Nexa Resources (NEXA) Q1 2026 earnings review
Soaring Metal Prices Offset Operational Hiccups
Nexa Resources delivered a highly profitable quarter, with Net Income surging 311% YoY to $118 million and Revenue accelerating 42% YoY to $888 million. This financial strength masks a messy operational quarter—Peruvian mining operations were hit by heavy rainfall, an illegal blockade, and a shaft constraint, driving a 13% QoQ drop in consolidated zinc production. However, massive by-product credits from skyrocketing silver and copper prices pushed mining cash costs into deep negative territory (-$0.76/lb). Free Cash Flow was negative $126 million due to a seasonal $283 million working capital outflow, but net leverage still improved to 1.59x. Looking ahead, the April 2026 step-down in the Cerro Lindo silver stream promises a significant cash injection.
🐂 Bull Case
Aripuanã posted record quarterly zinc production of 13kt, up 110% YoY. The fourth tailings filter is expected to complete commissioning in May 2026, which should de-risk the asset and support full-capacity operations in H2.
In April 2026, the Cerro Lindo silver streaming agreement threshold was met. The streamed share drops from 65% to 25%, effectively giving Nexa spot-price exposure to an additional 1.2-1.3 MMoz of silver annually—a massive tailwind given current LBMA silver prices (+164% YoY).
🐻 Bear Case
Q1 saw a perfect storm of disruptions: heavy rainfall at Cerro Lindo, a one-month community blockade at Atacocha, and a hoisting system outage at El Porvenir. While resolved, they highlight persistent geographic and social risks.
Higher zinc prices and depressed spot Treatment Charges (TCs) are squeezing the Smelting segment. Smelting cash costs rose 20% YoY to $1.40/lb, demonstrating decelerating profitability potential in the downstream business.
⚖️ Verdict: 🟢
Bullish. While the mining production miss is frustrating, Nexa is printing cash on an EBITDA basis thanks to its heavy exposure to silver and copper by-products. The upcoming silver stream step-down and the resolution of Aripuanã's bottleneck provide clear catalysts for the rest of 2026.
Key Themes
By-Product Credits Crush Mining Costs
Accelerating. The mining cash cost dropped from $0.11/lb in 25Q1 to an astounding -$0.76/lb in 26Q1. This 757% YoY improvement was entirely driven by higher realized prices for silver (+164% YoY), gold (+70%), and copper (+38%). Four out of five Nexa mines operated at negative cash costs this quarter. This structural advantage acts as a massive margin driver even when zinc production volumes lag.
Silver Stream Step-Down Unlocks Revenue
A major structural catalyst arrived in April 2026. The Cerro Lindo mine reached its delivery threshold, dropping the amount of silver sold at fixed streaming prices from 65% to 25%. Going forward, 75% of production will be sold at spot market prices. This transition guarantees a recurring and highly profitable revenue uplift starting in 26Q2.
Q1 Operational Disruption Triple-Play
Reversing. Mining zinc production dropped 13% sequentially (to 79.4kt) due to severe disruptions across the Peruvian portfolio. Cerro Lindo faced heavy rainfall (-12% QoQ zinc), Atacocha suffered an illegal community blockade (-34% QoQ zinc), and El Porvenir experienced a month-long hoisting shaft outage (-25% QoQ zinc). While management states operations have returned to normal run-rates, this concentrates execution risk into the remaining three quarters.
Aripuanã Breaks Records
Accelerating. Unlike the Peruvian assets, the Brazilian Aripuanã mine delivered its highest quarterly output since commercial production (13kt zinc, +110% YoY). Head grades improved dramatically to 4.43% (up 1.74 p.p. YoY). The highly anticipated fourth tailings filter began commissioning in May 2026, which should eliminate weather-related tailings bottlenecks and secure H2 throughput.
Smelting Raw Material Squeeze
Decelerating. The Smelting segment is caught in a margin vise. While higher LME zinc prices boost mining profits, they increase raw material costs for the smelters. Coupled with persistently low benchmark Treatment Charges (TCs) set at $85/t for 2026, smelting cash costs increased 20% YoY to $1.40/lb. Smelting EBITDA of $51M looks optically better YoY, but it is heavily supported by favorable by-product mark-to-market adjustments, not core refining margins.
Working Capital Drains Cash Flow
Stable (Seasonal). Despite record operating earnings, Free Cash Flow printed at negative $126M. This was driven entirely by a $283M operating working capital outflow, primarily from lower trade/confirming payables and high income tax payments. Management attributes this to standard Q1 seasonality and expects it to reverse, but relying on a back-end loaded cash flow profile leaves little room for H2 execution errors.
Other KPIs
Accelerating improvement. Net leverage dropped from 2.09x in 25Q1 and 1.69x in 25Q4 to 1.59x today, remaining well below the company's 1.7x target threshold. This was achieved through LTM EBITDA expansion ($929M), which completely offset a 14% QoQ rise in absolute Net Debt ($1,481M).
Stable. Up 11.8% YoY and flat QoQ. Growth was driven by the multi-year recovery plan at the Brazilian smelters—Juiz de Fora production surged 56% YoY, and Três Marias rose 17% YoY. Cajamarquilla slipped 5% QoQ due to planned roaster maintenance.
Guidance
Stable. Management reaffirmed full-year guidance. With Q1 delivering 79kt (24% of the midpoint), the company is tracking slightly behind a ratable pace due to the Peruvian disruptions, implying they expect a sequential acceleration in Q2-Q4 to hit the target.
Stable. Reaffirmed. Q1 sales of 147kt represent exactly 25% of the midpoint, showing the downstream business is humming along perfectly on schedule despite margin pressures.
Stable. Reaffirmed. Q1 spend was $72M (19% of guidance). Disbursements will be back-loaded toward the Cerro Pasco Phase I Integration Project and the final stages of the Aripuanã tailings filter.
Key Questions
Working Capital Reversal Timing
You recorded a $283M working capital outflow in Q1. How much of this specific outflow is explicitly tied to Q1 seasonal contracts versus structural changes in supplier payment terms, and what is the exact timeline for its reversal?
Atacocha Community Relations
The one-month illegal blockade at Atacocha represents a severe disruption. Has the root cause of the conflict with the Joraoniyoc community been permanently resolved through a binding agreement, or is there lingering risk of recurring protests?
Smelter Operating Leverage
With the 2026 benchmark TC settling at a relatively low $85/t, what specific cost-control or secondary feed strategies are you implementing at Cajamarquilla and the Brazilian smelters to protect conversion margins?
Cerro Pasco Phase I
With major equipment manufacturing completed in Q1, do you foresee any labor, permitting, or logistical bottlenecks that could delay the 2Q27 pumping start target for the Cerro Pasco Integration Project?