Nexa Reports Fourth Quarter and Full Year 2022 Results Including Adjusted EBITDA Record of US $760 Million

LUXEMBOURG / ACCESSWIRE / February 15, 2023 / Nexa Resources S.A. ("Nexa Resources", "Nexa", or "Company") announces today its results for the three and twelve months ended December 31, 2022 and provides its production and metal sales guidance for the three-year period 2023-2025. The Company is also providing cash cost, capital expenditures and other operating expenses guidance for 2023.

CEO Message - Ignacio Rosado

"The fourth quarter of 2022 marked my first full year as CEO of Nexa, where I focused on increasing efficiency across our organization. We deployed a set of initiatives and new ways of working, which streamlined our cost base, as well as supported our strategic priorities.

We achieved 2022 operational guidance with strong financial and operational discipline, despite a very challenging environment. Metal production and sales were at the high end, or above guidance range, while mining and smelting costs were in line and below guidance, respectively.

On the other hand, the Russia-Ukraine war significantly increased commodity price volatility, contributing to a slowdown in global growth, and intensifying inflationary pressures in 2022, a period in which the world economy was still recovering from the pandemic.

Aripuanã ramp-up continues to progress, and we are pleased to have sold commercial grade concentrates and to inform that Aripuanã has achieved its first revenue in the fourth quarter. We also processed zinc in concentrate from Aripuanã at the Juiz de Fora smelter. The results of our continued drilling activities indicate a potential increase in mineral reserves of more than 35% over the 22 million tonnes reported last year. We remain confident that Aripuanã will be a long-life flagship mine with a significant contribution to our results.

We have updated our long-term ESG targets, reaffirming our ongoing commitments and efforts to reduce our carbon footprint, supporting the important mission to mitigate global climate challenges. Moreover, we continue to strengthen and promote an equal opportunities environment while creating safe and inclusive workplaces.

We know that 2023 will likely be another challenging year, in which the risk of a global recession remains high. In Peru, we are closely monitoring the socio-political environment which, to date, has not affected our operations and in Brazil, inflationary pressures are expected to remain in the course of the year. Nevertheless, we will seek to maintain our investments to extend the LOM of our assets, in addition to ongoing assessments of our project portfolio. We are committed to disciplined capital allocation and positive cash flow generation in the short and long term. We are prepared to capitalize on new opportunities in our operations, always striving to create shared value for all our stakeholders and the communities in which we operate."

Summary of Financial Performance

(1) Refer to "Use of Non-IFRS Financial Measures" for further information. During December 2022, the Company revised its Adjusted EBITDA definition to exclude certain items to provide a better understanding of its operational and financial performance. Adjusted EBITDA, adjusted net income (loss) and adjusted EPS, excludes the items presented in the Adjusted EBITDA reconciliation on pages 20 and 58 of this earnings release. 2021 and 2022 previous numbers have been reclassified according to the updated definition. For details on segment definition and accounting policy, please refer to explanatory note 2 - "Information by business segment" in the "Consolidated financial statements at December 31, 2022".

(2) Working capital in 4Q22 had a negative impact of US$0.5 million, totaling negative US$203 million in 2022. Working capital in 4Q21 had a positive impact of US$4.5 million, totaling negative US$38 million in 2021.

(3) Cash, cash equivalents and financial investments.

Executive Summary

Operational Performance

• Zinc production of 75kt in 4Q22 decreased by 8% compared to 4Q21, mainly due to grade reduction in Cerro Lindo and El Porvenir. Compared to 3Q22, zinc production followed the same trend and decreased by 2%. Zinc production totaled 296kt in 2022, compared to 320kt in 2021.
• Run of mine mining cost in 4Q22 was US$47/t compared to US$44/t in 4Q21 reflecting inflationary cost pressure, including energy and maintenance, in addition to higher personnel expenses and third-party services. These were partially offset by our cost control initiatives and higher treated ore. Compared to 3Q22, run of mine mining cash cost increased by 8% primarily driven by third-party services, including increased maintenance in the period.
• Mining cash cost net of by-products^[1] in 4Q22 was US$0.20/lb compared with US$0.25/lb in 4Q21 and US$0.57/lb in 3Q22. In both comparisons, this decrease was mainly due to higher by-products credits.
• The smelting segment performed as expected, with metal production of 157kt increasing by 2% from 4Q21, driven by increased production in all three smelters. Compared to 3Q22, production decreased by 1%.
• In 4Q22, metal sales were 167kt, up by 6% and 3% from 4Q21 and 3Q22, respectively.
• Smelting conversion cost was US$0.25/lb in 4Q22 compared with US$0.23/lb in 4Q21 due to inflationary impacts on costs, including energy and maintenance, in addition to higher personnel expenses. Compared to 3Q22, conversion cost decreased by US$0.01/lb.
• Smelting cash cost¹ in 4Q22 was US$1.20/lb compared with US$1.28/lb in 4Q21, mainly explained by market-related factors, such as lower zinc prices with a positive impact of US$0.08/lb. LME zinc price averaged US$3,001/t (US$1.36/lb) in 4Q22, down 11% year-over-year. Compared to 3Q22, smelting cash cost decreased by 12% due to lower operating costs and higher volumes.

