Nexa Resources SA (NEXA) 2021 Q2 法說會逐字稿

Good morning and welcome to the Nexa Resources Second Quarter 2021 Conference Call. (Operator Instructions)

The presenters on this call are Mr. Tito Martins, CEO of Nexa Resources; Mr. Rodrigo Menck, CFO of Nexa Resources; and Ms. Roberta Varella, Head of Investor Relations. Please note, this event is being recorded.

I would now like to turn the conference over to Mr. Tito Martins. Please go ahead.

Thank you. Good morning and good afternoon, everyone. Welcome to Nexa's earnings conference call, and thank you for taking the time. Today, we will be talking about our results for the second quarter of 2021.

Please, let's move now to Slide 3 where we will begin our presentation. I will start by briefly commenting on our results. We delivered another strong quarter. We have safely operated, and our adjusted EBITDA stood at $233 million, the highest quarter result in our history. We benefited from strong pricing and the continuous commitment of our team to operational and financial performance. We ended the quarter with cash above $1 billion and leverage down to 1.2x.

Vaccination has advanced, but we stay diligent. In light of the extension of the pandemic, business continuity measures and COVID-19 protocols remain in place in our operations, exploration activities and projects. We believe they have been very effective. Mining and smelting operations are running at high utilization rates, and we expect to deliver our guidance.

I'm glad to confirm that our first greenfield project, Aripuanã, is also on track. As forecast, our sixth underground polymetallic mine should start production in early 2022. Global demand for our products remain strong and it is estimated to continue to grow, especially in a green economy. We will continue to invest in growth, adjusting ourselves through the opportunities and challenges imposed by COVID-19, among other factors. Given some recent events, we are evaluating our capital allocation strategy and the jurisdictions where we are operating. Meantime, we continue to invest and advance the engineering studies of our growth opportunities such as Magistral and Bonsucesso projects. In addition, we have revised our CapEx guidance for 2021 to $510 million, which we will comment in more detail during this presentation.

With respect to our ESG initiatives and our fight against COVID-19, we continue to provide support to our host communities and to the local governments in the regions where we operate. In order to reinforce our commitment to plurality and human rights, we joined the LGBTI+ Business and Rights Forum in Brazil and the Pride Connection in Peru. In the second quarter of '21, we also signed a partnership with Artemis, a social enterprise founded collectively of female entrepreneurs focused on disruptive change in global economic, environmental and social development mine.

Moving forward, we will maintain our efforts to build a sustainable business model, generating value for all of our stakeholders. And for that, we have also continued to invest in our exploration program in all of our mines and projects.

On the next slide, Slide 4, I will comment on the results of Cerro Lindo brownfield exploration. Please move to Slide 4. In Cerro Lindo, exploration drilling has been concentrated on extensions of known ore bodies to the southeast of the mine and new mineralized zones like Pucasalla. Pucasalla target is located at the 4.5 kilometers to the northwest of the mine, and drilling results confirmed positive intercepts in the second quarter of '21. We still need to continue to advance, but these initial results indicate that we could potentially expand our current mineral resource and reserves, extending the life of mine. We have, at the same time, also retained positive brownfield drilling results at the Pasco Complex, Vazante and Morro Agudo mines.

Now please move to the next slide, Slide 5. Here, I will make some comments about the development of our first greenfield mining project, Aripuanã. When we published our updated CapEx last October, we were contemplating and estimated impact of the first wave of COVID. However, the extension of the pandemic has demanded additional precautionary measures and some of the costs were not predictable at that time. Our previous CapEx guidance of $547 million has been now updated to $575 million, and it may go up to $595 million depending on some unexpected conditions.

Here, we want to be cautious about future impacts of the pandemic. So we are setting up $20 million kind of provision for the project, assuming that same costs incurred up to now would happen until the end of the construction. Fortunately, the current scenario in Aripuanã has been much less negative than the one seen in the last 9 months.

