Good morning and welcome to Nexa Resources Third Quarter 2023 Conference Call. All participants will be in a listen-only mode. This event is being recorded and is also being broadcast via webcast and may be accessed through Nexa's Investor Relations website where the presentation is also available. [Operator Instructions] I would now like to turn the conference over to Mr. Rodrigo Cammarosano, Head of Investor Relations for opening remarks. Please go ahead.

Good morning, everyone, and welcome to Nexa Resources' third quarter 2023 earnings conference call. Thanks for joining us today. During the call, we will be discussing the company's performance as per the earnings release that we issued yesterday. We encourage you to follow along with this onscreen presentation through the webcast. Before we begin, I would like to draw your attention to slide 2, 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 is now my pleasure to introduce our speakers. Joining us today is our CEO, Ignacio Rosado; our CFO, Jose Carlos del Valle; and our Senior Vice President of Mining, Leonardo Coelho. So now I will turn the call over to Ignacio for his comments. Ignacio, please go ahead.

Thank you, Rodrigo and thanks to everyone for joining us this morning. Please let's move now to slide 3 where we will begin our presentation. Let me start by providing you a brief overview on our third quarter of 2023. We continue to experience a scenario of downward pressure on metal prices driven by negative external factors such as inflation and high interest rates in the US in addition to uncertainty about the performance of key sectors of the Chinese economy. Although the prices of our main metals have performed at levels below our expectations, we remain committed to our financial discipline which made possible to have a positive cash generation in the third quarter of this year. Our operating performance was in line with expectations in our mining and smelting segments in both segments. We also provided cash cost guidance revised downwards. Total revenue reached $649 million and was down 8% year-over-year, mainly due to lower Zinc LME prices and smelting sales volumes. Compared to the last quarter, net revenues increased by 4% as a result of higher mining production and metal sales volume in the period, which were partially offset by lower LME metal prices. Consolidated adjusted EBITDA for the quarter decreased by 32% year-over-year, reaching $82 million. This performance was mainly explained by lower LME prices. Compared to the second quarter of this year, adjusted EBITDA grew 14% due to higher metal sales, mine production and lower costs in Brazil. We revised the Aripuanã production range downwards for the year, given the limitations we found related to the design capacity of the flotation pumping system, which resulted in the extension of the ramp up phase. Nonetheless, 2023 production estimates for Nexa’s other mines and smelters remain unchanged. Our Cerro, Pasco integration project is advancing as expected. Exploration…

Thank you, Ignacio. Good morning to everyone. I will continue on slide 10. As you can see, beginning with the chart on your upper left, total consolidated debt revenues for the third quarter decreased by 8% year-over-year mainly due to lower Zinc LME prices and lower smelting sales volumes. Compared to the second quarter of 2023, net revenues increased by 4% as a result of higher mining production and metal sales volumes, partially offset by lower Zinc prices. In the first nine months of the year, consolidated net revenues reached $1.9 billion, down by 14% compared to the same period a year ago. In terms of profitability, consolidated adjusted EBITDA in the third quarter of 2023 was $82 million, compared to $121 million in the third quarter of 2022. This lower performance was mainly explained by lower Zinc metal prices. Compared to the second quarter of 2023, adjusted EBITDA increased 13%, mainly due to higher mining and metal sales and lower costs in Brazil, which were partially offset by lower Zinc prices and FX rate. In the first nine months of this year, consolidated adjusted EBITDA reached $286 million, down by 55% from the same period last year. Also explained by the reasons I mentioned in the moment. Now let's move to the next slide 11. On the top left of the slide, we can see that in the first nine months of 2023, we invested $198 million in CapEx, of which sustaining investments including mine development totaled $185 million. The total investment in the third quarter was $82 million. With respect to mineral exploration and freight evaluation, we’ve updated our guidance for the year and we now expect to be at $100 million in 2023 which is a reduction of $10 million from the previous guidance mainly due to…

Thank you, Jose Carlos. On our last slide, and I would like to close this presentation by mentioning our priorities for the rest of the year. The completion of the Aripuanã ramp-up is our top priority. The focus is to improve recoveries and quality of concentrates while replacing pumps at the flotation circuit to increase capacity. We are advancing on the studies related to the Cerro Pasco Integration Project. We look forward to approve this project in the first quarter of next year. We remain committed to looking for alternatives to optimize costs, CapEx and corporate expense in addition to strengthening our balance sheet. We will continue to accelerate our exploration program, prioritizing the life station of our assets. We will continue to focus on safety, productivity and ESG public commitments. Looking forward, we are confident in the long-term fundamentals of our industry and our business. Thank you all for attending this presentation. With that, we will be happy to take your questions.

