Nexa Resources SA (NEXA) 2021 Q4 法說會逐字稿

Good morning, and welcome to Nexa Resources Fourth Quarter and Full Year 2021 Conference Call. (Operator Instructions) This event is being recorded and is also being broadcast via webcast and may be accessed through Nexa's Investor Relations website where the presentation is also available. (Operator Instructions)

I would now like to turn the conference over to Mrs. Roberta Varella, Head of Investor Relations, for opening remarks. Please go ahead.

Good day, and good afternoon, everyone, and welcome to Nexa Resources' Fourth Quarter and Full Year 2021 Earnings Conference Call. Thanks for joining us today.

During the call, we will be discussing the company's performance as per the earnings release that we issued yesterday. We encourage you to follow along with this on-screen presentation through the webcast. Before we begin, I'd like to draw your attention to Slide #2, as we will be making forward-looking statements about our business. And we just ask that you refer to the disclaimer and the conditions surrounding those statements.

It's now my pleasure to introduce our speakers. Joining us today is our CEO, Ignacio Rosado; our CFO, Rodrigo Menck; and Leonardo Coelho, our Senior Vice President of Mining as well, the Investor Relations team. With that, I'm going to go ahead and turn the call over to Ignacio. So Ignacio, please go ahead.

Thank you very much, Roberta, and thanks to everyone for being with us this morning. This is my first formal interaction with the financial community since I was appointed CEO. It is a privilege to lead this company and be part of this very talented group of people.

During my transition period, I had the opportunity to visit all the operations, and I believe we have world-class assets with high safety and environmental standards. I'm also impressed by the commitment of all the team and a strong culture based on diversity.

Please let's move now to Slide #3, where we will begin our presentation. In Slide #3, as you can see in our highlights, 2021 was a very strong year for Nexa. We had a strong operating results and achieved guidance in production, mining cash cost, and metal sales. Aripuanã is on track to production, and we believe it will become a flagship operation with a long life of mine.

I will also give some update on our exploration program. We have been very successful in finding potential in most of our mines. We have continued to benefit from high base metal prices that, combined with our strong operational performance, generated a high adjusted EBITDA and a strong cash flow generation. Our balance sheet continues to be strong with available cash of over $1 billion and a low financial leverage. Finally, we remain very optimistic about market fundamentals.

Moving now to the next slide, Slide #4, I will discuss our results in more detail. In this slide, you can see that zinc production in the fourth quarter of last year decreased by 12% compared to the fourth quarter of 2020. This was mainly driven by lower production in Cerro Lindo due to the expected lower average grade and temporary reduction in production due to a community stoppage in December. However, in 2021, zinc production reached 320,000 tons, which is 2% higher than in 2020. This increase was possible due to the higher production in our mines in Peru, but partially offset by lower production in our Vazante mine because of the Extremo Norte suspension. This area of the mine restarted its activities during the fourth quarter of '21 ahead of our initial plan.

Mining cash cost in 2021 decreased by 45% compared to the prior year, and this was mainly explained by higher by-products and lower TCs. It is worth mentioning that we had increases in operating costs related to maintenance activities and third-party services. And we also faced and continue facing inflationary cost pressures.

Now moving to the smelting segment. In 2021, metal sales total 619,000 tons, 6% higher than in 2020, mainly due to a higher production in Cajamarquilla. In this smelter, despite the stoppage of our calcine supplier, (inaudible) at the beginning of the year, we were able to source material from third-party companies and increase our sales year-over-year. Our smelting cash cost in 2021 increased by 39% compared to the one in 2020, and this was mainly driven by higher LME prices that increased 33% and lower TCs.

Now moving to the next slide, to the completion of our Aripuanã project. In Aripuanã, we made a strong progress in 2021. Overall, physical progress has reached more than 99% at the end of December. Mechanical completion is almost concluded, and commissioning is underway in parallel. It is worth mentioning that during the last 2 months, productivity of the workforce went down due to heavy rains and the impact of the Omicron virus. These effects, combined with engineering issues, added additional pressures on cost and in the project time line. Considering these effects, the ramp-up is now scalable for the early third quarter of 2022.

In mine development, we have been very successful developing our Arex and Link mines and have reached 2.5 months of production in stockpiles. I had the opportunity to visit Aripuanã in December last year, and I am impressed with the high quality of infrastructure, a strong mine development program and potential to grow reserves. I am confident that Aripuanã will become a long-life flagship mine.