In addition to COVID-19 costs, this CapEx increase also contemplates some [inflation] and a minor scope change. This scope change has to do with housing for our future employees. As you may know, as part of the infrastructure of the project, we are building houses for our operational team. Surprisingly, during the hiring process, most of the future employees choose to be relocated to Aripuanã instead of working on a fly in, fly out scheme. So we had to increase the number of houses to be built in the city, good news in terms of retention and commitment to the project. In summary, despite the current circumstances with COVID and its impact, we are on track to deliver our project as planned and start production in the beginning of 2022.

Aripuanã construction works continue to advance, and overall physical progress has reached 89% at the end of June compared to 79% in March. Mining development activities continue to progress in both Arex and Link mines. And in June, the vertical development project scope was concluded.

With respect to our exploration program, drilling has been focused at the deep northwest extension of Babaçu and last results continue to confirm a high-grade mineralization area. These results support our belief that Aripuanã will be a long-life mine.

Moving now to Slide 6. Let's talk about our project pipeline. In addition to Aripuanã, as you know, we have a pipeline of potential growth projects in different stages of maturity.

With respect to Magistral copper project, engineering studies continue to progress, and a peer review for the FEL3 stage will be carried out during the second half of '21. These works are being developed to mitigate risks of project execution and before any consideration or approval by our Board. With respect to Hilarión, exploratory drillings results confirmed 2 new ore bodies at the Hilarión Sur target. Regarding Bonsucesso, we continue to execute expansion drilling in the central zone of the site, and we have confirmed that the Bonsucesso mineralized zone extends at depth along parallel southwestern trend.

Now I would like to pass to Roberta Varella, our Head of Investor Relations, who will comment on our financial results. Roberta, please?

Thank you, Tito. Good morning, everyone.

Please let's move to Slide 8. Beginning with the chart on your upper left, consolidated net revenue in second quarter of 2021 was $686 million, up 104% compared to the same period a year ago, mainly driven by higher metal prices and volumes. If we compare with first quarter of 2021, net revenue increased by 14%.

Adjusted EBITDA stood at $233 million compared to $40 million in the second quarter of 2020 and $180 million in first quarter of 2021. As Tito mentioned, we have recorded the highest quarter adjusted EBITDA in our trajectory. We're delivering another quarter of solid financial results and operational performance. And this performance not only benefited from higher metal prices and volumes but also reflects our initiatives for our Nexa Way program. Considering the first 6 months of 2021, adjusted EBITDA totaled $413 million. In the next slide, we will discuss and further detail our segment's performance.

On Slides 9 and 10, we will discuss our mining segment results. Zinc equivalent production reached 136,000 tons, up 52% year-over-year and about 5% from first quarter '21, mainly driven by higher treated ore volume. In second quarter 2021, zinc production of 82,000 tons increased by 31% compared to a year ago, following the recovery of our Peruvian production, which was temporarily suspended due to the measures announced by the Peruvian government. Compared to first quarter '21, total zinc production increased by 5.5%, primarily driven by Cerro Lindo, which benefited from increased production in the remaining areas and short-term mine design and lower dilution in the quarter.

Production in El Porvenir and Atacocha mines also increased. With respect to Vazante, as previously disclosed, Extremo Norte mine production remains temporarily suspended. During the quarter, an in-depth analysis of the technical conditions was carried out, and no significant progress was detected. We have already started our rehabilitation plan to access the main ramp entrance, and mine development should start in the third quarter of 2021. We expect mining production to resume in the first quarter of 2022.

In terms of net revenue, we reached $311 million in the second quarter, up 181% year-over-year and 22% quarter-over-quarter explained by higher average LME prices and increase in sales volumes. Adjusted EBITDA for the mining segment stood at $141 million, strongly recovering from a year ago. Compared to the first quarter, adjusted EBITDA also increased.

As you can see on Slide 10, this performance was mainly explained by the positive price effect of $34 million related to higher LME prices and changes in market prices resulting in quotation period adjustments followed by higher by-product credits due to better price and volumes and lower TCs, which were partially offset by the increase in operating costs driven by COVID-19 and maintenance expenses, and higher workers' participation and the increase in exploration and project evaluation investments.

In the first 6 months of the year, adjusted EBITDA amounted to $239 million. In terms of cash cost, as you can see on the bottom right, consolidated mining cash costs of $0.14 per pound in second quarter '21 decreased by 60% compared to the second quarter of 2020 and by 40% from the previous quarter. This decrease was mainly driven by higher by-product credits and lower TCs.

