Nexa Reports First Quarter 2024 Results Including Net Loss of US$11 Million and Adjusted EBITDA of US$123 Million

LUXEMBOURG / ACCESSWIRE / May 2, 2024 / Nexa Resources S.A. ("Nexa Resources", "Nexa", or the "Company") announces today its results for the three-month period ended March 31, 2024.

CEO Message - Ignacio Rosado

We began the year on a positive note, with solid operating performance in the first quarter, thanks to the commitment of our teams in reinforcing our operational strategies, enhancing our capabilities, and doubling down on execution.

Unfortunately, however, in early March, we had a fatal incident involving one of our employees at the El Porvenir mine, and earlier this week, another fatal incident occurred involving one of our employees at the Vazante mine. This is a very difficult time for Nexa, and it becomes clear that we need to work even harder in reinforcing our safety system. We extend our heartfelt condolences to the families of our two employees and reassure them, and all our stakeholders, that the safety and well-being of every person who works at Nexa are our main values and remain our utmost priority. We are committed more than ever to enhancing employee safety and achieving zero fatalities.

In terms of operational performance, and despite the challenges faced by our industry, such as weak macro conditions, commodity price volatility, and lower metal demand in the period due to seasonality, we continued to make steady progress and remained focused on executing our core priorities. These include: disciplined capital allocation, the completion of the ramp-up at Aripuanã - boosting our consolidated metal production and paving the way for increased cash generation - along with the advancement of our studies related to the Cerro Pasco Integration Project. As a result of our progress, we released a Technical Report Summary, supporting an increase of 59% in Mineral Reserves at this complex. Additionally, we have increased our overall 2023 Mineral Reserves by 10% year-over-year, totaling 110 million tonnes, which we detailed in our year-end Mineral Reserves and Mineral Resources Report. Both reports were published on March 27, 2024.

We announced the divestiture of our producing Morro Agudo Complex which marks an important step in our ongoing journey to maximize value. Portfolio optimization is a central part of our strategy to enhance cash flow generation and returns. This initiative enables us to concentrate our efforts on our larger and most productive assets, while strengthening our capital structure. We maintain our 2024 production guidance notwithstanding this disposition.

Despite prevailing low zinc prices worldwide in 1Q24, we remain optimistic about the market outlook for the base metals, reinforcing our confidence in the medium to long-term fundamentals of our industry.

Looking ahead, we remain committed to our sustainable business model, which prioritizes performance across all mines and smelters in a safe manner, environmental protection, and the development of the communities where we operate, all with the highest standards of ethics, transparency, and responsibility. We aim to achieve this while maintaining a disciplined capital allocation approach and sustainable cash flow generation, supported by our focus on operational efficiency and continued efforts to constantly improve execution. We are confident that our strategy will allow us to grow stronger year after year, consolidating Nexa as an attractive and sustainable investment option in the mining industry.

Summary of Financial Performance

_{(1) Refer to "Use of Non-IFRS Financial Measures" for further information. Adjusted EBITDA, adjusted net income (loss) and adjusted EPS, exclude the items presented in the "Net income (loss) reconciliation to Adjusted EBITDA" section of this earnings release. For details on segment definition and accounting policy, please refer to explanatory note 2 - "Information by business segment" in the "Condensed consolidated interim financial statements at and for the three months ended on March 31, 2024."}

_{(2) Working capital variations had a negative impact of US$125 million in 1Q24 and US$115 million in 1Q23, and a positive impact of US$50 million in 4Q23.}

