Nexa Resources (NEXA) Q2 2026 earnings review
By-Products Cushion Operational Headwinds
Nexa delivered a mixed quarter characterized by strong pricing tailwinds masking operational disruptions. Adjusted EBITDA of $286 million grew 78% YoY and remained Stable QoQ, heavily supported by a 117% YoY surge in silver prices and robust sulfuric acid credits. However, operational execution faltered: a fire at the Cajamarquilla smelter throttled sales, and Aripuanã's production dropped sequentially due to maintenance. The bottom line was further pressured by a massive $131 million tax settlement payment in Peru, dragging Free Cash Flow to negative $10 million. Despite these shocks, the underlying integrated model is working, keeping the company insulated from historically negative Chinese spot treatment charges (TCs).
🐂 Bull Case
The Cerro Lindo silver streaming agreement threshold was reached in April 2026, stepping the streamed volume down from 65% to 25%. This structurally unlocks significant, recurring cash flow in a high-price silver environment.
Despite the negative FCF hit from the tax payment, LTM Adjusted EBITDA expansion drove Net Leverage down to 1.40x, a massive improvement from 2.28x a year ago.
🐻 Bear Case
1H26 Smelting Cash Cost hit $1.42/lb, blowing past the top end of the 2026 guidance range ($1.34/lb). This is driven by high raw material costs and lower fixed cost absorption following the Cajamarquilla fire.
The $131 million payment to SUNAT resolves only 2016-2017 under protest. SUNAT is currently auditing 2020 and 2021, and the total unrecorded contingent liability remains a heavy $161.1 million overhang.
⚖️ Verdict: ⚪
Neutral. Record metal prices and the silver stream step-down are bailing out temporary operational misses and severe tax outflows. The core business is highly profitable right now, but execution risk at Aripuanã and Cajamarquilla prevents a higher grade.
Key Themes
Cerro Lindo Silver Stream Catalyst
Accelerating profitability profile. In April 2026, Nexa hit the delivery threshold on the Cerro Lindo silver stream, triggering an automatic step-down from 65% to 25%. This means Nexa now retains 75% of silver production at market prices. With LBMA silver averaging $73/oz (+117% YoY), this is a structural, no-capex cash flow boost that directly offset higher mining costs.
By-Product Credits Offset TC Collapse
The global zinc concentrate market is in a deficit, pushing Chinese spot TCs deep into negative territory (-$109/t CIF). While this crushes standalone smelters, Nexa's integrated model is thriving. Smelting Adjusted EBITDA Reversing its historic weakness, surging 162% YoY to $66M, heavily subsidized by sulfuric acid production (+9% YoY) and silver content sales (+22% YoY).
Aripuanã Ramp-up Reaches Crucial Milestone
Aripuanã had a volatile quarter. Zinc production Decelerated sequentially (8.8kt, down 32% QoQ) due to lower grades and the scheduled ball mill liner replacement. However, the critical 4th tailings filter was successfully commissioned. By late June, average capacity utilization reached 86% (249 t/h). This sets up H2 2026 to finally hit nameplate capacity.
Cajamarquilla Fire Throttles Smelting Volumes
A fire in the cooling towers at the Cajamarquilla smelter in May triggered a temporary suspension. Total zinc sales Decelerated by 8% QoQ to 134kt. While upstream processing continued—allowing cathode inventory to build—the casting house was impaired. Management promises this volume will be recovered in H2, but it creates a near-term execution backlog.
Massive Peruvian Tax Outflow
Free cash flow Reversing from $+17M a year ago to -$10M this quarter, heavily skewed by a brutal $131 million settlement payment to SUNAT (Peru's tax authority). This relates to the Cerro Lindo Tax Stability Agreement dispute for 2016-2017. While paid to reduce penalties and preserve the right to litigate, $161 million in off-balance-sheet contingent liabilities remain. This is a severe drain on capital that was supposed to be allocated to deleveraging.
Smelting Costs Break Guidance Range
Smelting Cash Cost of $1.44/lb (+17% YoY) was driven by higher raw material costs (LME zinc +31% YoY) and the volume drop at Cajamarquilla. This puts 1H26 Cash Cost at $1.42/lb, clearly breaking the top end of the 2026 annual guidance ($1.34/lb). Management explicitly flagged that if current metal prices persist, costs could remain above guidance in H2.
M&A Activity and CreditWatch Negative
On July 2, it was publicly confirmed that Votorantim S.A. and Boliden are discussing the acquisition of Votorantim's controlling stake in Nexa. Consequently, S&P placed Nexa's 'BBB-' rating on CreditWatch Negative, citing the potential change in ownership rather than operational performance. This introduces significant near-term strategic uncertainty.
Artificial Intelligence Deployment in Mills
In June, Nexa launched 'AI Vazante', integrating artificial intelligence into the flotation circuit to recommend real-time operational adjustments. Concurrently, an AI model was finalized for automated process control at Cajamarquilla, specifically targeting silver recovery improvement. This represents a tangible step toward margin optimization via technology.
Other KPIs
Accelerating improvement. Down from 1.59x in 1Q26 and 2.28x a year ago. Gross debt dipped 1% to $1.75B. Total liquidity remains healthy at $387 million (excluding the $320M undrawn RCF).
Stable sequentially (-2% QoQ) but up 13% YoY. Cost pressure was led by Vazante ($66.5/t, +31% YoY) due to BRL appreciation and higher variable costs. The 1H26 average sits at $57.1/t, near the extreme upper bound of the $49.5-$57.2/t annual guidance.
Decelerating profitability on a unit basis. While still excellent, it rose $0.80/lb QoQ due to a sequential drop in silver and gold prices, negative mark-to-market adjustments, and higher operating costs across all units except Cerro Lindo.
Guidance
Stable. 1H26 production of 158.7kt represents 47% of the midpoint. The recovery of Peruvian operations and the 4th filter at Aripuanã should support higher H2 volumes.
Stable. 1H26 total sales reached 281kt (48% of midpoint). Management expects to recover the lost Cajamarquilla fire volumes using built-up cathode inventory in H2.
Decelerating performance. 1H26 actuals hit $1.42/lb. Management warns that if high zinc prices persist (which pass through to raw material purchase costs), full-year costs will likely exceed this guidance range.
Stable. $160 million spent in 1H26 (42% of guidance). Spending is expected to accelerate in H2, focused on the Cerro Pasco Phase I Integration Project and Aripuanã mine development.
Key Questions
M&A Uncertainty and Capital Allocation
With Boliden confirming discussions to acquire Votorantim's controlling stake, how is this uncertainty impacting Nexa's internal capital allocation decisions, particularly regarding Phase 2 of the Cerro Pasco integration project?
SUNAT Tax Litigation Runway
You paid $131 million for the 2016-2017 tax dispute to mitigate penalties. With 2020-2021 currently under audit and $161 million in contingent liabilities remaining off-balance-sheet, what is the expected cash drain profile for the next 12-24 months regarding SUNAT?
Cajamarquilla Fire Recovery Timeline
You accumulated cathode inventory during the Cajamarquilla fire suspension. What is the exact timeline to cast and sell this inventory, and are there any lasting bottlenecks in the casting house that could prevent full H2 recovery?
Aripuanã Grade Profile
Zinc head grades at Aripuanã dropped dramatically from 4.43% in Q1 to 2.94% in Q2. As throughput scales to nameplate capacity in H2, what is the normalized grade profile we should expect, and is there risk of processing bottlenecks at lower grades?