Nexa Resources Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 21, 2025

There are 9 speakers on the call.

Operator

Good morning, and welcome to Nexa Resources' Fourth Quarter and Full Year twenty twenty four 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 NexSys Investor Relations website where the presentation is also available. After today's presentation, there will be an opportunity to ask questions. Remember that the participants of the webcast will be able to register via website questions.

Operator

Simply type your questions in the box and click send and that will be answered soon. I would now like to turn the conference over to Mr. Rodrigo Camarosano, Head of Investor Relations for opening remarks. Please go ahead.

Speaker 1

Good morning, everyone, and welcome to Nexo Resources' fourth quarter and full year twenty twenty four earnings conference call. Thank you for joining us today. During this call, we will discuss the company's performance as outlined in our earnings release issued yesterday. We encourage you to follow along with this on screen presentation through the webcast. Before we begin, I would like to draw your attention to Slide number two, where we will outline our forward looking statements about our business.

Speaker 1

Please refer to the disclaimer regarding these statements and their associated conditions. Now, it is 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 Operations, Leonardo Coel. With that, I will turn the call over to Ignacio for his comments. Ignacio, please go ahead.

Speaker 2

Thank you, Rodrigo, and good morning, everyone. Thank you for joining us today as we review our fourth quarter and full year 2024 results. Let's move to Slide number three, where we highlight our main achievements for the year. As we close out 2024, we are very pleased with our performance. We achieved the second highest adjusted EBITDA in our history and for the first time since initiating the investment cycle in Aripona generated positive consolidated cash flow.

Speaker 2

Our financial position also improved with a notable increase in our cash balance, a reduction in the gross debt and an improvement in our net leverage ratio from 2.2 times in the third quarter to 1.7 times. In the fourth quarter, adjusted EBITDA reached $197,000,000 a 79% increase from the $110,000,000 reported in the same period last year. For the full year, adjusted EBITDA totaled $714,000,000 This strong performance was driven by several key factors, including higher byproduct contribution, increased zinc prices, lower environmental liabilities and foreign exchange gains. On the operational front, we continue to make a steady progress meeting our 2024 production and cost guidance, while accelerating both revenue growth and margin expansion. Total consolidated net revenues for the fourth quarter reached $741,000,000 up 18% compared to the fourth quarter of last year and a 4% increase compared to the third quarter of this year.

Speaker 2

In terms of mining production, zinc output decreased by 11% quarter over quarter, while lead and silver production increased by 21% respectively, driven by higher grades. Copper production saw a slight decrease compared to the previous quarter, but was in line with our mine sequencing plan. Regarding Aripuana, I will share more details shortly, but I would like to highlight that the operation made a fully positive contribution to our adjusted EBITDA in 2024. Aripuana has been a very challenging project to build. And as previously mentioned, we approved the purchase of a fourth tailings filter, which will enhance utilization capacity given that the three filters in place have limited capacity and present operational issues.

Speaker 2

With this fourth filter, the plant will achieve its maximum capacity. In terms of zinc metal and oxide sales, we saw a minor 1% dip quarter over quarter, though sales increased by 6% year over year. Throughout 2024, we made significant progress in optimizing our portfolio and successfully executing strategic divestments, including the sale of the Morawudo complex, the Pukacaca project and our non operational Chappie mine in Peru. These divestments allow us to concentrate on our high return assets. In line with this strategy, I am proud to announce that the first phase of the Cerro Pascua integration project has been officially approved.

Speaker 2

This phase includes the implementation of tailings, pumping and piping systems and represents an important milestone extending the life of this mining complex. I will provide more details later in this presentation. Now let's move to Slide number four to discuss our operating performance. Turning to the operating performance of our mining segment, zinc production in the fourth quarter of twenty twenty four reached 74,000 tons down 19% compared to the fourth quarter of last year. This decrease was primarily driven by lower output at Cerro Lindo, El Porvenir and Basante as well as the absence of contributions from Moragul.

