Aripuana Ramp Up And Zinc Demand Will Drive Long Term Earnings Upside

Catalysts

About Nexa Resources

Nexa Resources is a Latin American mining and smelting company focused on zinc, with meaningful exposure to copper, silver and lead across an integrated mine smelter portfolio.

What are the underlying business or industry changes driving this perspective?

• Ramp up at Aripuana toward nameplate capacity by the second half of 2026, supported by the fourth tailings filter and improving workforce stability, is expected to materially increase zinc volumes and byproduct output. This would drive higher revenues and operating leverage on fixed costs, which supports wider EBITDA margins and earnings growth.
• Cerro Pasco integration, including new tailings infrastructure and underground optimization studies, is intended to unlock a longer mine life and higher net smelter return per ton, lifting realized value per unit and sustaining strong segment EBITDA margins and cash generation over a multi year horizon.
• The integrated mine smelter model in the Americas positions Nexa to potentially benefit from tightening concentrate supply outside China and a constructive zinc price environment, which may smooth down cycle volatility and enhance conversion margins and overall earnings resilience.
• Growing demand for zinc in galvanizing steel for infrastructure, renewable energy and electric vehicles, together with structurally constrained new mine supply, supports a price backdrop that could enhance revenue growth and free cash flow relative to current expectations.
• Rising structural demand and supportive pricing for copper and silver, fueled by electrification, grid expansion, solar and data center buildout, may increase the value of Nexa’s byproducts, improving net cash costs per pound of zinc and expanding net margins and free cash flow.
• Disciplined capital allocation with stable CapEx, targeted deleveraging of USD 500 million to USD 600 million over four years and the step down in the Cerro Lindo silver stream from mid 2026 together create room for lower interest expense and potentially higher equity value through stronger earnings and cash returns.

Assumptions

This narrative explores a more optimistic perspective on Nexa Resources compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Nexa Resources's revenue will grow by 2.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -0.6% today to 6.3% in 3 years time.
• The bullish analysts expect earnings to reach $190.7 million (and earnings per share of $3.53) by about December 2028, up from $-16.2 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $133.5 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 9.6x on those 2028 earnings, up from -63.6x today. This future PE is lower than the current PE for the US Metals and Mining industry at 24.5x.
• The bullish analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.68%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Aripuana remains structurally challenged by its remote location and elevated workforce turnover. Despite improvement from peaks of 35% to 40% to a still high 18% to 20%, turnover continues to pressure operating stability and drive higher staffing, training and backup maintenance costs over the long term, which could erode segment EBITDA margins and constrain earnings growth.
• The capital intensity of sustaining mine development, tailings facilities and projects like the Cerro Pasco integration, combined with ongoing ESG and community commitments, may limit Nexa's ability to materially reduce its 2.2 times net leverage and gross debt by the targeted 500 million dollars to 600 million dollars in four years. This could keep interest expense elevated and dampen future net income and free cash flow.
• Reliance on a constructive zinc price environment and strong byproduct prices to offset structurally higher operating costs and capital spending leaves Nexa exposed to any prolonged downturn in zinc, copper or silver driven by weaker infrastructure and energy transition spending. Such a downturn would directly pressure net revenues and compress adjusted EBITDA margins.
• The integrated mine smelter model depends on smelter margin recovery that is currently constrained by low or even negative treatment charges and uneven global smelter utilization. If benchmark treatment charges in 2026 do not improve as expected, smelting EBITDA could remain structurally weak, limiting overall earnings resilience and cash generation.
• Political and regulatory uncertainty in key jurisdictions such as Peru, including elections and evolving permitting, community and environmental expectations, may delay or disrupt long-life projects like Cerro Pasco and constrain future mine life extensions. This would cap long-term production volumes and reduce the visibility of future revenues and operating margins.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Nexa Resources is $9.89, which represents up to two standard deviations above the consensus price target of $6.69. This valuation is based on what can be assumed as the expectations of Nexa Resources's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $10.0, and the most bearish reporting a price target of just $5.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be $3.0 billion, earnings will come to $190.7 million, and it would be trading on a PE ratio of 9.6x, assuming you use a discount rate of 11.7%.
  
• Given the current share price of $7.79, the analyst price target of $9.89 is 21.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.