Nexa Resources Rides Mining Strength Despite Smelter Squeeze

Nexa Resources ((NEXA)) has held its Q1 earnings call. Read on for the main highlights of the call.

Nexa Resources’ latest earnings call struck a cautiously upbeat tone, with management highlighting a sharp rebound in profitability and record mine output alongside disciplined deleveraging. Nevertheless, they acknowledged pressure points, including negative first‑quarter free cash flow, weather‑related disruptions in Peru and structurally weaker smelting margins amid low treatment charges.

Strong Profitability and EBITDA Growth

Nexa delivered a sharp turnaround in profitability, with adjusted EBITDA more than doubling year over year to $283 million, representing growth of about 126%. The company’s EBITDA margin reached roughly 31.8%, buoyed by higher metal prices, stronger byproduct credits and improved operational execution across key assets.

Revenue Growth and Byproduct Contribution

Net revenues climbed to $888 million, up 42% from a year earlier despite a modest 2% sequential decline, underscoring the strength of the pricing environment. A $158 million increase in byproduct contributions, particularly from silver and other credits, was a major driver of the top‑line expansion.

Net Income, EPS and Deleveraging Progress

Net income reached $118 million, translating into earnings per share of $0.67 and confirming the earnings recovery story. Net leverage improved to 1.59 times from 2.09 times a year ago, supported by last‑twelve‑month adjusted EBITDA of $929 million and a continued focus on disciplined balance‑sheet management.

Mining Production and Margin Strength

Mining operations remained the earnings engine, with zinc production rising 18% year over year to 79,000 tonnes. Mining net revenues hit $460 million, while adjusted EBITDA reached $231 million, implying a robust 50% margin and a strongly negative cash cost of $0.76 per pound net of byproducts, well below the company’s 2026 guidance.

Aripuana Record Performance and Upgrades

The Aripuana mine set a quarterly record with 13,000 tonnes of zinc output, supported by higher grades and better plant utilization. Nexa also completed installation of a fourth tailings filter, with commissioning underway and expected to conclude in the second quarter, reducing weather‑driven throughput risk and supporting future stability.

Smelting Sales Recovery and Transparency

On the smelting side, zinc metal and oxide sales rose to 147,000 tonnes, improving both year on year and sequentially as Brazilian smelters rebounded. Juiz de Fora lifted sales by 56% and Tres Marias by 17% year over year, while management enhanced disclosure by detailing byproduct sales like sulfuric acid, silver content and copper cement.

Cerro Pasco Phase 1 on Schedule

The Cerro Pasco integration project remains a strategic focus, with Phase 1 progressing on schedule as civil works and equipment fabrication reached completion. Construction is targeted to finish in the third quarter of 2026, with full project completion in the fourth quarter of 2026 and pumping operations slated to begin in the second quarter of 2027.

Liquidity, Cost of Debt and CapEx Discipline

Nexa underscored its solid liquidity position of $716 million, including $320 million of undrawn sustainability‑linked revolving credit facilities. The company reported an average debt maturity of 7.2 years and a lower average cost of debt at 6.27%, while first‑quarter CapEx of $72 million represented about 19% of the reaffirmed 2026 CapEx guidance of $381 million.

Silver Tailwinds and Streaming Step‑down

Rising silver prices provided a powerful earnings tailwind, with first‑quarter realized prices averaging 164% above levels seen in the prior year’s first quarter. Nexa expects the Cerro Lindo streaming step‑down, shifting from 65% to 25%, to add roughly $100 million of incremental annual cash generation at current prices starting in the second quarter.

Exploration Progress and Reserve Growth

Exploration spending reached $16 million in the quarter, and the drilling program for 2026 has been increased to about 67,000 meters, roughly 12% above the original plan. A notable intercept at Massaranduba, measuring 16.6 meters at 9.6% zinc and 3% lead, bolsters confidence in the district’s long‑term resource potential.

Peruvian Operational Disruptions

Short‑term headwinds emerged in Peru, where heavy rainfall at Cerro Lindo, an illegal community blockade at Atacocha and a shaft constraint at El Porvenir hampered production. These disruptions reduced mining sales volumes sequentially and forced Nexa to implement immediate operational fixes, with management expecting normalization in coming quarters.

Negative Free Cash Flow and Working Capital

Free cash flow was negative $126 million in the first quarter, driven mainly by seasonal factors rather than underlying weakness in the business. A working capital outflow of $283 million, combined with significant tax payments, annual bonuses and year‑end payables settlement, weighed on cash generation but is expected to reverse over the course of the year.

Smelter Economics Under Pressure

Smelting adjusted EBITDA reached $51 million, yielding an 8% margin amid a challenging industry backdrop characterized by historically low treatment charges. With the annual benchmark set at $85 per tonne, smelter margins remained compressed despite operational improvements and supportive byproduct markets, limiting upside on this side of the business.

Higher Unit Costs and Third‑Party Concentrate

Unit costs rose sequentially as Nexa relied more on third‑party concentrates to offset Peruvian production shortfalls, a strategy that helped preserve volumes but raised costs. Additional pressure came from the appreciation of the Brazilian real and higher maintenance and variable costs at specific operations, contributing to a 6% quarter‑on‑quarter decline in EBITDA.

Smelting Cash Cost Above Guidance

Smelting cash cost net of byproducts stood at $1.40 per pound, slightly above the upper end of the company’s annual guidance range. Management linked this overrun to higher zinc prices on the London Metal Exchange and lower treatment charges, both of which altered concentrate economics and weighed on conversion profitability.

Permitting and Timing Risks at Cerro Pasco

Despite progress at Cerro Pasco, permitting remains a critical execution risk as environmental approvals for El Porvenir and Atacocha are still under review. These modifications are expected to be cleared in the first quarter of 2027, leaving a tight timetable against the planned Phase 1 and pumping schedules and highlighting potential timing slippage if approvals are delayed.

Smelting Margin Uncertainty and Macro Risks

Management cautioned that treatment and refining charges are unlikely to recover meaningfully in the near term, suggesting smelter margins will stay under pressure even with strong sulfuric acid prices. They also flagged ongoing political and regulatory uncertainty in Peru, stressing the importance of community relations and fiscal discipline while keeping a close eye on evolving policy outcomes.

Forward‑Looking Guidance and Outlook

Nexa reaffirmed its 2026 CapEx target of $381 million and exploration and project evaluation budget of $86 million, while guiding Cerro Pasco Phase 1 spending at $31 million this year. The company expects the first‑quarter free cash flow shortfall to unwind seasonally and aims to deliver strong free cash flow in 2026, maintaining net leverage below 1.7 times and ultimately trending toward around 1.0 times as Aripuana ramps and smelting efficiency gains accrue.

Nexa’s earnings call painted a picture of a miner capitalizing on favorable metal markets and internal execution gains, even as smelting margins and Peruvian disruptions complicate the narrative. For investors, the key takeaways are robust mining economics, strengthening balance‑sheet metrics and a clear project pipeline, offset by structural pressure in smelting and regulatory risks that warrant continued monitoring.