_{(3) Cash, cash equivalents and financial investments.}

Executive Summary

Operational Performance

• Zinc production of 87kt in the quarter rose by 17% from 1Q23, mainly explained by an increase in treated ore volume and higher average zinc grades, particularly at the Cerro Lindo, Vazante and Aripuanã mines. Compared with 4Q23, zinc production was 3% lower, mainly due to lower volumes from the Peruvian mines and Morro Agudo.
• Run-of-mine mining cost in 1Q24 was US$45/t, relatively flat compared to 1Q23. Compared to 4Q23, run-of-mine mining cost was down 6%, mainly explained by lower operational costs, including lower variable costs.
• Mining cash cost net of by-products¹ in 1Q24 decreased to US$0.27/lb compared to US$0.43/lb in 1Q23. This decrease was primarily due to lower treatment charges ("TCs") and higher volumes, mainly explained by the two-week weather-related suspension in 1Q23 at Cerro Lindo during 1Q23. Compared to 4Q23, cash cost was down US$0.18/lb due to lower TCs across all units and lower operating costs at the Cerro Lindo and El Porvenir mines.
• The smelting segment achieved a total production (zinc metal and oxide) of 138kt in 1Q24, down 5% from 1Q23, mainly driven by lower volumes at the Cajamarquilla and Três Marias smelters. Compared to 4Q23, production was down 4%, mainly affected by lower volumes from Cajamarquilla and Juiz de Fora.
• In 1Q24, zinc metal and oxide sales were 139kt, down 4% from 1Q23, following lower production volumes and the typical seasonality of demand in the period. Compared to 4Q23, metal sales decreased by 3%, explained by the aforementioned reasons.
• Smelting conversion cost was US$0.30/lb in 1Q24 compared with US$0.31/lb in 1Q23 explained by lower variable costs and energy costs, which were partially offset by higher maintenance expenses, personnel costs, and third-party services. Compared to 4Q23, conversion cost was up 4% due to higher variable costs and lower smelting sales volume, which were partially offset by lower energy costs.
• Smelting cash cost¹ was US$0.98/lb in 1Q24 compared to US$1.25/lb in 1Q23. This decrease was driven by lower cost of raw materials, attributed to lower zinc prices, which was partially offset by lower by-products contribution and higher operating costs in Três Marias. Compared to 4Q23, cash cost decreased by US$0.02/lb.

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¹ _{Our cash cost net of by-products credits is measured with respect to zinc sold.}

Financial Performance

• Net revenues in 1Q24 were US$580 million compared with US$667 million in 1Q23. This decrease was mainly due to lower zinc prices, lower net premium and lower smelting sales volume, which was partially offset by higher mining sales volumes. Compared to 4Q23, net revenues decreased by 8%, mainly due to lower smelting sales volume,lower zinc prices, lower net premium and lower mining sales volumes.
• In 1Q24, net loss amounted to US$11 million, resulting in basic and diluted loss per share of US$0.18.
• Adjusted EBITDA² in 1Q24 was US$123 million compared with US$133 million in 1Q23 and US$105 million in 4Q23. The year-over-year decrease was mainly driven by lower zinc prices (down by 22%) and lower smelting sales volume, partially offset by higher by-products contribution and higher mining sales volumes, while the quarter-over-quarter increase was attributed to lower costs, lower mineral exploration, and project evaluation expenses, partially offset by lower zinc prices and lower smelting sales volume.
• Adjusted EBITDA margin increased to 21.1% in 1Q24, 4.4bps and 1.2bps higher than 4Q23 and 1Q23 respectively.
• Adjusted EBITDA for the mining segment in 1Q24 was US$74 million compared with US$47 million in 4Q23. This increase was mainly driven by lower TCs, lower mineral exploration and project evaluation expenses, and higher by-products contribution, which were partially offset by lower copper volumes in Cerro Lindo. Compared to 1Q23, Adjusted EBITDA increased by 77%.
• Adjusted EBITDA for the smelting segment in 1Q24 was US$49 million compared with US$58 million in 4Q23. This decrease was mainly driven by lower TCs, lower zinc prices and lower sales volume, which were partially offset by lower costs due to the positive impact of raw material inventory consumption cost effect. Compared to 1Q23, Adjusted EBITDA decreased by 45%.
• Adjusted net loss in 1Q24 was US$10 million, with adjusted net loss attributable to Nexa's shareholders of US$20 million, resulting in adjusted basic and diluted loss per share of US$0.15. Refer to our "Net income (loss)" section for further details.

