Nexa Reports Fourth Quarter and Full Year 2022 Results including Adjusted EBITDA Record of US$760 Million

Luxembourg, February 15, 2023 – Nexa Resources S.A. (“Nexa Resources”, “Nexa”, or “Company”) announces today its results for the three and twelve months ended December 31, 2022 and provides its production and metal sales guidance for the three-year period 2023-2025. The Company is also providing cash cost, capital expenditures and other operating expenses guidance for 2023.

CEO Message – Ignacio Rosado

“The fourth quarter of 2022 marked my first full year as CEO of Nexa, where I focused on increasing efficiency across our organization. We deployed a set of initiatives and new ways of working, which streamlined our cost base, as well as supported our strategic priorities.

We achieved 2022 operational guidance with strong financial and operational discipline, despite a very challenging environment. Metal production and sales were at the high end, or above guidance range, while mining and smelting costs were in line and below guidance, respectively.

On the other hand, the Russia-Ukraine war significantly increased commodity price volatility, contributing to a slowdown in global growth, and intensifying inflationary pressures in 2022, a period in which the world economy was still recovering from the pandemic.

Aripuanã ramp-up continues to progress, and we are pleased to have sold commercial grade concentrates and to inform that Aripuanã has achieved its first revenue in the fourth quarter. We also processed zinc in concentrate from Aripuanã at the Juiz de Fora smelter. The results of our continued drilling activities indicate a potential increase in mineral reserves of more than 35% over the 22 million tonnes reported last year. We remain confident that Aripuanã will be a long-life flagship mine with a significant contribution to our results.

We have updated our long-term ESG targets, reaffirming our ongoing commitments and efforts to reduce our carbon footprint, supporting the important mission to mitigate global climate challenges. Moreover, we continue to strengthen and promote an equal opportunities environment while creating safe and inclusive workplaces.

We know that 2023 will likely be another challenging year, in which the risk of a global recession remains high. In Peru, we are closely monitoring the socio-political environment which, to date, has not affected our operations and in Brazil, inflationary pressures are expected to remain in the course of the year. Nevertheless, we will seek to maintain our investments to extend the LOM of our assets, in addition to ongoing assessments of our project portfolio. We are committed to disciplined capital allocation and positive cash flow generation in the short and long term. We are prepared to capitalize on new opportunities in our operations, always striving to create shared value for all our stakeholders and the communities in which we operate.”

Summary of Financial Performance

(1) Refer to “Use of Non-IFRS Financial Measures” for further information. During December 2022, the Company revised its Adjusted EBITDA definition to exclude certain items to provide a better understanding of its operational and financial performance. Adjusted EBITDA, adjusted net income (loss) and adjusted EPS, excludes the items presented in the Adjusted EBITDA reconciliation on pages 20 and 58 of this earnings release. 2021 and 2022 previous numbers have been reclassified according to the updated definition. For details on segment definition and accounting policy, please refer to explanatory note 2 – “Information by business segment” in the “Consolidated financial statements at December 31, 2022”.

(2) Working capital in 4Q22 had a negative impact of US$0.5 million, totaling negative US$203 million in 2022. Working capital in 4Q21 had a positive impact of US$4.5 million, totaling negative US$38 million in 2021.

(3) Cash, cash equivalents and financial investments.

Executive Summary

Operational Performance

^[1] Our cash cost net of by-products credits is measured with respect to zinc sold.

 

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Financial Performance

^[2] Adjusted EBITDA excludes the items presented in the Adjusted EBITDA reconciliation on pages 20 and 58 of this earnings release – US$84 million in 4Q22, totaling US$110 million in 2022.

 

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Financial Position, Investments and Financing

ESG and Corporate Highlights

^[3] Cash and cash equivalents and financial investments.

 

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Growth Strategy and Project Portfolio

Aripuanã

 

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2022 Results and Guidance

Production and Sales

2022 production guidance for all metals was achieved. Zinc production totaled 296kt in 2022. Cerro Lindo, El Porvenir, and Morro Agudo mines achieved the upper range of the guidance, while Vazante and Atacocha mines exceeded annual guidance. Although Aripuanã ramp up activities have continued to progress, production for Aripuanã was below guidance.