We will start with a question from Alexandra Symeonidi from William Blair and Company. What is the interest rate in this new sustainability-linked RCF?

Good morning to everyone. This is Jose Carlos Jose Carlos del Valle. In relation to this question, just to clarify, the interest rate is SOFR, which is the Secured Overnight Financing Rate, plus 1.6% with the possibility of another net point, depending on compliance with the ESG target that has been established for this sustainability-linked facility.

Thank you, Jose. We have another question from the audience. It's from Alexandra Symeonidi as well. In terms of leverage, it seems that the leverage has increased in this quarter. Is there a leverage starting for the company, how does the company plan to address this?

Thank you for the question. This is something that we talk about continuously. And as you can imagine, leverage has increased mainly because of the reduced EBITDA because our net debt hasn't changed that much. Apparently, we are right above 3x and we are doing all our efforts to bring this below 3x towards the end of the year. However, in the medium to long term, definitely, we will feel more comfortable with levels around 2x. We don't have any leverage covenant in our facilities. But we believe that something around 2x would be more sustainable. So we continue to work on a number of initiatives to bring this down. Our top priority in the next months and years is to reduce our net debt. Obviously, a good part of that will depend on prices, but we are doing all of the -- we're trying to influence all the factors that we can control to try to maximize cash flow generation and reduce net debt and consequently bring leverage to below the level that it currently is.

Thank you, Jose Carlos. We have another question from Camilla Border from Bradesco BBI. What can we expect in terms of free cash flow impact in Q4 and 1Q ‘24 from Aripuanã?

Okay. This Ignacio, so far, the impact on cash flow in Aripuanã in the first nine months of this year was $146 million as we put it in the presentation. For the first quarter, we expect a number of cash outflows of around $40 million to $50 million. And depending on the ramp up, how it goes in the summer or in the first quarter of next year, we will assess the impact on cash flow. But the idea is that we start to the breakeven toward the end of the first third quarter and begin on the fourth quarter. We cannot put a number here because this is a process. So we will keep the market posted when we provide guidance in January for the rest of the months.

Thank you, Ignacio. We have a follow-up question from Camila from Bradesco BBI. And could you provide some color on what you expect in terms of volumes for Zinc and Copper for 2024?

Yes, this is going to come also in our guidance that is coming in January. I would like you to please wait until we provide that in two or three months.

Okay, thank you, Ignacio. We have a question from Orlando Barriga from Creditcorp Capital. Good morning. Thanks for taking my question. My first question is related to costs in Cajamarquilla. Why did costs increase quarter-on-quarter despite lower raw materials and conversion costs?

Yes, actually the main driver of increasing the conversion cost or cost driving in Cajamarquilla was energy.

Thank you, Ignacio.

We have a question from Alexandra Symeonidi from William Blair and Company. There was a big working capital outflow due to higher payables and lower inventory in the quarter. Can you please give more color there and shall we expect this to reverse in Q4?

Thank you for the question. Jose Carlos again. Actually, if you go back and you review the result of the first quarter, you will see that we had a very significant investment in working capital, which is actually what we've been reversing in the second quarter and the third quarter. So if we compare ourselves with the beginning of the year, we're pretty much at the same level, marginally lower working capital. These piece, these variations actually are the result of a number of initiatives that we have taken to optimize working capital, have more control over our inventory, as we should always do, but also to change in a way that the terms that we have with our suppliers, for example, are always in industry standards, renegotiating slightly longer payment terms. So this is a structural change that actually will continue. This takes time to implement as contracts renew. And it's part also of the, it's related to our cost control initiatives when we renegotiate contracts, consolidate contracts in order to get better terms. So I wouldn't worry about that. I don't expect that there will be a reversal in the fourth quarter because I think the key point here is that we are recovering the working capital that we lost in the first quarter of the year.

