Nexa Resources S.A.

Executive summary

Below are our highlights in 2024:

Overview

In 2025, zinc production is expected to slightly increase compared to 2024, primarily due to higher output from Aripuanã and El Porvenir. This increase will be partially offset by lower production volumes at Cerro Lindo and Vazante, in line with the updated mine sequencing plan, which anticipates slightly lower grades. Copper production is anticipated to decline by around 10% compared to 2024, primarily due to lower grades in prepared areas, in line with the current mine sequencing plans. In 2025, consolidated lead production is forecasted to decrease by around 7%, while silver production is expected to slightly decrease, both compared to 2024.

Our total metal sales are expected to decrease by around 3% in 2025 compared to 2024, primarily due to production adjustments associated with the forecasted lower treatment charge (“TC”) levels for 2025. This strategy aims at preserving margins in the smelting segment and is expected to result in slightly lower metal sales in the period. Additionally, remediation actions following the fire incident at the Juiz de Fora wet electro-filters at the end of December 2024 are expected to be completed by the end of 2025.

In 2025, consolidated run-of-mine mining costs are expected to increase by around 16% year-over-year, primarily due to the inclusion of Aripuanã’s run-of-mine mining costs estimates for the first time, along with higher costs at Cerro Lindo and Vazante, driven mainly by lower production volumes. Consolidated smelting cash costs are projected to increase in 2025 compared to 2024. This is mainly attributed to production adjustments driven by lower TC levels, which are intended to preserve margins. This strategy is expected to result in slightly lower metal sales in the period.

Key factors affecting our business and results of operations

Reporting segments

We have two reporting segments, mining and smelting. In 2024, 100% of our zinc mining production was processed by our own smelters. Additionally, a major portion of the zinc raw material consumed by our smelting operations, representing approximately 51.9% of the total zinc raw material consumption (excluding oxide), came from our own mines. As a result, the revenues of our mining segment include sales to the smelting segment, and the costs of our smelting segment include purchases from the mining segment. We calculate internal transfer prices from our mines to the smelters on an arm’s length basis to evaluate the performance of our mining and smelting segments individually. These revenues and costs are eliminated in our consolidated financial statements.

The profitability of our mining segment depends primarily on world prices for the metals we produce, and on our costs to produce concentrates. It is also affected by treatment charges, which represent the cost of further processing applied to reduce the price of concentrate. Other factors affecting pricing are discussed below.

The profitability of our smelting segment does not depend directly on market prices for metals as these prices have a similar impact on both our revenues and costs. Profitability is mainly affected by treatment charges (which reduce our costs to acquire concentrates), by the premium over the market price of metals that we can charge for our products, the operating costs of our smelters and the by-products we sell, as well as their efficiency in recovering the metal content of the concentrates we purchase.

Our segments are reported in accordance with IFRS 8 - Operating Segments, and the information is presented to the Chief Executive Officer, who is our Chief Operating Decision Maker (CODM) in accordance with IFRS. Our segment results are derived from the accounting records and are adjusted for reallocations between segments, depreciation and amortization and miscellaneous adjustments, if any, for the period. For more information, see “Operating and Financial Review and Prospects—Results of Operations—Non-IFRS Accounting Standards measures and reconciliation” in this report. See also Note 2 to our consolidated financial statements.

Metal prices

Our financial performance is significantly affected by the market prices of zinc, copper and lead, and, to a lesser extent, silver, gold, and other by-products of our smelting operations. Metal prices have historically been subject to wide fluctuations and are affected by numerous factors beyond our control, including the impact of these factors on industries that represent the first-uses and end-uses of our products. These factors, which affect each metal to varying degrees, include international economic and political conditions, levels of supply and demand, the availability and cost of substitutes, inventory levels and, to a lesser degree, inventory carrying costs and currency exchange rates. In addition, market prices have occasionally been subject to rapid short-term changes due to speculative activities.

Overview

The market prices for zinc, copper and lead are typically quoted as the daily cash seller and settlement price established by the LME. LME zinc prices are influenced by global supply and demand for both concentrate and metallic zinc. The supply of metallic zinc depends on the amount of zinc concentrates and secondary feed materials produced as well as the availability of smelting capacity to convert them into refined metal. This similarly applies to copper and lead.

The table below sets forth the average published market prices for the metals and periods indicated:

The key drivers and recent trends of each of the metals that we produce are discussed below.