Now let's turn to this smelting segment results. On Slides 11, 12, we will discuss our smelting segment results. In second quarter '21, metal sales amounted to 157,000 tons, up 31% year-over-year and 5.5% from first quarter '21, driven by a recovery in global demand. Net revenue in the quarter was $522 million, totaling $990 million in the first 6 months of the year, positively driven by higher prices and sales volumes.

Adjusted EBITDA for the smelting segment in second quarter '21 stood at $93 million compared with $39 million a year ago. Compared to first quarter adjusted EBITDA also went up. As you can see on Slide 12, the 11% increase in EBITDA was mainly explained by higher sales volume with a positive impact of $4 million (sic) [$14 million], increase in byproducts contribution due to higher prices and volumes and the positive effect of other income and expenses which were negatively impacted by an incremental provision in the first quarter. These factors were partially offset by the negative price effect of $11 million related to changes in market prices resulting in quotation period adjustments. In the first 6 months of the year, adjusted EBITDA was $176 million.

In terms of cash cost, as you can see on the bottom right, consolidated melting cash cost of $1.80 per pound (sic) [$1.08 per pound] in second quarter increased by 9% compared to the previous quarter, mainly driven by market-related factors such as higher zinc prices impacting the concentrated purchase and lower treatment charges.

I will now turn over the call to Rodrigo Menck, our CFO, who will provide more detailed information about our balance sheet. Menck, please?

Thank you, Roberta. Good morning and good afternoon, everyone.

I am now on Slide 13. As demonstrated in the upper-left graph, our liquidity remains strong and we continue to report a healthy balance sheet with extended debt profile. By the end of the first quarter, our current available liquidity was $1.4 billion, which includes our undrawn revolving credit facility of $300 million. As of June 30, the average maturity of our total debt was 5.5 years with a 4.6% average debt cost.

Our leverage, measured by the net debt to adjusted EBITDA ratio, decreased to 1.19x from 1.73x, mainly driven by higher adjusted EBITDA and lower net debt. The debt breakdown by category and currency is shown on the right side of the slide. In light of our strong balance sheet and liquidity, in July, we continued to advance with our liability management program, and we have prepaid additional existing financial debt by reducing our gross debt by almost $180 million. On Slide 14, you will see our pro forma balance sheet considering these prepayments.

On this slide, we present Nexa's free cash flow generation. During the quarter, our free cash flow generation was $40 million. Describing it further and starting from our $233 million adjusted EBITDA, we had a $35 million loss in working capital, $56 million of sustaining CapEx and $35 million of interest paid and taxes. Still, Nexa has generated $107 million of cash before expansion projects during the annualized period. After that, we invested $51 million in nonsustaining CapEx, which includes mainly our Aripuanã nondevelopment projects. We also had a negative net effect of $63 million as we have prepaid about $94 million of debt during the quarter, partially offset by the additional drawdown of $51 million related to the BNDES loan agreement. Other nonoperational impacts, including foreign exchange effects, had a positive impact of $53 million.

Turning now to the next slide, Slide 16. As Tito mentioned, we have revised our 2021 CapEx guidance to $510 million versus the previous $450 million. This increase was mainly driven by the updated expenditures for our growth projects, mainly driven by Aripuanã, as explained earlier in our presentation. Feasibility study investments for Magistral and Bonsucesso were also updated.

In addition, we estimate higher sustaining investments in the second half of '21 due to expected increase in mine development and higher maintenance costs, also affected by inflation. In the second quarter, we have invested $116 million in CapEx. The Aripuanã project amounted to $59 million, 49% of the total investment. For the year, we now estimate to invest $255 million to continue developing Aripuanã. Sustaining investments, including HSE, amounted to $56 million in the quarter, totaling $87 million in the first half of '21. As projects advance, we expect the disbursements to increase over the second half of '21, meeting our guidance disclosed in the beginning of the year.