[1] Our cash cost net of by-products credits is measured with respect to zinc sold.

Financial Performance

• Net revenues in 4Q22 were US$780 million compared with US$678 million in 4Q21 due to the increase in metal sales, partially offset by lower LME metal prices across all metals. Compared to 3Q22, net revenues increased by 11% as a result of higher metal sales and copper concentrate volumes, partially offset by lower LME zinc prices. In 2022, net revenues were US$3,034 million, up 16% over 2021, primarily driven by higher LME zinc prices.
• In December 2022, Nexa revised its Adjusted EBITDA definition to exclude certain items, aiming to provide a better understanding of its operational and financial performance. Please refer to page 20 and 58 for more information.
• Adjusted EBITDA^[2] in 4Q22 decreased to US$120 million, compared with US$153 million in 4Q21 and US$121 million in 3Q22. Adjusted EBITDA for the twelve months ended December 31, 2022, was a record of US$760 million compared with US$744 million in 2021.
• Adjusted EBITDA for the mining segment in 4Q22 was US$78 million compared with US$64 million in 3Q22. This increase was mainly driven by higher by-products contribution, partially offset by lower zinc prices and a negative impact of US$14 million in Aripuanã related to sales of concentrates with higher unit costs. Compared to 4Q21, Adjusted EBITDA decreased by 36%.
• In 2022, Adjusted EBITDA for the mining segment totaled US$440 million, down 8% compared to US$477 million in 2021.
• Adjusted EBITDA for the smelting segment in 4Q22 was US$46 million compared with US$58 million in 3Q22. This decrease was mainly driven by a non-cash impact of US$14 million related to our annual review of environmental liabilities and provisions update. Compared to 4Q21, Adjusted EBITDA increased by 44%.
• In 2022, Adjusted EBITDA for the smelting segment was US$326 million, up 20% compared to 2021.
• As part of the continuous review of our assets portfolio, Nexa recognized a non-cash US$33 million pre-tax net impairment loss in 4Q22 primarily related to (i) Cerro Pasco (impairment reversal), given the improved results and the potential increase in production due to the proposed optimization of the integration of El Porvenir and Atacocha mines; (ii) the decision made by the Company and the Board not to move forward with Shalipayco and Pukaqaqa greenfield projects; and (iii) an impairment loss in the Mine Peru Group related to the write-off of goodwill.
• In 4Q22, adjusted net income was US$3 million, and adjusted net income totaled US$187 million in 2022. Adjusted net loss attributable to Nexa's shareholders was US$6 million in 4Q22, with an adjusted net income attributable to Nexa's shareholders of US$151 million in 2022, which resulted in adjusted losses per share of US$0.04 and adjusted EPS of US$1.14, respectively.

[2] Adjusted EBITDA excludes the items presented in the Adjusted EBITDA reconciliation on pages 20 and 58 of this earnings release - US$84 million in 4Q22, totaling US$110 million in 2022.

Financial Position, Investments and Financing

• Total cash^[3] decreased to US$516 million at December 31, 2022 from US$763 million at December 31, 2021 mainly due to Aripuanã investments (sustaining and expansion CAPEX, pre-operating expenses and working capital) of approximately US$226 million. Our current available liquidity remains strong at US$816 million, including the revolving credit facility.
• In 2022, cash flows from operating activities excluding working capital changes amounted to US$702 million. Interest and income tax payments amounted to US$229 million, while we invested US$234 million in sustaining (including HSE investments). As a result, cash flow before expansion projects and working capital was positive at US$239 million.
• In 2022, Aripuanã expansion CAPEX was US$66 million and sustaining was US$46 million. Cash used in financing activities totaled US$149 million, including the investment of US$7 million in Tinka and the net cash used for the early redemption of our 2023 Notes of US$38 million. Pollarix, Nexa's energy subsidiary, paid dividends to non-controlling interests of US$21 million. We paid dividends and share premium of US$50 million in 1Q22. The foreign exchange effect on cash and cash equivalents had a positive effect of US$16 million.
• Working capital changes were negative at US$203 million in 2022, mainly due to the increase in inventory levels, including the ore stockpile built at Aripuanã to secure the ramp-up period, and the decrease in trade and confirming payables.
• Consequently, free cash flow in 2022 was negative US$246 million. Refer to our "Net cash flows from operating activities excluding working capital changes and free cash flow - Reconciliation" section for further details.
• Net debt to Adjusted EBITDA ratio for the last twelve months increased to 1.53x compared with 1.41x at the end of September 2022 and 1.29x a year ago.

