Executive Summary / Key Takeaways

• Integrated Business Model Drives Resilience: Nexa Resources, a leading polymetallic producer with a focus on zinc, leverages its integrated mine-to-smelter operations in Latin America to enhance efficiency, capture value across the production chain, and mitigate market volatility. This model has been crucial in achieving strong financial performance, including its second-highest adjusted EBITDA in 2024.
• Strategic Projects Unlock Long-Term Growth: Key growth catalysts, such as the Aripuanã mine's capacity expansion with a fourth tailings filter (commissioning expected H1 2026) and the Cerro Pasco integration project (operational start H1 2027), are poised to significantly extend mine lives, boost production, and improve profitability. These initiatives underscore a commitment to developing high-return assets.
• Financial Discipline and Strengthening Balance Sheet: Despite recent operational challenges and market volatility, Nexa maintains a healthy liquidity position of approximately $738 million as of Q2 2025 and has proactively extended its debt maturity profile to 7.7 years through a successful $500 million bond issuance. The company is committed to deleveraging and expects a reversal of negative working capital trends in H2 2025.
• Technological Advancement for Operational Excellence: Nexa is investing in advanced mining and smelting technologies, including enhanced tailings filtration systems and hybrid underground loaders, to improve operational efficiency, reduce costs, and enhance environmental performance. These technological differentiators are critical for maintaining a competitive edge and achieving sustainability goals.
• Dynamic Market, Positive Long-Term Outlook: While metal prices remain volatile, the long-term outlook for zinc, copper, and silver is positive, driven by their critical roles in energy transition, infrastructure development, and structural supply gaps. Nexa's diversified product portfolio and cost-competitive assets position it to capitalize on these trends.

Setting the Scene: NEXA's Integrated Strength and Market Position

Nexa Resources S.A. (NYSE:NEXA) stands as a prominent global player in the polymetallic mining and smelting industry, with a rich history spanning over 65 years across Latin America. Founded in 1956 and operating as VM Holding S.A. until its rebranding in 2017, Nexa has cultivated a robust integrated business model that encompasses mineral exploration, mining, and smelting operations. This vertical integration is a core competitive advantage, allowing the company to capture value across the entire metals production chain, enhance efficiency, and reduce exposure to market volatility, thereby strengthening margins in favorable price environments.

The company's operational footprint includes four long-life underground polymetallic mines in Peru (Cerro Lindo, El Porvenir, Atacocha) and Brazil (Vazante, Aripuanã), alongside three zinc smelters located in Peru (Cajamarquilla, the largest in the Americas) and Brazil (Três Marias and Juiz de Fora). This geographic and product diversification across zinc, copper, lead, silver, and gold by-products helps mitigate regional economic and political risks while diversifying revenue streams. Nexa was among the top five producers of mined zinc globally and one of the top five metallic zinc producers worldwide in 2024.

Technological Edge: Driving Efficiency and Capacity

Nexa's strategic commitment to technological innovation is fundamental to its operational excellence and competitive positioning. The company actively invests in advanced mining and smelting technologies to improve efficiency, reduce costs, and enhance environmental performance. This focus is evident in several key initiatives.

A critical technological differentiator for Nexa is its investment in advanced tailings management. At the Aripuanã mine, the installation of a fourth tailings filter is progressing on schedule, with commissioning expected in the first half of 2026 and full run rate anticipated in the second quarter of 2026. This new filter is crucial because the existing three filters have limited capacity, restricting the plant to approximately 90% utilization. The fourth filter, costing approximately $14 million, is designed to unlock the operation's full production capacity, improve efficiency, and enhance cash flow, particularly by better managing the impact of heavy rainfall. This investment aims to overcome past operational constraints and support long-term stability, positioning Aripuanã as a highly competitive asset within the second quartile of the all-in sustaining cash cost curve.

Furthermore, Nexa is advancing the Cerro Pasco integration project, which includes a tailings pumping and piping system. This Phase 1 initiative, with an estimated investment of $85 million to $90 million over 2025-2026, is critical for the long-term sustainability of the Cerro Pasco complex. It will significantly expand tailings storage capacity, supporting future production plans for over 10 years. The project also involves integrating the underground mines of Atacocha and El Porvenir and upgrading the El Porvenir shaft, which will unlock substantial volumes of high-quality mineral resources from Atacocha, improve average head grades, and provide greater operational flexibility.

Nexa's broader innovation agenda, recognized by awards such as "Most innovative companies" by Valor Econômico, spans productivity and safety, circular economy initiatives, transformational mining and smelter decarbonization, and generating a positive legacy. In January 2025, Nexa introduced its first fleet of hybrid (diesel-electric) loaders for underground mining in Peru, supporting its decarbonization strategy. The company also utilizes big data, cloud computing, and electric vehicles to digitally transform its operations, aiming to boost business growth, optimize production, and minimize waste. These technological advancements contribute directly to Nexa's competitive moat by driving cost efficiencies, enhancing operational resilience, and supporting sustainable growth, ultimately translating into improved financial performance and market positioning.