In terms of mineral exploration and project evaluation, we invested a total of $17 million in the quarter, totaling $31 million in the first half of 2021. For the whole year, we expect to continue our mineral exploration and project evaluation and investments as we will maintain our efforts to replace and increase mineral reserves and resources supporting our business growth. On July 21, we published our second exploration report. We hope it could provide further clarity over our results and exploration program strategy.

I will now hand over the call back to Tito. Tito, please.

Thank you, Menck. We are now at Slide 18. Here, we will make some comments about the market fundamentals. Despite some downward pressure during June, zinc price maintained its upward trend and increased by 6% compared to the last quarter. This increase continues to be driven by a global economic activity growth. The depreciation of the U.S. dollar against other major currencies also contribute to higher metal prices.

Despite the challenge imposed by COVID-19, global mine production continues to improve. As a consequence, this had already shown some signs of recovery compared to the last quarter. This could add some downward pressure in metal price during the second half. The big question here is how Chinese mining production will behave.

With respect to copper, price also presented a significant recovery year-over-year and increased by 14% compared to first quarter of '21. Going forward, as the world is in transition to green economy, demand for our products should continue to increase.

Moving now to our last slide, Slide 18. We remain focused on delivering Aripuanã project and strong results, benefiting from the favorable commodity prices and the operational improvements from our Nexa Way initiatives. We expect to be able to continue safely operating and delivering a sustainable result. Although there are some inflationary signs at the horizon, we believe our commitment to cost control and capital discipline will help us to overcome any difficulties. Our products are essential for a growing economy, and we believe we have a unique position to grow in zinc and copper in the long run, creating value for all of our stakeholders.

Thank you all for your time, and let's move to the Q&A session.

(Operator Instructions) Our first question comes from Orest Wowkodaw with Scotiabank.

Tito, I wanted to ask you about the comment in -- that you made earlier and also in the front page of the press release pertaining to this issue of you're evaluating your capital allocation strategy and the jurisdictions where you operate. Does that imply that you're potentially looking at new assets outside of Brazil and Peru? Or am I just reading too much into that?

Orest, thank you for your question. Let's put it this way. I think in the last call, we had already mentioned that we were looking at new assets outside of the 2 countries. I mean we have some resources being [expanded] in the media today, some exploration drilling. And we are also moving to Ecuador where we have just opened up a new subsidiary. And we are talking to potential partners there, junior companies. So the idea is, clearly, we need that to mitigate our geopolitical risks, right? So the best way to do it is actually moving to different localities -- different geographies. It's exactly what we are doing. And of course, we have to be very cautious because everybody is asking us what's going to happen in Peru. We don't know. We are in Peru to stay. It's our home country. But understanding that things are changing everywhere, and so it makes sense to move and to be present in other geographies.

Okay. But it sounds like -- your presence here in these other jurisdictions, it sounds like they're fairly modest, sort of at the exploration type stage.

It is. Yes. Yes. The idea here is -- and we said that in the past. Of course, we have our greenfield projects. They are located basically in Peru and Brazil. But we keep looking around to see if there are other competitive opportunities. This is one of the things that we keep saying all the time. I mean if I can find a very competitive project in another geography that can bring us a higher return and value, of course, we would look for that and maybe just regard what we have in our portfolio already.

Okay. And the capital allocation strategy part of that statement, is that pertaining to sort of new investments? Or could it pertain to higher shareholder returns? Or what are you alluding to there?

So we are still looking at new investments. We want to grow our portfolio. We want to grow in copper. Copper is our priority. Clearly, the market still do not understand completely the zinc market. So we understand that. We want to keep our volumes of zinc. But in parallel, we want to grow in copper. So the capital allocation would be in this direction, right, to look at the opportunity and growth.

The next question is from Isabella Vasconcelos with Bradesco BBI.

I have a couple of questions on my side. The first one on dividends. And of course, you already have a dividend and capital allocation going, looking into the next couple of years. You already have a very comfortable leverage position. So should we see dividends trending up? Or are there other opportunities in liability management? And the second question, looking ahead into the second half in terms of demand, if you can comment, Tito, a little bit on your order book visibility and what you're seeing in the Lat Am market. That would be helpful.

