Good morning, and welcome to Nexa Resources' Fourth Quarter and Full-Year 2021 Conference Call. All participants will be in listen-only mode. [Operator Instructions] The event is being recorded, and is also being broadcast via webcast, and may be accessed through Nexa's Investor Relations Web site, where the presentation is also available. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Mrs. Roberta Varella, Head of Investor Relations, for opening remarks. Please go ahead.

Good day, and good afternoon, everyone, and welcome Nexa Resources Fourth Quarter and Full-Year 2021 Earnings Conference Call. Thanks for joining us today. During the call, we will be discussing the company's performance as per at earnings release that we issued yesterday. We encourage you to follow along with this onscreen presentation through the webcast. Before we begin, I'd like to draw your attention to slide number two, as we will be making forward-looking statements about our business. And we just ask that you refer to the disclaimer and the conditions surrounding those statements. It's now my pleasure to introduce our speakers. Joining us today is our CEO, Ignacio Rosado; our CFO, Rodrigo Menck; and Leonardo Coelho, our Senior Vice President of Mining; as well the Investor Relations team. With that, I'm going to go ahead and turn the call over to Ignacio. So, Ignacio, please go ahead.

Thank you very much, Roberta, and thanks to everyone for being with us this morning. This is my first formal interaction with the financial community since I was appointed CEO. It is a privilege to lead this company and be part of this very talented group of people. During my transition period, I had the opportunity to visit all the operations, and I believe we have world-class assets with high safety and environmental standards. I'm also impressed by the commitment of all the team and the strong culture based on diversity. Please, let's move now to slide number three, where we will begin our presentation. In slide number three, as you can see in our highlights, 2021 was a very strong year for Nexa. We had strong operating results, and achieved guidance in production, mining cash cost, and metal sales. Aripuanã is on track to production, and we believe it will become a flagship operation with a long life of mine. I will also give some updates on our exploration program. We have been very successful in finding potential in most of our mines. We have continued to benefit from high base metal prices, that combined with our strong operational performance generated a high adjusted EBITDA and a strong cash flow generation. Our balance sheet continues to be strong, with available cash of over $1 billion, and allow financial leverage. Finally, we remain very optimistic about market fundamentals. Moving now to the next slide, slide number four, I will discuss our results in more detail. In this slide, you can see that zinc production in the fourth quarter of last year decreased by 12% compared to the fourth quarter of 2020. This was mainly driven by lower production in Cerro Lindo due to the expected lower average rate, and temporary…

Thank you, Ignacio, and good day everyone. As shown on slide 16, for 2022, zinc production at the mid-range of the guidance is estimated to decrease by 5% from 2021, driven by expected lower grades from Cerro Lindo and temporary capacity reduction in Vazante as a consequence of heavy rainfalls in the state of Minas Gerais. For 2023, zinc production is estimated to increase 16% over 2022 due to the startup of Aripuanã with a further 1% in 2024 over 2023. At the midpoint of the guidance range, copper production in 2022 is forecasted to increase 6% on average compared to 2021, mostly driven by Cerro Lindo and Aripuanã. On the same basis lead production follows the trend and should increase by 5%. In terms of cash costs, we estimate mining average costs of $0.23 per pound in 2022 compared with $0.21 per pound in 2021 as we forecast inflationary pressures impacting third party services, logistics and consumable goods, continued health protocols to fight COVID-19, which should be partially offset by higher, by-product credits in our [indiscernible] mines, and cost reduction and operation efficiency initiatives. Turning to slide 17, for our smelting segment full-year guidance, metal sales volume in 2022 at the midpoint of the guidance range is estimated to decrease 7% from 2021 due to lower production, as we disclosed in the first quarter of '21 our calcine supplying to Peru shut down its facility and for the forecasted period, we are assuming it will not resume activity. The temporary decrease in present is mine production is also impacting the production of our smelters in Brazil during 2022. Our 2023-2024, we assume supply from our mines maintains historical levels and thus we expect sales volume to increase over 2022. Despite such decreasing volumes, we remain focused in improving the…

Thank you, Menck. I'm now on slide 20. I would like to close this presentation by briefly explaining our priorities for this year. We need to focus on taking Aripuanã into production and work on its life of mine extension. We also need to continue working on improving our cash [technical difficulty] with our cash flow. Thank you all for attending this presentation. I will now open up for questions.

