Nexa Resources S.A.(NEXA) - 2025 Q2 - Quarterly Report

Report Overview CEO Message The CEO highlighted solid quarterly results, reflecting a measured recovery from earlier weather disruptions - Nexa demonstrated a measured recovery and strategic progress, regaining momentum after weather-related disruptions earlier in the year[2] - Full-year production and cost guidance has been revised to prioritize operational stability, margin protection, and cash flow generation[2] - Proactive liability management extended debt maturities at competitive rates, enhancing financial strength and flexibility[3] - Key project milestones were achieved: Cerro Pasco Phase I saw engineering finalized and permits secured, while the Aripuanã tailings filter installation remains on track for H2 2025 to unlock full capacity[4] Financial Highlights Nexa reported Q2 2025 net revenues of US$708 million, net income of US$13 million, and Adjusted EBITDA of US$161 million Q2 2025 Key Financial Metrics | US$ million (except per share amounts) | 2Q25 | 1Q25 | 2Q24 | | :--- | :--- | :--- | :--- | | Net revenues | 708 | 627 | 736 | | Net income (loss) | 13 | 29 | (70) | | Adjusted EBITDA | 161 | 125 | 206 | | Basic and diluted EPS | 0.01 | 0.09 | (0.58) | | Free cash flow | 17 | (226) | 149 | Balance Sheet and Leverage Metrics (as of June 30, 2025) | US$ million (except ratio) | 2Q25 | 1Q25 | 2Q24 | | :--- | :--- | :--- | :--- | | Total cash | 418 | 401 | 474 | | Net debt | 1,515 | 1,488 | 1,450 | | Net Debt/LTM Adj. EBITDA | 2.3x | 2.1x | 2.7x | Executive Summary The company saw sequential increases in zinc production and smelting sales, driving higher revenues and Adjusted EBITDA - Zinc production reached 74kt, up 9% QoQ, driven by improved performance in Peru, but down 12% YoY[12] - Smelting sales totaled 145kt, up 12% QoQ, due to higher production at Cajamarquilla and Juiz de Fora[12] - Adjusted EBITDA for Q2 2025 was US$161 million, up from US$125 million in Q1 2025 but down from US$206 million in Q2 2024[15] - Total available liquidity stood at US$738 million, including an undrawn US$320 million revolving credit facility[19] - Strategic portfolio optimization continued with the sale of the Otavi Project in Namibia for up to US$10 million plus royalties[25] 2025 Outlook Production, Sales and Cash Cost Guidance Nexa revised its 2025 mining production guidance downwards while updating cash cost forecasts for both mining and smelting Revised 2025 Mining Production Guidance (kt, unless noted) | Metal | Previous Guidance (Mid-point) | Revised Guidance (Mid-point) | Change | | :--- | :--- | :--- | :--- | | Zinc | 331 | 318 | -4% | | Lead | 64.5 | 60.5 | -6% | | Silver (MMoz) | 11.6 | 11.3 | -3% | | Copper | 32 | 32 | Unchanged | - Smelting sales guidance for zinc metal and oxide remains unchanged at 560-590kt[32] Revised 2025 Cash Cost Guidance (US$/lb) | Segment | Cost Metric | Previous Guidance (Mid-point) | Revised Guidance (Mid-point) | Change | | :--- | :--- | :--- | :--- | :--- | | Mining | C1 Cash Cost | 0.12 | 0.06 | -48% | | Smelting | Conversion Cost | 0.31 | 0.385 | +24% | | Smelting | C1 Cash Cost | 1.245 | 1.235 | -1% | - Guidance revisions are based on updated assumptions for commodity prices and a lower zinc TC benchmark of US$80/t[35] Capital Expenditures ("CAPEX") The company maintains its full-year 2025 CAPEX guidance at US$347 million, with US$137 million invested in the first half - Full-year 2025 CapEx guidance is reaffirmed at US$347 million[49] CAPEX Summary (US$ million) | Period | Investment | Guidance 2025 | | :--- | :--- | :--- | | 1H25 | 137 | 347 | | 2Q25 | 87 | N/A | - Investment in Phase I of the Cerro Pasco Integration Project amounted to US$17 million in Q2 2025, totaling US$18 million