Copper and silver production of 34kt and 10MMoz, respectively, achieved the upper end of the annual guidance, while lead production of 57kt exceeded annual guidance. Further details are outlined below.

 

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Metal sales of 616kt in 2022 exceeded annual guidance driven by the solid performance of our smelters and sustainable global demand. Zinc metal sales of 578kt were above the high end of the guidance range, given the positive demand, increase in exports, and improvement in lead times. Zinc oxide sales of 40kt also exceeded annual guidance supported by solid demand in our home markets, particularly from the pneumatic and agribusiness sectors.

Cash Costs

⁽¹⁾ 2022 C1 Weighted Cash cost net of by-products credits is measured with respect to zinc sold per mine.

⁽²⁾ 2022 C1 Weighted Cash cost net of by-products credits is measured with respect to zinc sold per smelter.

 

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Capital Expenditures (“CAPEX”) Guidance

(1) Including Vazante LOM extension.

(2) Investments in tailing dams are included in sustaining expenses.

(3) Modernization, IT and others.

(4) The amounts are mainly related to capitalization of interest net of advanced payments for imported materials and tax credits.

Exploration & Project Evaluation and Other Expenses Guidance

 

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Guidance 2023-2025

Guidance is based on several assumptions and estimates and is subject to the continuous evaluation of several factors, including but not limited to metal prices; operational performance; maintenance and input costs; and exchange rates.

Nexa will continue to monitor risks associated with global supply chain disruptions, which could be exacerbated by the Russia-Ukraine war, unusual weather conditions and/or increased restrictions related to the COVID-19 pandemic; global recession, and the potential impact on the demand for our products; inflationary cost pressure; metal prices; communities protests, political situation and changes to the regulatory framework in the countries in which we operate that could affect our production levels; among others. Refer to “Risks and Uncertainties” and “Cautionary Statement” for further information.

Production and Sales

 

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For the forecasted periods, zinc head grade is expected to be in the range of 2.75% and 2.89%, copper head grade is expected to be in the range of 0.29% and 0.30%, and lead head grade is expected to be in the range of 0.65% and 0.68%.

Copper production (assuming mid-range production) in 2023 should increase to 6-8kt before decreasing in 2024 and 2025, as we expect to access lower grade copper areas, following mining plan.

Copper production (assuming mid-range production) in 2023 should decrease by 7kt over 2022, and a further 2kt in 2024 over 2023 due to lower copper average grade (down to 0.53% in 2023 and 0.47% in 2024). For 2025, copper production is estimated to increase by 3% over 2024 to between 24 to 27kt. Lead follows the same trend and for 2023-2025 production is expected to total between 11 to 15kt.

For the three-year period, silver production is expected to total between 3.5-4.5MMoz.

For 2023, lead production (assuming mid-range production) is estimated to be similar to 2022, before decreasing in 2024-2025 to 21-25kt, following lower throughput.

Silver production in 2023 at the midpoint of the guidance range is expected to decrease by 3% over 2022. For 2024, silver production at mid-ranges is expected to increase by 3%, and a further 15% in 2025 due to higher silver average grade areas, following our mining plan.

Lead production (assuming mid-range production) in 2023 is estimated to decrease by 3% over 2022. For 2024, lead production is estimated to increase by 14% with production planned in higher-grade ore bodies following our mine plan, before decreasing to 11-12kt due to the expected lower lead average grade.

 

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For the forecasted periods, the smelters are expected to operate at normal levels and sales are expected to be similar to production levels. Metal sales volume at the midpoint of the guidance range in 2023 is estimated to decrease by 4% compared to 2022, as these estimates do not assume the resale of material from third parties. For 2024-2025, metal sales volume is estimated to remain stable over 2023.

2023 Cash Cost

Cash costs for 2023 are based on several assumptions, including but not limited to:

⁽¹⁾C1 Weighted Cash cost net of by-products credits is measured with respect to zinc sold per mine.

Mining: In 2023, consolidated run of mine mining costs at mid-range of the guidance are expected to increase 2% year-over-year, primarily driven by Vazante. Mining cash costs are expected to increase due to several reasons, as highlighted below.

In Peru, the unit cash cost of Cerro Lindo of US$0.11-0.13/lb in 2023 is expected to increase, affected by the estimated lower contribution of by-products credits, the decrease in zinc volumes and higher TCs, in addition to inflationary pressure on input costs.