Financial Position, Investments and Financing

• Total cash³ at March 31, 2024, was US$324 million compared to US$468 million at December 31, 2023. Our available liquidity in 1Q24 was US$644 million, including our undrawn sustainability-linked revolving credit facility of US$320 million.
• In 1Q24, our free cash flow was negative US$144 million, impacted by negative working capital variations amounting to US$125 million. This was primarily due to the typical payment cycle observed in the first quarter of each year, including tax obligations. Our investments in sustaining CAPEX (including HS&E investments) totaled US$74 million, including US$14 million allocated to Aripuanã. Refer to our "Net cash flows from operating activities excluding working capital variations and free cash flow - Reconciliation" section for further details.
• Net debt to Adjusted EBITDA ratio for the last twelve months ("LTM") increased to 3.75x at the end of 1Q24 compared with 3.24x at the end of December 2023 and 1.92x at the end of 1Q23. This increase was primarily explained by lower LTM Adjusted EBITDA, impacted by the factors explained above. Total debt slightly increased due to new short-term loan assumed in 1Q24.

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² _{Adjusted EBITDA excludes the items presented in the "Net income (loss) reconciliation to Adjusted EBITDA" section of this earnings release - US$1.7 million in 1Q24, US$18 million in 1Q23 and US$101 million in 4Q23.}
³ _{Cash and cash equivalents and financial investments.}

