Nexa Resources Signals Strong Momentum Amid Margin Squeeze

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

Nexa Resources’ latest earnings call painted a picture of robust operational momentum despite some notable short‑term headwinds. Management highlighted a sharp rebound in profitability, record mine output and stronger balance sheet metrics, while also acknowledging pressure on smelting margins, negative first‑quarter free cash flow and operational disruptions in Peru that weighed on sequential performance.

Strong Profitability and EBITDA Growth

Adjusted EBITDA surged to $283 million, rising about 126% year over year and delivering a solid 31.8% margin. Management credited higher metal prices, stronger byproduct credits and better execution at both mines and smelters for the step‑change in profitability.

Revenue Growth and Byproduct Tailwinds

Net revenues reached $888 million, up 42% year over year even though they dipped 2% versus the previous quarter. A larger byproduct contribution, adding about $158 million versus last year, was a key driver as silver, copper and other credits amplified topline growth.

Net Income, EPS and Deleveraging Progress

Nexa reported net income of $118 million, translating into earnings per share of $0.67, underscoring the earnings recovery. Net leverage fell to 1.59x from 2.09x a year earlier, reflecting last‑twelve‑month adjusted EBITDA of $929 million and a clear focus on deleveraging.

Mining Production and Margin Strength

Zinc production climbed to 79,000 tonnes, an 18% year‑on‑year increase that underpinned strong mining economics. Mining net revenue reached $460 million and adjusted EBITDA was $231 million, delivering a 50% margin and a deeply negative cash cost of $0.76 per pound net of byproducts.

Aripuana Record Output and Upgrades

The Aripuana mine posted a quarterly record of 13,000 tonnes of zinc, supported by higher grades and better plant utilization. The company completed installation of a fourth tailings filter, with commissioning underway and targeted to finish in the second quarter to reduce weather‑related throughput risks.

Smelting Sales Recovery and Added Transparency

Zinc metal and oxide sales rose to 147,000 tonnes, showing both year‑over‑year and sequential gains as Brazilian smelters rebounded strongly. Juiz de Fora increased volumes by 56% year over year and Tres Marias by 17%, while Nexa began disclosing more detail on byproduct sales, including sulfuric acid, silver content and copper cement.

Cerro Pasco Phase 1 on Schedule

The first phase of the Cerro Pasco integration project is progressing according to plan, with civil works and equipment fabrication completed. Construction is targeted for completion in the third quarter of 2026, with full project finalization in the fourth quarter of 2026 and pumping expected to start in the second quarter of 2027.

Liquidity, Debt Costs and CapEx Discipline

Total liquidity stood at $716 million, including $320 million of undrawn sustainability‑linked revolving credit facilities, providing a comfortable buffer. Nexa’s average debt maturity is 7.2 years with an improved average cost of 6.27%, while first‑quarter CapEx of $72 million represents about 19% of its reaffirmed $381 million 2026 budget.

Silver Tailwinds and Streaming Step‑Down

Silver prices reached multiyear highs, with first‑quarter levels running well above the prior year and providing a meaningful earnings tailwind. At Cerro Lindo, a reduction in silver streaming obligations from 65% to 25% is expected to add around $100 million in annual cash generation at current prices starting in the second quarter.

Exploration Advances and Reserve Potential

Exploration spending totaled $16 million in the quarter as Nexa expanded its drilling program to about 67,000 meters for 2026, roughly 12% above the original plan. A standout intercept at Massaranduba of 16.6 meters at 9.6% zinc and 3% lead underscored the long‑term potential of the district.

Peruvian Operational Disruptions

Operations in Peru faced a combination of heavy rainfall at Cerro Lindo, an illegal community blockade at Atacocha and shaft constraints at El Porvenir. These issues reduced mining sales volumes sequentially and forced short‑term operational adjustments, though management framed them as temporary rather than structural.

Negative Free Cash Flow and Working Capital Build

Free cash flow was negative $126 million in the first quarter, driven mainly by seasonal factors and a $283 million working capital outflow. Significant tax payments, annual bonuses and year‑end payable settlements all contributed to the cash usage, which the company expects to reverse over the next few quarters.

Smelter Economics Squeezed by Low Treatment Charges

Smelting adjusted EBITDA came in at $51 million with an 8% margin as industry treatment charges remained at historically low levels. The annual benchmark of $85 per tonne continues to compress smelter profitability despite operational improvements and stronger support from byproduct markets.

Higher Unit Costs and Third‑Party Concentrate

Unit costs increased sequentially as Nexa relied more on third‑party concentrates to compensate for lower Peruvian output. An appreciating Brazilian real, higher maintenance spending and variable costs at certain operations added to pressure, contributing to a 6% sequential decline in overall EBITDA.

Smelting Cash Costs Above Guidance

Smelting cash costs net of byproducts stood at $1.40 per pound, slightly above the upper end of annual guidance due to higher zinc prices and weaker concentrate economics. Conversion costs at $0.34 per pound remained in line with expectations, highlighting that the main challenge lies in external pricing rather than internal efficiency.

Permitting and Timing Risks at Cerro Pasco

Environmental modifications for El Porvenir and Atacocha remain under review, with approvals expected in the first quarter of 2027, close to the planned pumping start. Management acknowledged that tight permitting timelines introduce execution risk for the Cerro Pasco integration, especially if regulatory decisions are delayed.

Smelting Margin Outlook and Macro Risk

Executives cautioned that treatment and refining charges are unlikely to recover materially in the near term, keeping smelting margins under pressure even with robust sulfuric acid markets. They also flagged ongoing political and regulatory uncertainty in Peru, stressing the importance of strong community relations and close monitoring of policy developments.

Forward‑Looking Guidance and Financial Outlook

Management reaffirmed 2026 CapEx guidance of $381 million and exploration and project evaluation spending of $86 million, with Cerro Pasco Phase 1 spend at $31 million and construction milestones unchanged. They expect the first‑quarter free cash flow deficit to unwind seasonally, aim to keep net leverage below 1.7x this year with a longer‑term goal near 1.0x and see continued operational improvements at both mines and smelters supporting strong 2026 cash generation.

Nexa’s latest earnings call shows a miner benefiting from higher prices, richer byproduct streams and disciplined balance sheet management, even as smelting economics and Peruvian operations pose challenges. For investors, the story hinges on continued execution at Aripuana, timely progress at Cerro Pasco and the company’s ability to navigate low treatment charges while converting today’s earnings momentum into durable free cash flow.