Zinc

Zinc is a major material for the construction, transport and infrastructure industries, which represent approximately 50%, 21% and 16% of zinc end-use, respectively, according to Wood Mackenzie. The annual average price of zinc on the LME for the year ended December 31, 2024, was 5.0% higher compared to the year-ended December 31, 2023. In 2024, the main factor contributing to the increase in the price of zinc compared to 2023 was favorable macroeconomic conditions supported by industrial production growth and fiscal and monetary policies aimed to stimulate consumption.

On the supply side, 2024 was marked by smelter closures due to increased market concentration, following production reduction or the shutdown of mines in the second half of 2023. Spot treatment charges for imported concentrates in China reached record lows in 2024 and decreased from US$85 per tonne in January 2024 to US$25 per tonne in December 2024, as reported by Wood Mackenzie. Long-term contract treatment charges decreased from US$274 per tonne in 2023 to US$165 per tonne in 2024.

According to Wood Mackenzie’s December 2024 report, the zinc metal market closed 2024 with a deficit of 391 thousand tonnes driven by metal production of 13.2 million tonnes and consumption of 13.6 million tonnes (1.5% higher than in 2023). Mine supply decreased 1.8% in 2024 compared with 2023, totaling of 12.1 million tonnes, leading to a concentrate surplus of 100 thousand tonnes.

Refined zinc supply decreased 4% in 2024, mainly due to lower production capacity at smelters as a result of record low TCs.

Copper

Copper is used in building construction, power generation and transmission, electronic product manufacturing and the production of industrial machinery and transportation vehicles. The annual average price of copper on the LME for the year ended December 31, 2024, was 7.9% higher compared to the year-ended December 31, 2023. This increase was mainly driven by higher high demand in the energy trading market, which remains a key driver of copper consumption, as well as tight supply conditions. According to Wood Mackenzie’s December 2024 report, the copper metal market remained balanced in 2024, closing with a surplus of only 45 thousand tonnes. Total mine production, refined production and consumption increased 1.2%, 3.6% and 3.2% compared to 2023, respectively.

Overview

Lead

Lead is used in batteries for energy storage and in other products such as ammunition, oxides in glass and ceramics, casting metals and sheet lead. The annual average price of lead on the LME for the year ended December 31, 2024 was 3.1% lower than compared to the year-ended December 31, 2023. This decrease was driven by supply chain disruptions, a well-established secondary market, and the increasing substitution of lead with alternative materials, such as lithium-ion batteries, in major end uses.

Silver

Silver is considered a precious metal and is generally seen as a store of value, so its price tends to be resilient in times of economic uncertainty. In addition, its uses in electronics and solar cells have added to the already broad range of applications for silver in currency, jewelry, and silverware. The annual average LBMA silver price for the year ended December 31, 2024, was 21.1% higher than compared to the year-ended December 31, 2023. Silver prices hit the highest level of the year on October 24, 2024, at US$34.51 per ounce, which was 32.6% above the highest point of the previous year reached on April 14, 2023.

Production volumes, ore grade and metal mix

Our production volumes, the ore grade from our mines and the mix of metals in our product portfolio affect our business performance. For more details, see “Information on the Company—Mining operations.” Our zinc production decreased by 1.8%, while copper and lead increased by 6.9%, and 6.3%, respectively, in 2024. Production of silver and gold contained in concentrates increased by 13.5% and 30.4%, respectively, in 2024.

Commercial terms

We sell our concentrates and metallic zinc and zinc oxide products mostly through supply contracts with terms between one and two years, and only a small portion is sold on the spot market. The agreements with our customers include customary international commercial terms, such as cost, insurance and freight, or CIF; free on board, or FOB; free carrier, or FCA; and cost and freight, or CFR; pursuant to Incoterms 2010/2020, as published by the International Chamber of Commerce. For concentrates, revenues are recorded at provisional prices and, typically, an adjustment is made after delivery, based on the pricing terms provided for under the relevant contract.

Sales prices for our products are based on LME and/or LBMA quotations. Concentrates are typically sold at the LME price reference minus a discount (treatment charge for zinc and lead; treatment charge and refining charge for copper). Metallic zinc and zinc oxide are typically sold at the LME quotation averaged during a quotation period, such as the month after shipment, the month prior to shipment or another agreed period, plus a negotiable premium that varies based on quality, shape, origin, and delivery terms , as well as the market where the metal will be sold. In 2024, 51.1% of the total zinc raw material consumption in our smelters was produced by our mines and 48.9% was purchased from third parties or obtained from secondary raw materials (including oxide). We buy zinc concentrates from different suppliers in the market to meet our raw material requirements. We sell all our copper and lead concentrates production to metal producers and international traders, on international market terms.