Environmental, Social and Governance ("ESG") and Corporate Highlights

• In January 2024, we inaugurated the Teaching and Research Center at our Vazantes Mineiras project, providing essential infrastructure to foster researchers' engagement and promote our social-environmental initiatives.
• In 1Q24, Nexa partnered with a cement company in Peru to conduct industrial trials on water treatment for the plaster generated at our Cajamarquilla smelter, aiming to repurpose this material, which is currently disposed of in our dams, into block-type pavers. Currently, we are assessing the economic and technological feasibility of incorporating this material into cement production.
• In 1Q24, Nexa supported approximately 30 families in Cerro Pasco by providing shelters to safeguard their livestock from frost, thereby improving ovine production quality in the Huancamachay community. This initiative is aimed at enhancing local economic development and underscores Nexa's commitment to ESG principles and community development.
• During 1Q24, Nexa was recognized as the Company of the Year by Business Concept magazine and received the International CSR ("Corporate Social Responsibility") Excellence Award for 2023. This award acknowledges Nexa's ESG strategy and its social initiatives in Brazilian communities, recognizing our local development plans and social master plans, supporting the Company's social license to operate and its social legacy.
• On March 27, 2024, we filed our updated report on Mineral Reserves and Mineral Resources estimates as of December 31, 2023, and a Technical Report summary for the Cerro Pasco Complex Integration. We announced a 10% overall increase in our Mineral Reserves estimates, totaling 110 million tonnes, mainly driven by infill and brownfield drilling activities at Aripuanã, as well as the re-establishment of mineral reserves estimates at Atacocha underground and open pit mines. These estimates were supported by the positive results from economic studies carried out during 2023 as part of the Cerro Pasco Integration Project.
• In March 2024, Nexa achieved a significant milestone by entering into a new credit line agreement of R$200 million (approximately US$40 million) with BNDES, part of the "BNDES ESG Credit program", marking the institution's first ESG-linked financing in the mining sector. The disbursement is expected to occur over the year, subject to certain conditions. This transaction underscores Nexa's commitment to decarbonization, especially its aim for the gold certification via the "Brazilian GHG Protocol Program", and the development of its socio-environmental responsibility policy with a focus on education and diversity. These steps highlight Nexa's commitment to integrating sustainable practices, targeting carbon neutrality by 2050 and achieving a 20% reduction in direct emissions by 2030.
• On April 24, 2024, Nexa released its 2023 Annual Sustainability Report, which provides detailed information on the Company's main economic, financial, environmental, and social achievements throughout 2023. The document is available at: (www.nexaresources.com/en/esg/performance). Information contained on our website is not incorporated by reference into this Earnings Release, and you should not consider it to be part of this Earnings Release.
• As previously disclosed, on March 19, 2024, we announced the suspension of mining operations at the Morro Agudo Complex effective May 1, 2024. Furthermore, on April 5, 2024, we announced the signing of a definitive agreement to divest the Morro Agudo Complex, which encompasses the Morro Agudo and Ambrósia mines for a purchase price of R$80 million (approximately US$16 million) less working capital adjustments and including the assumption of closure costs. The closing of this transaction is subject to certain customary conditions precedent, including a corporate restructuring of the assets comprising the Morro Agudo Complex. This decision is part of Nexa's portfolio optimization process to improve free cash flow in line with the Company's disciplined capital allocation framework, along with its long-term strategy to maximize value for the Company and its stakeholders. Nonetheless, Nexa adopted several initiatives to ensure equal relocation opportunities for all Morro Agudo employees, such as internal and external job fairs, career coaching sessions, and assistance programs, among others. We estimate that around 25% of employees will be reallocated by the completion of the transition.
• On April 3, 2024, Nexa Brazil, a subsidiary of Nexa Resources, announced its first ESG-linked debenture issuance with a 6-year term in the amount of R$650 million (approximately US$130 million), which settled on April 2, 2024. The debentures are unsecured, have a bullet repayment and bear interest at 100% of CDI interest rate plus 1.50 per annum. This offering is aligned with the same ESG framework of our US$320 million sustainability-linked revolving credit facility and is part of Nexa's liquidity improvement and liability management strategy.
• On April 3, 2024, Nexa announced the pricing of its offering of US$600 million 6.750% senior unsecured notes due in 2034, which closed on April 9, 2024. The net proceeds of this offering were used to fund cash tender offers for Nexa's existing notes due 2027 and notes due 2028, which were validly tendered and accepted for purchase pursuant to the tender offers.
• On April 5, 2024, Nexa announced the results of the tender offer for its 2027 Notes, pursuant to which Nexa purchased approximately 69.2% of the outstanding principal amount of the 2027 Notes. As a result, following the offering settlement on April 10, 2024, the outstanding principal amount of Nexa's 2027 Notes was US$215,496,000.00. Subsequently, on April 12, 2024, Nexa announced the results of the tender offer for its 2028 Notes, pursuant to which we purchased approximately 19.9% of the outstanding principal amount of the 2028 Notes at a proration factor of 32.3% for the principal amount validly tendered and not validly withdrawn, which totaled US$247,185,000.00. Consequently, the outstanding principal amount of Nexa's 2028 Notes following the settlement on April 15, 2024, was US$400,501,000.00.

Growth Strategy and Asset Portfolio

• We remain focused on free cash flow generation and continue to evaluate our capital allocation framework, which prioritizes initiatives related to sustaining capital, brownfield mineral exploration and ESG and Health, Safety and Environment ("HS&E"), while ensuring that Nexa's capital is allocated efficiently to the highest return assets.
• The strategic review of our assets continues with additional initiatives to optimize the portfolio. We also continue to evaluate options for the Magistral copper project in Peru. As of now, a formal decision is pending from the competent applicable environmental authority (SENACE) regarding Nexa's request for the Modification of the Magistral Environmental Impact Study (MEIA). However, to date, we understand that the Peruvian Water Authority (ANA) has raised unfavorable observations in relation to Nexa's request for the (MEIA). Not reaching an agreement regarding these unfavorable observations, may result in an adverse decision of SENACE regarding Nexa's MEIA request.
• As previously announced, we continued to advance with the technical studies of the Cerro Pasco Integration Project, aiming to develop a robust organic growth option for Nexa. For detailed information, please check our latest Cerro Pasco Complex Technical Report Summary. As a result of the advancements on the technical studies in 2023, we increased the overall Mineral Reserves of the El Porvenir and Atacocha mines in the Cerro Pasco Complex. The technical studies covered diverse areas including additional underground interconnection, shaft upgrade, plant upgrades, key routes to increase capacity to provide a long-term solution for tailings disposal and supporting the extension of the mine life of the combined mines and opening up additional exploration potential at the integration mineralized body. Furthermore, we continue to advance on other work fronts related to the Integration Project, including to obtain the required environmental studies and permits. We expect to submit the Project for formal approval to our Board of directors in 2024, upon recommendation of our Sustainability and Capital Projects committee in order to establish the Project's governance elements such as: (i) implementation schedule; (ii) organizational structure; (iii) implementation of control routines; (iv) definition of responsibilities for each project component; and (v) cost management implementation.
  