We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Carlos de Alba of Morgan Stanley. Please go ahead.

Yes, good morning, everyone. Thank you very much. Ignacio, good luck with your new responsibilities as CEO. I have a couple of questions, maybe three questions. One is on the smelting results in the fourth quarter, which were very challenging and below what we were expecting. And those are related to the price effects, one is the hedge and the other is the, what it was called, adjustments on the quotation period in that operation. Could you maybe give us a little bit more color on the quotation period, that maybe that is provisional pricing, but what we see is that zinc prices increased following September 30, and therefore we would have probably expect a positive impact on higher zinc prices versus the curve that existed at the end of the third quarter. So, some color there will be appreciated, maybe we just didn't have it clear. And then on the hedging also, could you give us some comment as to what exactly is the smelting business been hedged or has been hedging, given that prices went up, and that would have been a negative for the smelting business, but we would have thought then that the hedge would give you a positive benefit or positive result as, potentially, that was what we would expect the company was going to try and hedge? And then finally, if you could give us some color on what are the conversion costs embedded in the guidance for smelting in 2022 to 2024 period? Thank you very much.

Okay, Carlos, thank you for the questions. Do you listen to me? So, Menck is going to give you more color on the detail on hedge. But first, I would like to comment that, and reiterate what happened in -- what I explained in the presentation, that the hit we got in the fourth quarter of 2021, and this was a big hit in our EBITDA, was around $40 million. One was because of Cerro Lindo, $6 million, and this was this four-year stoppage that we have because of community relations problems. The second one was $6 million related to mine closure effects, this is a non-cash item, this is a provision, yes. The third event that happened is that there are almost $10 million on Aripuanã, that they are expenses such as insurance and other expenses, the construction of the hospital in the town, and others, that you cannot capitalize in the project, so these are new to us. So, these were mainly affecting the fourth quarter of 2021. And on top of these were the $18 million on hedge that hit us, that is very important, but we know that this effect is going to reverse. So, Rodrigo is going to explain this effect to you in more clear so you can get a flavor of what's happening, and how is this going to reverse.

Carlos, nice talking to you. The hedge that we do is not hedge on pricing for final sales only, this would be fixing the revenues, and this is [not] [Ph] the intention. What we call here hedge book is to match the QPs for the concentrate we buy from third-parties in relation to the zinc metal that we are selling on the other end, originated by this third-party concentrate. So, idea here is pretty much to match the cash flow from what we buy, which usually is QP M minus one, and then what we sell, which is the QP of the month and we try to match this. There is a part of the entry of the concentrate in the zinc metal that goes to inventory. And this is what imbalance this specific hedge, because there was an increased position in inventory which will be sold in the coming months, and will reverse the negative impact of the hedge of that month when it turns into cash generation. Do you see my point? So, is it clear?

Yes, thank you, Rodrigo.

Yes, and one more comment, Carlos, because we were reading most of the reports that came out this morning, and we thank you for that, is that in terms of costs, yes, the cost per ton in the mine and the cash cost, overall, were in line with what we had. We didn't have increases on those. We had inflationary pressures in some items that we don't control. And we have some maintenance, additional costs and some third-party services costs that are always happens when we have prices that go up, costs related to labor because people demand more salaries, costs related to oil, costs related to energy today, energy today is going up, and others. So, we have been able to offset most of those with some productivity measures. So, the cost part at the mines is becoming flat, and we are expecting similar trends in 2022. So, I wanted to tell you this because this is important for us that you will know we will provide in the coming months more color on costs. We know that we disclose costs on a cash cost per pound basis, and will allow you to expose more in terms of costs at the smelting and at the mines.

Thank you. And just on costs then or the guidance on smelting costs, you provide the cash cost guidance. Can you give us the underlying assumptions for conversion cost that basically do not include the benefit of byproducts?

We don't have that information to be disclosed now, Carlos. The conversion cost is something that we are following up constantly so that we can have a reliable source of information. And once we have the performance of this specific KPI, we intend to disclose an additional guidance for next year. So, I would ask you for a bit of patience so that you can follow-up this information in the coming quarters.

All right, thank you very much, Rodrigo.

Thank you, Carlos.

