track of everything that was planned. We are on-budget so far, on-time so far. We just finished the earthworks. Before the rainy season, we will start -- we've already started construction of the plant. The concrete group will be thrown to the soil in the next few days. We already have 5,000 tons of ore from the construction of the tunnels. So horizontal development is moving properly, and we should have the vertical development starting along the next 2 to 3 weeks. So as I said, we were unhappy with the quarter, but we are optimistic about the end of the year. Fourth quarter should be better than the third, for sure. And everything shows that 2020 is going to be a much better year. Thank you very much for the attendance and the support. Have a good day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.