Moving now to the next slide, where I will give you an update on exploration. In 2021, we executed over 110,000 meters of exploratory drilling. At Cerro Lindo, the discovery of the [Pukaqaqa] mineralized body opens a large and promising brownfield exploration zone. At Vazante, that brownfield exploration confirmed the extension of ore bodies especially in Extremo Norte. At Aripuanã, exploration drilling continued at Babaçu ore body with very promising results.

In the following slide, we show that at the Pasco Complex, the results on our Sara ore body are very promising, and we are aggressively drilling the San Gerardo pit to extend its life. In Bonsucesso, our advanced projects that will accommodate its ore in the Morro Agudo plant, our exploration plan is reflecting continuity in the parallel ore body.

Finally, I would like to comment on Hilarión where the 2021 drilling campaign was completed and confirms the continuity of minerals in the southern extension.

Moving to the next slide to show our financial results. Beginning with a chart on your upper left, consolidated net revenue for the fourth quarter grew 7% compared to the fourth quarter of 2020. This was mainly driven by higher LME prices. In all 2021, net revenue increased by 34% compared to 2020 due to the higher prices and volumes already explained before. However, consolidated adjusted EBITDA for the quarter decreased by 19% and this was explained by, number one, we have recognized a noncash impact of $6 million related to our annual asset retirement obligation.

Second, due to the sharp increases in metal prices at the end of the year, we had a temporary difference in the hedge book with a negative impact of $18 million. Such impact is expected to be reversed in the upcoming months as the stock position turns over. Last, the temporary decline in Cerro Lindo affected the production, and this was on community relation problems.

Nevertheless, the adjusted EBITDA for 2021 was a record high and increased 75% to $704 million. This was driven by higher volumes and increases in prices.

In the next slide, I will discuss the financial performance by segment. In the Mining segment, net revenue total $323 million in the fourth quarter of '21, an increase 20% versus 2020. This was mainly driven by higher average LME prices and lower benchmark TCs. Adjusted EBITDA followed the upward trend and reached $110 million, 26% higher compared to the fourth quarter of 2020. In all '21, mining net revenue grew 56% to $1.2 billion, supported by the same effect mentioned before. Adjusted EBITDA was $441 million in 2021, resulting from a strong performance across all mines.

In the Smelting segment, net revenue in the fourth quarter of '21 totaled $516 million and rose 7% versus the same quarter in 2020, also supported by higher LME prices. Adjusted EBITDA was $27 million, a decrease compared to the fourth quarter of 2020, mainly explained by lower volumes and TCs and in addition to the factors I mentioned in the previous slides.

In 2021, net revenue grew 31% to $2 billion and was also supported by higher LME prices and the increase in sales volume, while adjusted EBITDA was almost flat year-over-year.

On Slide 11, we can see the strong operating cash generation of $277 million. Most of this cash flow has been invested in Aripuanã. We have also prepaid debt of $276 million and paid dividends of $52 million, which includes [Polarix] dividends paid to minorities. With all these effects presented in the slide, free cash flow in 2021 was a negative $342 million. This negative effect was possible to be financed due to our strong cash balance explained in the following slide.

In this slide, you can see that our liquidity remains strong as we continue to report a healthy balance sheet with an extended debt profile. By the end of the year, our current available liquidity was $1.1 billion, which includes our undrawn revolving credit facility of $300 million. As of December 31, the average maturity of our total debt was 5.3 years with a 4.7% average debt cost. Our leverage, measured by the net debt to adjusted EBITDA ratio, decreased to 1.37x from 2.29x at the end of 2020 and this was mainly driven by higher adjusted EBITDA explained before.

Now moving on to Slide 13, where we present the market fundamentals. In this slide, we want to show you that the average price in 2021 increased more than 30% year-over-year. During the last months of 2021, the price had a stability between $3,300 and $3,400 per ton. And more recently, the price has increased and was trading above $3,600 per ton. Copper prices also follow this upward trend and increased by 50% in '21 compared to 2020. Regarding market fundamentals, you can see that the supply projections for zinc are above real mine production. And this effect, combined with a strong demand, create a strong scenario for zinc in the coming months. So in a scenario where macroeconomic factors should be less volatile, the price of zinc should reflect market fundamentals, meaning that prices are expected to be at high levels in the coming months.

I will now turn over the call to Rodrigo Menck, our CFO, who will comment on our 3-year guidance. Rodrigo, please.