Speaker 2

These impacts were partially offset by higher production volumes from Aripona and Atacocha. Compared to the third quarter of twenty twenty four, zinc production decreased by 11% mainly due to lower volumes at Cerro Lindo, Basanti and Atacocha. However, this was partially offset by increased output from Aripoda. Zinc production was 2% lower compared to the full year of 2023. In terms of our guidance, we met our annual production guidance for zinc, lead and silver, while copper production exceeded the upper range of our guidance.

Speaker 2

Looking at the cash cost in the fourth quarter of our mining cash cost significantly dropped to $0 per pound compared to $0.44 per pound in the same period last year. This sharp reduction was mainly driven by higher byproduct contribution, lower treatment charges and reduced operational costs, partially offset by lower zinc volumes in the period. Compared to the third quarter, mining cash cost slightly increased by $0.01 per pound due to lower zinc volumes, which was partially offset by higher product contribution, particularly at Cerro Lindo due to a stronger LME price and lower operational costs. For the full year, our cash costs remain in line with our updated 2024 guidance, which we revised down by 64% in October 2024. These results reflect our disciplined cost control measures, operational improvements, consistent execution of our mining plants and foreign exchange gains particularly from our Brazilian operations.

Speaker 2

Our cost per run of mine in the quarter was $44 per tonne, a 6% decrease year over year. This improvement was mainly due to lower maintenance and personal expenses, reductions in energy and material costs along foreign exchange gains. These benefits were partially offset by lower treated ore volumes following the cessation of mining operations at Moraul. For the full year, cost per run of mine averaged $46 per ton remaining within our guidance range. Now let's move to Slide number five.

Speaker 2

Turning to our smelting segment, total sales in the fourth quarter reached 152,000 tons and increased by 6% year over year. This growth was primarily driven by higher production volumes at the Jamaica and a sales backlog from the third quarter, which resulted from demand adjustments in our domestic market. Compared to the previous quarter, total sales decreased by 1% mainly due to reduced production at Tres Marias, especially for zinc oxide due to lower demand. In 2024, total sales amounted to 591,000 tons in line with the mid range of our annual guidance and relatively stable compared to 2023. Looking at costs, consolidating smelting costs in the quarter was $1.26 per pound, up from $1 per pound in the same period last year.

Speaker 2

This increase was mainly due to higher raw material costs driven by increased zinc prices and lower TCs as well as higher operating costs. These effects were partially offset by higher sales volume and favorable foreign exchange variations. Compared to the third quarter, cash cost increased by 8% mainly reflecting higher zinc prices which impacted concentrate purchases and lower by product contribution. However, these effects were partially offset by lower operational costs and foreign exchange gains. Our conversion costs for the fourth quarter was $0.3 per pound compared to the $0.29 per pound in the fourth quarter of twenty twenty three.

Speaker 2

This slight increase was mainly due to higher variable costs, but partially offset by lower energy expenses at Cajabarquia, favorable foreign exchange variations and increased sales volume. Compared to the third quarter, conversion costs decreased by 6% driven by lower variable costs including energy expenses and maintenance expenses along with foreign exchange gains and lower third party expenses. It is worth highlighting that both conversion costs of $0.3 per pound and cash costs of $1.15 per pound remain within our guidance range for the year. Now let's move to Slide number six where we will begin discussing Aripuana. In the fourth quarter, Aripuana reported higher production of zinc, lead and silver compared to a third quarter of twenty twenty four while copper production declined driven by lower grades in the period.

Speaker 2

Adjusted EBITDA remained positive. The quality of concentrates remained stable and within commercial specifications, while metallurgical recoveries performed close to or at target levels. Additionally, the talc related challenges faced in the third quarter were effectively addressed. The feed rate remained stable contributing to the overall performance. In November, we conducted a scheduled five day maintenance shutdown to replace the mill lining.