The next question comes from Jackie Przybylowski of BMO Capital Markets. Please go ahead.

Thanks very much. I wanted to just go back to the Aripuanã project. I think actually this question was asked last quarter, but can you maybe talk about the gap between the hot commissioning or the hot and cold commissioning, I think, which has already started, and the first production, which looks like has now been pushed back by two quarters, to Q3 2022. What exactly -- what activities do you do in the meantime to get to that first production after the commission has been completed?

What really happened, Jackie, here is that we were somehow optimistic in the guidance we gave before, yes. And I guess we were -- the factors that we were consider in our timetable really went wrong. What happened was that, between December and January, they were -- I mean we were impacted by rainfalls, but really heavy rainfalls. We were impacted by the Omicron virus, that -- and the two of them combined reduced the productivity of labor force, yes. And that is one effect. The second one is related to a turnover, yes, you know that when you have like a -- you are towards the end of the project, most of the workers knowing that the project is finishing, they try to go to different area so they can work on new projects and have more stability. So, we had like 1500 people in the last six months that leave the project. They were leaving the project and we needed to hire more. And we hired almost 700, but hiring, the cycle, takes at least three weeks, so it's not that easy. And this effect more relevant towards the end of the year. And then, we also had some problems with engineering especially in piping. And this is something that I don't if the company explained before, but when you have a design that has some gaps when you started, at the end of the project most likely it will hit you because some of the piping design and some of the piping infrastructure won't match and you have to fix that. And that take some days and sometimes weeks. And on top of that I can comment on a -- and this is mechanical completion, some quality of equipments that was not built on specifications or specifications…

That's super helpful. Thank you very much, Ignacio.

The next question comes from Lawson Winder of Bank of America Securities. Please go ahead.

Hello, Ignacio, Rodrigo, Roberta, and team. Thank you for the update. I would like to get understanding of the impact of COVID and absenteeism and what you outlook for that to improve. So, how has that trended so far in January? And when do you expect you can get back to a point where absenteeism is back at a manageable level? Particularly, with respect to Aripuanã but also with the other operating underground mines and even the smelter to the extent that they were impacted. Thanks very much. A – Ignacio Rosado: No problem. It is good question because we have to separate Aripuanã with the other mines because Aripuanã is a project that has workers that do specific areas. And that if you don't have them, you get productivity problems. So, Aripuanã got at the peak almost 900 people that were positive. You know that Omicron not a virus that is a heavy today. I mean if you are vaccinated, you don't go to the hospital. Or, you don't get sick. Sometimes yes, but is not the trend. But, you have to isolate the people because that's the protocol and that's a responsible thing to do. So, in the case of Aripuanã, replacing these people was very difficult. In the case of the mines even if we were following the same effects and we were seeing increases in positive cases week on week since I would say last week of December and January and towards the end of January. In some of the mines, we have 300 – 400 cases that were not present. You can focus on activities that are related to the production and this happened. We were hit in Peru more because the laws in Peru when you are positive at the beginning you needed isolate…

Okay. Thanks very much for that. Also, I would like to ask about the cost reduction initiatives, and particularly for 2022, which of those you view as the most promising and could we start to see those flowing through with lower 2023? Like unit cost guidance versus the 2022?

Yes, I think we have our VP, Senior VP of Operations here. I don't know if you want to comment on those.

I think I can add some comment on that Ignacio and I think most of the cost optimization or reduction initiative, it's coming to look at all the costs lines that you have. Also addressing some productivities increment that can in the end reduce our costs, and this is changing the way we are operating nowadays, trying to offset the inflationary increments that we're seeing so far. And what our target right now is to really come back look again for some productivities and cross initiative that can go across all the operations, so that you can try to raise new additional cost initiatives to be to continue work on the progress as we did so far. So, productivity, some cost reduction and some cost optimization were the ones that have the fall so far.

And would you? I don't know if you want to comment now. But just in terms of 2023. Can you see some positive impact in 2023? Would that be fair to expect?