Our sales of metallic zinc are highly diversified. Our customer base is composed mainly of end users across various industries, including transport, construction, infrastructure, consumer goods and industrial machinery. In 2024, 72.6% of our total sales were to customers in the continuous galvanizing, general galvanizing, die casting, transformers and alloy segments, and 27.4% were to international traders. Our ten largest customers represented approximately 57.7% of our total sales volume. Overall, in 2024, we sold to more than 339 customers across 49 different countries.

Overview

Free zinc, treatment charges, premiums and smelter by-products

Smelters operate as processing businesses that generate margins on the concentrates and other feed stocks they process. The price for the underlying metal is largely passed through from the miner supplying the concentrate or the supplier of the secondary feed material to the smelter’s customer. Our smelters use zinc concentrate as feedstock, which is supplied both from our own mines and third-party suppliers. The smelter’s revenue comes from three primary sources (i) the treatment charge reflects a discount applied to the purchase price of concentrates, (ii) free metal, which is the refined metal produced and sold over and above the metal content paid for in purchased concentrates and (iii) any premium on refined products. Additionally, our smelting operations generate revenue from by-products, which include, silver, gold, copper, cement, sulfuric acid, lead concentrate, lead-silver concentrate, silver concentrates, limestone and copper sulfate.

Free zinc and treatment charges

Free zinc refers to the difference between the total amount of zinc recovered for sale by the smelter and the zinc content that is paid for in the concentrates. Typically, the industry standard for payable zinc content in concentrates is 85.0% of the total zinc content, multiplied by the LME price of zinc. Any additional zinc recovered beyond this percentage is considered “free zinc.” A smelter’s margin improves as it increases the amount of recoverable metal from zinc.

The treatment charge (“TC”) is a discount per tonne of concentrates, which is determined by negotiation between the seller (a mine or a trading company) and the buyer (a smelter). There are three types of treatment charges: benchmark TC (negotiated annually by major miners and buyers, serving as a market reference), spot TC (determined by short-term market conditions and supply-demand dynamics) or negotiated TC (set in direct agreements between smelters and miners or traders. For our integrated mining and smelter operations in Brazil and Peru, we apply a benchmark TC. For our other purchases of zinc concentrate from third-party miners and trading companies.

In order to mitigate volatility, most of our third-party contracts use a three-year average TC, thereby smoothing price fluctuations. In 2024, this reference (based on the average benchmark TC of 2024, 2023 and 2022) was US$223/t concentrate, up 1% from the previous reference (2023, 2022 and 2021 average).

The market trend for treatment charges levels reflects the balance between supply and demand for concentrates in the market. When concentrate supply exceeds smelting capacity, treatment charges increase. When concentrate supply is tight relative to smelting capacity, treatment charges decrease. This cyclical dynamic influences both our smelting profitability and the cost of processing third-party concentrates. For information regarding our actual treatment charges, see “Information on the Company—Smelting operations.”

The following table sets forth, for the periods indicated, the zinc realized Benchmark TC, expressed in dollars per dry metric tonne (“dmt”) of concentrate.

Source: Wood Mackenzie.

Premiums

Like other smelters, we sell metallic zinc and zinc oxide products at a premium over the base LME price. This premium reflects a combination of various factors, including the smelter’s service in delivering zinc in specific sizes, shapes, or qualities required by customers, as well as transportation costs. Additionally, premiums are influenced by supply and demand conditions in the respective regional markets. Since transportation costs and customer specification preferences vary by region, premiums are shaped more by regional and local market dynamics rather than by global trends.

The following table presents information on premiums for the indicated markets, expressed in U.S. dollars per tonne, for the periods specified.

Overview

Source: Wood Mackenzie.

The following table presents information on gross premiums over the base LME price for zinc oxide realized by our smelting operations in Brazil, expressed in U.S. dollars per tonne.

Smelter by-products

The quantity of by-products produced in our smelters depends on several factors, including the chemical composition of the concentrate and the recovery rates achieved. Some mines produce concentrates with higher levels of by-product metals than others. Additionally, higher by-product recovery rates increase both the number and volume of by-products available for sale.

Sulfuric acid is our principal by-product , generated from the sulfur dioxide gas released during the roasting of zinc concentrates. While zinc smelters use sulfuric acid in their leach plants, most of their requirement are met by sulfuric acid produced in each smelter’s electrolysis plant. As a result, only a small portion is consumed internally, leaving the rest available for sale. We sell sulfuric acid through annual or multi-year contracts, as well as spot sales.