Speaker 2

Additionally, above average rainfall during the period led to a 8% reduction in treated ore volumes compared to the previous quarter. During the quarter, we also approved the acquisition of a fourth tailings filter, a critical step in enhancing our filtering capacity and supporting full production. As previously disclosed, this investment will significantly improve operational efficiency. We expect that filter to be delivered and installed in 2025 with commissioning plan for the first quarter of twenty twenty six. Looking at the full year 2024, Paripona significantly improved its performance.

Speaker 2

Annual zinc production increased by 43% compared to 2023, while copper rose by 24%, lead grew 106% and silver production more than double growing 114%. This performance is attributed to the commitment and hard work of our teams. Let's move to Slide number seven to discuss the latest advancements in the Cerro El Pasco integration project. On this slide, I would like to highlight our progress with the Cerro El Pasco integration project. As we have discussed in previous calls, this project has the potential to unlock substantial value for NEXO.

Speaker 2

During the quarter, we made important strides across multiple work fronts, including the approval of the tailings pumping system, a crucial step in enhancing operational efficiency. This phase involves the construction of a tailings treatment plant at Tel Porvenir and the building of a six kilometer tailings pipeline to connect El Porvenir plants to the Atacocha tailings storage facilities. The detailed engineering has been completed and construction is set to begin in the second quarter of twenty twenty five. Beyond the tailings pumping system, Phase one includes investments to raise the El Porvenir tailings dam,

Speaker 3

which is already underway, as well as future

Speaker 2

investments to increase Atacocha's tailings storage capacity. Complex. Meanwhile, studies of Phase two, Pasco complex. Meanwhile studies of Phase two, which includes the underground connection of the mines and the El Porvenir shaft upgrade are progressing well. We expect these studies to be completed by the third quarter of twenty twenty five.

Speaker 2

Now moving to Slide number eight, where I will provide details on our exploration upside. As explained in the previous slide, the strategic rationale of the Cerro Pascos project includes the importance of the tailings storage capacity, aiming to extend the assets operational life significantly. The connection of the underground mines of Atacocha and El Porvenir and the upgrade of the El Porvenir ore shaft. The execution of these milestones will enable to access to a substantial volume of high quality mineral resources from the Atacocha underground mine significantly enhancing the asset flexibility, increasing its mineral base and extending the life of the mine complex. Furthermore, our exploration focus remains steadfast on the integration target.

Speaker 2

This area boasts high geological potential and presents a promising and highly attractive upside for the project. We aim to unlock additional value and ensure long term success for the Cerro Pascos complex. Now let's move to Slide number nine. On this slide, I would like to emphasize the continued progress of our exploration program. Our 2024 plan has yielded positive results across both brownfield and greenfield activities.

Speaker 2

At Cerro Lindo, the exploration program remain focused on expanding known ore bodies Southeast of Cerro Lindo with drilling targeting the extensions of the mineralized zones in ore bodies 8B and 8C. In Aripuana efforts were concentrated on the Masaranduba target aiming to identify new mineralized areas. In Basande, the brownfield exploration program continues to focus on expanding the mineralized zones near the mine. Finally, at Cerro Del Pasco, as mentioned before, the exploration program delivered notable results particularly around the integration target. I will turn the call over to Jose Carlos Del Valle, our CFO, who will walk us through our financial results.

Speaker 2

Jose, please go ahead. Thank you, Ignacio. Good morning, everyone.

Speaker 4

I will now continue with Slide number 10. Starting with the chart on the upper left, we can see that total consolidated revenues for the fourth quarter increased by 18% year over year. This was mainly driven by higher metal prices, except for lead and higher smelting sales volumes. These gains were partially offset by lower net premiums. Compared to the third quarter of twenty twenty four, net revenues grew by 4% supported by higher zinc, silver and gold prices.