It's very difficult to project that. What I can tell you is that, what we are trying to do is make sure that we keep track of all mines and smelters on a monthly basis in terms of costs on CapEx. What Leo is explaining is that, I mean, if you see -- I would say, if you put all the pie on costs, 30% of the costs are productivities, are people, so we are -- this year we're focusing on that very much. We are as Leo was saying, we are also focusing on all -- on other initiatives, yes. So, trend is going to go and it should impact 2023 as well. What happens with inflation in 2023, we don't know. But we know that most of inflation of 2022 is going to be offset not only with these measures at the mine, but also with other I would say initiatives and logistics because there are some prices that you don't control. The price on oil, the price on energy, you don't control, but in the prices that we control, we are trying to find more initiatives to try to compensate. In fact these pressures, but to go further to 2023, I would say, is difficult, yes, because one factor that I would like to mention also is that the FX in Brazil has been helping us, most of the costs in Brazil are in reais. So, FX is helping us, not in Peru, in Peru, a good party is in dollars, but that is helping us all. So, there are some variables that we don't control, that we don't know, how they will impact in 2023. But what I can say is that what we are always saying and this is something that as I explain, we want to build a month-a-month is to make sure that our cash cost per ton. That is that the one that Leo is really controls and bullet and the smelters as well. The conversion cost is always flat all goes down in terms of -- from safety measures that we take to be more competitive. So, that's more or less this explanation. So, I don't know if you have any other questions here.

No, that's abundantly clear. And actually, if you wouldn't mind I just had one clarification point and I apologize to belabor this, but on the $80 million hedging impact from Q4, should we be putting a positive $80 million working capital adjustment in our cash flow for Q1. Sorry, just to be really clear on that?

Conceptually, yes. But it will depend on how this inventory is realized for all time. So, conceptually, it should be the case. Of course, there are some varieties, but when you consider inventories being accounted for as first in, first out, this is diluted throughout the quarter, it's not necessarily directing a team because they will be compensated by the incoming inventories, but conceptually you're correct.

Thanks very much.

Thank you

The next question comes from Orest Wowkodaw of Scotiabank. Please go ahead.

Hi, good morning. Ignacio, I'd like to get some color from you just as the incoming CEO and how you see the future of Nexa with respect to growth. And from our perspective, obviously, the development of Aripuanã has not gone as expected. But at the same time, it seems like you've lost some third-party zinc feed in Peru. So, I'm wondering strategically whether you plan to -- Nexa plans to take a pause on building kind of the next generation of mines to generate positive free cash flow deliver or whether you see moving to the next project fairly quickly in order to make up that concentrate shortfall?

No, no. You are right. I guess, for me there are two actions that we have to take here. The first one is we want to make sure that we deliver on cash flow in 2022. We have some targets here and I can tell you that our mines and smelters generate cash flow. And to give you an idea the expenditure on Aripuanã in the last two years was $400 million. So, last year was $260 million and this year is $130 million. So, it's almost $400 million and we pay that from our cash flow from operations. So, what I'm trying to do or what we are trying to do here is that Cerro Lindo, Vazante, Aripuanã in '22 and '23. Started to optimize their cash flow with this productivity measures, with this a optimization on CapEx and make sure that we a have or optimize this cash flow from these three months. On top of that we have only two comp that the Pasco Complex that is Porvenir, Integración and there has been a project around the integration of two, these two have a lot of potential underground channel. But if you go directly, only in the culture, the cost of developing that is going to be higher, so you won't get the results. But if you use the infrastructure of a [indiscernible] and you upgrade that infrastructure, you might be able to connect them. So, this project has been as we were assessing this project in the last two years. And what I'm trying to do is, okay, we have to we need to -- we need to have a clear view on this because like we are -- have an idea that is profitable. This complex is going to also generate a lot of cash…

Thank you. I appreciate the color.

So, our next questions come from the webcast. Isabella Vasconcelos from Bradesco, Good morning, we would like to know your view on the zinc market outlook, given recent strong performance [indiscernible] strategy? Should we expect higher dividends, [why growth] [Ph] projects post Aripuanã take some time to materialize?