for the first half of the year[49] Exploration & Project Evaluation Guidance for 2025 exploration and project evaluation expenses remains unchanged at US$88 million - Full-year 2025 guidance for exploration and project evaluation is unchanged at US$88 million[50] Exploration & Project Evaluation Expenses (US$ million) | Period | Investment | Guidance 2025 | | :--- | :--- | :--- | | 1H25 | 32 | 88 | | 2Q25 | 16 | N/A | - Other expenses, including technology and community initiatives, are guided at US$20 million for the full year[50][51] Consolidated Performance Financial Results Analysis Q2 2025 net revenues fell 4% YoY to US$708 million, while Adjusted EBITDA decreased 22% YoY to US$161 million - Net revenues decreased 4% YoY to US$708 million, primarily due to reduced smelting sales volume and lower metal prices[59] - Compared to Q1 2025, net revenues increased by 13%, driven by higher smelting sales volume and stronger copper and silver prices[60] - Adjusted EBITDA for Q2 2025 was US$161 million, a 22% decrease from Q2 2024, mainly due to a US$62 million negative impact from higher costs and lower TCs[67] - Sequentially, Adjusted EBITDA increased by 28% from Q1 2025, attributed to higher by-products contribution and increased smelting sales volume[71] Net Income (Loss) and Financial Results The company reported a net income of US$13 million in Q2 2025, a significant turnaround from a US$70 million loss in Q2 2024 Net Income (Loss) Summary (US$ million) | Metric | 2Q25 | 1Q25 | 2Q24 | | :--- | :--- | :--- | :--- | | Net Income (loss) | 13.3 | 28.7 | (70.0) | | Adjusted net income | 37.4 | 34.2 | 41.7 | - Net financial results were a loss of US$28 million, a significant increase from a US$0.6 million loss in Q1 2025, driven by higher financial expenses from bond repurchases[82] - Adjusted Net Income attributable to shareholders was US$15 million, leading to an adjusted basic and diluted EPS of US$0.11 for the quarter[90] Business Performance – Mining Mining Segment Overview The mining segment's zinc production was 74kt, down 12% YoY but up 9% QoQ, with an improved cash cost of US$(0.11)/lb Q2 2025 Mining Production | Metal | Production | YoY Change | QoQ Change | | :--- | :--- | :--- | :--- | | Zinc (kt) | 73.5 | -11.7% | +9.2% | | Copper (kt) | 9.1 | -6.5% | +19.7% | | Lead (kt) | 15.2 | -9.1% | +19.7% | | Silver (MMoz) | 2.7 | -5.6% | +12.5% | - Consolidated run-of-mine mining cost was US$50/t, up 4% YoY and QoQ, primarily due to stabilization efforts at Aripuanã[12] - Consolidated mining cash cost net of by-products improved to US$(0.11)/lb from US$0.11/lb in Q1 2025, due to higher by-product contributions and sales volume[12] Cerro Lindo, Peru Cerro Lindo's treated ore volume increased 11% YoY, though zinc production fell 4% due to lower grades - Treated ore volume was 1,630kt, up 11% YoY and 9% QoQ[103] - Zinc production of 23kt was down 4% YoY due to lower grades (1.60% vs 1.86% in 2Q24), but up 37% QoQ[105] - Run-of-mine mining cost decreased 17% YoY to US$38/t due to higher throughput and lower fixed costs[108] El Porvenir, Peru El Porvenir's operations normalized, with zinc production rising 12% YoY to 14kt and costs decreasing - Zinc production increased 12% YoY to 14kt, driven by higher throughput and grades[113] - Run-of-mine mining cost was US$63/t, a 4% decrease YoY, reflecting lower operating expenses[115] - Sustaining CAPEX was US$26 million, largely for mine development and the Cerro Pasco Integration Project[117] Atacocha, Peru Atacocha recovered from weather issues with a 23% QoQ increase in treated ore and a 29% YoY surge in zinc production - Treated ore volume was 383kt, up 1% YoY and 23% QoQ, showing recovery from Q1 disruptions[120] - Zinc production increased 