Speaker 4

For the full year 2024, consolidated net revenues reached $766,002,000 an 8% increase compared to 2023. This growth was mainly driven by favorable metal prices, higher copper and lead sales and higher silver and gold payable from our mining operations. Moving on to profitability, our consolidated adjusted EBITDA for the fourth quarter reached $197,000,000 reflecting a strong 79% increase year over year. This performance was primarily driven by higher BioPro contribution, increased metal sales volume, higher zinc prices and foreign exchange gains. Compared to the third quarter of twenty twenty four, adjusted EBITDA also grew by 8% as the impact of higher zinc prices was partially offset by higher variable costs.

Speaker 4

For the full year 2024, consolidated adjusted EBITDA totaled $714,000,000 a significant 76% increase compared to 2023, making it the second highest annual adjusted EBITDA in Nexa's history. This was mainly supported by favorable metal prices, foreign exchange benefits, higher BIPRO contribution and ongoing improvements in both operational and financial management. Finally, it is worth noting that our consolidated adjusted EBITDA margin reached 26% in 2024, '10 percentage points better than in the previous year. Now let's move on to Slide number 11. Looking at the top of our left slide, we can see that in 2024, we invested $277,000,000 in CapEx with nearly all of this amount directed towards sustaining activities including mining development and tailing storage facilities.

Speaker 4

Our total CapEx investment for the year came in below our revised guidance from October 2024, which had already been adjusted downward by $11,000,000 as part of our portfolio optimization efforts. With respect to mineral exploration and project evaluation, we invested a total of $64,000,000 in 2024. Of this amount, $37,000,000 was specifically allocated to mineral exploration and mine development fully aligned with our annual plan to support ongoing exploration activities. Now let's move on to the next slide where I will discuss our cash flow generation for the quarter. Starting with our $740,000,000 of adjusted EBITDA net of non operational items, we can see that Nexa generated a strong operating cash flow before working capital variations totaling $514,000,000 for the year.

Speaker 4

From this amount, we paid $175,000,000 in interest and taxes and invested $265,000,000 in total CapEx across our operations. As part of our liability management strategy, loans and investments had a positive net impact of $98,000,000 This was mainly driven by our new bond offering at the venture issuance and the BNDS credit line, all executed in the second quarter of twenty twenty four. Included here is also a cash dividend received from Enercon. These cash inflows were partially offset by loans and financing, lease liability payments and premium paid on our bond repurchase program, including cash standards for a portion of our bonds maturing in 2027 and 2028. Additionally, we paid $60,000,000 in contractual dividends to non controlling interests.

Speaker 4

Another impact was related to foreign exchange variations, which had a negative effect of $11,000,000 on our cash and cash equivalents, primarily due to the depreciation of the Brazilian real against the U. S. Dollar. Finally, working capital had a positive contribution of $18,000,000 as our initiatives to optimize Nexa's working capital cycle throughout 2024 successfully reversed the negative impact seen in the first nine months of the year. Combining all these factors, our total free cash flow generation in 2024 reached $163,000,000 Now let's move to Slide number 13.

Speaker 4

As you can see, our liquidity position strengthened during 2024, which allows us to continue to maintain a solid balance sheet and an improved and extended debt maturity and profile. At the end of twenty twenty four, our available liquidity stood at approximately $960,000,000 including our undrawn $320,000,000 sustainability linked revolving credit facility. Looking at our debt profile, the average maturity in the fourth quarter of twenty twenty four was five point six years with an average cost of debt of 6.4%. More importantly, as of December 31, our total cash position was sufficient to cover all obligations maturing over the next five years. In terms of leverage, our net debt to adjusted EBITDA ratio significantly improved quarter over quarter and year over year, dropping from two point two and three point three times to 1.7 times respectively.

Speaker 4

These improvements were primarily driven by higher adjusted EBITDA and by a reduction in net debt over the last twelve months. I want to emphasize that we continuously evaluate opportunities to further optimize our capital structure, diversify our funding sources and strengthen our liquidity. As I have mentioned before, maintaining a debt maturity profile that is aligned with the loan life of our assets, while securing the most competitive financing costs is always a priority. In line with this, we always explore strategic initiatives to extend maturities, reduce the average cost of debt and assess financing alternatives. The goal of this to further enhance our financial position and long term resilience.