Thank you, Jose. We will go back to one question because it seems that we had an audio problem. And the question was from Orlando Barriga from Creditcorp Capital. The question was related to Cajamarquilla cost. So why did cost increase over quarter despite lower raw material and conversion costs?

So as I was explaining, I'm sorry about the problem with the communication. As I was explaining, Cajamarquilla is exposed mainly to energy costs inflation. And this is linked to our contract. We have a longer contract and this is linked to that. So this was the main variable that increments the conversion cost. Having said that, we started a program in September to work on reducing costs, to work on increasing production, to work on productivity measures to have fewer people in the operations and this is being very successful. Most of these benefits are going to be shown in our budget for next year and in the first quarter of next year as well.

So, okay. Thanks, Ignacio. And sorry again for the issue with the audio. We have a question from Carlos [inaudible] from Bank of America. Thanks for the presentation. Could you give us some color about capital allocation going forward? Is Nexa considering inorganic growth in other geographies?

Yes, this is a very important question. With these prices, it's worth mentioning that most of our mines still make money on our smelters. And we are, with all the programs, optimization programs that we are running are also helping us with generating more cash. However, as you can see, we have a high debt and the priority in this capital allocation is to reduce the debt. We are putting together the budget for the coming months and for the coming year and we have to assess if how much cash generation we're going to provide to start reducing the debt, as I was saying, this is the priority. And based on that, we might look for other options to change the capital allocation of the company. This is still early days and we will provide more color to the market at the beginning of next year or mid next year. From the inorganic growth, I guess the best option, we have some good options in organic growth. This is something that we are assessing. As I was saying today, the priority is to finish early product to start, have more clarity on the approval of the Cerro Pasco project and reducing the debt. So these are the three priorities that we have for the coming months and for 2024.

Thanks, Ignacio. We have one question related to Aripuanã. It's from Alexandra Symeonidi from William Blair and Company. What production should we expect from Aripuanã next year? And what is the annual capacity?

Okay, this is Leonardo speaking. So we expect to keep the ramping up over the next year. So by the second quarter, we expect to start to reach full production. And when we reach the full production, the running duration is about 2.2 million tons a year. We still work on the plan and we're going to provide more color when we issue the guidance in the next quarter.

Thank you, Leo. I think can you explain? Sorry, hold on just a moment. Ah, there's one another question related to Aripuanã from Orlando Barriga from Creditcorp Capital. When would you expect Aripuanã to reach breakeven?

Yes, so as Leonardo Coelho was mentioning, we expect full capacity towards the end of the first quarter of next year and probably in those months we will reach also breakeven. Having said that, this is also the case because the CapEx that we are investing in Aripuanã is related to changing the pumps and installation of these pumps and it's a higher CapEx. So this is affecting our breakeven costs but as we said in the presentation in the second quarter of next year we will be, we should be at break-even.

Thanks, Ignacio. We have another question related to Aripuanã. It comes from [inaudible] Braga from Morgan Stanley. Are there any other bottlenecks for Aripuanã ramp up that the management can identify?

Yes, this is a very good question and I can say as a summary that Aripuanã has been very difficult to start the ram up because there were some flaws in the original design that also affected construction. So we had many small bottlenecks in some of the processes but today I would say the main exposure that we have is a flotation pumping system. So besides this we don't see any other small bottlenecks, we might have some related to the ramp up, but this is the day today. But the replacing of the pumps in the flotation system is the one that is going to take us to full production towards the end of the first quarter of next year.

Okay, so these are all the questions that we have. We go back to the moderator, please.

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

Thank you. Thank you everyone for attending. As you can see, this is still a difficult quarter for us. As we were saying, we are committed to our financial discipline. We're working on in many works streams to reduce the cost, to try to bring the CapEx down, and to make sure that it is up nice and running in the coming months. So thank you very much again for the time, and we look forward to providing you more color in the next quarter at the end of the year. Have a good day. Thank you.

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