El Porvenir cash cost of US$0.39-0.42/lb is expected to increase compared to 2022 driven by lower by-product credits and higher TCs, which should be partially offset by the expected increase in zinc volumes. Atacocha cash cost follows the same upward trend and is expected to be between US$0.26-0.30/lb.

In Brazil, the cash cost of Vazante is estimated to be between US$0.68-0.74/lb, negatively impacted by higher TCs and the expected increase in operating costs due to the scheduled trunnion maintenance in the period, energy prices and inflationary pressures on costs, which should be partially offset by higher zinc volumes. Morro Agudo cash cost follows a similar trend and is expected to be between US$1.02-1.18/lb, while run of mine mining cost is expected to decrease.

 

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⁽²⁾C1 Weighted Cash cost net of by-products credits is measured with respect to zinc sold per smelter.

Smelting: In 2023, conversion costs are expected to increase mainly driven by Brazil due to inflationary costs pressure and estimated higher energy costs. On the other hand, consolidated smelting cash costs in 2023 are expected to decrease year-over-year primarily due to an estimated decrease in zinc prices and higher TCs, which should be partially offset by lower by-product credits.

In Peru, the cash cost of Cajamarquilla of US$1.11-1.15/lb in 2023 is expected to decrease compared to 2022, following lower zinc prices and higher TCs. Conversion costs are expected to remain relatively stable compared to 2022 of US$0.27/lb.

In Brazil, Três Marias and Juiz de Fora smelters’ cash costs are estimated to decrease to US$1.10-1.15/lb and US$1.27-1.37/lb, respectively, primarily driven by lower zinc prices and higher TCs, which should partially offset higher costs.

Note: Because of the ownership change in Enercan, one of the hydroelectric power plants that supplies electricity for our operations, Nexa began to recognize it as an equity interest in November 2022 rather than consolidate its pro-rata results. Although there will be no financial impact because expected dividends will be included in our Adjusted EBITDA, quarterly costs in Brazil will be affected. Refer to “Others | Enercan’s deconsolidation” for further information.

2023 CAPEX

In 2023, CAPEX guidance is US$310 million. Sustaining investments are expected to total US$268 million, with smelting accounting for US$66 million and mining accounting for US$200 million, including US$53 million at Aripuanã.

In the mining segment, the majority of sustaining capital expenditures are US$79 million for underground mine development, US$54 million for tailings storage facility (“TSF”), and US$1.5 million for water management works.

In the smelting segment, the majority of sustaining capital expenditures are US$12 million for TSF, US$8 million for roaster maintenance, US$4 million for compliance with regulatory standards, and US$3 million for assets improvement.

Health, safety and environmental (“HSE”) capital expenses are forecasted to be US$26 million.

⁽¹⁾ Includes Vazante deepening (US$4 million), among other several projects to improve operational performance.

⁽²⁾ Investments in tailing dams are included in sustaining expenses. For further detail please refer to the Appendix.

⁽³⁾ Modernization, IT and others.

 

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2023 Exploration & Project Evaluation and Other Expenses

As part of our long-term strategy, we continued to maintain our efforts to replace and increase mineral reserves and resources. We expect in the future to continue advancing our exploration activities, primarily focusing on identifying new ore bodies and upgrading resources classification through infill drilling campaigns.

In 2023, we plan to invest US$55 million in exploration. Our mineral exploration expense guidance of US$33 million relates mainly to greenfield projects in the exploration phase (US$18 million) and brownfield projects (US$15 million), which are the exploration of orebody targets at our operations.

Our project evaluation expense guidance of US$55 million includes, approximately, US$20 million to extend the life of the disposal facility of Três Marias smelter. The remaining is for corporate IT, potential growth projects and various projects across our business units.

In addition, we expect to invest US$10 million to improve our current operations and US$15 million to continue contributing to the social and economic development of our host communities.

Note: Exploration and project evaluation expenses consider several stages of development, from mineral potential definition, R&D, and subsequent scoping and pre-feasibility studies (FEL1 and FEL2).

 

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Earnings Release – 4Q22 and 2022

This Earnings Release should be read in conjunction with the audited consolidated financial statements at and for the financial year ended December 31, 2022 (the “2022 Consolidated Financial Statements”). This document contains forward-looking statements.