Yes, okay, as we were sharing in the presentation, the zinc market outlook is strong today. Many factors, mine supply is today low, and you can see that in the treatment charges going up. And, I mean, it won't be a dramatic increase in TCs, but we are seeing TCs going up, and this is because mine supply is not catching up with the projections of the market. You go to the smelters, and the smelters are facing a lot of costs, especially in energy costs. And you have the news that some smelters are announcing that they will cut production because they don't want to face these costs, and the commercial costs are too high for them to operate. So, you have scarcity of metal as well. And on top of that, you have a world that is a -- the fundamentals of the demand are there, and the world is demanding the zinc right now. So, in this equation, zinc should be high in the coming months. What could happen in, I don't know, towards the end of the year, we don't know, but we believe this trend is going to be -- or going to prevail in the coming months. Regarding the capital structure, yes, as I was saying in the presentation, we have like a -- [in debt] [Ph] we have a maturity of more than five years, so it's very -- goes very far in the years. We have a cash balance, and as I was saying, we are trying to build, also, cash flow in these coming years. And that cash flow part of it will go to dividends, yes. I'm new to this and I don't have a -- probably Rodrigo can help me with that. I don't have like the policy of dividends, but we will give dividends back to the shareholders, yes. And we will keep some cash flow to fund this growth. As the same that we did in Aripuanã, we're going to do that. And if we have some good opportunities that are above the cash flow that we generate and the balance sheet that we generate, we will assess other alternatives. We have discussed this with the Board, with some shareholders, and they are open to see alternative if we create balance. So, I guess there is clarity around that. I don't know, Rodrigo, if you can talk about the dividends.

As you all know, our dividend policy states that we should pursue at least 2% of market cap around the payment. Our payment payout has been above that. Last year, which was reflecting the tough year of 2020, we paid around 0.5%, and this year we're pursuing a bit further. In the previous years, so right after the IPO, we paid a larger amount. Every year this is really analyzed and presented to the Board as a way to really remunerate our shareholders the best way for keeping this faith with us, and in our growth strategy and our efficiency projects, that's it. Let's see how the market reacts, and how we perform, and then with next year we'll come with a different proposal.

Okay. If there's one more question? Yes, we answered this question?

Yes.

Yes.

Okay. So, do you want to read out the last question or?

We had --

We don't have time?

No, we are running a little bit out of time, so -- but we have time for one more question. And after that, we will respond the questions to the IR team.

Okay. So, do you want me to read the question or do you read the question?

Yes, I can read the question, no problem. So, the next question comes from Bastian. Can you give more detail about the Aripuanã ramp-up delay? I think that COVID and rainfall seems like a very general explanation and [indiscernible] two quarters in the ramp up, should we expect more delays in the future? Thanks.

Yes, I guess, as I explained to Jackie before, we are -- we were some way optimistic from the timetable, and we were considering that these factors or rain and COVID were not affecting us, and -- but we also have other factors, as I explained, with gaps in engineering, some quality problems with equipment, that is, I mean, something that is common in this -- at the end of this project. So, we are on top of things right now. I cannot tell you that we expect more delays, yes. But I think that given that we are very close to finish the project, I would say that we are trying to be very conservative with the projections that we are showing to you today, so we make sure that we deliver on those. Having said that, again, we want to make sure that we focus on the Aripuanã of the future, and for that we will show you the potential of Aripuanã, and how this mine, even if this was a project that was not very good executed, this project is going to be a very important project for the future of Nexa. So, that's more or less. I don't know if there is other question or we have to --

[Multiple Speakers] --

Excuse me?

That concludes our question-and-answer session. Now, we will hand over to Ignacio for his final remarks. Mr. Rosado, please go ahead.

Thank you very much. Thank you very much for all the questions and for attending this call. It's very important for us to make sure that you understand the plans of the company, yes. I'm very excited with this position. I guess it's a big challenge for me. I think we have everything to make sure that we create a Nexa that creates value to shareholders. We have very good assets. We have very good, well-managed smelters. I guess it's something that we have to work on probably more cash generation, and show the market this more cash generation. And the other thing is that we want to be closer to the market, yes. I'm not saying that we are not close, but now that COVID is towards ending, no, and we can have like a more face-to-face meeting, we are planning to be close to all the financial community to explain the plans of Nexa so you get to know us better. I think that we have to be more conservative from guidance, yes, because at the end of the day it's important the production, it's important to achieve all these metrics, and we have to be cautious on that. But I think most important is to focus on profitability. And at the end of the day, profitability is cash flow. So, this is more or less what we are aiming to do this year. Again, thank you very much for the time. And we will speak soon in the first quarter results, and hopefully visiting you in the coming months. So, thank you very much, and good morning.

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