Thank you, Ignacio, and good day, everyone. As shown on Slide 16, for 2022, zinc production at the midrange of the guidance is estimated to decrease by 5% from 2021, driven by expected lower grades from Cerro Lindo and the temporary capacity reduction in Vazante as a consequence of heavy rainfalls in the state of Minas Gerais. For 2023, zinc production is estimated to increase 16% over 2022 due to the startup of Aripuanã and with a further 1% in 2024 over 2023.

At the midpoint of the guidance range, copper production in 2022 is forecasted to increase 6% on average compared to 2021, mostly driven by Cerro Lindo and Aripuanã. On the same basis, lead production follows the trend and should increase by 5%. In terms of cash cost, we estimate mining average cash cost of $0.23 per pound in 2022 compared with $0.21 per pound in 2021 as we forecast. Inflationary pressures impacting third-party services, logistics and consumable goods, continued health protocols to fight COVID19, which should be partially offset by higher by-product credits in our Peruvian mines and cost reduction and operational efficiency initiatives.

Turning to Slide 17 for our Smelting segment, 3-year guidance. Metal sales volume in 2022 at the midpoint of the guidance range is estimated to decrease 7% from 2021 due to lower production. As we disclosed in the first quarter of '21, our calcine supplier in Peru shut down its facility. And for the forecasted period, we are assuming it will not resume activities. The temporary decrease in Vazante's mine production is also impacting the production of our smelters in Brazil during 2022.

For 2023, '24 we assume supply from our mines maintains historical levels. And thus, we expect sales volume to increase over 2022. Despite such decrease in volumes, we remain focused in improving the profitability of our business. In terms of cash cost, we estimate smelting average cash cost of $1.15 per pound in 2022 as we forecast inflationary cost pressure on third-party services, consumable and labor costs, higher energy prices and concentrate prices at higher levels, which should be partially offset by higher by-product credits and continued cost reduction initiatives.

Turning now to the next slide, Slide 18. For 2022, we expect capital expenditures of $385 million. We estimate to invest additional $55 million to conclude the implementation of the Aripuanã project. Sustaining investments are expected to total $256 million, including $42 million for Aripuanã sustaining expenses. Also, we expect to invest $12 million in technology and contribute $5 million to our host communities where we invest in education, training and we endeavor to hire local services supporting their social and economic development.

In terms of mineral exploration and project evaluation, in 2022, we estimate a total investment of $82 million as we maintain our efforts to replace and increase mineral reserves and resources supporting our business growth.

Moving to Slide 19. I where we provide more details of our exploration strategy for 2022. We plan to drill over 120,000 meters being approximately 63,000 meters in Peru, 50,000 meters in Brazil and the remaining amount in (inaudible). Our focus is to expand mineral resources through brownfield and infield drilling near operating mines and extension drilling on advanced projects.

I will now hand over the call back to Ignacio for his final remarks. Ignacio, please.

Thank you, Menck. I am now on Slide 20. I would like to close this presentation by briefly explaining our priorities for this year. We need to focus on taking Aripuanã into production and work on its life of mine extension. We also need to continue working on improving our cash generation from our operations. I believe there is still room for cost reductions and CapEx optimization. Extending our life of mine -- of our mine assets is also a priority, and this action has to be implemented in combination with a clear growth strategy in copper.

Finally, a strong balance sheet is a priority so we can fund most of our growth with our cash flow. Thank you all for attending this presentation. I will now open up for questions.

(Operator Instructions) And our first question will come from Carlos De Alba of Morgan Stanley.

Good luck with the new responsibilities as a CEO. I have a couple of questions, maybe 3 questions. One is on the smelting results in the fourth quarter, which were very challenging and below what we were expecting. And those are related to the price effects. One is the hedge and the other is the -- what it was called adjustments on the quotation period in that operation. Could you maybe give us a little bit more color on the quotation period that maybe that is provisional pricing, but what we see is that zinc prices increased following September 30, and therefore, we would probably expect a positive impact on higher zinc prices versus the curve that existed at the end of the third quarter. So some color there will be appreciated. Maybe we just didn't have it clear.

And then on the hedging also. Could you give us some comment as to what exactly is the smelting business being hedged or has been hedging given that prices went up and that would have been a negative for the smelting business, but we would have thought that then the hedges would have give you a positive benefit or positive result as potentially that was what we would expect, the company was going to try it and hedge. And then finally, if you could give us some color on what are the conversion costs embedded in the guidance for smelting in 2022 to 2024 period?