Table of contents

 

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Aripuanã project

Ramp-up activities have continued to progress and are currently focused on steadily increasing the plant throughput rate, increasing asset reliability, and concentrate grades. We closed 4Q22 with plant throughput reaching 53% of nameplate capacity, behind our initial plan due to heavy rainfall levels in the period, which required additional operating stoppages at our filters, and also caused energy supply outages.

The ramp-up continues with the plant achieving over 60% capacity utilization rate at the beginning of February. In 4Q22, we started to sell concentrates within market specifications, and we have achieved our first revenues, with an increase in sales planned for 1Q23. We expect to reach nameplate capacity in 2H23.

We continue with mine development activities in both the Arex and Link mines. At the end of 2022, approximately 600kt of ore was available in stockpiles (versus 646kt in 3Q22), which is enough to cover 4.5 months of plant production in the ramp-up period.

Horizontal mine development reached an accumulated amount of 26,003 meters developed for both the Arex and Link mines at the end of December 2022, compared to 23,490 meters at the end of September 2022.

As mentioned in 3Q22, the mine is already fully operational, and underground activities are focused on developing and preparing new areas for mining operations. We plan to ramp-up the ore run of mine in 2023 following the plant ramp-up. Development is also supporting the continued potential to increase mineral reserves with drilling in new areas.

The commissioning of the paste fill circuit was completed, the first tests of mine filling started in January and are expected to be concluded in February 2023.

In 4Q22, we invested US$3 million in expansion CAPEX, totaling US$66 million in 2022, including the negative FX impact of US$5.5 million in 2022. The cumulative expansion CAPEX of the project since the beginning of construction was US$632 million. Note that in accordance with our most recent technical report, there are some investments to be made in sustaining infrastructure in the first year of operation, which were included in 2022 (US$46 million) and are also included in our 2023 CAPEX guidance.

Current operations headcount is 577 employees working for the mine, plant, maintenance, process, environment, safety and health, and administrative activities of the operation. Of these employees, 27% are women.

In Aripuanã, we have a qualification program in place for future mine and plant operating professionals. In 2022, we had 334 candidates enrolled, of which approximately 158 received professional qualifications on maintenance and automation and geology and surveying and there are still 58 in active classes. The company hired 66% (142 people) people who attended the qualification program, of which 66% (94) are men and 34% (48) are women.

Following the updated definition of Adjusted EBITDA, Nexa pre-operating expenses and ramp-up impacts of Aripuanã, including non-cash net realizable value write-downs of concentrates and ore stockpiles inventories, were excluded as these items do not reflect the Company’s normal operating activities. For comparative purposes, the related 2021 amounts have also been adjusted.

Aripuanã costs and revenues recorded in 4Q22 and costs since commencement of revenues are included in the calculation of Adjusted EBITDA and will be included going forward, though there are still not at normal levels. As Aripuanã continues its ramp-up activities, Nexa may experience additional ramp-up impacts, including additional non-cash inventories net realizable write-downs in 2023.

 

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Consolidated performance

Selected financial information

(1) Includes non-recurring expenses relating to the Nexa Way program in 1H21.

 

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(2) Refer to “Use of Non-IFRS Financial Measures” for further information. During December 2022, the Company revised its Adjusted EBITDA definition and decided to exclude certain items to provide a better understanding of its operational and financial performance. Adjusted EBITDA, adjusted net income (loss) and adjusted EPS, excludes the items presented in the Adjusted EBITDA reconciliation on pages 20 and 58 of this earnings release. 2021 and 2022 previous numbers have been reclassified according to the updated definition. For details on segment definition and accounting policy, please refer to explanatory note 2 – “Information by business segment” in the “Consolidated financial statements at December 31, 2022”.

(3) Working capital in 4Q22 had a negative impact of US$0.5 million, totaling negative US$203 million in 2022. Working capital in 4Q21 had a positive impact of US$4.5 million, totaling negative US$38 million in 2021.

(4) Cash, cash equivalents and financial investments.