Silver concentrate is another relevant by-product that we produce at our Cajamarquilla and Juiz de Fora smelters. It is derived from zinc concentrate obtained during the metallurgical flotation process. The recovered silver is primarily sold to international traders and local customers.

Operating costs and expenses

Our ability to manage our operating costs and expenses is a significant driver of our business performance. We prioritize cost control and expense management to enhance efficiency and ensure resilience during less favorable pricing conditions.

Energy costs

Energy is one of the key components of our costs. Our total energy cost includes the operating expenses of our own hydroelectric power plants, long-term energy supply contracts, and transmission and distribution charges.

In Peru, the energy market is relatively stable in terms of generation (based on hydrology forecasts) and pricing. In 2024, we sourced 2.7% of the energy for our operations from our own hydroelectric power plants and the remaining 97.3% through third-party contracts with the SEIN.

In Brazil, our energy needs are met through five hydroelectric plants in which we have an interest via our subsidiary, Pollarix. We own or invest in these assets to ensure a reliable long-term energy supply, and our energy costs in Brazil reflect the operating costs of these facilities and are sensitive to a variety of factors, including hydrologic conditions.

Overview

Pollarix’s sole activity is owning our energy assets, and it sells energy to our Brazilian operating subsidiaries at market prices. We control Pollarix through the ownership of all of its common shares, which represent 33.3% of Polarix’s total share capital. The remaining shares are preferred shares with limited voting rights, held by Auren. Under the terms of the preferred shares, Auren is entitled to dividends per share that are 1.93 times higher than the dividends per share paid on the common shares. See “Information on the Company—Other operations—Power and energy supply—Brazil.” As a result, a substantial part of the profits recognized by Pollarix from selling energy to our Brazilian operating subsidiaries will represent non-controlling interest in our income statement.

Environmental expenses

Our mines and smelters operate under licenses issued by governmental authorities that control, among other things, air emissions and water discharges and are subject to stringent laws and regulations relating to waste materials and various other environmental matters. Additionally, each operation, when it ultimately ceases operations permanently, will need to be rehabilitated.

We have made significant investments to reduce our environmental impact in the areas in which we operate and to ensure that we are able to comply with environmental standards. All our operational units have environmental improvement initiatives relating to reducing emissions and waste and improving the efficiency of use of natural resources and energy.

Where appropriate, we establish environmental provisions for restoration or remediation of existing contamination and disturbance, with all material issues being reviewed annually. Provisions associated with smelter and mining operations sites primarily relate to soil and groundwater contamination.

Since 2016, we have conducted an extensive study and update of our decommissioning plans, including potential environmental obligations. During this period, we also modified our internal policies for decommissioning and environmental issues, which require frequent updates of environmental studies to reflect the best international practices. As a result of these adjustments, we recorded additional environmental provisions of US$4.9 million and US$6.9 million in 2024 and 2023, respectively. Although not expected in the near future, changes in legislation and adjustments to our internal policies after the ongoing evaluations could require additional provisions.

Macroeconomic conditions of the countries and regions where we operate

Peru

The following table presents the inflation rates, interest rates and exchange rates in Peru for the dates and periods indicated.

Sources: Central Reserve Bank of Perú, Peruvian Ministry of Economy and Finance.

(1) Preview: Bloomberg consensus rate.

(2) Accumulated during each period.

(3) Official offer exchange rates.

Overview

Brazil

The following table presents inflation rates, interest rates and exchange rates in Brazil for the dates and periods indicated.

Sources: IBGE, the Brazilian Central Bank, Cetip, and FGV.

(1) Preview published by the Brazilian Central Bank official report (Focus) as of January 3, 2025.

(2) Accumulated during each period.

(3) Official offer exchange rates.

Effects of exchange rate fluctuations

Prices for our products are based on international indices, such as LME prices, and denominated in U.S. dollars. However, a portion of our production costs, is denominated inreais, creating a mismatch between our revenue and costs in terms of currency. In 2024, 27.4% of our production costs and operational expenses were denominated inreaisand 17.6% of our production costs and operational expenses were denominated insoles. The latter is a smaller portion compared toreais,at most of our costs in Peru are in U.S. dollars. As a result, our operational results are impacted by fluctuations in exchange rates betweenreais,soles, and the U.S. dollar.