Okay, Carlos, thank you for the questions. So Menck is going to give you more color on the detail on hedge. But first, I would like to comment that and reiterate what happened in -- what I explained in the presentation that the hit we got in the fourth quarter of 2021, and this was a big hit in our EBITDA, was around $40 million. One was because of Cerro Lindo, $6 million, and this was this 4-year stoppage that we have because of community relations problems. The second one was $6 million related to mine closure effects. This is a noncash item. This is a provision, yes? The third event that happened is that there are almost $10 million on Aripuanã that there are expenses such as insurance and other expenses, the construction of the hospital in the town and others that you cannot capitalize in the project. So these are new to us. So these were mainly affecting the fourth quarter of 2021.

And on top of this were the $18 million on hedge that hit us, but it's very important that we know that this effect is going to reverse. So Rodrigo is going to explain this effect to you more clear so you can get a flavor of what's happening and how is this going to reverse.

Carlos, nice talking to you. The hedge that we do is not hedge on pricing for final sales only. This would be fixing the revenues, and this is not the intention. What we call here hedge book is to match the Q piece for the concentrate we buy from third parties in relation to the zinc metal that we're selling on the other end originated by this third-party concentrate. So the idea here is pretty much to match the cash flow from what we buy, which usually is a QP M-1 and then what we sell, which is the QP of the month, and we try to match this.

There is a part of the entry of the concentrate in the zinc metal that goes to inventory. And this is what imbalance this specific hedge because there was an increased position in inventory, which will be sold in the coming months and will reverse the negative impact of the hedge of that month when it turns into cash generation. Do you see my point? Is it clear?

Yes, Rodrigo.

Yes. And one more comment, Carlos, because we were reading most of the reports that came out this morning, and we thank you for that, is that in terms of costs, yes? The cost per ton in the mine and the cash cost overall were in line with what we had. We didn't have increases on those. We had inflationary pressures in some items that we don't control. And we have some maintenance, additional costs and some third-party services cost that always happens when we have prices that go up, costs related to labor because people demand more salaries, cost related to oil, cost related to energy today. Energy today is going up, and others. So we have been able to offset most of those with some productivity measures, so the cost part at the mines is becoming flat, and we are expecting similar trends in 2022.

So I wanted to tell you this because this is important for us that you will know. We will provide in the coming months more color on costs. We know that we disclose costs on a cash cost per pound basis, and we would like you to expose more in terms of costs at the smelting and at the mines.

And just on cost then of the guidance on the smelting costs. You provided the cash cost guidance. Can you give us the underlying assumptions for conversion costs that basically do not include the benefit of by-products?

We don't have that information to be disclosed now, Carlos. Conversion cost is something that we are following up constantly so that we can have a reliable source of information. And once we have the performance of this specific KPI, we intend to disclose an additional guidance for next year. So I would ask you for a bit of patience so that you can follow up this information in the coming quarters.

The next question comes from Jackie Przybylowski of BMO Capital Markets.

I wanted to just go back to the Aripuanã project. I think actually this question was asked last quarter. But can you maybe talk about the gap between the hot commissioning or the hot and cold commissioning, I think, which has already started and the first production which looks like it's now been pushed back by 2 quarters to Q3 2022. What exactly -- what activities do you do in the meantime to get to that first production after the commission has been completed?

What really happened, Jackie, here is that we were somehow optimistic in the guidance we gave before, yes? And I guess we were -- the factors that we were considered in our timetable really went wrong. What happened was that between December and January, they were -- I mean we were impacted by rainfall, really heavy rainfalls. We were impacted by the Omicron virus that -- and the 2 of them combined reduce the productivity of labor force, yes? And that is one effect.

The second one is related to turnover, yes? You know that when you have like you are towards the end of the project, most of the workers, knowing that the project is finishing, they try to go to different areas so they can work on new projects and have more stability. So we had like 1,500 people in the last 6 months that leave the project -- that we're leaving the project, and we needed to hire more. And we hired almost 700. But hiring, the cycle, it takes at least 3 weeks. So it's not that easy. And this effect was more relevant towards the end of the year.

And then we also had some problems with the engineering especially in piping. And this is something that I don't know if the company explained before. But when you have a design that has some gaps when it started, at the end of the project, most likely it will hit you because some of the piping design and some of the piping infrastructure won't match and you have to fix that and that takes some days and sometimes weeks.