Isabella, this is Rodrigo Menck. I'll answer the first question then for you. Regarding the strong cash position and dividends versus liability management, we have already paid dividends this year. Although we are, let's say, coming from a challenging year last year, we wanted to really be committed to our shareholders, and we had that payment. We don't foresee any additional payment throughout this year. The strong cash position that we have, we have been also using for liability management. We have bank loans mainly that are more flexible to be prepaid that we have been prepaying, as you saw in subsequent events, in our figures that we released yesterday. So we already paid during the quarter around $80 million and an additional $180 million ever since the beginning of July.

So looking forward, with strong cash generation and a proper liability management or liability surveillance here that we have been doing, as Tito mentioned, our goal is to invest and increase the business, so with all the due governance and looking for these opportunities he just mentioned.

Isabella, your second question about the market. Let's put it this way. The market has been very strong. I mean I remember in the last call, I mentioned that we were seeing a very strong first half of the year. And we are still seeing the same situation, meaning U.S., Europe, Lat Am, Asia, all continents, everywhere, we are still seeing a very strong demand for base metals in general. On the other hand, there is a lack of supply, mostly in China. It has to do with the lack of concentrate production. The concentrate production is lower than what was expected it should be. So we are confident that we should have a second half very similar to the first half, meaning in terms of performance, of sales, supply and demand profile and pricing. So we are very optimistic about the second half. Thank you.

The next question is from Jens Spiess with Morgan Stanley.

Yes, so 2 questions. I just want to ask if you could elaborate on the increase of the sustaining CapEx guidance. And also, if you could give us a number of what do you see being the long-term sustainable CapEx. And on the capital allocation, I would like to know if it's fair to assume that you will deprioritize Magistral maybe next year given the heightened political uncertainty.

Let me cover the sustaining CapEx first. Actually, we have been seeing some events there, Jens. First of all, I believe we have, to a certain extent, which is not as high as other peers, market peers, are facing, but we have inflationary costs to a certain extent. But we are also -- you talked about sustaining CapEx, we are increasing development, mine development investment, especially Cerro Lindo. So then with this, you get kind of a rounded-up figure, as you saw. Looking forward -- also infrastructure, I apologize. Once you are increasing mine development and going deeper and all, you have infrastructure, the investment that you have to cover. So this justifies quite a bit the larger amount of this increase you observed.

Looking forward on the long-term sustaining CapEx for every year, we have been discussing this ever since the IPO. I believe proportionally, we have been increasing that as to the new operations that we have in Aripuanã. So I think it's fair that you could think about something around $240 million to $270 million per year. And that's what -- it's a fair reference. This is going to be effectively so. We need to forecast every beginning of the year, which is the timing we provide guidance to the market. But as a rationale, a broader rationale, I think it's fair to assume this type of range.

Okay. Regarding the question about Magistral. We are in the process of actually ending the feasibility study. We -- actually, we are almost done with that. We are only derisking the project. By derisking, I mean we want to be sure that we have everything in place and completely assessed in order to develop the project. It's our priority to have it ready for development. I'm assuming that soon after we finish the construction of Aripuanã, we should be able to discuss with our Board if we'll move ahead or not with the project next year.

When you think about what's going on in Peru with the new President and the new political situation, I said before and I still believe that we should not be very concerned about it because Peru is our priority. Peru has a very stable institutional and political situation. So we are not concerned about the change in the politics there. And the merits of the project would be the ones to justify its development regardless the political situation. So we are just being very precise and looking at the technical aspects of the project in order to decide about its future. I'm optimistic about that, by the way. I keep saying that it's a good project, and we should pursue it.

Next question is from Jackie Przybylowski with BMO Capital.

Maybe I'll ask a question about the projects that you have in your pipeline. I'll start with Aripuanã. And you mentioned some of this CapEx increase. I think if I understood you correctly, some of this CapEx increase is coming from the fact that more workers are opting to live at site rather than fly in, fly out. Does that affect your forecast for operating costs going forward? Should we expect that those might actually be lower than you had previously targeted because of that?

Jack, thanks for the question. Yes, it's not material. It's not a significant value, amount. But yes, the final impact would be an exchange of OpEx for CapEx. You're correct about that. But it's not material. We're talking about $9 million increase in the accounting.