Net revenues

In 4Q22, net revenues were US$780 million, 15% higher year-over-year, primarily due to the increase in metal sales, partially offset by lower LME metal prices across all metals. The LME average price for zinc, copper, and lead were down by 11%, 18% and, 10%, respectively, compared to the same period in 2021 – for more information, refer to the “Market Scenario” section.

Compared to 3Q22, net revenues increased by 11% due to the higher revenues from the mining segment.

In 2022, net revenues of US$3,034 million increased by 16% compared to 2021, primarily driven by higher LME zinc prices. During the period, the LME average zinc price increased by 16%, while copper and lead prices decreased by 6% and 3%, respectively, compared to 2021. Higher sales volume of copper, lead, and silver also positively affected the year-over-year performance.

Cost of sales

In 4Q22, cost of sales amounted to US$696 million, up 19% year-over-year. The cost increase was explained by the mining segment mainly due to higher sales expenses in Aripuanã related to sales of concentrates with higher unit costs. Compared to 3Q22, cost of sales increased by 13% due to increased maintenance and Aripuanã.

During 2022, cost of sales increased by 20% compared to 2021, mainly driven by higher zinc prices, affecting the raw material cost of our smelters; (ii) the negative impact of the Brazilian real against the U.S. dollar; (iii) higher operational costs; and (iv) Aripuanã.

Mineral exploration and project evaluation

In 4Q22, mineral exploration and project evaluation investments were US$23 million. In 2022, mineral exploration and project evaluation investment amounted to US$87 million.

In the quarter, 26km of exploratory drilling was drilled in Peru, Brazil, and in Namibia, through our joint venture with the Japan, Oil, Gas and Metals National Corporation (“JOGMEC”). By the end of the fourth quarter, cumulative production drilling achieved 259km with 117km of exploratory drilling (including the Ambrex infill at Aripuanã) and 143km of operational infill drilling. In 2022, we executed 95% of the planned activities, with outstanding results in our brownfield program at Aripuanã with the Ambrex infill drilling program confirming thick and high-grade mineralization, which should support the conversion of Inferred to Indicated Mineral Resources.

Brownfield exploration programs have progressed as expected and exploration activities continued to focus on the expansion of our exploration portfolio and potentially increasing life of mine in our mining operations. Exploratory drilling planned for the first quarter 2023 includes 7.9km in Peru with 11 rigs and 8.3km in Brazil with 9 rigs, totaling 16km. For additional information, please refer to our 4Q22 and 2022 Exploration Report published on February 13, 2023.

 

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COVID-19 expenses

Protocols to mitigate the spread of COVID-19 were implemented during 2020 in all our operations and remain in place. We continue working on three main fronts: Health, Safety and People; Business Continuity; and Stakeholders.

In 4Q22, COVID-19 related costs totaled US$0.6 million (US$0.5 million in mining) and are included in the cost of sales and in operating expenses. In 2022, COVID-19 expenses amounted US$6.0 million.

SG&A

In 4Q22, SG&A expenses increased to US$41 million compared US$40 million in 4Q21 and US$32 million in 3Q22, mainly driven by higher employee benefit expenses provision due to improved results and the increase in commercial and logistic expenses following the increase in sales. As a percentage of net revenues, SG&A expenses stood at 5% (down 1pp from 4Q21 and up 1pp compared to 3Q22).

In 2022, SG&A expenses amounted to US$146 million, up 9% from the same period of 2021.

Adjusted EBITDA

In December 2022, Nexa revised its Adjusted EBITDA definition to exclude certain items to provide a better understanding of its operational and financial performance. In the case of Aripuanã, costs were excluded from the Adjusted EBITDA until the unit started to generate revenues, which happened at the end of 4Q22. Prior period comparatives have also been adjusted based on the updated definition.

In 4Q22, Adjusted EBITDA was US$120 million compared with US$153 million in the same prior year period. The main factors that contributed to this performance were (i) the negative price effect of US$24 million due to lower LME zinc prices and changes in market prices that result in mark-to-market (“MTM”) adjustments, partially offset by the positive hedge variation, which had a negative impact in 4Q21; (ii) higher operating costs with a negative impact of US$26 million; and (iii) the increase in other income and expenses mainly driven by a non-cash impact of US$6 million related to our annual environmental accretion (costs related to rehabilitation of areas); partially offset by higher by-products contribution of US$49 million in both mining and smelting segments. Aripuanã results had a negative impact of US$14 million.

