Zinc production of 87,000 tons increased by 8% compared to 2Q23.

Consolidated net revenues totaled US$ 649 million in the period, while consolidated adjusted EBITDA reached US$ 82 million, mainly driven by metal price volatility related to the challenges in the international market.

In Peru, the company progresses with the advanced technical studies for the integration of El Porvenir and Atacocha mines in Pasco, aiming to drive organic growth.

Nexa, one of the world’s leading zinc producers, closed the third quarter of 2023 with 87,000 tons of zinc produced in its mining division, up 8% quarter-over-quarter, mainly driven by the performance of Cerro Lindo, Vazante, Morro Agudo mines, and the ramp-up of the Aripuanã (MT) mine.

In addition to the growth in zinc production, copper production (9,000 tons) was 7% higher, and lead production (16.5 thousand tons) increased by 3% compared to the previous quarter. Production of silver (2.6 million ounces) and gold (6.6 thousand ounces) remained relatively flat during this period.

In the smelting segment, sales of metallic zinc and zinc oxide totaled 154,000 tons in the third quarter and increased by 3% from 2Q23. This result was driven by slightly higher production volumes, particularly in Três Marias (MG), and sales strategy aligned with working capital improvement initiatives.

Regarding financial performance, consolidated net revenue was US$ 649 million in the period, up 4% compared to 2Q23. This performance was mainly explained by higher mining production and metal sales volumes, partially offset by lower zinc prices on the London Metal Exchange (LME).

Consolidated adjusted EBITDA in 3Q23 was US$ 82 million compared to US$72 million from the previous quarter. The decline in LME zinc prices was offset by lower costs in Brazil and higher treatment charges (“TCs”) applied to the purchase of third-party concentrate. During this period, the adjusted net loss was US$ 49 million.

Ignacio Rosado, CEO of Nexa stated: “In 3Q23, there continued to be downward pressure on metal prices, mainly driven by the persistence of negative external factors. Faced with this challenging metal price environment, we remain committed to our financial discipline, which includes a portfolio of initiatives focused on cost reduction, CAPEX, and working capital optimization. Some of these initiatives allowed us to improve some line items in our 2023 guidance. Furthermore, they also contributed to positive cash flow generation in the third quarter of 2023.”

The company’s cash flow generation for the period was US$ 14 million, resulting mainly from positive working capital variation of US$ 95 million, comprised of lower inventories and an increase in trade and confirming payables, partially offset by an increase in trade accounts receivables. Sustaining CAPEX totaled US$ 75 million of which US$ 20 million were related to Aripuanã.

Aripuanã (MT): Ramp-up status and new production estimates

As reported on October 24th, 2023, the plant was averaging above 75% of its nameplate capacity at the beginning of the third quarter. However, the company observed design limitations in the capacity of the flotation pumping system, as identified during the bottleneck detection in March, which required resizing and upgrade, along with certain other plant processing facilities and systems. This also entailed clean-up and upgrading of water treatment facilities, which will contribute to higher resiliency during the rainy season (expected to run from December to March).

Due to the aforementioned limitations, in 3Q23 we reduced plant throughput and, as a result, the utilization was also reduced in the period and the plant performed at an average of 56% in the quarter. With this revised plan in place, we expect to gradually return to an average of 70% capacity utilization level during 4Q23, aiming to achieve 100% of nameplate capacity in the first half of 2024.

Growth strategy and asset portfolio

Seeking cash flow generation and more efficient capital allocation, the company remains focused on maximizing the performance of its assets. Significant progress has been made in the technical studies of the integration project of El Porvenir and Atacocha mines in Pasco, Peru.

This project involves work on mine planning, integration of underground mines, increased production capacity, infrastructure improvements, tailings storage capacity among others, and has the potential to be a robust organic growth option for Nexa. The project continues to demonstrate potential to unlock important value for Nexa through economies of scale, cost improvements and extension of asset life. Furthermore, the company continues to advance the required environmental studies and permits.

ESG Highlights

On the environmental front, on October 20th, Nexa announced its first sustainability-linked revolving credit facility of US$ 320 million with a 5-year term, which replaces Nexa’s 2019 US$ 300 million revolving credit facility that was set to mature in October 2024. The applicable interest rate margin will be adjusted based on Nexa’s performance reflecting its commitment to reducing its CO2 footprint.

At the Cajamarquilla smelter in Peru, two initiatives stood out aiming to implement a circular economy at the unit and reduce its carbon footprint. A partnership was established with a cement supplier to promote sustainable alternatives for the use of waste generated in the operation process (dry neutral sludge). Additionally, the “On Grid” system was implemented, providing electricity from solar panels installed on available locations of deactivated tailings dams, reducing CO2 emissions as well.

On the social front, Nexa was recognized as a leader in Social Governance and received the “Company of the Year – Mining Sector 2023” award from Brasil Mineral magazine, a leading media outlet in the sector. This recognition was supported by the Aripuanã training program, which trained 1,987 individuals, 53% of whom are women. Of the total participants, 40% were placed in the job market. It is estimated that over 15% of the local population benefited from this initiative, highlighting the company’s commitment to being a collaborative force in regional development.

Aiming to promote a diverse and inclusive organizational culture, Nexa Peru committed to RED (“Red de Empresas y Discapacidad”) to enhance and expand the employment and inclusion of professionals with disabilities in the job market.

Finally, during the period, Jane Sadowsky, a board member of Nexa, was named as one of the most influential leaders in corporate governance by the National Association of Corporate Directors (NACD) as part of their annual list of top corporate directors and governance advocates. This recognition underscores our commitment to governance excellence, integrity, and accountability.