Nexa's zinc rally is real, but smelter costs are eating into margins. Treatment charges and energy costs pushed cash costs above $1.10/lb. The next quarterly report will show if the squeeze is peaking.
Nexa Resources S.A. currently carries an Alpha Score of n/a, giving AlphaScala's model a neutral read on the setup.
Nexa Resources shares have tracked the zinc rally higher. The company's smelter cost structure is eating into the gains that rising metal prices should deliver.
The Luxembourg-based miner and smelter, one of the world's largest zinc producers, reported a 12% increase in revenue last quarter on stronger zinc and copper prices. Smelter treatment charges – the fees miners pay to have their concentrate processed – have climbed sharply. That compresses the margin between what Nexa sells its metal for and what it costs to produce it.
Zinc prices on the London Metal Exchange are up roughly 18% year-to-date. Mine supply disruptions in Australia and Peru and steady demand from galvanized steel buyers in China drove the move. Nexa's own mines in Peru and Brazil have benefited directly. The company's Cerro Lindo and Vazante operations posted higher output in the first half. Silver byproduct credits added to revenue.
The problem is on the smelting side. Nexa's Cajamarquilla refinery in Peru and its Três Marias plant in Brazil face rising energy costs and higher treatment charges. Cash costs have pushed above $1.10 per pound. That leaves less of the zinc price upside flowing to the bottom line. The company's adjusted EBITDA margin narrowed by roughly 200 basis points last quarter even as revenue grew.
Nexa is not alone. Smelters globally are squeezed as concentrate supply tightens and treatment charges rise. Nexa's exposure is larger than most: roughly 60% of its revenue comes from smelting, not mining. That makes it more sensitive to the cost side of the equation than pure-play miners.
Management has pointed to cost-reduction programs and higher byproduct credits as offsets. The company is also advancing its Aripuanã project in Brazil, which could add zinc and lead concentrate output by late 2025. Near-term, the zinc rally alone may not be enough to lift margins. The next quarterly report, due in early November, will show whether smelter costs have peaked or are still climbing.
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