And on top of that, I can comment on -- and this isn't mechanical completion. The some quality of equipment that was not built on specifications or specifications were a little bit different than what we have. So what we did is we have a lot of detail on this in December and January. And we knew that this was going to be a delay. So we put a plan to try to catch up to this, but it was very difficult because we are finishing the project and you cannot change that much of what you have. So what we are doing is that we're saying that mechanical completion is finishing. I mean it's very, very close to finish. So this is something that we don't see a delay on that. Commission is underway, and we are following up commissioning in a very close way.

And the ramp-up will come after commissioning, but you know -- well, at least this is the experience that we have between the commissioning and the ramp-up. I mean it could be 1 or 2 weeks of delay because it's always a matter of the process. So with all these factors, we wanted to be more -- give more clarity to the market. I know that the market -- it was not expecting this. I know that we have been missing this guidance in the last year and this project was a difficult one and created a sort of gaps on credibility of Nexa. But the only thing that we can do now is make sure that we finish the project in a good way. And we are expecting to start the ramp-up and production in the third quarter. Hopefully, early third quarter, we will keep you up to date.

So having said this, given that I am new to this, and I understand all this frustration of the market, I really, Jackie, want to focus on the future of Aripuanã because, yes, we spent more than $600 million here. This mine is going to become a reality this year. And what I have seen in terms of the future of Aripuanã is very good because the ramp-up -- the mine is prepared for the ramp-up, the mine is prepared for the plan for the following 2023. And today, we have like 11 years of reserves. And I believe that because of this potential in Babaçu and this infill drilling that we are doing on our resources, I believe that we could expand the life of mine going forward, and we have very aggressive targets for '22 and '23.

So in summary, we were optimistic on the time line. These effects that I explained hit us very much. We are towards finishing this, it's going to be easier in terms of we know what we need to do. We will make sure that we are tight on doing what we need to do. We are focusing on the ramp-up. And also, we are focusing on the future of Aripuanã. So hopefully, once we finish this, and we show you the upside on Aripuanã, hopefully, you will see that what I see, which is a very good project executed probably in a not that very well way, and we recognize that as a company, but it's a very good project that going forward is going to create value for Nexa. So that's more or less, Jackie, the explanation.

That's super helpful.

The next question comes from Lawson Winder of Bank of America Securities.

Ignacio, Rodrigo, Roberta, and team. Thank you for the update. I would like to get an understanding of the impact of COVID and absenteeism and what your outlook is for that to improve. So how has that trended so far in January? And when do you expect you can get back to a point where absenteeism is back at a manageable level, particularly with respect to Aripuanã, but also with the other operating underground mines and even the smelter to the extent that they were impacted?

No problem. Yes. It's good question because we have to separate Aripuanã with the other mines because Aripuanã is a project that has workers that do specific areas and that if you don't have them, you get productivity problems. So Aripuanã got at the peak, almost 900 people that were positive. You know that Omicron is not a virus that is heavy today. I mean if you are vaccinated, you don't go to the hospital and you don't get sick. Sometimes yes, but it's not that trend. But you have to isolate the people because that's the protocol and that's a responsible thing to do. So in the case of Aripuanã, replacing these people was very difficult.

In the case of the mines, even if we were finding the same effects and we were seeing increases in positive cases week-on-week since, I would say, last week of December and January and towards the end of January, in some of the mines, we have 300, 400 cases that were not present. You can focus on activities that are related to the production, and this happened. We were hit in Peru more because the loss in Peru, when you are positive at the beginning, you needed to isolate people for 14 days. It went down to 10 days and after that, it went down to 7. But in Brazil, it was easier because it was only 7 days. So the people going back to the mines and smelters in Brazil was faster than in Peru.

So -- but what we did was try to make sure that with all the safety protocols that we follow, we make sure that the main activities to not affect production were being taken care of. So we got some delays on, let's say, development of the ramps and the stops, some projects that are delayed right now, but these are not critical for this quarterly production. However, we will need to catch up with those activities in the future. And we are taking care of those activities right now. So the short question is, the COVID didn't impact the mines and the smelters, impacted the Aripuanã project. And because -- and this is the case in Brazil and in Peru and I would say most of the countries, the trend is going down of positive cases in most. And this is not the exception for Nexa. So since the last 2 weeks, we have been -- we've been looking at trends that are negative. Positive cases are lower now. So we are recovering from that, and we are doing much better.