Okay. Okay. Got it. And on that same vein, I guess I mean you continue to list in your MD&A the number of projects that you have in your pipeline. Can you maybe give us an update in terms of what you're thinking? Now that we're getting closer to completion of Aripuanã, are you planning to, in 2022, accelerate your efforts on any of these other projects that have been on the quieter side since COVID?

Okay. Let's -- I'm going to -- I'm taking a picture here, okay, the way I see it from today. It looks natural for us to go for Magistral next year, okay? Despite -- I'm not assuming that -- COVID is still a big problem everywhere. I think the situation is going back to a more -- life is coming back to a more -- to be more normal. But COVID, if it's still there, it's still a matter of concern. Assuming that the situation turns to be more sustainable and quite, we should pursue the next project, that would be Magistral. Following Magistral, looking at our pipeline, it seems to me that Hilarión should be the next one given the good results we are having from the exploration there. So -- and Hilarión is an important project for us because, at the end of the day, it will add additional zinc capacity from our mines. So this, to me, is exactly what we are seeing for the next years -- next few years.

What's the development time line as far as you can tell right now for Magistral? Is this maybe -- like, when would you see it maybe coming into production, like 2025-ish?

I mean it should -- '23, '24, yes, it should be ready, should -- beginning of '25, exactly.

Okay. And then maybe I'll just ask on a separate topic. Roberta mentioned earlier in the call Extremo Norte, I think, starting to resume production in Q1 2022. Is that correct? Can you give us a little bit of update on like what you're looking to do there?

Yes. We are going back to the development now. We'll start development actually next week, which is good news. But since we -- when we stopped production there, we had to replan our production in Vazante mine. So we are not considering that Extremo Norte will produce anything on the second half. We will just concentrate on development and actually having it back in production at the beginning of next year. We will replace what Extremo Norte would produce in '21 by more production coming from the main mine, the Vazante mine.

How does that affect grade? Like, how do you see the grade in second half of this year? And then how does that change once Extremo Norte comes back in?

It doesn't. It doesn't. We should see the same grades we had in the first half. It doesn't change anything.

The next question is from Alex Hacking with Citi.

Yes. I have a couple of follow-up questions. Just following up on what Orest asked earlier. I just want to clarify around geographic diversification. Just so I fully understand, is that something that you think is strategically preferable, to diversify outside of Brazil and Peru? Or it's more a question of just chasing the best projects and having some optionality in case the investment environment in those 2 countries isn't so good? And then just on Magistral, are you -- is it still going to be a 30,000 ton a day project? Has anything changed there? And if I remember correct, there was an issue with one of the communities that you had to work around their land. Is that side all resolved, all the community relations and everything?

Thank you, Alex. In terms of our speech about jurisdictions, I would say that the kind of in both situations -- I mean, we are looking at new geographies in order to work on our risk profile, geopolitical risk profile. And of course, we are also looking for good assets, right? So I would say, of course, if tomorrow, someone comes to us and offers us an interesting project in Brazil, of course, we would look at that, okay? But if I have opportunities to be somewhere else, I would do it. Clearly, we've been kind of punished for being only in Brazil and in Peru. So in our view, it makes sense to look at other opportunities and other places.

In terms of Magistral, we are keeping the same size of the project, 30,000 tons a day. There is no change on that. Of course, we had a chance to look at different possibilities. We are still looking at possibilities, but it seems to us that it makes a lot of sense to have scale there. So economically speaking, it would be better to actually produce with large volumes daily.

Issues with the communities, we don't have. I mean we have a good agreement with the community where we will be operating. This has been in place, if I'm not wrong, over the last 4 or 5 years already. There is another community, which was in dispute against the first one. But the dispute is among them, and it has to do with the limits of each area that belong to each of the communities but doesn't affect our project directly. So it's an internal dispute between them and doesn't affect our relationship. In general, we are doing fine there. There are no issues with them.

Okay. Great. And good luck with Aripuanã.

Thank you.

The next question is from Hernán Kisluk with MetLife.