29% YoY to 3.1kt, supported by higher volumes and a better average grade of 0.98%[120][121] - Run-of-mine mining cost was US$35/t, up 7% YoY due to higher maintenance and service costs[124] Vazante, Brazil Vazante's zinc production fell 22% YoY to 27kt due to geotechnical constraints limiting access to higher-grade zones - Zinc production totaled 27kt, a 22% decrease YoY, due to mining in lower-grade areas following geotechnical constraints[131] - The average zinc grade fell to 7.69% from 9.18% in Q2 2024[131] - Run-of-mine mining cost increased 5% YoY to US$51/t, attributed to higher maintenance and variable costs[133] Aripuanã, Brazil Aripuanã's performance was hampered by plant downtime, leading to an 18% YoY decrease in treated ore - Zinc production was 6.1kt, down 20% YoY, reflecting increased plant downtime and operational constraints[138][139] - Run-of-mine mining cost was high at US$109/t, driven by higher operational costs for maintenance and plant stabilization[142] - A fourth tailings filter is scheduled for installation in H2 2025 and commissioning in H1 2026 to enhance operational stability[141] Mining Segment Financial Performance The mining segment's net revenues were US$353 million, with Adjusted EBITDA stable YoY at US$135 million Q2 2025 Mining Segment Financials (US$ million) | Metric | 2Q25 | 1Q25 | 2Q24 | YoY Change | | :--- | :--- | :--- | :--- | :--- | | Net Revenues | 353.3 | 313.2 | 377.3 | -6.4% | | Adjusted EBITDA | 135.0 | 93.7 | 136.2 | -0.9% | | Adjusted EBITDA Mrg. | 38.2% | 29.9% | 36.1% | +2.1pp | - YoY Adjusted EBITDA was nearly flat as positive impacts from lower TCs and higher by-products contribution were offset by a negative net price effect and lower sales volume[152] Business Performance – Smelting Smelting Segment Overview Total smelting production was 139kt, down 9% YoY, while sales totaled 145kt, down 2% YoY but up 12% QoQ Q2 2025 Smelting Production & Sales (kt) | Metric | 2Q25 | 1Q25 | 2Q24 | YoY Change | | :--- | :--- | :--- | :--- | :--- | | Total Production | 138.9 | 132.8 | 152.4 | -8.8% | | Total Sales | 145.1 | 130.1 | 148.0 | -1.9% | - The YoY production decrease is consistent with 2025 sales guidance, which anticipates an annual reduction to adjust for market volatility and lower TCs[163] - The 12% QoQ sales increase was driven by higher production at Cajamarquilla and Juiz de Fora, plus increased zinc oxide output at Tres Marias[164] Cajamarquilla, Peru Cajamarquilla's production was 84kt, down 2% YoY due to a scheduled shutdown, but sales increased 4% YoY - Production reached 84kt, a 2% decrease YoY due to a 15-day scheduled maintenance shutdown[168] - Metal sales were 87kt, up 4% YoY and 8% QoQ, driven by higher production and demand[169] - Conversion cost increased to US$0.36/lb from US$0.27/lb in Q2 2024, primarily due to maintenance expenses[170] Três Marias, Brazil Total production at Três Marias fell 16% YoY to 38kt, affected by hydrometallurgical challenges - Total production (zinc metal + oxide) was 38kt, down 16% YoY, due to ongoing hydrometallurgical challenges and concentrate supply issues[175] - Conversion cost rose to US$0.38/lb, a 29% increase from Q2 2024, driven by higher maintenance and input costs[179] Juiz de Fora, Brazil Juiz de Fora's production was 17kt, down 23% YoY due to a prior fire incident but up 51% QoQ as operations recovered - Production of 17kt was down 23% YoY due to the lingering effects of a fire, but up 51% QoQ as operations recovered[183] - The unit resumed its planned production capacity as of mid-2025[183] - Conversion cost rose to US$0.58/lb, primarily due to lower sales volume and higher energy costs[186] Smelting Segment Financial Performance The smelting segment's Adjusted EBITDA dropped 