Speaker 4

Moving now to Slide 14. Regarding the zinc market fundamentals, it's important to note that in the fourth quarter, the LME zinc price averaged $3,050 per tonne, a 22% increase year over year and a 10% increase compared to the third quarter. Despite macroeconomic and geopolitical uncertainties, including concerns over U. S. Trade protectionism, potential tariff hikes and risks of trade wars, SIG market fundamentals remain solid, providing positive support for prices.

Speaker 4

These fundamentals are driven by a still constrained concentrate supply, which led TCs to remain at very low levels throughout the second half of the year. As a result, global refined metal production decreased by 2% in 2024 compared to 2023, tightening inventory levels even further. Since the beginning of the fourth quarter, spot TCs in China have slowly started to recover, as illustrated in the lower part of the slide. However, they remain at historically low levels, continuing to pressure smelter margins due to higher raw material costs. Looking ahead, we believe these market conditions are unlikely to ease in the short term, leading us to expect continued price support for zinc.

Speaker 4

Moving now to Slide number 15. During the last quarter, the LME copper price averaged $9,193 per tonne, up 13% from the fourth quarter of twenty twenty three, but marginally down by 0.2% compared to the third quarter of twenty twenty four. Despite macroeconomic challenges, copper demand is expected to remain resilient in the short term, driven by strong activity across the energy, technology and infrastructure sectors global. As for silver, the LME price averaged $31 per ounce in the fourth quarter, up 35% year over year and 7% quarter over quarter. Short term fundamentals for silver are also positive, largely driven by concerns over future silver availability.

Speaker 4

Since the majority of silver is produced as a byproduct of other metals, the industry is dependent on new mine projects to come online. Nexai is a significant global silver producer, producing 12,000,000 ounces in 2024. Looking ahead, copper and silver prices are likely to remain volatile as markets react to shifts in U. S. Trade policy and China's economic stimulus measures.

Speaker 4

Now, I will hand the presentation back to Ignacio for his final remarks.

Speaker 2

Thank you, Jose Carlos. As we conclude today's call, I want to highlight the recent adoption of our new dividend policy. This policy is designed to enhance transparency, provide consistent returns to shareholders and maintain the financial flexibility needed to support our growth targets. In 2024, both Standard and Poor's and Fitch reaffirm Nexa's investment grade rating with a stable outlook. Additionally, last November, Standard and Poor's assigned Nexa Recursos Minerals, our Brazilian subsidiary, its first ever rating also investment grade with a stable outlook.

Speaker 2

This rating underscores the expectation of Brazilian operations in Brazil in the coming years. Last week, Standard Ampers conducted its annual review and once again reaffirm Nexa's investment rate rating, maintaining a stable outlook. This recognition highlights our commitment to the financial discipline of the company. I also want to emphasize that in 2025, safety will remain a top priority. We are fully committed to strengthening our safety culture and continuously improving our protocols to ensure our employees well-being.

Speaker 2

2024 was a year marked by resilience and innovation. And as we move into 2025, we expect revenue growth supported by positive contributions on pricing and volume expansion. Our TCP approach to capital allocation remains unchanged. We will prioritize CapEx investments in enhancing production capacity, extending the life of our mines and ensuring long term sustainable growth. Before I close, I want to express my gratitude to our exceptional team of dedicated professionals and our shareholders for their trust and support.

Speaker 2

Thank you for your attention. We truly appreciate your engagement and now look forward to your questions. Operator, please open the line for questions.

Operator

We will now begin the question and answer session. The first question today comes from Camilla Barter with Bradesco. Please go ahead.

Speaker 5

Hi, good morning. Thank you for the opportunity for making my questions. I have two questions. The first, just some thoughts on Arikuana. You mentioned you expect higher contribution in terms of EBITDA and free cash flow from this year?