 

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Compared to 3Q22, Adjusted EBITDA decreased by 1%. The positive by-product contribution of US$72 million due to higher prices and volumes was offset by (i) the negative price effect of US$25 million driven by lower LME zinc prices; (ii) the non-cash impact of US$14 million in other income and expenses related to our annual environmental accretion update and an increase in provision. Aripuanã results had a negative impact of US$15 million.

During 2022, Adjusted EBITDA was a record of US$760 million compared with US$744 million in the same period a year ago. The main factors that contributed to this performance were (i) higher zinc LME prices and changes in market prices that resulted in MTM adjustment; and (ii) higher by-products contribution; partially offset by (iii) higher operational costs, such as third-party services, energy, royalties, and increased in maintenance costs; and (iv) the increase in other income and operating costs and Aripuanã results, as explained above.

Adjusted EBITDA reconciliation to net income

 

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(1) The Company revised its Adjusted EBITDA definition to exclude certain items to provide a better understanding of its operational and financial performance. Adjusted EBITDA excludes the items presented above in the Adjusted EBITDA reconciliation and on page 58 of this earnings release. 2021 and 2022 previous numbers have been reclassified according to the updated definition. For details on segment definition and accounting policy, please refer to explanatory note 2 – “Information by business segment” in the “Consolidated financial statements at December 31, 2022”.

(2) Refers to the fair value of the financial instrument related to the “Offtake agreement” described on page 47 of this earnings release. Since this instrument’s value is a non-cash item and includes the value of production not yet sold it is adjusted from the EBITDA to derive Adjusted EBITDA.

Net financial results

The net financial results in 4Q22 were an expense of US$18 million compared to US$52 million expense in 3Q22 mainly driven by the positive effect of the foreign exchange variation.

The foreign exchange variation had a positive impact of US$20 million versus a negative impact of US$16 million in 3Q22, mainly explained by the 6% appreciation of the Brazilian real against the U.S. dollar^[4] versus the 3% depreciation in the previous quarter.

Excluding the effect of the foreign exchange variation, the net financial results in 4Q22 were an expense of US$38 million compared to an expense of US$36 million in the previous quarter.

^[4] On December 31, 2022, the Brazilian real / U.S. dollar exchange rate at the end of period was R$5.217/US$1.00 compared to R$5.406/US$1.00 on September 30, 2022.

 

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Net income (loss)

Net loss was US$81 million in 4Q22 compared to net income of US$11 million in 4Q21 and net loss of US$40 million in 3Q22. In 2022, net income was US$76 million compared to net income of US$156 million in the same period a year ago.

Excluding the items presented above in the Adjusted EBITDA reconciliation to net income, adjusted net income was US$3 million in the quarter. The increase in operating income was partially offset by the negative financial results. In 2022, adjusted net income was US$187 million.

Adjusted net loss attributable to Nexa’s shareholders was US$6 million in 4Q22, with an adjusted net income attributable to Nexa’s shareholders of US$151 million in 2022, resulting in adjusted losses per share of US$0.04 and adjusted EPS of US$1.14, respectively.

 

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Business Performance

Mining segment

Mining production

Note: Until 3Q22 the reference price used for conversion was 2021 average benchmark prices. All numbers were updated to reflect the 2022 average benchmark price.

(1) Consolidated mining production in kt of zinc equivalent is calculated by converting copper, lead, silver and gold contents to a zinc equivalent grade, assuming 2022 LME average benchmark prices: Zn: US$1.58/lb; Cu: US$3.99/lb; Pb: US$0.98/lb; Ag: US$21.7/oz; Au: US$1,800/oz.

In 4Q22, treated ore volume was 3,281kt, up 5% compared to 4Q21 and 3Q22, mainly supported by the Peruvian mines in both periods. The ore throughput, year-over-year, increased at Cerro Lindo (+1%), El Porvenir (+3%), and Atacocha (+5%). Compared to 3Q22, Cerro Lindo slightly decreased by 0.3%, while El Porvenir and Atacocha increased by 4% and 16%, respectively.

In Brazil, treated ore volume was 649kt in 4Q22, up 1% from 4Q21 and down 4% from 3Q22.