Competitive Landscape: A Polymetallic Powerhouse in a Dynamic Market

Nexa Resources operates within a competitive global mining landscape, primarily vying with diversified giants like Glencore (GLNCY), Teck Resources (TECK), BHP Group (BHP), and Rio Tinto (RIO). While these larger players boast extensive global footprints and broader commodity portfolios, Nexa distinguishes itself through its specialized expertise in polymetallic mining and its integrated mine-to-smelter business model, particularly within Latin America. This regional focus and operational integration provide Nexa with a unique competitive edge.

Compared to a highly diversified entity like Glencore, Nexa's more concentrated regional presence in Peru and Brazil allows for deeper operational knowledge and potentially more agile project execution. Nexa's integrated model helps mitigate the impact of market volatility and low treatment charges (TCs), which are currently pressuring smelter margins globally. For instance, 50% of Cajamarquilla's ore feed and 80-90% of the Brazilian smelters' concentrate come from Nexa's own mines, providing a buffer against adverse market TCs that challenge less integrated competitors. This strategic integration positions Nexa's smelters more favorably than many market peers.

Against Teck Resources, which also has a strong presence in the Americas, Nexa's focus on polymetallic underground mining can yield greater efficiency in extracting complex deposits. While Teck emphasizes sustainability, Nexa's ongoing investments in technologies like advanced tailings filters and hybrid loaders demonstrate a commitment to environmental performance and operational efficiency, aligning with evolving industry standards.

When compared to global mining behemoths like BHP Group and Rio Tinto, Nexa's scale is smaller, which can translate to lower overall cash flow and profitability in absolute terms. However, Nexa's specialized approach in zinc and silver production allows for greater efficiency in these niche markets. Its project-specific development strategy, exemplified by Aripuanã and Cerro Pasco, enables targeted growth and adaptability, potentially leading to faster innovation cycles in specific regional contexts. While direct quantitative comparisons of financial performance across all competitors are challenging to ascertain, Nexa's gross profit margin of 19.39% and EBITDA margin of 23.92% (TTM) reflect solid operational execution within its segments.

The broader industry is experiencing dynamic shifts, with increasing demand for metals driven by energy transition and infrastructure development. This trend, coupled with structural supply gaps and critically low concentrate inventories, provides positive support for metal prices. Nexa's strategic positioning in zinc, copper, and silver allows it to capitalize on these macro trends, even as it contends with the challenges of volatile metal prices and the impact of low TCs on smelter profitability.

Financial Performance: Resilience Amidst Headwinds

Nexa Resources demonstrated a resilient financial performance in the first half of 2025, building on a strong 2024. In the second quarter of 2025, Nexa reported net revenues of $708 million, marking a 13% sequential increase, primarily driven by higher sales volumes in its smelting segment and stronger byproduct prices. Adjusted EBITDA for Q2 2025 reached $161 million, a 28% sequential increase, attributed to higher smelter sales volumes and increased byproduct contribution, partially offset by lower zinc prices. The company's free cash flow improved to $17 million in Q2 2025, supported by better working capital management. For the first half of 2025, adjusted EBITDA totaled $286 million, a 15% decrease compared to the same period in 2024, reflecting higher operational costs and lower smelting sales volume, partially offset by stronger byproduct contribution. Net income for Q2 2025 was $1.08 million, a significant turnaround from a $77.5 million loss in Q2 2024. This follows a net income of $29 million in Q1 2025, reversing losses from previous periods.

Operational costs in the mining segment showed improvement, with the consolidated mining cash cost net of byproducts decreasing to minus $0.11 per pound in Q2 2025, a substantial improvement from $0.11 per pound in Q1 2025 and $0.02 per pound in Q2 2024. This was driven by higher byproduct contribution and increased sales volume. However, the cost per run of mine increased to $50 per tonne in Q2 2025, up 4% year-over-year and quarter-over-quarter, mainly due to stabilization efforts at Aripuanã. In the smelting segment, conversion cost stood at $0.39 per pound in Q2 2025, up 19% quarter-over-quarter and 30% year-over-year, primarily due to higher maintenance expenses, third-party services, and input costs.

Looking back at 2024, Nexa achieved its second-highest adjusted EBITDA in history, totaling $714 million, and generated positive consolidated cash flow for the first time since the investment cycle in Aripuanã began. Aripuanã made a fully positive contribution to Nexa's adjusted EBITDA in 2024. The company's annual revenue for 2024 was $2.77 billion.

Strategic Initiatives and Growth Catalysts

Nexa's long-term growth is underpinned by strategic initiatives focused on optimizing existing assets and exploring new opportunities. The Aripuanã mine remains a top priority, with the ongoing installation of a fourth tailings filter crucial for unlocking its full production capacity. This $14 million investment is expected to be delivered and installed in the second half of 2025, with commissioning in the first half of 2026, aiming for a full run rate in Q2 2026. Aripuanã boasts a mine life of 15 years based on reserves and over 25 years when including resources, positioning it as a cornerstone asset.