Speaker 5

So I was just wondering if you can share any quantitative estimates on that? And on the tailing filter, do you have an estimate on CapEx for the filter? And after it's implemented next year, how much potential do you see for a capacity increasing in Aripuana? And the second question here on Sero Passo, as you mentioned in the call, the project is moving ahead. First phase was approved and second phase studies should be concluded in the second semester.

Speaker 5

So I just wanted to question any additional details on the project, CapEx, if you see any risk for startups and more details on finance, it would be helpful.

Operator

Pardon me. This is the conference operator. I believe our speaker lines are muted.

Speaker 6

So if you can listen to me now, I was telling you that total CapEx of PASCO is around $140,000,000 80 5 million dollars comprises the implementation of wind pumping system of El Porvenir to Atacocha. What happens here is that the life of mine of the tailings dam of El Porvenir is getting towards the end of its life of mine. So the idea is to pump all these tailings to the Atacocha Dam that has many, many, many years going forward. This is, as I said, a project cost $85,000,000 And the rest of the CapEx comprises the interconnection of the two mines in the underground. This is very important because it will allow us to access all these resources that are in Atacocha that we will be able to extract them through the infrastructure of El Porvenir.

Speaker 6

And for that, not only we need the interconnecting that to mines by ramps, but also upgrading the shaft of El Porvenir to accommodate also the ore of Atacocha. So this project is between two and three years. We already approved the pumping, as we said. This pumping is going to be for two years. We are starting the seaweed works in the second quarter of the pumping and we already already some equipment.

Speaker 6

So in the next year, this will finish. And then in parallel, this upgrade of the shaft and interconnecting the mine will come probably in 2026 depending on how these studies go. That is regarding Cerepas. Regarding Anipona, it's very difficult to project EBITDA or cash flow, yes, because it will depend on prices. I will tell you this.

Speaker 6

The Aripona project has been a very difficult one to implement. I mentioned this many times. There were several factors that involve the some flaws on the implementation of the project, COVID, an isolated area to develop this project, etcetera. So the project in 2024 really advanced in terms of operational performance. But the problem is that we have mainly a bottleneck in the tailings filters because the capacity of the three filters that we have is not taking us to 100% of the production.

Speaker 6

So to give you an idea, we can in the dry season, we can have 140,000 to 150,000 tons, but the capacity could be 170,000 to 180,000. So we you don't know this until you stabilize the operation and we started to see that's only in June 2024. Having said that, in October, we're starting to do all the tests to order a different filter. It's a filter that is from a different provider. It's a more automated filter.

Speaker 6

And the capacity of the four filter is much higher than the rest of the three. So the idea is we order already that filter. It's not an easy implementation because it's a new area and that has a lot of civil works and infrastructure. So towards the end of the year, we will have the filter in the area. And then the commission, as we said, is going to be during the first quarter of next year.

Speaker 6

With this additional filter, we will achieve the capacity. So when we tell the market that, let's say, the projection on production on Aripuana has delayed a year, this is mainly because of this. And I mean, it's difficult for us to digest this because these were filters that were ordered many years ago. These were filters that don't have a capacity and didn't perform, yes? But the good part is that in 2026, we will be at full capacity and having all this upside on exploration on the reserves that we have today, this new mine is going to be very profitable going forward.

Speaker 6

So we have to look forward. Aripuana, as I said, was a difficult project to build, but we are towards the end of these stages and 2026 is going to be much better than this year. What I can say in this year is that we will have positive cash flow and the EBITDA is going to be positive as well and we believe that it's going to be higher than in 2024.

Operator

The next question comes from Carlos de Alba with Morgan Stanley. Please go ahead.

Speaker 3

Yes. Thank you very much. Good morning. Ines, just to confirm what you just said at the end of the last answer, you expect that I pointed out to have positive EBITDA in 2025 and be higher than 2024. Did I get that right?