Outlook

Production and Sales Guidance

Guidance is based on several assumptions and estimates and is subject to the continuous evaluation of several factors, including, but not limited to, metal prices, operational performance, maintenance, input costs and exchange rates.

Nexa will continue to monitor risks associated with global supply chain disruptions, which could be exacerbated, among other factors, by the ongoing Russia-Ukraine war, the Conflict in the Middle East, unusual weather conditions, the global recession, and its potential impact on the demand for our products, inflationary cost pressure, metal price volatility, local community or union's protests, and changes to the political situations or regulatory frameworks in the countries in which we operate that could affect our production levels and our costs. Refer to "Risks and Uncertainties" and "Cautionary Statement on Forward-Looking Statements" for further information.

• Nexa reiterates its 2024 consolidated production guidance for all metals, including zinc and lead notwithstanding the sale of the Morro Agudo Complex. Guidance for zinc metal sales, consolidated cash cost for mining and smelting, capital expenditures, exploration, project evaluation and other expenses is outlined below.
  • Cerro Lindo: zinc production in 2Q24 is expected to be similar compared to 1Q24, while copper production is expected to increase as per the ongoing mining plan, which encompasses higher-grade stopes. These areas were restricted in 1Q24 following the rainfall season in the first months of the year, impacting mining development activities.
  • El Porvenir: based on mine sequencing, zinc production in 2Q24 is expected to increase compared to 1Q24. Additionally, lead and silver production is expected to increase following the same trend as we expect higher average head grades for those metals.
  • Atacocha: we anticipate an increase in production of all metals in 2Q24 compared to 1Q24, driven by mining activities in areas with higher grades, which were prepared in 1Q24 to be accessed in the upcoming quarters.
  • Vazante: ore throughput is expected to be slightly higher in 2Q24, while zinc head grade is expected to be similar compared to 1Q24, resulting in slightly higher zinc production, given the mine sequencing plan for the period.
  • Morro Agudo: as previously disclosed, on April 5, 2024, we announced the signing of a definitive agreement to divest the Morro Agudo Complex, which accounts for approximately 5% and 6% of Nexa's zinc and lead production, respectively.
• Aripuanã: the overall ramp-up is expected to continue improving in 2Q24 compared to previous quarters. The utilization rate at the plant is expected to improve in the upcoming quarters, contributing to the expected improvement of Aripuanã's results and paving the way for the completion of the ramp-up in mid-2024.

Mining segment - production

Smelting segment - sales

• Metal sales guidance also remains unchanged at 580-605kt.
  • Peru: we expect production at Cajamarquilla in 2Q24 to be higher compared to 1Q24, mainly driven by better performance and production stability.
  • Brazil: in Três Marias, we expect production in 2Q24 to remain at a similar level to the average of 1Q24, while Juiz de Fora production is expected to slightly increase due to third-party High Grade ("HG") zinc reprocessingto produce Special High Grade ("SHG") zinc.