ESG and Corporate Highlights

• Nexa declared in February 2022 and paid in March 2022 a distribution to Nexa's shareholders of US$50 million.
• In May 2022, Nexa subscribed for 40,792,541 common shares of Tinka Resources and now owns approximately 18.2% of the issued and outstanding common shares of the company and has the right to nominate one member to Tinka's board of directors. Tinka holds 100% of the Ayawilca zinc-silver project, one of the largest zinc deposits in Peru with solid resource expansion potential.
• As previously announced, Mr. José Carlos del Valle was appointed as Nexa's Senior Vice President of Finance and Group Chief Financial Officer ("CFO"), effective October 3, 2022, replacing Mr. Rodrigo Menck.
• During 2022, Nexa updated and enhanced its ESG program, announcing its new long-term environmental, social, and governance commitments, including carbon footprint. We plan to reach net-zero greenhouse gas emissions ("GHG") by 2050 and have announced a number of shorter-term commitments. The Company also became the first international-based sponsor partner of Artemis Project a social enterprise founded by a collective of female entrepreneurs focused on disruptive changes in global economic, environmental, and social development in mining.
• Aligned with our ESG commitment, we have started to recycle the sterile rock from the Ambrósia mine (Morro Agudo), closed in 4Q20. In partnership with a local company, we are selling this material to be used in the construction sector.
• In January 2023, S&P affirmed its "BB+" rating and "stable" outlook for Nexa.
• On February 15, 2023, Nexa's Board approved a distribution to Nexa's shareholders of US$25 million as a share premium (or special dividend), or approximately US$0.188766 per common share, to be paid on March 24, 2023. Nexa may approve an additional dividend payment during the second half of 2023, subject to market conditions and Company's performance.

[3] Cash and cash equivalents and financial investments.

Growth Strategy and Project Portfolio

• In the short term, we continue to work to improve our operational performance while generating cash in our mines and smelters, expanding our current resources through infill and exploratory drilling in all our mines.
• We continuously evaluate our capital allocation strategy, our existing project portfolio, and the jurisdictions in which we operate. After a careful assessment and prioritization of our portfolio optimization, we have decided to not move forward with two of our potential greenfield projects, Shalipayco and Pukaqaqa located in Peru.
• We have continued to make progress with our project to optimize the integration of El Porvenir and Atacocha mines at our Cerro Pasco complex. We plan to increase the capacity of our tailings and shaft and optimize the processing plant, to potentially increase production.
• We are revisiting the Bonsucesso project and the potential impact on the life of mine of Morro Agudo mine and we continue to assess alternatives for our Magistral project taking into consideration our capital allocation strategy and our focus on free cash flow generation.

Aripuanã

• Ramp-up activities have continued to progress and are currently focused on steadily increasing the plant throughput rate, increasing asset reliability, and improving concentrate grades. We closed 4Q22 with plant throughput reaching 53% of nameplate capacity. The ramp-up continues, and we are above 60% at the beginning of February, and we expect to reach nameplate capacity in 2H23.
• In December 2022, we started the shipments of concentrates within market specifications, with an increase in sales planned for 1Q23.
• Mine development activities in both the Arex and Link mines continue. At the end of December 2022, approximately 600kt of ore was available in stockpiles, which is enough to cover 4.5 months of plant production during the continued ramp-up period.
• In 4Q22, we invested in expansion CAPEX of US$3 million, totaling US$66 million in 2022, including the negative FX impact of US$5.5 million, and a cumulative expansion CAPEX since the beginning of construction of US$632 million. Sustaining CAPEX in 2022 was US$46 million.
• Refer to our "Aripuanã project" section for further details.

2022 Results and Guidance

Production and Sales

2022 production guidance for all metals was achieved. Zinc production totaled 296kt in 2022. Cerro Lindo, El Porvenir, and Morro Agudo mines achieved the upper range of the guidance, while Vazante and Atacocha mines exceeded annual guidance. Although Aripuanã ramp up activities have continued to progress, production for Aripuanã was below guidance.

Copper and silver production of 34kt and 10MMoz, respectively, achieved the upper end of the annual guidance, while lead production of 57kt exceeded annual guidance. Further details are outlined below.

• Cerro Lindo: zinc production of 84kt in 2022 was in the mid-range of guidance. The mine sequence continued to favor the production of copper and silver, reaching the upper end of the guidance range for these metals.
• El Porvenir: zinc production of 52kt in 2022 achieved the mid-range of guidance, while copper was slightly below the range, and lead and silver production exceeded the annual guidance.
• Atacocha: zinc production of 10kt in 2022 exceeded the annual guidance, while lead and silver production reached the upper end of guidance.
• Vazante: zinc production of 132kt in 2022 exceeded the annual guidance while, lead achieved the lower end of the range, and silver production reached the upper end of the range.
• Morro Agudo: zinc production of 19kt in 2022 reached the upper range of the guidance, while lead exceeded the upper range.
• Aripuanã: ramp up activities continued to progress. Milling capacity reached 53% of nameplate at the end of the year, behind our initial plan mainly due to heavy rainfall in the period, which required additional operational stoppages in our filters, and also caused power outages.

Metal sales of 616kt in 2022 exceeded annual guidance driven by the solid performance of our smelters and sustainable global demand. Zinc metal sales of 578kt were above the high end of the guidance range, given the positive demand, increase in exports, and improvement in lead times. Zinc oxide sales of 40kt also exceeded annual guidance supported by solid demand in our home markets, particularly from the pneumatic and agribusiness sectors.

Cash Costs