Speaker 6

Yes, yes. And this is a, I would say, simple mathematics. We will have a higher production. The costs are still high because we are not diluting fixed costs in this throughput limitation of the throughput. But the costs are going to be lower than in 2024.

Speaker 6

The production is going to be higher. CapEx should be similar. The new filter is costing us $14,000,000 more or less, yes. But yes, with these prices and the product that we have and with the CapEx, yes, we believe that EBITDA and cash flow should be higher than in 2024.

Speaker 3

Right, makes sense. My second question is regarding the dividend policy. I just want to make sure that I get what it means basically is minimum of 20% so not a minimum, but a 20% of free cash flow with a minimum payment of $0.08 per common share. And so basically if I just look at our forecast of cash from operations minus CapEx, that amount, that free cash flow times 20% is what you will pay. Is that right?

Speaker 6

Yes. I'm going to turn to Jose Carlos, so he can explain the Jose Carlos, please.

Speaker 7

Hi. Sure. Hi, Carlos. Good morning. Yes.

Speaker 7

The minimum is $0.08 per share. So what we wanted to do is, well, first of all, as you know, we have this new policy that we have already approved and it's $0.08 per share so that we put a floor on the dividend payment but in a way that is transparent and more predictable. And the idea will be to pay 20% based on the cash flow that we generate each year, which is basically after sustaining CapEx, right? So we pay 20% on that free cash flow that internally we call pre event. That you would have a more predictable and consistent dividend flow over the years and this is effective as of 2024 results.

Speaker 3

Okay. So basically is the cash from operations minus your sustaining CapEx, 20 of that?

Speaker 7

Right.

Speaker 3

Okay. And what is the CapEx the sustaining CapEx that you're expecting for 2025?

Speaker 7

This year, we are about two seventy in 2025. Is that plus what we have on Cerro del Pascall? Because at the end of the data, the payments pumping system is part of the sustaining CapEx. If I remember correctly, it's about $3.30. So that will be a slight change compared to the CapEx that we have in 2024.

Speaker 7

And obviously, what we have to take into consideration is that we don't know what prices are going to be in 2025, you know, but assuming that assuming that we have prices that are similar to 2024 based on the improved performance that we expect from Aripuana and a continuous improvement from our operations, we expect a positive trend in our cash flow generation going forward. So therefore, that should benefit the areas that we're going to pay as well.

Speaker 3

Fair enough. So the total sustaining CapEx expected in 2025 is around $330,000,000.

Speaker 7

Right. I can confirm that number. But yeah, it's around that neighborhood.

Speaker 1

Sorry, this is Rodrigo here just confirming the sustaining CapEx for 2025 is going to be $316,000,000 right? This is the number that we released in our guidance on the February.

Speaker 3

'3 '60. '3 '16. Okay. 316.

Speaker 2

Okay. 316. Okay.

Speaker 3

316. Okay, good. All right, excellent. And then my last question is on working capital. Obviously, big swings throughout the year.

Speaker 3

How should we think about working capital in Q1, Q2, Q3, Q4 just given how significant the volatility is?

Speaker 7

Yes, I can comment on that Carlos. We would expect a different trend from what we saw in 2024 and 2023. There is a seasonality in how our working capital behaves throughout the year. But on average, going forward, I would say that it will be safe to assume that working capital effects should be close to neutral on an annual basis. However, we would still see that volatility quarter to quarter as we have seen in the last two years.

Speaker 3

Okay. Yes, that's clear. Thank you very much Ignacio, Jose Carlos and Rodrigo.

Speaker 7

You're welcome.

Operator

We will now take questions from the webcast. I'd like to hand the call back over to Rodrigo.

Speaker 1

Thank you, operator. We have some follow-up questions from the audience here in the web. So, I would start with the one well, Inacio already mentioned about the Ford filter in Nardipo Nas, or there's one question from Henrique from Morgan Stanley. So in terms of adding more color and why the developing the Ford filter now, so I believe that it was already answered. So, and there is another question, one question from Herren, Kjuslik from MetLife.