In addition, our Brazilian subsidiary, Nexa Brazil holds outstanding accounts receivables and accounts payables to Nexa Resources, intercompany loans with its related parties and loans in foreign currency, which are denominated in U.S. dollars. The functional currency of Nexa Brazil is the real, therefore, Nexa Brazil recognizes exchange gains or losses when thereal fluctuates compared to the U.S. dollar. These gains and losses are not eliminated in consolidation, as the functional currency of Nexa Resources is the U.S. dollar, meaning no offsetting gains or losses are recognized, which resulted in a net foreign exchange loss of US$150.7 million in our consolidated financial statements.

The following table presents, for the periods indicated (i) the high and low exchange rates, (ii) the average exchange rates as of the last day of each month for each year, as well as the daily average exchange rates for each month, and (iii) the exchange rate at the end of each period, expressed insoles per U.S. dollar (sol/US$) andreais per U.S. dollar (real/US$) as reported by the Peruvian Central Bank and the Brazilian Central Bank, respectively.

Source: Central Reserve Bank of Peru, Brazilian Central Bank, official offer exchange rates.

(1) Annually, represents the average of the daily exchange rates during the periods presented.

Overview

Income taxes

Income taxes in Luxembourg, Peru and Brazil have a significant impact on our results. Due to varying economic and political conditions, tax rates in different jurisdictions may experience significant changes. Our future effective tax rates could be affected by changes in the mix of earnings across countries with different statutory tax rates, adjustments in the valuation of deferred tax assets and liabilities and changes in tax laws or their interpretation.

Luxembourg

The combined applicable income tax rate (including an unemployment fund contribution) as of January 1, 2025, was reduced from 24.94% to 23.87% in 2025 (for entities with their statutory seat in Luxembourg City).

Brazil

Our Brazilian subsidiaries are subject to corporate income tax on both their Brazilian and non-Brazilian income. In addition to the corporate income tax, a social contribution tax is levied on their worldwide income. The combined applicable rate for both taxes is 34.0%.

Peru

Our Peruvian subsidiaries are subject to income tax on their worldwide income and are eligible for a potential credit for foreign taxes paid on income derived from foreign sources. The general income tax rate has been 29.5% since 2017.

To promote investments in Peru, investors and Peruvian companies can enter into an agreement with the Peruvian government, known as a Legal Stability Agreement, which provides a stable legal and tax regime for a specified period. In March 2002, Nexa Peru entered into a guarantee and investment protection contract, referred to as the stability agreement. Pursuant to this stability agreement, Nexa Peru applied a special income tax rate of 20.0% from 2007 through 2021. Since January 1, 2022, the general income tax rate of 29.5% is applicable to Nexa Peru. For more information, see “Risk Factors—Changes in tax laws may increase our tax burden and, as a result, could adversely affect our business, financial position and results of operations.”

Our Peruvian subsidiaries Nexa Peru, Nexa Resources El Porvenir S.A.C. and Nexa Resources Atacocha S.A.A. are subject to a special mining tax (Impuesto Especial a la Minería, or “IEM”), with marginal rates ranging from 2.00% and 8.40% of operating income, depending on the operating margin. In addition, these companies are subject to a mining royalty (regalía minera).

Dividends distributed to us by our Peruvian subsidiaries are subject to a withholding tax of 5.0 % on profits earned from 2017 onwards.

Revision of previously issued consolidated financial statements

During the third quarter of 2024, the Company identified an error in the previously issued consolidated financial statements as of and for the years ended December 31, 2023, and 2022 related to the recognition of contracts containing lease arrangements. This error resulted in the non-recognition of right-of-use assets and lease liabilities, as well as the misstatement of costs and expenses. These should have been impacted by the amortization of right-of-use assets and interest expense on the lease liabilities, rather than being recorded as costs and operational expenses related to third-party services.

Overview

The Company’s management conducted both a quantitative and qualitative analysis and concluded that the error was not material to the previously issued financial statements for the years ended December 31, 2023, and 2022, and therefore, restatement of financial statements was not required. Despite the immateriality, we decided to revise the comparative information for the years ended December 31, 2023, and 2022 to reflect the adjustments. These revisions include the recognition of right-of-use assets of US$63.6 million and lease liabilities of US$68.2 million in our consolidated balance sheet as of December 31, 2023. The related adjustments affecting our other financial statements for the years ended December 31, 2023, and 2022 are shown below on the “Operating and Financial Review and Prospects—Results of Operations” section. The effect of the error in periods prior to January 1, 2022, has been recorded in retained earnings (or cumulative deficit) in the statement of changes in shareholders’ equity as of January 1, 2022.

Results of Operations