Cash Costs

• Nexa also estimates that 2024 consolidated cash cost guidance for its mining and smelting segments will be achieved.
  • Mining and smelting volumes are expected to increase in 2Q24 compared to 1Q24 and remain in the guidance ranges, as noted above.
  • Continuous improvements in operational efficiency and cost management are anticipated to yield positive impacts on our overall performance. Several initiatives are already being implemented across our mines and smelters.
  • We have seen an increase in copper, lead, and silver prices in 2Q24 compared to 1Q24. Nexa's C1 cash cost is sensitive to by-product prices and volumes, which may affect the results of our final costs.
  • Foreign exchange rates assumptions are maintained (BRL/USD: 4.90 and Soles/USD: 3.67).
  • Zinc TCs assumptions for the year of US$174/t remain unchanged.

_{⁽¹⁾ C1 Weighted Cash cost net of by-products credits is measured with respect to zinc sold per mine.}

_{Note: Consolidated cash costs do not include Aripuanã. Given that we are expecting Aripuanã's ramp-up to be completed in mid-2024, we are not providing guidance at this time.}

_{⁽²⁾ C1 Weighted Cash cost net of by-products credits is measured with respect to zinc sold per smelter.}

• In 1Q24, Mining C1 cash cost of US$0.27/lb and run-of-mine mining costs of US$45.2/t, were in line with our 2024 guidance, driven primarily by higher by-products contribution particularly from Cerro Lindo. For further information, please see the section "Business performance - Mining segment."
• Smelting C1 cash cost of US$0.98/lb was below our 2024 guidance, mainly due to higher by-products credits in the period and lower cost of raw materials, attributed to lower zinc prices. The conversion cost of US$0.30/lb was in line with our 2024 guidance. For further information, please see the section "Business performance - Smelting segment."

Capital Expenditures ("CAPEX") Guidance

• Nexa invested US$74 million in 1Q24, nearly all of which was sustaining, including US$14 million at Aripuanã, which includes CAPEX to sustain operations as well as mine development.
• The depreciation of the Brazilian real against the U.S. dollar resulted in a positive impact of US$0.8 million in the quarter.
• We expect investment disbursement to accelerate in the upcoming quarters, and 2024 CAPEX guidance remains unchanged at US$311 million.

(1) Investments in tailing dams are included in sustaining expenses.

(2) Modernization, IT and others.

(3) Includes Vazante deepening, among several other projects to improve operational performance.

(4) The amounts are mainly related to capitalization of interest net of advanced payments for imported materials and tax credits.

Exploration & Project Evaluation and Other Expenses Guidance

• In 1Q24, we invested US$12 million in exploration and project evaluation.
• In 1Q24, we also allocated a total of US$2 million to technology and community initiatives. These investments aim to enhance our current operations and to further contribute to the social and economic development of our host communities.
• Our total 2024 guidance for exploration and project evaluation, and other operating expenses remains unchanged at US$72 million and US$21 million, respectively. We expect investment disbursements to accelerate in the upcoming quarters.
• As part of our long-term strategy, we will maintain our efforts to replace and increase mineral reserves and resources. We expect to continue advancing with exploration activities, primarily focusing on identifying new ore bodies and upgrading resources classification through infill drilling campaigns.

_{Note: Exploration and project evaluation expenses consider several stages of development, from mineral potential definition, R&D, and subsequent scoping and pre-feasibility studies (FEL1 and FEL2).}

For a full version of this document, please go to our Investor Relations website at: http://ir.nexaresources.com

About Nexa

Nexa is a large-scale, low-cost integrated zinc producer with over 65 years of experience developing and operating mining and smelting assets in Latin America. Nexa currently owns and operates four long-life mines, three of which are located in the Central Andes region of Peru, and one of which is located in the state of Minas Gerais in Brazil. Nexa is ramping up Aripuanã, its fifth mine, in the state of Mato Grosso in Brazil. Nexa also currently owns and operates three smelters, two of which are located in the state of Minas Gerais in Brazil, and one of which is located in Peru - namely, Cajamarquilla, which is the largest smelter in the Americas.

Nexa was among the top five producers of mined zinc globally in 2023 and one of the top five metallic zinc producers worldwide in 2023, according to Wood Mackenzie.

SOURCE: Nexa Resources S.A.