Nexa Resources Ba2 Rating Upheld by Moody’s with Stable Outlook

Improved Financial Performance Drives Positive Shift

Moody’s Ratings has reaffirmed the Ba2 corporate family rating and senior unsecured ratings for Nexa Resources S.A. (NYSE:NEXA), a leading global zinc producer, while upgrading the company’s outlook to stable from its prior negative status. This decision underscores Nexa Resources’ enhanced financial stability and operational success throughout 2024, marking a pivotal moment for the company as it navigates the volatile commodity market. The shift to a stable outlook reflects significant improvements, including a reduction in gross leverage to below 3x, specifically 2.8x with Moody’s adjustments, and the achievement of positive free cash flow, a milestone not seen since the company began its ambitious Aripuanã project. Investors searching for insights into Nexa Resources’ credit rating stability will find this update particularly relevant, as it highlights the company’s ability to strengthen its financial footing amid challenging market conditions.

Nexa Resources, recognized as the fifth-largest mined zinc producer and fifth-largest zinc smelter globally, benefits from integrated mining and smelting operations across Brazil and Peru. This strong market position bolsters its Ba2 rating, a speculative grade that indicates substantial credit risk yet offers a stable near-term outlook. The company’s operational advancements, such as the fully operational Aripuanã project and the Cerro Pasco integration initiative, are poised to drive further production growth and extend mine life, key factors in Moody’s assessment. For those researching Nexa Resources’ zinc production capabilities, these developments signal potential long-term value, supported by a robust liquidity position featuring $640 million in cash and $320 million in available credit facilities maturing in 2028. Additionally, Nexa’s strategic debt management in 2024, including issuing $600 million in bonds due 2034 to repurchase shorter-term notes, has extended its debt maturity profile, enhancing financial flexibility.

Despite these strengths, Nexa Resources faces constraints that limit its rating upside. Its heavy reliance on zinc, which comprised 51% of total production in fiscal year 2024, exposes it to commodity price fluctuations, a critical consideration for investors analyzing Nexa Resources’ exposure to zinc market volatility. The company’s dependence on the Cerro Lindo mine, accounting for 45% of total mine output on a zinc equivalent basis, introduces operational concentration risk. Furthermore, Nexa’s revenue of $2.8 billion in 2024, while substantial, remains modest compared to larger global peers, a factor that curbs its competitive scale. Readers exploring Nexa Resources’ financial performance metrics will note that these challenges temper the potential for an immediate rating upgrade, though the stable outlook suggests resilience in maintaining current credit levels.

Nexa’s financial strategy also reflects a conservative approach, as evidenced by its newly approved dividend policy, effective January 2025, which targets payouts of up to 20% of free cash flow pre-events, with a minimum of $0.08 per share. This policy, combined with strong liquidity and operational gains, positions Nexa Resources favorably for those evaluating its dividend yield potential and cash flow management. Moody’s expects the company to sustain credit metrics consistent with the Ba2 rating while executing its capital spending plan, which aims to boost zinc and by-product output over time. The stable outlook assumes continuity in Nexa’s ownership structure and its strategic role within Votorantim S.A., its parent entity, offering reassurance to stakeholders monitoring Nexa Resources’ corporate governance stability.

Looking ahead, Moody’s outlines clear pathways for rating changes. An upgrade could occur if Nexa Resources demonstrates consistent operational performance, sustains positive free cash flow, and maintains stable credit metrics alongside a competitive cost position in mining and smelting. For individuals seeking Nexa Resources’ long-term investment prospects, these criteria highlight the importance of operational efficiency and market adaptability. Conversely, a downgrade looms if profitability falters due to operational setbacks, a sustained drop in zinc prices, or rising production costs push leverage above 3.5x. A more aggressive dividend policy that strains liquidity could also jeopardize the rating, a risk factor for those assessing Nexa Resources’ financial risk profile.

For investors and analysts delving into Nexa Resources’ credit rating analysis, this Ba2 affirmation with a stable outlook offers a balanced perspective. The speculative grade acknowledges inherent risks tied to commodity dependence and operational concentration, yet the stable outlook signals confidence in Nexa’s ability to manage these challenges in the near term. The company’s liquidity buffer, strategic debt restructuring, and production growth initiatives provide a foundation for resilience, while its conservative financial policies enhance its appeal to cautious investors. Those researching Nexa Resources’ zinc market position will appreciate how its global standing and operational improvements align with broader industry trends, particularly as zinc demand evolves. This rating update, rooted in 2024’s tangible achievements, positions Nexa Resources as a noteworthy player in the mining sector, balancing risk and opportunity in a dynamic economic landscape.