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Investing.com -- Moody’s Ratings has confirmed the Ba2 corporate family rating (CFR) and senior unsecured ratings of Nexa Resources (NYSE:NEXA) S.A. (Nexa). The firm’s outlook has been revised to stable from previously being negative.
The outlook adjustment to stable is due to Nexa’s improved operating performance in 2024. This advancement led to a reduction in gross leverage to levels below 3x at the end of 2024 (2.8x, including Moody’s standard adjustments). For the first time since Nexa began investing in Aripuanã, the company generated positive free cash flow. The fully operational Aripuanã and the integration project in Cerro Pasco are expected to facilitate further production volume expansion and extend mine life.
Nexa’s strong standing in the global zinc market continues to bolster its Ba2 ratings. The company is the fifth-largest producer of mined zinc and the fifth-largest zinc smelter producer worldwide. It has integrated mining and smelting operations in Brazil and Peru.
Nexa’s rating is limited by its exposure to commodity price volatility due to its high concentration in zinc, which accounted for 51% of total production in FY 2024. The company’s reliance on a single mine, Cerro Lindo, which is responsible for 45% of total mine output on a zinc equivalent basis, also constrains the rating. Nexa’s relatively modest revenue size of $2.8 billion in FY 2024 compared to its global peers is another limiting factor.
Nexa finished 2024 with a solid liquidity position, backed by a cash balance of $640 million and $320 million in fully available committed credit facilities due in 2028. Additionally, Nexa extended its debt maturity profile with liability management initiatives carried out in 2024. The company issued $600 million in cross-border bonds due in 2034, using the proceeds to repurchase $484 million of the $700 million notes due in 2027 and $100 million of the $500 million notes due in 2028.
Nexa’s conservative financial strategy was further enhanced by the dividend policy approved in December 2024 and implemented in January 2025. The policy targets dividends of up to 20% of free cash flow pre-events, with a minimum payout of $0.08 per common share.
The stable rating outlook reflects Moody’s expectation that Nexa will maintain its credit metrics at levels consistent with the Ba2 rating while executing its capital spending plan. This plan is expected to increase zinc and by-products production over time. The outlook also assumes no significant changes in Nexa’s ownership or its strategic importance to Votorantim S.A.
Moody’s suggested that a rating upgrade or outlook improvement would require Nexa to maintain consistent performance across all operations, generate consistent positive free cash flow, and maintain stable credit metrics. A competitive cost position in mining and smelting operations would also be necessary.
Conversely, Nexa’s ratings could be downgraded if its profitability and cash generation capacity are impaired by operational challenges, or a structural decline in metal prices, mainly zinc. Other factors that could lead to a downgrade include increasing production costs, leverage returning to levels above 3.5x, and a higher dividend payout that could jeopardize the company’s liquidity position.
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