63% YoY to US$25 million, impacted by lower TCs and higher costs Q2 2025 Smelting Segment Financials (US$ million) | Metric | 2Q25 | 1Q25 | 2Q24 | YoY Change | | :--- | :--- | :--- | :--- | :--- | | Net Revenues | 489.5 | 453.6 | 507.6 | -3.6% | | Adjusted EBITDA | 25.3 | 31.3 | 68.6 | -63.1% | | Adjusted EBITDA Mrg. | 5.2% | 6.9% | 13.5% | -8.3pp | - The 63% YoY decline in Adjusted EBITDA was primarily driven by lower TCs and a negative US$23 million impact from higher costs[199] - Nexa sourced 50% of its zinc concentrate from its own mines, with only about 30% of 2025 purchases subject to the new, lower US$80/t benchmark TC[197][198] Liquidity and Indebtedness Debt Profile and Financing Activities Nexa's total debt was US$1.82 billion with an average maturity of 7.7 years, and net debt increased slightly to US$1.52 billion Debt and Liquidity (US$ million) | Metric | Jun 30, 2025 | Mar 31, 2025 | | :--- | :--- | :--- | | Gross Debt | 1,819.6 | 1,781.9 | | Total Cash | 418 | 401 | | Net Debt | 1,515.1 | 1,488.2 | - The Net Debt/LTM Adj. EBITDA ratio was 2.28x, up from 2.09x at the end of Q1 2025[220] - In April 2025, Nexa issued a US$500 million 12-year bond at 6.600% to refinance existing debt, extending its maturity profile[214] Cash Flows Cash Flow Analysis Net cash from operating activities was US$100 million, resulting in a US$17 million increase in cash for the quarter Q2 2025 Cash Flow Summary (US$ million) | Cash Flow Activity | 2Q25 | 2Q24 | | :--- | :--- | :--- | | Operating activities | 99.9 | 81.3 | | Investing activities | (71.1) | (56.5) | | Financing activities | (14.2) | 129.7 | | Increase in cash | 17.5 | 148.7 | - Cash provided by operating activities before working capital was US$175 million, with a positive working capital impact of US$3 million[223] - Investing activities were primarily driven by US$87 million in CapEx investments[224] - Financing activities included payments for bond redemptions, partially offset by the new US$500 million bond offering[225] Market Scenario Commodity Market Analysis The zinc market faced pressure from tight supply and subdued demand, while the copper market was volatile - The LME zinc price averaged US$2,641/t, down 7% YoY, reflecting a market with tightening supply but soft global demand expectations[231] - LME refined zinc inventories declined to 117kt by the end of June, the lowest level since October 2023[234] - The LME copper price averaged US$9,524/t, down 2% YoY, with high volatility driven by tariff proposals and a severe short squeeze[240] - LME copper inventories fell 57% to 91kt during the quarter, reflecting extreme concentrate market tightness and smelter bottlenecks[242] Risks and Uncertainties Key Risk Factors Nexa's operations are exposed to risks including volatile commodity prices, geopolitical instability, and operational challenges - The company's results are subject to cyclical and volatile commodity prices, changes in supply and demand, and foreign exchange rate fluctuations[251] - Risks include economic and political conditions in operating countries and changes in global market conditions, such as international trade tariffs and geopolitical conflicts[251] - Operational risks encompass environmental and safety challenges, natural disasters, supply-chain interruptions, and labor disputes[254] - Emerging risks include evolving ESG expectations, the impact of severe weather events, and cybersecurity threats[251][254] Appendix - The appendix provides detailed financial statements and reconciliations for non-IFRS measures, including a quarterly income statement, free cash flow reconciliation, detailed CAPEX breakdowns, and All-in Sustaining Cost (AISC) calculations for both the mining and smelting segments[275]