The Cerro Pasco integration project in Peru is another key growth pillar. Phase 1, focusing on the tailings pumping and piping system, is progressing well, with detailed engineering, permitting, and contractor mobilization achieved. This phase, with an estimated investment of $85 million to $90 million over 2025-2026, is expected to be operational in the first half of 2027. It will significantly expand tailings storage capacity and leverage the area's rich mineral endowment, extending the mine's life beyond 15 years and enhancing net smelter return.

Exploration efforts continue to yield promising results across Nexa's portfolio. At Cerro Lindo, drilling targets extensions of mineralized zones, reinforcing confidence in life of mine extensions. The Pasco integration area shows attractive zinc grades, and Vazante's Seccao Norte is also delivering promising results. These brownfield exploration programs are vital for replacing and expanding mineral reserves, ensuring the long-term sustainability of operations.

Financial Health and Capital Allocation

Nexa maintains a healthy liquidity position, with approximately $738 million available at the end of Q2 2025, including an undrawn $320 million sustainability-linked revolving credit facility. The company has proactively managed its liabilities, successfully extending its average debt maturity to 7.7 years by the end of Q2 2025, a significant improvement from 5.3 years in the previous quarter. This was achieved through a $500 million, 12-year bond issuance with a 6.6% coupon rate, which facilitated the full redemption of its 2027 notes and partial repurchase of its 2028 notes. These actions reinforce Nexa's investment-grade profile and enhance financial flexibility.

The net debt to adjusted EBITDA ratio slightly increased from 2.1x at the end of Q1 2025 to 2.3x at the end of Q2 2025, primarily due to a decline in adjusted EBITDA over the last 12 months and a slight increase in net debt. However, Nexa remains committed to its deleveraging and gross debt reduction strategy, aiming for leverage levels between 1.0x and 1.5x to provide a buffer against market cycles. The capital allocation framework prioritizes investments in extending mine life, reducing gross debt, and providing consistent shareholder returns through its dividend policy.

Outlook and Guidance: Charting a Course for Future Value

Nexa's management anticipates an improved performance in the second half of 2025, expecting a gradual reversal of the negative working capital trend observed in the first quarter. The company projects a stable working capital position for the year as a whole, with increased cash flow generation capacity in the latter half. The full-year 2025 CapEx guidance remains unchanged at $347 million, with major disbursements expected in the second half, and exploration and project evaluation guidance is reaffirmed at $88 million.

Despite operational challenges in Q1 2025 at Aripuanã and Vazante, which led to a revision of full-year production and cost guidance, Nexa's C1 cash cost guidance for Aripuanã remains unchanged, underscoring its competitive cost position. Management expects Aripuanã's plant performance to continue improving, with monthly feed rates surpassing 130,000 tonnes, a level already achieved in July. The 2026 production targets for Aripuanã have been reiterated, reflecting confidence in the asset's long-term recovery and capacity utilization. For 2025, Nexa forecasts a slight increase in zinc production, primarily from Aripuanã and El Porvenir, partially offset by lower volumes at Cerro Lindo and Vazante. Copper production is anticipated to decline by 10% in 2025 compared to 2024, mainly due to lower grades.

Risks and Challenges: Vigilance in Volatile Markets

While Nexa's outlook is positive, the company operates in a dynamic environment with inherent risks. Metal prices remain volatile, with zinc and lead experiencing pressure, although copper and silver prices have strengthened. Geopolitical tensions, macroeconomic uncertainties, and potential trade policy shifts, such as U.S. tariffs, could impact global demand and supply chain costs. Nexa's direct exposure to U.S. tariffs on zinc is limited, but broader market sentiment can influence prices.

Operational challenges, such as the heavy rainfall impacting Aripuanã's tailings filter capacity in Q1 2025 and geotechnical issues at Vazante leading to restricted access to higher-grade zones, can affect production volumes and costs. The profitability of smelters globally is also under pressure due to negative treatment charges (TCs) and lower premiums, a situation management believes will make 2025 a difficult year for smelters. However, Nexa's integrated model and internal concentrate supply provide some mitigation against these challenges. Social conflicts with local communities, as seen with the temporary suspension of operations at Cerro Pasco in August 2025, also pose risks to production and reputation.

Conclusion

Nexa Resources is strategically positioned as an integrated polymetallic producer with a clear vision for long-term value creation. The company's commitment to operational excellence, driven by continuous investment in advanced technologies like the Aripuanã tailings filter and the Cerro Pasco integration project, is expected to unlock significant production capacity and extend mine lives. These initiatives, coupled with ongoing exploration success, form the bedrock of its growth narrative.

Despite facing market volatility and operational headwinds, Nexa's disciplined financial management, evidenced by its robust liquidity and proactive debt maturity extensions, underscores its resilience. The integrated mine-to-smelter model provides a distinct competitive advantage, particularly in a challenging market for smelters. As global demand for base metals continues to be supported by energy transition and infrastructure development, Nexa's focus on cost-competitive assets and strategic growth projects positions it to capitalize on these trends, offering a compelling investment thesis for those seeking exposure to a well-managed and technologically forward-thinking player in the metals and mining sector.