Congratulations on the results. It's a follow-up on many of the political issues that you have been discussing so far. So we have seen Castillo's inaugural speech, talking about social returns for mining companies. So I'm wondering what you are foreseeing here. Are you thinking here maybe higher taxes, higher labor costs, more restrictive environmental regulations? And with all of this mix and if the situation takes a turn maybe for the worse, with a more aggressive government, what are the legal means that Nexa has available to try to fend off attacks or higher costs that go beyond what is rational?

Wow, they're very good, very huge, very broad questions, but thank you. What happens is the following. We rely on the institutions in Peru, okay? So we trust -- the Peruvian democracy has been in place for decades already. There were different governments along the last 20 years from the left or from the right, and the economy and business were run in a very sustainable way. The government is saying now that they may go for increasing taxes. They want to distribute better the income. But we have to see how the Congress will react to the position of the President because the President doesn't have the majority of the votes there. So we don't think it's going to be a -- that there will be a major change, a disruptive change, in the way businesses are treated by the central government in Peru because of the difference between what the Presidency wants and what the Congress defends, supports.

Clearly, there's no match between them, which actually can keep the institutions working as usual. So we are not so concerned about it right now. And then, of course, we have to wait and see how the politicians will behave along the next few months in order to be able to define that there will be a major change, but we don't think it's going to happen.

Okay. And my second question on that regard, do you have tax stability agreements in place in Peru?

Menck, do you want to answer that?

We have just one agreement with Cerro Lindo, and this will end until the end of this year. It finalizes in December this year. So from next year on, there are no tax agreements in place. There will not be any tax stability agreement in place.

(Operator Instructions) The next question is from Lucas Yang with JPMorgan.

I have 2 brief ones. First one is that you mentioned that the outlook for price is positive, and there should be no changes in grade, right? Mining costs were very low year-to-date, and the guidance wasn't changed. So my question is, do you expect a pickup in costs into the second half? And why is that? How should that play out? My second question would be -- every change in Peru will depend on Congress and, like, how the political scenario will play out. But do you think that with the Castillo presidency, there should be more risk on the labor side, maybe strikes and things like that? So if you could explain to us a little bit how the labor contracts were [decked], what are the risks, that would be great.

Okay, Lucas, thank you for your question. First of all, on the cash cost, we know we are conservative, to some extent, in maintaining what we see as mining costs. But let's be reminded that part of the decrease comes from -- also from prices in byproduct and that the prices are still showing some volatility. And also, we have been -- as I mentioned in another response here, we have been seeing some higher investments in mining development as we're increasing our scope of work in the mines. So this might impact as well. So the thing is, the way we saw the year back in January when we released the guidance had some changes. Some are positive impacts. Some are negative impacts. And we understand the guidance still represents a fair information about what to expect throughout the year. Have I addressed your question?

Yes, it's very clear.

Okay. About the second question, we have had a very stable relationship with the unions in all of our operations in Peru. From time to time, there is some noise, but it's a thing that we consider very normal, nothing that will call our attention. With the new government, I would say that I'm not expecting to see a major change in the relationship with the unions. It seems to me that the government is more focused on promoting social development. So what we may see is more discussions and negotiations with local communities because, as you know, we've been supportive to them all the time. I mean it's part of our work -- our industry is very important to the country. So it's part of our lives and our daily business actually being closer to the community. So we may see it increasing, this relationship increasing. But in general, I'm confident that the situation would not change much.

This concludes our question-and-answer session. Now we will hand over to Tito for his final remarks. Mr. Martins, please go ahead.

Thank you very much. Thank you all for being here today. We are still living a difficult time because, as I said before, COVID has not ended up yet. But it seems that the situation is improving a little bit. I mean we see less people being contaminated. Vaccination is increasing. So we are very optimistic about the second half of the year. As I said before, market has been very good and seems to aid our operations. They reached a very stable level. So we're expecting a positive scenario and a positive performance for the rest of the year. In the case of Aripuanã, as I said, we are very optimistic. We believe that we will be on time, on schedule. So we should end up the year ready for production in 2022.

So once more thank you very much. We are available, our team. The Investor Relations team is available to speak with you at any time. And I wish you a good weekend. Thanks very much.

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