I think it's worth mentioning, and this is the case of the mining industry and especially with Nexa, is that we have been able to manage, I mean we are very robust in COVID protocols today. In Nexa, we have 2 weeks -- 2 meetings a week where we evaluate every case, and we evaluate all the operations and what are affecting them, not only to follow on COVID, but also to make sure that the safety standards are always there. So this -- I guess, the -- for these Omicron virus, the worst has ended. We don't know if more viruses similar to Omicron will come, but we believe that we are prepared for that. We are not projecting that in our estimates, in our projections, but we believe that we are prepared for that. And I think the world is prepared for that as well. So we are following that trend.

Okay. Also, I'd like to ask about the cost reduction initiatives. And particularly for 2022, which of those do you view as the most promising? And could we start to see those flowing through with lower 2023 like unit cost guidance versus the 2022?

Yes. I think we have our VP -- Senior VP of Operations here. I don't know, Leo, do you want to comment on those?

I think I can add some comment on that, Ignacio. And I think most of the cost optimization or reduction initiative, it's coming to look at all the cost lines that you have, also addressing some productivities increment that can, in the end, reduce our cost, and this is changing the way you are operating nowadays, trying to offset the inflationary increments that we are seeing so far. And what we are targeting right now is to really come back, look again for some productivities and cross initiatives that can go across all the operations so that you can try to raise new additional cost initiatives to be -- to continue to work on the program as we did so far. So productivity, some cost reduction and some cost optimization were the ones that we have been following so far.

And would you -- I don't know if you want to comment now, but just in terms of 2023, can you see some positive impact in 2023, would that be fair to expect?

It's very difficult to project that. What I can tell you is that what we are trying to do is make sure that we keep track of all mines and smelters on a monthly basis in terms of costs and CapEx. What Leo is explaining is that, I mean, if you see -- I would say, if you put all the [pi] on costs, 30% of the costs are productivities are people. So we are -- this year, we are focusing on that very much. We are, as Leo was saying, we are also focusing on other initiatives. So this trend is going to go, and it should be impact 2023 as well. What happens with inflation in 2023, we don't know? But we know that most of inflation of 2022 is going to be offset not only with these measures at the mine, but also with other, I would say, initiatives in logistics because there are some prices that you don't control. The price on oil, the price on energy, you don't control. But in the prices that we control, we are trying to find more initiatives to try to compensate in part these pressures.

But to go further to 2023, I would say, is difficult because -- one factor that I would like to mention also is that the FX in Brazil has been helping us. Most of the costs in Brazil are in reals, so FX is helping us, not in Peru. In Peru, a good part is in dollars, but that is helping us. So there are some variables that we don't control that we don't know how they will impact in 2023. But what I can say is that what we are always saying, and this is something that, as I explained, we're going to build a month-on-month is to make sure that our cash cost per ton, that is the one that Leo really controls and (inaudible) and the smelters as well, the conversion cost, is always flat or goes down in terms of productivity measures that we take to be more competitive.

So that's more or less this explanation. So I don't know if you have any other questions here.

No, that's abundantly clear. And actually, if you wouldn't mind, I just had one clarification point, and I apologize to belabor this, but on the $18 million hedging impact from Q4, should we be putting a positive $18 million working capital adjustment in our cash flow for Q1? Sorry, just to be really clear on that.

Conceptually, yes. But it will depend on how this inventory is realized throughout time. So conceptually, it should be the case. Of course, there are some variances, but when you consider inventories being accounted for as first in, first out, this is diluted throughout the quarter. It's not necessarily directly $18 million because they will be compensated by the incoming inventories, but conceptually, you're correct.

The next question comes from Orest Wowkodaw of Scotiabank.

Ignacio, I'd like to get some color from you just as the incoming CEO and how you see the future of Nexa with respect to growth. And from our perspective, obviously, the development of Aripuanã has not gone as expected. But at the same time, it seems like you've lost some third-party zinc feed in Peru. So I'm wondering, strategically, whether you plan to -- Nexa plans to take a pause on building kind of the next generation of mines to generate positive free cash flow delever or whether you see moving to the next project fairly quickly in order to make up that concentrate for a fall?