Zinc equivalent production totaled 128kt in 4Q22, up 2% compared to 4Q21. The average zinc head grade decreased by 31bps to 2.68%, while copper, lead, and silver head grades increased by 6bps to 0.35%, 7bps to 0.63%, and 5% to 1.02oz/t, respectively. Compared to 3Q22, zinc equivalent production increased by 2%.

Zinc production of 75kt in the quarter decreased by 8% from 4Q21, mainly explained by lower head zinc average grade. Compared to 3Q22, zinc production followed the same trend and decreased by 2%.

Copper production of 9kt increased by 33% and 25% from 4Q21 and 3Q22, respectively, as a result of high mining recovery in areas with higher average head grades.

 

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Lead production followed the same trend and increased 23% year-over-year and 3% quarter-over-quarter.

In 2022, treated ore volume totaled 12,343kt, up year-over-year. Lower ore throughput in Cerro Lindo and Vazante mines was offset by the improved performance in El Porvenir, Atacocha, and Morro Agudo mines, and the startup of Aripuanã. Zinc average grade was down 20bps to 2.78%. Therefore, zinc production totaled 296kt, 7% lower than in 2021. On the other hand, lead and copper production increased by 26% and 12% to 57kt and 33kt, respectively, as a result of higher average grades.

Cerro Lindo

(1) Our cash cost and sustaining cost net of by-products credits are measured with respect to zinc sold. For a cash cost reconciliation to COGS, please refer to Appendix – All in Sustaining Cash Cost | Mining.

(2) Our cost per ROM is measured with respect to treated ore volume. Refer to “Use of Non-IFRS Financial Measures” for further information.

 

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Zinc production of 21kt decreased by 16% year-over-year, mainly explained by the expected lower zinc average grade (down 26bps to 1.49%), following the mine sequence plan. Additionally, increased ROM production in volcanic mineralized areas continues to be a challenge for the plant process. Compared to 3Q22, zinc production increased by 4%, as a result of mining development focused on increasing flexibility in high grade areas, which showed higher zinc grades (up by 7bps).

Copper production of 9kt increased by 32% and 23% compared to 4Q21 and 3Q22, respectively, due to the development of areas with higher grades during the period. Copper average grade was 0.65%, up 14bps from 4Q21 and 11bps from 3Q22.

Lead production was 3.2kt, relatively flat compared to 4Q21 and decreased by 33% (or 1.5kt) compared to 3Q22, mainly driven by lower lead average grade (down 9bps to 0.28%), following mine plan.

During 2022, zinc production totaled 84kt, down 17% compared to the same period last year due to expected lower treated ore volume and lower zinc average grade. Copper and lead production were up 13% and 22%, to 33kt and 15.6kt, respectively, following higher average grades.

Cost

Cost of sales of US$99 million in 4Q22 was 2% higher compared to 4Q21. Compared to 3Q22, cost of sales increased by 5% mainly driven by higher operational costs due to increased mining development in the period.

Run of mine mining cost was US$42/t in the quarter, up 7% and 5% from 4Q21 and 3Q22, respectively, mainly explained by higher operational costs.

Cash cost net of by-products in 4Q22 decreased to US$(0.38)/lb compared with US$(0.18)/lb in 4Q21 and US$0.37/lb in 3Q22. In both periods, this decrease was mainly driven by higher by-products contribution.

In 4Q22, sustaining cost net of by-products was lower than in the same quarter last year and 3Q22 as a result of lower cash cost.

CAPEX

In 4Q22, sustaining capital expenditures amounted to US$12.8 million, mainly related to mining development, heavy mobile equipment replacement, flotation automation project and infrastructure to increase power distribution capacity onsite, totaling US$38.1 million in 2022.

Outlook

For the upcoming quarter, treated ore volume is expected to reduce due to the continuity of stopes production in volcanic mineralized zones and zinc production is expected to follow the same trend. Copper is expected to be slightly higher, while lead production should be lower.

El Porvenir

 

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(1) Our cash cost and AISC net of by-products credits are measured with respect to zinc sold. For a cash cost reconciliation to COGS, please refer to Appendix – All in Sustaining Cash Cost | Mining.

(2) Our cost per ROM is measured with respect to treated ore volume. Refer to “Use of Non-IFRS Financial Measures” for further information.