Speaker 1

So what should we expect in terms of cash flow generation for 2025? And what are your plans for capital allocation? Jose, can you address this one?

Speaker 7

Yes. Yes. I mean, we asked somehow Ori addressed the cash flow question. I mean, without knowing exactly what prices are going to be our expectation is that our performance is going to continue to improve in 2025. Even though we won't have the Alipana filter in place yet, there is an expectation that the performance there will be better.

Speaker 7

We always have this constant initiative to control our costs.

Speaker 3

As you

Speaker 7

remember from 2024, we were within guidance. So on those aspects that we control, we expect that we will have better performance and depending on prices, prices are better, obviously, that will translate into better cash flow generation. So the expectation is positive. In terms of capital allocation, I think we have mentioned before that we have a very clear strategy of obviously first focusing on extending the life of mine of our mines. Secondly, I would say, the reduction of gross debt is not just a matter of reusing leverage or net debt but also reusing gross debt so that we can also reuse our interest expense obligations.

Speaker 7

And then we also have this newly approved a dividend policy so that we can also provide a consistent return to shareholders over time. So I would say that those are the pillars.

Speaker 1

Okay. Thank you, Jose. We have one question from Omar from Compass Group. So, actually, there are three questions. The first one is there any other asset you are willing to sell?

Speaker 1

The second question is regarding Aripuana, what is the cost of the additional filter? And when do you expect the plant to work at the nameplate capacity? And the last question is to comment on the status of Magistral project.

Speaker 6

Yes. So as we said, we sold mostly all the assets that we wanted to get rid of because there were no transformational assets. They were small assets for us. And the part of the strategy is to make sure that we that the four mines that we have get developed, increase the life of the mine, and we operational executed them in the best way possible. But the growth will come from a new project that we have to look for in terms of M and A has to be a brownfield advanced brownfield project or a producing mine.

Speaker 6

As we said before, mainly copper and zinc. So we are not willing to sell any other. Regarding Adebona, I already said that the additional cost is $14,000,000 The full capacity will come in the second quarter of next year. And regarding Magistral, as we know, the MEA was disapproved. The Environmental Impact Study was disapproved.

Speaker 6

It wasn't it was disapproved because the community we had problems with the community, especially in the pandemic that blocked all these roads and all these areas and there were some process not allocated to Nexa. Now we are negotiating with Pro Inversion, that is the entity from the government on what are our next steps. And this is going to take some months. Having said that, we are still very interested in Magistral. But Magistral, as we already said also in other calls, is a project that has to compete with other projects that we might have in our radar because we want to make sure that we build the most profitable mine.

Speaker 6

So Magistral has to compete in that regard. We will update the market in these conversations and negotiations with the authorities. And we believe, as I said, that they will come in the next months.

Speaker 1

Thank you, Inacio. We have one question from Rodrigo Murrieta from AFP Integra. So based on the guidance provided at the February, Elpovir and Atacocha for the midterm are including part of the PASCO integration project mineralization in the guidance?

Speaker 8

Hi Rodrigo, thank you for the question. We are not considering yet the mineralization of the integration area. The guidance considers only the reserve base that we have currently. And we expect to publish some resources by this year and to convert into reserve by next year. And then you can assume a part of it in our plan.

Operator

This concludes our question and answer session. Now we will hand the call over to Jean Akio for his final remarks.

Speaker 6

Thank you. Thank you very much all for attending this call. We appreciate very much your interest in the company. We had a very good twenty twenty four year regardless of the problems in Aripona. I still we still believe Aripona is going to be a fantastic mine going forward.

Speaker 6

We are very committed to our challenges to achieve our challenges for 2025. '20 '20 '5 is going to be still a challenging year, but we have a very important group of people committed and clear in the strategies that we have to follow. Thank you very much, and we look forward to speak to you in the next in the close of the first quarter of twenty twenty five. Have a great weekend.

Operator

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

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Earnings Conference Call
Nexa Resources Q4 2024
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