No, no, you're right. I guess for me, there are two actions that we have to take here. The first one is we want to make sure that we deliver on cash flow in 2022. We have some targets here, and I can tell you that our mines and smelters generate cash flow. And to give you an idea, the expenditure of Aripuanã in the last 2 years was $400 million. So last year was $260 million and this year it's $130 million. So it's almost $400 million. And we paid that from our cash flow from operations. So what I'm trying to do -- what we are trying to do here is that Cerro Lindo, Vazante and Aripuanã in '22 and '23 start to optimize their cash flow with these productivity measures, with this optimization of CapEx and make sure that we have or optimize discussion on these 3 mines. On top of that, we have other 2, the Pasco Complex, that is El Porvenir and Atacocha, and there has been a project around the integration of 2. These 2 have a lot of potential underground Atacocha, but if you go directly only in Atacocha, the cost of developing that is going to be higher, so you won't get reserves. But if you use the infrastructure of El Porvenir and you upgrade that infrastructure, you might be able to connect them. So this project has been as we were assessing this project in the last 2 years.

And what I'm trying to do is, okay, we have to -- we need to have a clear view on this because we have an idea that is profitable, this complex is going to also generate a lot of cash flow in the coming months, and I would say in the coming years. So that's a question mark that I will clarify in the coming months. And if we have something, we will get back to the market. On top of that, we have a small mine that is Morro Agudo in Brazil that has all the infrastructure. It has the plant, has the tailings dam, has the camps, has good infrastructure. And it's a mine that doesn't generate a lot of cash flow. But there is this Bonsucesso project that is very close, and that is going to FEL3. So we believe that it's a good project. If we see that it's a project that we have to implement, this is -- this metal is going to be accommodated in Morro Agudo infrastructure.

So for the time being, we have 3 important mines that generate between, I don't know, 280,000 to 320,000 tons of zinc. We have Cerro Pasco that we have to get clarity and then Bonsucesso. The view that I have, and I have been sharing this with the team and the Board is that, okay, this amount of zinc in the coming years is enough for us to be diversified or to be concentrated on zinc. We have a project that is Hilarión, very promising, but very early stage. We are signing some budget this year, but it's something that is early stage. And we will evaluate if we will be Hilarión in the future. And that's the same part of the equation.

The other part of the equation is, okay, guys, we have to diversify the metals, and we have to enter in copper. And what we are aiming to do in copper is today, we produce 30,000 tons of copper. So we are aiming to produce more, to produce at least 2 or 3x of copper. So many things -- or many alternatives to do that. So you go into your pipeline, and you see that we have Magistral. I had a quick view of Magistral, and I went through all the details, and we have a lot of discussions. And I think Magistral is a good product. It's in FEL3. But we are assessing, again, the CapEx and we are assessing the country. I am Peruvian, I know Peru. And I don't think that this government is going to create a lot of impact in the mining sector in Peru. But this project is going to be built in the coming years, but you don't know what will happen in Peru in the future. And as a company, we need to diversify risks from Peru, especially from Peru. I have a very positive view on Brazil.

So Magistral will compete with other opportunities that we will see in the market. And these opportunities will be we will try to have these opportunities in producing mines and in close to producing mines in brownfield projects, which ones are the best depends on the assessment. I mean we know that all of them are always expensive, and this is the case of the market. So we have to be patient, but we have to be very active. We have to be very active on those. So through that, we are putting together a team that is going to take care of that. And that team has to be active in the market looking for opportunities. We are open to have JVs here to get bigger projects. We are open to many alternatives here because we want to make sure that with the zinc cash are raised and having exposure to copper, we will have a more diversified company.

The third pillar is the smelting business. And I know that the company has been talking about the smelting business being integrated with the mines. My view is that the smelting business is strong enough to be isolated and to be profitable by themselves. What I'm trying to say here is that Cajamarquilla, which is a fantastic operation, has to look for options in the market to get the concentrates and feed the plant. It's a very, very efficient smelter and makes a lot of money. This next year's -- the by-products are helping very much, the sulfuric acid especially. Três Marias is integrated with Vazante. Vazante is a long life of mine. So as Três Marias will be there for many years.

In the case of Juiz de Fora, it's not that big, but it's very efficient and it gets cash flow. So I guess the strategic plan for the smelters will be, okay, guys, how are we going to transform it in terms of technology, these 3 smelters? How are we going to be able to recover other by-products and how are we going to position this smelters to be low transformation cost in the future? So this is more the overall strategy that we have. I guess that it's somehow easy to explain. I guess that it's going to be very difficult to implement. But we have clarity on that. So we will know.

I appreciate the color.

Our next questions come from the webcast. Isabella Vasconcelos from Bradesco. We would like to know your view on the zinc market outlook given recent strong performance and our capital allocation strategy. Should we expect higher dividends, wide growth projects, post Aripuanã takes some time to materialized?