In 4Q22, zinc production of 13kt was down 6% and 1% from 4Q21 and 3Q22, respectively. Zinc grade decreased to 2.61% in the quarter as production focused on areas with higher lead and silver grades, while ramp-up has continued in sub-level stoping areas.

Lead and silver production in 4Q22 increased by 24% and 26% from the same period a year ago, as a result of higher grades. Compared to 3Q22, lead and silver production followed the same trend and increased by 9% and 15%, respectively.

In 2022, treated ore volume totaled 2,112kt, up 2% from last year. Zinc, lead, and silver average grades increased to 2.80%, 1.34%, and 2.46oz/t. As a result, production for these metals increased by 0.4%, 31%, and 21%, respectively.

Cost

Cost of sales was US$39 million in 4Q22 compared to US$40 million in both 4Q21 and 3Q22.

Run of mine mining cost was US$59/t in the quarter, down 4% from 4Q21, mainly explained by higher treated ore volume. Compared to 3Q22, it was relatively stable.

Cash cost net of by-products in 4Q22 decreased by US$0.15/lb compared to 4Q21 mainly driven by higher by-products credits of US$(0.47)/lb, which was partially offset by the decrease in zinc volume with a negative impact of US$0.34/lb. Compared to 3Q22, cash cost also decreased due to higher by-products credits with a positive impact of US$0.65/lb.

 

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In 4Q22, sustaining cost net of by-products was higher than in the same quarter last year due to higher investments in the period. Compared with 3Q22, sustaining cash cost decreased as a result of lower cash cost.

CAPEX

In 4Q22, sustaining capital expenditures amounted to US$16.6 million, mainly related to mine development, tailing dam project, and heavy mobile equipment replacement, totaling US$35.7 million in 2022.

Outlook

For 1Q23, treated ore volume and metals production are expected to maintain similar levels of 4Q22, mainly explained by plant stability.

Atacocha

 

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(1) Our cash cost and sustaining cost net of by-products credits are measured with respect to zinc sold. For a cash cost reconciliation to COGS, please refer to Appendix - All in Sustaining Cash Cost | Mining.

(2) Our cost per ROM is measured with respect to treated ore volume. Refer to “Use of Non-IFRS Financial Measures” for further information.

Treated ore volume of 394kt in 4Q22 was up 5% from 4Q21. Compared to 3Q22, treated ore volume increased by 16%, mainly explained by the high plant performance after the resumption of activities that were previously impacted by protests.

Zinc production of 2.6kt in 4Q22 decreased by 5% compared to 4Q21 and increased by 9% compared to 3Q22. Zinc average grade was 0.87%, down 5bps year-over-year and 3bps quarter-over-quarter.

Lead production increased by 58% to 4.1kt compared to 4Q21, while silver production increased by 40% to 406koz. Compared to 3Q22, lead and silver production increased by 45% and 53%, respectively.

In 2022, treated ore volume totaled 1,354kt, up 6% from last year. As a result, zinc production increased to 10kt (+12%), also positively affected by higher grades. Lead and silver followed the same trend and increased to 11kt (+29%) and 1,155koz (+12%), respectively.

Cost

Cost of sales was US$23 million in 4Q22 compared to US$12 million in the same period last year due to higher inventory cost and the increase in treated ore volume. Compared to 3Q22, cost of sales increased by US$8 million, mainly explained by the same reasons.

Run of mine mining cost was US$36/t in the quarter, up 10% year-over-year due to higher volume and transportation of the mining waste pile, and down 5% quarter-over-quarter, mainly explained by production stability after the resumption of operations.

Cash cost net of by-products was US$(1.54)/lb in 4Q22 compared with US$0.39/lb in 4Q21 and US$0.54/lb in 3Q22. In both periods, this decrease in cash cost was mainly driven by higher by-products contribution.

In 4Q22, sustaining cost net of by-products decreased to US$(1.36)/lb following lower cash cost.

CAPEX

In 4Q22, sustaining capital expenditures amounted to US$1.1 million, mainly driven by the tailings dam elevation, totaling US$4.4 million in 2022.

Outlook

For the next quarter, zinc production and other metals are expected to slightly decrease due to the protest activities in January 2023.

Vazante

 

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