Yes. Okay. As we were saying in the presentation, the zinc market outlook is strong today. Many factors. Mine supply is today low. And you can see that in the treatment charges going up. And I mean it won't be a dramatic increase in TCs, but we are seeing TCs going up and this is because mine supply is not catching up with the projections of the market. If you go to the smelters, the smelters are facing a lot of costs, especially in energy costs. And you have the news that some smelters are announcing that they will cut production because they don't want to face these costs and the conversion costs are too high for them to operate. So you are -- you have scarcity of metal as well.

And on top of that, you have a world that is -- the fundamentals of the demand are there. And the world is demanding the zinc right now. So in this equation, zinc should be high in the coming months. What will happen in, I don't know, towards the end of the year, we don't know. But this trend is going to -- we believe this trend is going to be or going to prevail in the coming months.

Regarding the capital structure, as I was saying in the presentation, we have like in debt, we have a maturity of more than 5 years. So it's very -- goes very far in the years. We have a cash on balance. And as I was saying, we are trying to build also cash flow in these coming years. And that cash flow part of it will go to dividends.

I'm new to this, and I don't have -- probably Rodrigo can help me with that. I don't have like the policy of dividends, but we will give dividends back to the shareholders. And we will keep some cash flow to fund this growth. At the same time, we at Aripuanã, we're going to do that. And if we have some good opportunities that are above the cash flow that we generate and the balance sheet that we generate, we will assess other alternatives. We have discussed this with the Board, with some shareholders, and they are open to see alternatives if we create value. So I guess there is clarity around that.

I don't know, Rodrigo, if you can talk about the dividends.

As you all know, our dividend policy states that we should pursue at least 2% of market cap around the payment. Our payment (inaudible) has been above that. Last year, which was reflecting the tough year of 2020, we paid around [0.5%]. And this year, we're pursuing a bit further. In the previous years, right after the IPO, we paid a larger amount. Every year, this is really analyzed and presented to the Board as a way to really remunerate our shareholders the best way for keeping this [faith] with us and in our growth strategy and our efficiency projects. Let's see how the market reacts and how we perform and then with next year will come with a different proposal.

Okay. There's one more question. We answered this question? Okay. So do you want to read the last question? We don't have time?

No. We are running a little bit out of time. So -- but we have time for one more question. And after that, we will respond to the questions to the IR team.

Okay. So do you want me to read the question? Or could you read the question?

Yes. I can be the question, no problem. So the next question comes from Bastian. Can you give more detail about the Aripuanã ramp-up delay? I think that COVID and rainfall seems like a very general explanation as far as the way of 2 quarters in the ramp-up. Should we expect more delays in the future?

Yes. I guess, as I explained to Jackie before, we were some way optimistic on the timetable, and we were considering that these factors of rain and COVID were not affecting us. And -- but we also have other factors, as I explained, with gaps in engineering, some quality problems with equipment. That is, I mean, something that is common in this -- at the end of these projects. So we are on top of things right now. I cannot tell you that we expect more delays, but I think that given that we are very close to finish the project, I would say that we are trying to be very conservative with the projections that we are showing to you today. So we make sure that we deliver on those.

Having said that, again, we want to make sure that we focus on the Aripuanã of the future. And for that, we will show you the potential of Aripuanã and how this mine -- even if this was a project that was not very good executed, this project is going to be a very important project for the future of Nexa. So that's more or less.

I don't know if there is other question, or we have to...

That concludes our question-and-answer session. Now we will hand over to Ignacio for his final remarks. Mr. Rosado, please go ahead.

Thank you very much. Thank you very much for all the questions and for attending this call. It's very important for us to make sure that you understand the plans of the company. I'm very excited with this position. I guess it's a big challenge for me. I think we have everything to make sure that we create a Nexa that creates value to shareholders. We have very good assets. We have a very good well-managed smelters, I guess, is something that we have to work on probably more cash generation and show the market is more cash generation. And the other thing is that we want to be closer to the market. I'm not saying that we are not close, but now that COVID is towards ending, and we can have like more face-to-face meetings.

We are planning to be close to all the financial community to explain the plans of Nexa, so you get to know us better. I think that we have to be more conservative on guidance, because at the end of the day, it's important that production, it's important to achieve all these metrics, and we have to be cautious on that. But I think most important is to focus on profitability. And at the end of the day, profitability is cash flow. So this is more or less what we are aiming to do this year.

Again, thank you very much for the time, and we will speak soon in the first quarter results and hopefully visiting you in the coming months. So thank you very much, and good morning.

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